Banking Reform in China Crucial to China's Economic Development, says New Report from Asia Pacific Foundation of Canada



    VANCOUVER, April 3 /CNW/ - Banking in China is inefficient and
ill-equipped to handle the country's emerging complex market system, says a
new report commissioned by the Asia Pacific Foundation of Canada. The question
is whether the banking system can fundamentally change in ways that
effectively serve the industrial and social needs of China, to foster balanced
growth and economic stability. "Bank Reform in China - What it Means for the
World," the latest in the Canada in Asia publication series, contends that
capital misallocation, poor risk management and weak linkages in
macro-monetary mechanisms are impediments to the enormous value that could
otherwise be created if reform were to rid the system of financial
inefficiencies. In view of China's stunning emergence as a global economic
power - in industrial output, exports and, increasingly, international finance
- the world at large has much at stake in China's domestic banking reform.
    The monograph, prepared by Donald Brean, Professor of Finance and
Business Economics at the University of Toronto's Rotman School of Management,
focuses on banking and finance as a complex and critical aspect of a
made-in-China version of economic and social reform. In its dramatic shift
from Marx to markets, China has successfully developed markets for
agriculture, goods for export and domestic consumption, labour and capital. At
the same time, however, the financial sector has retained features of the old
central planning regime, an incentive-poor system that hinders an estimated
boost of US$320 billion annually to China's GDP.
    The report outlines the nature of banking in China and provides an
overview of the ongoing bank reform process, raising the question of whether
the transition from the old banking structure to a new system is appropriate
for China - and indeed, whether Chinese banking is headed in the same
direction as those banking systems in Western economies.
    Although the world has witnessed many episodes of extraordinary economic
growth that flamed out in financial crises, Professor Brean sees substantial
reason to be optimistic that China will avoid collapse. He foresees that
China's historical reliance on banking as opposed to financial markets will
continue. However, that particular institutional basis of financial
development will meet the needs of China's immense industrial and social
system only if meaningful incentives are instilled into China's banking system
- including incentives for operational efficiency and risk management. In this
respect, foreign banks, including Canada's, have technical and managerial
skills that are sorely lacking in China but which are potentially
transferable.

    The full text of this report, and a brief podcast interview with the
author, Dr. Donald Brean, are available at:
www.asiapacific.ca/analysis/pubs/listing.cfm?ID_Publication=605

    About APF Canada

    The Asia Pacific Foundation is Canada's leading independent resource on
contemporary Asia and Canada-Asia relations. As a national non-profit
organization established by an Act of the Federal Parliament in 1984, the
Foundation brings together people and knowledge to provide the most current
and comprehensive research, analysis and information on Asia and on Canada's
transpacific relations. It promotes dialogue on economic, security, political
and social issues, helping to influence public policy and foster informed
decision-making in the Canadian public, private and non-governmental sectors.
The Foundation is funded principally through an endowment from the Government
of Canada and a grant from the Province of British Columbia.

    www.asiapacific.ca





For further information:

For further information: Donald Brean, Professor of Finance and Business
Economics, Rotman School of Management, University of Toronto, Tel: (416)
978-3754, Email: brean@rotman.utoronto.ca; Melina Czerwinski, Communications
Assistant, Asia Pacific Foundation of Canada, Phone: (604) 630-1540, Fax:
(604) 681-1370, Email: melina.czerwinski@asiapacific.ca

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