ABSTRACT
China’s banking system is massive, providing some US$2.1 trillion of its domestic financial sector’s US$3.3 trillion at the end of 2002. Faced with the massive inefficiencies of the banking system that formally supported state-owned enterprises (SOEs), and a substantial informal banking sector that grew along with economic growth, the Chinese government had few options but to agree to more foreign participation by signing the World Trade Organisation (WTO) agreement on Trade in Services. Like other transitional and developed economies, China is in the process of reforming and liberalizing its banking sector from full state ownership. Inextricably connected with this banking reform are social and economic issues concerning SOEs, which had traditionally received funding from state-owned banks (SOBs), regardless of credit risk. Quandaries with such moves include the SOBs then employing fewer staff and requiring risk assessment of potential outcomes-a change in culture from past practices reliant on state direction and full employment for the people.1
