What measures has China taken to reduce the risk to economic growth due to an unreformed financial sector?
China's leadership, especially since the Asian financial crisis, has realized that an unreformed financial sector threatens the overall momentum of the reform process and economic growth. In recent years, the leadership has taken steps to corporatize banks, write off unrecoverable Non Performing Loans (NPLs) and tightened the regulation of listed firms. Such attempts reached a new height in 2001, when China instituted dozens of supervisory mechanisms and reporting requirements to bring order to the country's casino-like markets. The China Securities Regulatory Commission (CSRC) is leading these regulatory efforts, others within China's financial elite have effectively pressured the CSRC to step back from some liberalizing moves (arguments strengthened by the regulatory failure experienced in the Enron case). However, the momentum for reform remains clearly positive.
China's regulators are committed to institutionalizing supervisory and financial managerial mechanisms to drive China toward a mature financial system in line with international standards. Nevertheless as in other sectors, the introduction of foreign expertise and the licensing of foreign entrants do not necessarily make for profitable business opportunities for foreign firms. Before they can create successful market-entry strategies, foreign firms must take the following PRC motivations and aspirations into account:
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