China's Banking Reform - The Good, the Bad and the Ugly

Banking reform in China will take much longer than the official rhetoric has it, delaying currency convertibility.

Despite their establishment last year to speed up bank restructuring, Chinas asset management companies AMCs cannot function properly due to the presence an inadequate legal framework and questionable incentives. The ugly truth is that banking reform will take much longer than the official rhetoric has it. This protracted process will delay currency convertibility and - insofar as foreign banks are concerned - the complete liberalization of the Chinese banking market.

The good AMCs

Beijing established four AMCs last year, based on the Resolution Trust Corp RTC model in the US, to buy bad loans from the state banks. This measure improves banks balance sheets at one stroke....

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