Financial System Reform and Economic Development in China

This chapter reviews the role of China’s financial sector in its economic development, and the challenges that lie ahead. It comes at a time when the world economy is apparently in a stage of readjustment and recovery, with the current key focus now to work toward long-term sustainable economic growth. I speak cautiously regarding this assessment of recovery, because many challenges lie ahead. In the first half of 2003 alone, the global economy suffered from a number of negative economic shocks, including the Iraqi war, rapidly rising oil prices, and the SARS epidemic. Adding to the economic malaise in 2003 were the imponderables of geopolitical risks, the volatility of major currencies and stock markets, and continuous deflation in some Asian countries. Given such potential crises and risks on the economic horizon, it is prudent and even extremely important to enhance the early warning and response capabilities of the international financial systems. In particular, developing countries, China among them, must deepen their economic systems and strengthen their institutions if they are to promote long-term growth that will weather such global challenges and shocks.