This document and trademark(s) contained herein are protected by law as indicated in a notice appearing later in this work. This electronic representation of RAND intellectual property is provided for non-commercial use only. Unauthorized posting of RAND PDFs to a non-RAND Web site is prohibited. RAND PDFs are protected under copyright law. Permission is required from RAND to reproduce, or reuse in another form, any of our research documents for commercial use. For information on reprint and linking permissions, please see RAND Permissions.Limited Electronic Distribution RightsThis PDF document was made available from www.rand.org as a public service of the RAND Corporation.6Jump down to documentTHE ARTSCHILD POLICYCIVIL JUSTICEEDUCATIONENERGY AND ENVIRONMENTHEALTH AND HEALTH CAREINTERNATIONAL AFFAIRSNATIONAL SECURITYPOPULATION AND AGINGPUBLIC SAFETYSCIENCE AND TECHNOLOGYSUBSTANCE ABUSETERRORISM AND HOMELAND SECURITYTRANSPORTATION AND INFRASTRUCTUREWORKFORCE AND WORKPLACEThe RAND Corporation is a nonprofit research organization providing objective analysis and effective solutions that address the challenges facing the public and private sectors around the world.Visit RAND at www.rand.orgExplore RAND National Security Research DivisionView document detailsFor More InformationBrowse Books Fax: (310) 451-6915; Email: orderrand.orgThe research described in this report was conducted within RANDs National Security Research Division and was made possible by sponsorship of the Bank of Japan.iiiPrefaceThis paper briefly reviews the history of Chinese banking-system reform since the late 1970s and examines recent government reform efforts in detail, mainly focusing on the reform of state-owned commercial banks, which are handling more than half of the deposits and loans administered by banks in China. It also analyzes the current condition of major commercial banks using a simple international comparison and considers issues and challenges presented by further reforms to increase financial stability and provide for the sustainable economic development of China. The author is an International Visiting Fellow at the RAND Corporation s Center for Asia Pacific Policy, seconded by the Bank of Japan. She benefited from profound and construc- tive reviews of earlier drafts by Pieter Bottelier, Senior Adjunct Professor of China Studies at Johns Hopkins University; Charles Wolf, Jr., Senior Economic Adviser and Corporate Fellow in International Economics at the RAND Corporation; and William H. Overholt, Director of the Center for Asia Pacific Policy. She is very grateful for their assistance. She also appreciates the many fruitful discussions she has had regarding China during her study visit with colleagues at the RAND Corporation and the Bank of Japan and with Chinese government officials and scholars. However, the views expressed in this paper are her own and do not necessarily reflect the views of these institutions.vContentsPreface. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .iii Figures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .vii Tables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .ix Abbreviations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .xiCHAPTER ONE Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1CHAPTER TWO A Brief History of Banking-System Reform in China Through the Mid-1990s. . . . . . . . . . . . . . . . . . . .3 The Gradual Implementation of Reform. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 The First Stage of Reform (Establishing Various Kinds of Banks). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 The Second Stage of Reform (Implementing Market-Oriented Policies). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13CHAPTER THREE Further Reform for a Market-Oriented Economy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 Changes in the Economic Environment Surrounding China. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 Concerns