Financial Reforms in China and India: A Comparative Anaylsis

27 Pages Posted: 11 Dec 2008

See all articles by Wendy Dobson

Wendy Dobson

University of Toronto - Rotman School of Management

Date Written: October 2006

Abstract

This paper surveys financial reforms in the world's two most populous countries where governments dominate bank ownership. This ownership creates tensions between governments' social goals and bank efficiency since bank lending decisions are not based on the creditworthiness of potential borrowers. The paper examines the costs of this tension that include inadequate access to bank finance for productive borrowers, foregone efficiencies in the debt markets and systemic risks of mis-directed lending and bank investments. The paper provides comparative estimates of the systemic risks and concludes that reforms have reduced these risks. Further reform is required as these economies become more complex since pressures for efficient financial systems will grow. India has all the parts of a modern financial system were it willing to remove social constraints while China still has to reconcile the tensions between its political goal of gradual controlled change and its official commitment to modern commercial banking and finance.

Suggested Citation

Dobson, Wendy, Financial Reforms in China and India: A Comparative Anaylsis (October 2006). Available at SSRN: https://ssrn.com/abstract=1313319 or http://dx.doi.org/10.2139/ssrn.1313319

Wendy Dobson (Contact Author)

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