Financial reforms in China and India: A comparative analysis

Wendy Dobson ()
Authors registered in the RePEc Author Service: Richard M. Bird ()

No 9, Working Papers Series from Rotman Institute for International Business, Joseph L. Rotman School of Management, University of Toronto

Abstract: This paper surveys financial reforms in the world’s two most populous and rapidly-growing economies. The contribution of financial systems to long term growth through the efficient mobilization and allocation of scarce capital is well documented in the literature. India’s financial system is popularly perceived to be better developed than China’s, yet they share two significant weaknesses: under-developed corporate bond markets and bank-dominated financial systems. High levels of state ownership of banks are associated with misdirected lending and high costs of intermediation. The paper examines the institutional frameworks that determine incentives in these sectors and marshals empirical evidence that historical decisions and insufficient market reform suggest performance problems persist. These problems will become more evident when growth slows; indeed a crisis may be necessary to force change since prevailing high economic growth rates in spite of the weaknesses undermine the case for deeper reforms.

Keywords: comparative analysis; financial systems; China and India (search for similar items in EconPapers)
JEL-codes: O16 G20 (search for similar items in EconPapers)
Date: 2007
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