The process of financial reforms in China

This study aims to show that financial reforms in China can be viewed as an endogenous adjustment process responding primarily to economic growth and changes in political constraints. The author's argument is thus against the mainstream view in which financial reforms are regarded as primary policy tools for the promotion of economic growth. Three factors are carefully examined for the explanation of the endogenous characteristics of financial reforms. First, this paper takes a close look at endogenous aspects of Chinese financial repression. The endogenous characters of financial repression explain why financial reforms in China follow an endogenous path. Second, recent developments of legal frameworks are found to have been institutional responses to macroeconomic imbalances, financial disorders, and increased demands for property right protection. Finally, this paper shows that the lack of market infrastructure and various political constraints have been major obstacles for China's capital market development.