Why the interactions between state- and private-controlled banks matter in the unsuccessful reforms of the Chinese banking industry

Despite significant reforms of the banking system, the existing market in which Chinese banks operate is reminiscent of a cartel. On the basis of illustrations relying on ‘game theory’, the interactions between the credit allocations of state banks and private-controlled banks are highlighted. The very particular status of public banks creates serious barriers to the convergence of credit allocations towards more transparent and more cautious practices. This work intends to discuss a new model in which, in the existing system, ‘win–win–win’ solutions may still appear under some conditions.