China’s hobbled leviathan: The problems, achievements and challenges in reforming the banking sector

China’s banking system has undergone significant changes in the past two decades. It has been transformed from a mono-bank system typical of centrally-planned economies to an increasingly diversified multi-layered system comprising a central bank together with a growing number of domestic and foreign commercial banks. In fact, China’s banking system is now among the worlds largest, particularly in relation to GDP. Nevertheless, China’s banks are beset with a number of long-standing structural problems rooted in the legacies of the past command economy. This paper examines the nature and economic implications of these problems, the efficacy of the policies designed to reform the banking sector and the challenges the system faces, especially in light of China’s moves towards full membership in the WTO.