A Heightened Marketization Drive in the Pipeline: Will China's Seemingly Non-Statutory Policy Banks Continue to Survive?

Abstract

The founding of China's policy banks as the government's policy finance providers happened some twenty years ago. Yet the legal position of these policy banks has not been ascertained legislatively up to the present time. Obviously incongruous with the doctrine of laissez-faire economics, Chinese policy banks still seem to be straddling two lanes, in the face of escalating competitive pressures descending from an increased market openness to private capital and foreign investment provoked in the new wave of reform and marketization that is presently traversing the country. This article analyses the original role played by China's policy banks and the raison d'etre behind the establishment and employment of such a special type of banking institutions in a historical perspective. It then explores the current dilemmas Chinese policy banks have to manage and the future challenges they may encounter and address. It attempts to delve into a viable answer to the long-sustained argument about whether these policy banks have really outlived their usefulness and where their way ahead ought to be at last, if any, from a realistically appropriate standpoint.