Interactions between China’s Growth Model and the Financial System

Abstract

This chapter details the connections between the Chinese growth model and the broader financial and banking system. Although the financial system has largely served the needs of the party-state, informal change has played a role in altering the banking system, producing tensions between state-led and market-driven imperatives. The chapter talks about Western descriptions of China's market transition or of China as an emerging market economy, which tend to overlook the fact that the economy and its market elements operate under the shadow of state hierarchy. The chapter then outlines how China's market transition has been constructed by the party-state to primarily serve the needs of the party's statist economic growth model. It explores China's growth model dynamics, which has increasingly relied on debt funding and which has distorted the banking and financial system.