IF 23
CONFIDENTIAL
Introduction
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Financial Sector Reform in China
China's
economy
has
CRC INF 13/93 (CEC 8/93)
become increasingly
market-oriented
since 1978 when the open door and economic
The 14th Central
reform policies were implemented.
Congress of the Chinese Communist Party held in October 1992 and the Eighth National People's Congress held in
March 1993, which formally endorsed the socialist market
economy as the guiding philosophy, has recently been
reinforcing this trend.
2.
An important pre-requisite for the smooth functioning and sustained development of a market economy
is a well-established financial sector, which helps channel
surplus liquidity efficiently from lenders (mostly savers)
to borrowers (mostly investors).
In this process of
financial intermediation, market signals are generated
primarily through variations in interest rates- and
financial asset prices, and these signals serve to direct economic resources to their optimal uses. Moreover, with a
properly established financial sector, the government can
exercise its desired influence on the overall level of
economic activity through changes in the monetary variables, including principally the money supply, deposits
and loans, and interest rates. Together with effective
fiscal measures, this will enhance the government's ability
to achieve the main macro-economic objectives of
satisfactory and steady economic growth, full employment
and low inflation. In a centrally planned economy, where
(including financial resources) are allocated in
accordance with the state plan, the importance of monetary policy tools is never recognised, as financial institutions
as no more than the cashier for the government. This
explains why China has attached far less importance to the
development of its financial sector in the pre-reform
period than since 1978.
resources
serve
CONFIDENTIAL
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