ABSTRACT
Prior to the Global Financial Crisis (GFC), China had built up strong external economic and financial ties after three decades of economic reform. Its massive Gross Domestic Product (GDP) growth has mainly been attributed to export and foreign investment, subject to contagion from global financial upheavals. As far as the financial sector is concerned, a significant number of financial institutions in China, including a majority of state-owned commercial banks (SOCBs), acquired stakes from US investment banks, while most major international investors also hold stakes in China’s financial institutions (Zheng and Chen, 2009). Financial globalization has increasingly exposed China’s domestic financial markets to external shocks. Following the collapse of Lehman Brothers, official policies were under revision well ahead of any potential recession in China. In September 2008, for instance, the People’s Bank of China (PBC) immediately released its tight monetary policy to increase liquidity.
