Study On Financial Fragility Of Chinese State-owned Banks

In the past 20 years, the campaign of financial liberalization boomed in the whole world. On the one hand, financial liberalization promotes the financial development, therefore accelerates the economics growth; on the other hand, financial liberalization aggravates financial fragility and triggers financial crisis and economic recession. At the same time, China was also beginning to practice the market-oriented reform in finance. At present, Chinese state-owned commercial banks bears the huge bad assets that demonstrate their high financial fragility. This paper attempts to find the roots of their financial fragility and the main way for reduce their fragility through analyzing the process of the market-oriented reforms of Chinese stated-owned commercial banks. This paper includes four parts as follows: In the first part "introduction", we will get a birds-eye review of the financial liberalization,financial crisis and the huge bad assets of Chinese state-owned commercial banks. The second chapter reviews the main theories of the financial fragility. These theories includes Minsky's "financial fragility hypothesis",Gram's "margins of safety" reasoning and information-economics interpreting for the financial fragility and etc. . Chapter 3 deals with the roots of the fragility of Chinese state-owned commercial banks. In this part, this paper firstly reviews the reforming process of Chinese banking systems. Chinese banking systems has gone through four stages as follows: "big unification" financial model (1948-1978),the reform of the structure of the banking systems (1979-1984),financial rectification (1985-1991),the establishment and deepening development of the market-oriented financial reform (1992-update). Furthermore, this paper insists that the "cost-sharing in institution transition",the moral hazard and the lack of law spirits and credit culture are the main reasons for the fragility of Chinese state-owned commercial banks. Chapter 4 focuses on discussing how to eliminate the fragility of Chinese state-owned commercial banks. The elimination of tons of accumulated bad assets is the premise of financial marketization in china but not the basic approach. So the model of AMC(Asset Management Corporation) and DES(Dept-equity Swap) can not successfully eliminate the fragility of Chinese state-owned banks. This paper insists that the reform of property right and the improvement of governance, linked with the cautious financial monitor are indeed the basic ways for eliminating the financial fragility of Chinese state-owned banks.