China's national banking system: commercialisation and financial stability

This paper analyses China's success in establishing a commercially–oriented bank system, the system's ongoing stability, and factors supporting stability. These issues are addressed for the 1997-2003 period through consideration of: the liquidity requirements of commercial banks; and a comprehensive set of macro-economic and micro-prudential indicators suggested by the International Monetary Fund (2000) for the analysis and detection of financial system fragility. The paper concludes that China's major banks lacked sufficient balance sheet liquidity to operate as commercial banks. Additionally, while China's banking system was highly sensitive to the macro-economic environment, existence of a financial crisis is not supported.