The Banking Reform in China - Is the Chinese Bank Loan Market Liberal?

Abstract: China is growing to become the largest economy in the world, yet, the Middle Kingdom has a number of problems. New and productive non-state owned firms -the engine of growth- face a problem when searching for inexpensive external funding. That is, non state-owned firms have a hard time applying for commercial bank loans. The government is implementing liberating reforms. But the reforms are limited by a heavy state-ownership of the financial sector. This thesis considers a banking reform that should be as free and market oriented as possible, and tests if it can be statistically proven whether political relations are significant when a firm applies for a commercial bank loan. The result show that the reforms still has a relatively long way to go. Thus, the Chinese government must sharpen up its efforts to implement the reforms and modernize the Chinese commercial bank system.