How financial-system reform could benefit China

The ongoing development of China's financial system will play a critical role in the country’s effort to narrow social disparities and pursue balanced growth.
Reforming the financial system could not only raise GDP by as much as 17 percent, or $320 billion a year, but also help spread China’s new wealth more evenly.
If the reforms directed additional funds to private companies—China's growth engine—the economy would generate significantly higher returns for the same level of investment and GDP would rise.
Such a shift will stimulate mass job creation in the strongest areas of China's economy and increase tax revenues to finance social programs.

Exhibit 1: Financial-system reforms have the potential to increase China's GDP significantly.
Exhibit 2: State-owned enterprises are less productive.
Exhibit 3: Private enterprises receive only 27 percent of loan balances.
Exhibit 4: China's financial system is dominated by the banking sector.
Exhibit 5: China's debt and equity markets are very small.
Sidebar: A reform agenda for China's financial system

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