ABSTRACT

Over the past 30 years, China has been one of the world’s fastest growing economies, with an average growth rate of almost 10 percent per year in real gross domestic product (GDP), and has been a major contributor to world economic growth. In 2007, China overtook the United States to become the world’s second largest merchandise exporter after the European Union (EU). In 2009, China replaced Japan as the world’s second-largest economy after the United States, and the country is leading the world out of recession. These remarkable achievements are largely linked to the Chinese market-oriented economy reforms and the globalization of trade. However, in contrast to economic success, the Chinese banking sector has been widely criticized for its low performance. Banks play a central role in both the financial system and the real economy, which was vividly illustrated again during the 2008 financial crisis. Thus, the performance and efficiency of its banking sector is becoming the one of most important issues for the Chinese government, and its health is very critical to the health of the general economy at large.