Urban China talks: Bank Proliferation in China

Small Banks, Big Politics:

The Cause and Consequences of Bank Proliferation in China​​
by Adam Liu, National University of Singapore

March 27, 5:30 PST

The Henan bank protest, the Evergrande crisis, and the perennial local government debt issue in China all point to one thing: there’s something wrong with the country’s banking system and Beijing needs to fix it. In particular, it needs to better regulate the numerous small banks that are now so intimately intertwined with much of China’s economic challenges. Beijing is working on it but it’s hard to do. This talk explains why. First, the exponential proliferation of small banks in the past three decades is hardly a natural phenomenon of economic/financial development; it is the outcome of a grand historical central-local bargain that's difficult for current central leaders to upend. Second, and relatedly, many small banks have become the dominant players in local banking markets and are thus a crucial pillar of local economic development. Tight regulation and excessive punishment will therefore hurt local growth further in this difficult time. Beijing will have to juggle.
 
​Adam Y. Liu is assistant professor at the Lee Kuan Yew School of Public Policy, National University of Singapore. His main research interests include Chinese politics and political economy. He is currently working on a book project that explores how central-local politics drove the formation, expansion, and operation of what he calls a "state-owned market” in China’s banking sector. The project is based on his dissertation, which won the 2020 BRICS Economic Research Award. He received his Ph.D. in political science from Stanford University and was a postdoctoral associate with the Leitner Program in International and Comparative Political Economy at Yale University.