The Asian Financial Crisis that occurred in 1977 had a huge negative impact on various countries including South Korea, Singapore and specifically hampered their banking sector. However, China was not swamped in this financial catastrophe and sustained financial growth. ‘Nonetheless, China has numerous banking hitches similar to its neighboring countries, especially poor corporate governance, over dependence on banking system, and vast number of bad loans’ (Peng).
Chinese banking industry certainly has a substandard governance and corporate management that is inundated with political interfering from the Government. There is a collision of interest various stakeholders as in the ‘central political principal wishes its managerial representatives (the financial regulators) to accomplish are at the core of persevering insufficiency in China’s financial rule as opposed to its political leaders striving to obtain reliability in the building of financial markets by creating a governing structure that is in agreement with global norms’ (Lee).
‘Approximately 70% of the Chinese banking assets are controlled by the four wholly state-owned banks’ (Lee). The capital markets of China are not preforming in accordance to the capital needs of the market. Although the country has tried to converge the capital market as its major source of funding still there is an immense overdependence on the banking sector for financial support.
‘China’s largest banks recently revealed that they suffered another period of low profit figures along with greater stock of fast-souring loans and specifically rising number of bad loans’ (Trivedi). The biggest setback for the banks is that nonperforming loans are increasing rapidly.
Citations:
Lee, Dongwook. "China’s Banking Market for Foreign Investors after the WTO Accession." Harvard Asia Pacific Review, n.d. Web. 28 Aug. 2016.
Peng, Yuanyuan. "The Challenges of WTO Entry to China’s Banking Industry." University of Cambridge, n.d. Web. 28 Aug. 2016.
Trivedi, Anjani. "China's Banks Face Bad-Loan Pinch." WSJ. N.p., 28 Apr. 2016. Web. 27 Aug. 2016.
