ABSTRACT
This chapter reviews the pre-1994 banking reforms, followed by an analysis of the commercialisation of state banks taken place since 1994. It shows how the 4-trillion yuan stimulus package implemented after the 2008 global financial crisis caused a retreat from the decade-long reform of commercialising the state-owned commercial banks. Aside from re-establishing the specialised banks, new commercial banks and nonbank financial institutions were allowed to open to cater for different financial needs in urban and rural areas. The recurrence of policy loans brings impediments to de facto commercialisation of the banking sector, heightened risks in banks' operation and worsening overcapacity. The chapter argues that though a state-dominated banking sector with policy targets hampers efficiency of allocating loanable funds, the Chinese government will not initiate fully-fledged market reform in banking sector, which may abate the government’s ability of leveraging the banking sector to reach policy targets.
