From Commercialization to WTO Accession What Lies Ahead for China's Banking Reform?

Banking reform since China's accession to the World Trade Organization (WTO) has accomplished unprecedented positive results, but its long-term success rests on whether the state-owned commercial banks (SOCBs) can continue to improve their asset quality and corporate governance. To reach this end, the central government has to further diminish its influence on the operation of SOCBs and allow the state banks to be governed by market discipline. Current reforms may not be full-fledged enough to sustain China's future economic development, reflected by the noticeable capital constraints facing small and medium-size private enterprises, particularly those in rural areas. The commercialization of specialized banks (SBs) in 1994, which paved the way to China's WTO accession, will be briefly examined along with an evaluation of the effectiveness of China's post-WTO banking reforms, concluding with a description of the challenges facing China's banking sector.