Reform: Would the Expansion of Private Banking Sector Improve the Efficiency, Safety and Profitability of China's Banking Industry?

In 1995, the People's Republic of China (hereafter, China) has emerged from a mono-banking system (1949-1978) to a multi-banks' system. Its multi-banks' system consists of a central bank (the People's Bank of China) governing and regulating the four state specialized banks (the Agricultural Bank of China, the Bank of China, the Industrial and Commercial Bank, and the People's Construction Bank), comprehensive banks and foreign banks. Since 1978, China has reformed its banking system in respond to an increasing need of its developing economy. After Deng Xiaoping, Chinese de facto and paramount leader, gained power in 1976, China has started to move towards more market-oriented. The goal for China is to adapt capitalist ideas into its socialist society and economy. As a result, more private owned companies, with ownership shares offering to the public, have been established in China since then. For example, in 1994, there were over one million Chinese companies owned shares of private companies traded in the Shanghai Stock Exchange. In fact, there has been a record of 11 new private companies being listed in the Shanghai Stock Exchange on one day in January 1994. In addition, foreign companies have also increased their investment in China. The foreign investment in China has jumped from U.S. $19.58 billion in 1991 to $68.5 billion in 1992. This increase of foreign investment has promoted the development of market economy in China