{
  "id": "RL31363",
  "type": "CRS Report",
  "typeId": "REPORTS",
  "number": "RL31363",
  "active": false,
  "source": "EveryCRSReport.com",
  "versions": [
    {
      "source": "EveryCRSReport.com",
      "id": 101156,
      "date": "2002-05-22",
      "retrieved": "2016-05-24T20:09:55.507941",
      "title": "China's Banking Reforms: Background and Issues for Congress",
      "summary": "The Peoples Republic of China's entry into the World Trade Organization (WTO) will require\nthat\nit open its financial services sector to foreign investment and international competition. In\npreparation for a more market-based banking system, China has announced reforms intended to\nstrengthen its banks and American investors have been buying portfolios of Chinese non-performing\nloans. The international community has a stake in Chinese financial reform primarily for three \nreasons. The first is to prevent contagion -- to keep a failure of Chinese banks from touching off\nglobal financial turmoil. The second surrounds the likely political unrest in China that could ensue\nshould the Chinese economy fail, and the third is to ensure that foreign firms gain access to Chinese\nfinancial markets.\n  This report concludes that despite serious problems in China's banking system, the risk seems\nsmall that, in the near future, a financial crisis will occur that will pose severe problems for the\ninternational financial system. An internal financial crisis, however, could occur. Without\ngovernment support, the economic viability of many of China's banks is questionable. The\ngovernment and central bank authorities acknowledge the situation and have taken some steps\ntoward reform. The most serious threat to the banking system lies in the accumulation of non-\nperforming loans (NPLs) -- many of them policy-based loans extended by state-owned banks to\nmoney-losing state-owned companies with little expectation that they would be completely repaid. \nBetween 28 and 40 percent of all bank loans in China are estimated to be nonperforming. China has\nbeen taking measures to keep the problem from worsening and has created four asset management\ncompanies to dispose of NPLs that still have value.\n  Since the Chinese economic reforms began in 1978, Chinese authorities have made significant\nprogress in modernizing their banking system, although they still have a long way to go and are faced\nwith competing interests. While attempting to introduce more market forces and efficiency into their\neconomy, for political and other reasons, the government continues to subsidize ailing state-owned\nenterprises. They would like to clear the banks of excess NPLs, but fear the resultant rise in\nunemployment and social distress that might occur. \n  China escaped the worst effects of the 1997-99 Asian financial crisis because of factors that still\nkeep its financial and foreign exchange system viable. China's continued high rate of growth and\nhigh savings rate have funneled deposits into the banking system, while a $20 to $30 billion annual\ntrade surplus together with an inflow of foreign direct investment at about $40 billion per year have\nresulted in an accumulation of foreign exchange reserves exceeding $200 billion. China does not\ncarry an unusually heavy debt burden, either domestic or international, although its short-term\nborrowing in foreign currencies has been increasing. China, therefore, does not currently face a\nserious risk of either a domestic or international liquidity crisis -- unless, of course, a severe and\nprolonged world recession occurs that adversely affects Chinese exports as well as the inflow of\nforeign direct investment.",
      "type": "CRS Report",
      "typeId": "REPORTS",
      "active": false,
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          "url": "http://www.crs.gov/Reports/pdf/RL31363",
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      "topics": []
    }
  ],
  "topics": [
    "Economic Policy",
    "Foreign Affairs",
    "Industry and Trade"
  ]
}