Nation's problems demand home-grown solutions

Banking | Giles Chance

Most would agree that the key to solid, sustainable growth in an emerging economy like China's is to have a banking system that is well-capitalized, well-led and well-organized. Twenty years ago Chinese banks acted simply as cash machines for the central government without much regard for the creditworthiness of their borrowers, or for their own solvency. Since then, the country's banking system has made huge progress in changing to meet the demands of the world's second-largest economy. Yet the emergence since 2008 of a large unofficial, unregulated banking system in China shows that there are many Chinese savers and borrowers who are not being provided for by the official system. How can it cater better for today's Chinese households and small companies?

Before 2008 it was much easier for emerging economies like China to find models overseas for their banking system. Asians looked to the United States and Europe for leadership in how their financial institutions should operate. The credit crisis changed that. The US model of free-for-all competition and light banking regulation was shown to be dangerously unstable.