Yonsei University
Graduate School of International Studies
ZC 563-01 Chinese Banking and Finance
Fall 2004 Sangbum Shin
Room: #
Monday 10:00 – 13:00
Course Description
This course provides an overview of China’s banking and finance system. On the one hand, since China’s banking and financial system has been one of the fragile sectors in China’s economy, we will look at the evolution and problems in China’s banking and financial system and examine some of the key issues such as central bank independence, interest rate liberalization, lending, and bank taxation. On the other hand, since these problems are closely interconnected with those in other sectors, we will also examine some other sectors in China’s economy focusing on their interconnectedness with the vulnerability of China’s financial system, such as state-owned enterprises and bank loans, fiscal relations between center and local governments, monetary and exchange rate policy, and so on. An emphasis in this course will be on the comparative perspective. Students are expected to expand analytical scope beyond China and find what is unique to China and what is general in current Chinese banking and finance system by comparing China to other transition economies and/or East Asian countries. Looking at China in a comparative perspective is indeed one of the best ways to have a better understanding on China.
Requirements
There are three sets of requirement in this course. First, attendance is mandatory. There might be an excused absence that instructor personally judges and approves in a very exceptional case. Second, readings in this course are not heavy but essential for effective interaction between instructor and students.[1] Students should read assigned materials in each class and actively participate in class discussion. In order to facilitate class discussion, students are required to submit short weekly memos (2 pages, double-spaced, 12 pt with 1 inch margin in each side) commenting on some important aspect of each week’s readings or on other issues of basic concern (including exploring ideas for their research proposal). Please do not simply summarize the readings. Memos should be distributed to all the class members (instructor and your colleagues) by email no later than Sunday morning 10:00 am. Third, instead of writing a research paper, students should submit a research paper proposal at the end of the semester (10 -13 pages, double-spaced, 12 pt with 1 inch margin in each side). Instructor will provide a sample research proposal but, in general (no matter what method students choose –qualitative or quantitative), research proposal should include (1) puzzle (research question) (2) literature review (3) variables and hypotheses (4) case selection (5) research design (6) research plan (7) expected findings (8) possible contribution.
Evaluation
Participation (attendance and discussion) 20 %
Weekly Memos 30 %
Research Proposal 50 %
Videos
Students will watch two short videos (20 minutes each). This is unusual for graduate seminar course, but sometimes highly qualified videos are far better than conducting barefoot empirical field research in China. Videos will show what happens in Shanghai’s stock market, and how local governments and banks manage profit losing state owned enterprises (SOEs) in different provinces of China. These two videos will not only help students to have a clearer picture on China’s current economic situation but also facilitate class discussions.
Periodicals
It is highly recommended that students read following periodicals on a regular basis. You can bring interesting articles to classroom and discuss them with others.
China Business Review
Far Eastern Economic Review
The Economist
Business Week
The Asian Wall Street Journal
The South China Morning Post
Complete Course Schedule
Week 1 (September 6)—Introduction
No Readings
Week 2 (September 13)—Overview on China’s Economic System I
Organization for Economic Cooperation and Development (OECD), 2002, China in the World Economy—the Domestic Policy Changes, Synthesis of the Main Findings of the Study, pp.9-53.
Yingyi Qian and Jinglian Wu, 2003, “China’s Transition to a Market Economy—How Far across the River?” in Nicholas C. Hope, Dennis Tao Yang, and Mu Yang Li eds., How Far Across the River?—Chinese Policy Reform at the Millennium, Stanford: Stanford University Press, pp. 31-63.
Nicholas R. Lardy, 1998, China’s Unfinished Economic Revolution, Washington D.C.: Brookings Institution Press, chapter 1. China’s Economic Reform Strategy, pp. 1-20.
Week 3 (September 20)—Overview on China’s Economic System II
Jeffrey D. Sachs, and Wing Thye Woo, 1997, “Understanding China’s Economic Performance,” NBER Working Paper 5935, pp.1-59.
Barry Naughton, 1996, “China’s Emergence and Prospects as a Trading Nation,” Brookings Papers on Economic Activity, Vol. 1996, Issue 2, 273-337.
Nicholas R. Lardy, 1996, “China’s Emergence and Prospects as a Trading Nation: Comments,” Brookings Papers on Economic Activity, Vol. 1996, Issue 2, 338-344.
Week 4 (September 27)—Chuseok Holidays
No Class
Week 5 (October 4)—Banking System I
Nicholas R. Lardy, 1998, China’s Unfinished Economic Revolution, Washington D.C.: Brookings Institution Press, chapter 3. The Evolving Banking System, pp. 59-127.
DaCosta, M. M. N., and Foo, J. P. N., 2002, “China’s Financial System: Two Decades of Gradual Reforms,” Managerial Finance, Vol. 28, No. 10, pp. 3-18.
Yoon Je Cho, “The Banking System of the People’s Republic of China,” Online Available at
Week 6 (October 11)—Banking System II
Organization for Economic Cooperation and Development (OECD), 2002, China in the World Economy—the Domestic Policy Changes, Chapter 7. Challenges to China’s Banking Industry, pp.231-268.
