What problems does China expect to encounter in the future regarding economic growth and what measures are being thought of to ensure success?
A major concern of regulators is an influx of foreign financial firms will cripple domestic companies that have not adequately restructured or that are saddled with remnants of social rather than commercial functions. Chinese banks, which are technically insolvent with as much as 50% of loans estimated as unrecoverable, rely on their monopoly and individual savings deposits for survival. Both banks and insurance companies are overstaffed, and excessive branch networks--though they are being heavily scaled back--burden these institutions with significant fixed costs. The prospect of trim, cash-rich foreign firms competing for the same Chinese customers as domestic banks has regulators preparing to batten down any hatches not propped open by China's WTO commitments.
A related PRC goal is to limit the initial number of foreign entrants. This goal reflects the PRC penchant for testing programs on a small scale before broadening implementation, lest too many players begin to move in directions not anticipated by policy planners. Though foreign companies will rightly ask why China should care if foreigners invest and fail, the real issue is that China fears any failure in its financial sector could threaten the momentum of progress. China's financial system has a young, incomplete, untested legal framework that regulators fear could be destabilized if significant enforcement failures occur early on. China is also using initial foreign entrants as guinea pigs to tweak policies and institute bureaucratic processes to oversee new and complex businesses.
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