Rethinking China’s finances

The results of the ongoing Third Plenum will take months or even years to truly become apparent. Much rides on President Xi Jinping’s ability to push through change.
Much rides on President Xi Jinping’s ability to push through change.
Much rides on President Xi Jinping’s ability to push through change.

China should rethink its finances to funnel funds to cash-starved private enterprises and keep its banks healthy.

The country’s banking system is straining to finance the rapid urbanisation of the world’s most populous country. 

Pressure on bank earnings and capital ratios is ratcheting higher as politically directed loans to state-owned enterprises and local governments turn sour.

China has already made tweaks this year such as removing lending-rate restrictions, raising the quota for qualified foreign institutional investors from $80 billion to $150 billion, and turning parts of Shanghai into a free-trade zone.

But the reluctance of foreign banks to open in...

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