M.J. Gordon, 2003, “Is China’s Financial System Threatened by its Policy Loans Debt?” Journal of Asian Economics, Vol. 14, Issue.2, pp.181-188.
Man-Kwong Leung and Vincent Wai-Kwong Mok, 2000, “Commercialization of Banks in China: Institutional Changes and Effects on Listed Enterprises,” Journal of Contemporary China, Vol. 9, No. 23, pp.41-52.
Week 7 (October 18)—Financial System and Financial Regulatory Policies I
Nicholas R. Lardy, 1998, China’s Unfinished Economic Revolution, Washington D.C.: Brookings Institution Press, chapter 4. Creating Modern Financial System, pp. 128-182.
Organization for Economic Cooperation and Development (OECD), 2002, China in the World Economy—the Domestic Policy Changes, Chapter 14. Developing the Financial System and Financial Regulatory Policies, pp. 455-494.
Week 8 (October 25)—Midterm Period
No Class
Week 9 (November 1)—Financial System and Financial Regulatory Policies II
Scott Kennedy, 2003, “The Price of Competition: Pricing Policies and the Struggle to Define China’s Economic System,” The China Journal, No. 49, January 2003, pp. 1-30.
Yingyi Qian, 1994, “Financial System Reform in China: Lessons from Japan’s Main Bank System,” in Masahiko Aoki and Hugh Patrick eds., The Japanese Main Bank System: Its Relevance for Developing and Transforming Economies, Oxford University Press, pp. 552-591.
Yung Chul Park, 1999, “The Banking Reform in Korea: Issues and Challenges,” in Strengthening the Banking System in China: Issues and Experience, BIS Policy Papers, No. 7, pp. 263-274.
Week 10 (November 8)—Globalization and China’s Financial System
John D. Langlois Jr., 2001, “The WTO and China’s Financial System,” The China Quarterly, No. 167, pp. 610-629.
Chen Ji and Steve Thomas, 2002, “WTO and China’s Financial Services Sector,” Journal of Contemporary China, Vol. 11, No. 33, pp. 673-682.
Week 11 (November 15)—Stock Market and Capital Market Liberalization
Organization for Economic Cooperation and Development (OECD), 2002, China in the World Economy—The Domestic Policy Changes, Chapter 15. Priorities for Development of China’s Capital Markets, pp. 495-534.
Thomas F. Cargill and Elliott Parker, 2001, “Financial Liberalization in China: Limitations and Lessons of the Japanese Regime,” Journal of the Asia Pacific Economy,” Vol. 6, No. 1, pp. 1-21.
Jiang Yu Wang, “Dancing with Wolves: Regulation and Deregulation of Foreign Investment in China’s Stock Market,” Online Available at
Barry Naughton, “The Politics of the Stock Market,” China Leadership Monitor, No. 3, Online Available at
Week 12 (November 22)—Problems of SOEs Management and the Banking System
Nicholas R. Lardy, 1998, China’s Unfinished Economic Revolution, Washington D.C.: Brookings Institution Press, chapter 2. The State Owned Enterprises Problem, pp. 21-58.
Clayton H. Stevenson, “Reforming State Owned Enterprises: Past Lessons for Current Problems—A Comparative Study of Chile and China,” Online Available at
Week 13 (November 29)—Center-local Government Fiscal Relations
Albert Park, Scott Rozelle, Christine Wong, and Changqing Ren, 1996, “Distributional Consequences of Reforming Local Public Finance in China,” The China Quarterly, No. 147, pp. 751-778.
Organization for Economic Cooperation and Development (OECD), 2002, China in the World Economy—The Domestic Policy Changes, Chapter 20. Issues Concerning Central-local Government Fiscal Relations, pp. 657-678.
Week 14 (December 6)—Non-banking Financial Institutions (Insurance)
Organization for Economic Cooperation and Development (OECD), 2002, China in the World Economy—The Domestic Policy Changes, Chapter 8. The Development of China’s Insurance Industry, pp. 269-297.
Chen Ji and Steve Thomas, 2001, “The Role of Foreign Insurance Companies in China’s Emerging Insurance Industry: An FDI Case Study,” Paper presented at the Conference on Financial Sector Reform in China. Online Available at
Week 15 (December 13)—China and the Asian Financial Crisis
Shalendra D. Sharma, 2000, “Stability amidst Turmoil: China and the Asian Financial Crisis,” Harvard Asia Quarterly, Online Available at
John Fernald and Oliver D. Babson, 1999, “Why Has China Survived the Asian Crisis So Well: What Risks Remain?” Board of Governors of the Federal Reserve System, International Finance Discussion Papers No. 633, Online Available at
Week 16 (December 20)—Conclusion (Globalization and Future of China’s Financial Sector)
No Readings
[1] To supplement relatively short readings, instructor might provide additional reading materials as well as handouts. Also, he will show a lot of recent data on China’s financial sector from IMF, World Bank, China Statistical Yearbook, and other data sources.