Why was the Chinese banking system able to survive the global financial crisis?
Introduction Chinese banks used to be criticised for their tremendous non-performing loans (NPLs) and low efficiency. Some academics have even argued that the Chinese banking system was hardly able to survive competition from foreign banks (Lardy 2002). Other economists were not so pessimistic, but also expressed their deep concern over the pressure the Chinese domestic banks faced when the foreign banks were granted full national treatment in 2006 (Xu and Lin 2007). However, those seemingly vulnerable domestic banks have not only grown steadily, but also survived the global financial crisis so far. What has happened to the Chinese banking system and why was such a previously fragile system able to survive the tremendous shock posed by the crisis? In exploring the answer to this intriguing question, this study finds that the efficiency spillover of foreign banks in China has played an integral role.