An Overview And Critical Evaluation Of Financial Reform System In China

Abstract

The purpose of this survey study has been to identify the primary elements of the financial sector reform (FSR) and their impact on the socioeconomic environment of China (People’s Republic of China), and to assess the level of progress, risks, and problems stemming from the China’s political economy.  The research findings indicate that the level of the financial risks has greatly increased in recent years and that China is dealing with inherent financial concerns and potential financial crisis.  Ironically, the growth of foreign direct investment has accelerated in Chinese ventures (Warner, 2004), in spite of the recent warnings by various sources such as Business Week (January 19 & May 3, 2004).  Currently, the amount of foreign direct investment – about $491 billion – is flooding the foreign currency system and putting heavy pressure on the Yuan.  This is because the investors usually rely heavily on the financial ratios i.e. profitability and growth, as the criteria for investment decisions.  However, it would be a critical mistake to disregard the role of “policy” in risk analysis especially in a political economy such as China.  This research study intends to establish an accurate barometer for the assessment of the risk factors within the financial sector and their impact on sector’s reform.