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China's Financial System and Economy: A Review

Author

Listed:
  • Zhiguo He

    (Booth School of Business, University of Chicago, Chicago, Illinois, USA)

  • Wei Wei

    (Becker Friedman Institute, University of Chicago, Chicago, Illinois, USA)

Abstract

China's financial system has been integral to its spectacular economic growth over the past 40 years. We review the recent literature on China's financial system and its connections to the Chinese economy based on the categories of Aggregate Financing to the Real Economy (AFRE), a broad measure of the nation's yearly flow of liquidity accounting for unique features of China's financial system. While early work on China's financial system emphasizes the state-owned enterprise reform, the recent literature explores other more market-based financing channels—including shadow banking—that grew rapidly after 2010 and have become important components of AFRE. These new financing channels not only are intertwined with each other, but also, and more importantly, are often ultimately tied back to the dominant banking sector in China. Understanding the mechanisms behind these channels and their intrinsic connections is crucial to alleviate capital allocation distortion and mitigate potential systemic financial risk in China.

Suggested Citation

  • Zhiguo He & Wei Wei, 2023. "China's Financial System and Economy: A Review," Annual Review of Economics, Annual Reviews, vol. 15(1), pages 451-483, September.
    • Handle: RePEc:anr:reveco:v:15:y:2023:p:451-483
    DOI: 10.1146/annurev-economics-072622-095926
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    Cited by:

    1. Li, Wei & Cheng, Huihui & He, Junhe & Song, Yufei & Bu, Hui, 2024. "The impacts of green credit policy on green innovation of high-polluting enterprises in China," Finance Research Letters, Elsevier, vol. 62(PA).
    2. Hong Yu & Jianmin Zhang & Ning Xu, 2023. "Does National Independent Innovation Demonstration Zone Construction Help Improve Urban Green Total Factor Productivity? A Policy Assessment from China," Sustainability, MDPI, vol. 15(9), pages 1-16, April.
    3. Khan, Jamal & Li, Yuan & Mahsud, Qaiser Jamal, 2024. "Linkages and Structural Changes in the Chinese Financial Sector, 1996–2018: A Network and Input–Output Approach," Structural Change and Economic Dynamics, Elsevier, vol. 70(C), pages 33-44.

    More about this item

    Keywords

    economic reform; development; financial markets; implicit guarantee; fintech;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • P34 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Finance

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