China’s Entrance to the WTO and Financial Reform

Abstract

The openness and liberalization of China's financial market is expected to accelerate with her entrance to the WTO. China plans to carry out liberalization measures, including the expansion of the Renminbi business scope. Openness and liberalization will expedite the integration of internal and external sectors, thereby making the domestic financial market more vulnerable to environmental changes. Consequently, China should establish a strong financial system to efficiently cope with the contagion effects of an external financial crisis. However, China's financial system is still very weak, mainly due to the enormous bad loans to SOEs (state-owned enterprises). Accordingly, the Chinese government should carry out financial reform measures such as strengthening the financial supervision system, dealing with bad bank loans and restructuring the financial institutions. On the whole, China's entrance to the WTO is expected to have a positive influence on her financial sector by accelerating such reform policies as financial reform and SOE reform. Entrance to the WTO will make society recognize the necessity of reform and openness. The Chinese government can decide to push some difficult reform policies which would not have been considered without WTO entrance.