China’s Emerging Financial Markets：Challenges and Opportunities

Editors
James R. Barth
Milken Institute
Senior Fellow
1250 Fourth Street
Santa Monica, CA, 90401
USA
jbarth@milkeninstitute.org
John A. Tatom
Networks Financial Institute
2902 N. Meridian St.
Indianapolis, IN, 46208
USA
john.tatom@isunetworks.org
Glenn Yago
Milken Institute
Director of Capital Studies
1250 Fourth Street
Santa Monica, CA 90401
USA
gyago@milkeninstitue.org

Contents
Part I Overview of the Chinese FinancialSystem
A Review of China’s Financial System and Initiatives for the Future . . . . . . 3
Franklin Allen, Jun ‘‘QJ’’ Qian, Meijun Qian, and Mengxin Zhao
The Transformation of China from an Emerging Economy to a Global
Powerhouse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
James R. Barth, Gerard Caprio Jr., and Triphon Phumiwasana
China’s FinancialSector: Contributions to Growth and Downside
Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Albert Keidel
Part II Monetary Policy and the Foreign Exchange Market
Monetary Policy Implementation in China: Past, Present,
and Prospects. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
Bernard J. Laurens and Rodolfo Maino
The China Monetary Policy Handbook . . . . . . . . . . . . . . . . . . . . . . . . . . . 167
Jonathan Anderson
The RMB Debate and International Influences on China’s Money
and FinancialMarkets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 267
Priscilla Liang, Alice Ouyang, and Thomas D. Willett
The United States–China Currency Dispute: Is a Rise in the Yuan
Necessary, Inevitable, or Desirable?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 301
John A. Tatom
New Estimation of the Renminbi Regime. . . . . . . . . . . . . . . . . . . . . . . . . . 313
Jeffrey A. Frankel
xiii
The Chinese Imbalance in Capital Flows . . . . . . . . . . . . . . . . . . . . . . . . . . 331
John A. Tatom
Some Issues Regarding China’s Foreign Reserves . . . . . . . . . . . . . . . . . . . 349
Jie Li, Jing Chen, and Liqing Zhang
Part III The Banking System
Institutional Development, Ownership Structure, and Business Strategies:
A New Era in the Chinese Banking Industry . . . . . . . . . . . . . . . . . . . . . . . 369
Allen N. Berger, Iftekhar Hasan, and Mingming Zhou
China’s Nonperforming Loans: A $540 Billion Problem Unsolved . . . . . . . 403
Tong Li
The Evolution of Bank Lending Patterns in China: A Post-1994
Province-By-Province Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 423
Richard C.K. Burdekin and Ran Tao
Determinants of Location Choice of Foreign Banks Within China:
Evidence from Cities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 449
Chung-Hua Shen, Qi Liang, and Xiang-Chao Hao
Financial Institutions’ Lending and Real Estate Property Prices
in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 475
Perry Wong and Diehang Zheng
Combating Financial Exclusion in China: A Banking Regulatory
Perspective. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 495
Yufeng Gong and Zhongfei Zhou
Part IV The Bond and Equity Market
The Chinese Bond Market: Historical Lessons, Present Challenges,
and Future Perspectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 523
Haizhou Huang and Ning Zhu
An Update on China’s Capital Markets: Focus on China’s Securities
Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 547
Chung-Hsing Chen
Privatization in China: Experiences and Lessons . . . . . . . . . . . . . . . . . . . . 581
Jie Gan
xiv Contents
The Emergence of Shareholder Protection in China. . . . . . . . . . . . . . . . . . 593
Chen Lin, Clement Chun-Yau Shum, and Sonia Man-Lai Wong
An Appraisal of the Impacts of Non-tradable Shares Reform
on Large Shareholders’ Behavioral Modes of Listed Companies
in the A-Share Market. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 617
Honghui Cao and Huazhao Liu
Will China Surpass the United States?. . . . . . . . . . . . . . . . . . . . . . . . . . . . 635
John A. Tatom
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 641