ABSTRACT
This chapter describes the future development path of China’s private financing industry. It examines China’s burgeoning online peer-to-peer (P2P) lending market. The chapter considers whether P2P lending can replace or complement private lending and bank credit to offer more financing resources to cash-strapped small and medium-sized enterprises. It explores China’s financial reform to deregulate the banking sector by allowing private investors to establish new banking institutions to challenge the dominance of state-owned banks. The chapter looks at the first group of private banks that have been set up recently, in particular, their competitive advantages and weaknesses. It analyses the regulatory responses to the rising number of private banks, such as the introduction of national deposit insurance and interest rate deregulation. The deregulation of interest rates has contributed to more competition in China’s banking sector. The interest rate deregulation also echoes China’s overall market-oriented economic reform, aiming to let the market play a decisive role in the economy.
