China and Russia: Institutional Coherence between the Banking Systems

Abstract

We use statistical data from 2000 to 2013 to compare the macro-level structure and the core institutions of the banking systems in China and Russia. Our main hypothesis is that, differences in the absolute size and socio-cultural features notwithstanding, these two systems are typologically similar. We consider the institutional structure, the market structure and concentration, the industrial policy of the government, and the banks’ involvement in the financing of the non-financial economy. We find both similarities and differences, however in dynamics the trend towards convergence prevails. In both countries, we see a hierarchical multi-tier banking system headed by a few core state-controlled banks. These combine commercial activities with the activity of a development institution. Regardless of the nominal form of bank ownership, the government exerts influence on the lending decisions and market behavior of banks. We argue that the case of banking in China and Russia provides empirical proof to the macrosociological theory of institutional matrices. We refer in particular to the needed proportion between the dominant and complementary institutions. Whereas China has been carefully seeking a sustainable balance, Russia in the 1990s grossly overshot with liberalization and now reverts to the underlying long-term trend. China has currently become Russia's donor for institutional innovations in the credit system design.