Banking and Insurance in the New China: Competition and the Challenge of Accession to the WTO

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Banking and Insurance in the New China: Competition and the Challenge of Accession to the WTO, by Chien-Hsun Chen and Hui-Tzu Shih. Cheltenham: Edward Elgar, 2004. xiv + 166 pp. £45.00 (hardcover).

It is generally accepted by observers in the West and by China's own policymakers that the country's financial reforms have lagged behind reforms in other key sectors of the economy, even though creating a well-functioning financial system is vital to China's economic development. This book by two scholars at the Chung-Hua Institution for Economic Research in Taiwan is timely. It aims to "scrutinize the development and obstacles of China's banking and insurance industries during the process of institutional transformation, particularly the impact of China's WTO accession on these industries" (p. ix). The problem of nonperforming loans among China's state-owned banks is well known within and outside the country, but there is clearly a need for updated systematic analysis of this and of the actual progress in banking reform. Moreover, the significance of China's rapidly growing insurance industry is not widely understood, but deserves to be. Despite the regulatory restrictions placed on the scope, location and ownership composition of foreign-invested insurance companies (particularly life insurance), market entry by foreign insurance companies is credited with contributing to the industry's development and modernization.

The authors' approach to studying these two financial industries in China is to assess each against a list of performance indicators. These include their market structure (as measured by estimates of concentration ratio and Herfindahl index), age structure and education level structure, personnel structure of different categories of banks, and insurance classified by ownership types. The advantage of this approach is that both industries can be subjected to a similar set of criteria for evaluation. The usefulness of such indicators, however, depends on the relevance and rigor with which they are constructed and employed. …

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