Chapter 21 On the safety and soundness of Chinese banks in the post-WTO era

Lei Xu; Chien-Ting Lin

doi:10.1016/S1569-3767(07)00021-0

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International Finance Review

ISSN: 1569-3767
Series editor(s): Professor J. Jay Choi

Subject Area: Accounting and Finance

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Chapter 21 On the safety and soundness of Chinese banks in the post-WTO era

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Title:	Chapter 21 On the safety and soundness of Chinese banks in the post-WTO era
Author(s):	Lei Xu, Chien-Ting Lin
Volume:	8 Editor(s): Suk-Joong Kim, Michael D. Mckenzie ISBN: 978-0-7623-1471-3 eISBN: 978-1-84950-514-7
Citation:	Lei Xu, Chien-Ting Lin (2007), Chapter 21 On the safety and soundness of Chinese banks in the post-WTO era, in Suk-Joong Kim, Michael D. Mckenzie (ed.) Asia-Pacific Financial Markets: Integration, Innovation and Challenges (International Finance Review, Volume 8), Emerald Group Publishing Limited, pp.447-470
DOI:	10.1016/S1569-3767(07)00021-0 (Permanent URL)
Publisher:	Emerald Group Publishing Limited
Article type:	Chapter Item
Abstract:	China's accession to World Trade Organization (WTO) opened its financial markets to foreign banks in December 2006. In addition to foreign banks’ expertise and experience in modern banking activities, they also appear to have the interest, competitiveness, and regulatory advantages of competing with Chinese banks in the traditional Renminbi (RMB) business. Such competition will lead to a loss of RMB deposits and loans from local banks. Given that Chinese banks are currently ridden with large non-performing loans and low capital adequacy, the foreign bank entry will exert further pressure on the banks’ profitability and solvency. Without larger regular bailouts from the central government and fundamental changes on the roles of Chinese banks, China may experience a banking crisis in the post-WTO era. We propose two types of policy changes that may improve banks’ competitiveness and reduce the likelihood of a banking crisis.