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The Transformation of China from an Emerging Economy to a Global Powerhouse
James R. Barth, Gerard Caprio Jr., and Triphon Phumiwasana

Abstract Throughout the past three decades of fast growth, China has undergone tremendous structural changes in its economy and financial system. This chapter examines China’s evolving financial landscape so as to assess whether it can catch up with or even drive economic growth. China has achieved remarkable growth over the past quarter of a century despite a relatively inefficient financial system. Just as the public sector around the world has not proved to be an efficient manager of enterprises, it also has not been an efficient manager of banks. A solution that would seem to work in theory would be to grow the private sector’s role in the banking system, using banks that operate on market principles as a way to continually starve inefficient enterprises of credit, while supplying credit to the productive enterprises. Finding a way to make this work in practice will require both finesse and good fortune on a scale commensurate with China’s growing importance in the world economy. Keywords Bank Á Banking sector Á Financial market Á Big Four Á GDP Á Economic growth Á Financial system Á Trade Á Renminbi Á Exchange rate Á India Á Foreign exchange reserve Á Non-performing loan

1 Introduction
China has captured the attention of the world with its unprecedented growth for such a big country during the past 30 years. At an average rate of 9.7%, China’s GDP has grown almost three times the world average. In 2007, China was the fourth largest country in the world, behind only the United States, Japan, and Germany.1
1

China ranks fourth when GDP is measured on the basis of exchange rates but second on a purchasing-power basis.

J.R. Barth (*) Milken Institute, Santa Monica, CA, USA; Auburn University, Auburn, AL, USA e-mail:...

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