A Research Into The Problem Of Moral Hazard In China's Present Credit Market

As a heritage of history and the old social system, the banking industry in China has been long plagued with such problems as inefficiency, monotony of profit origination, and a high ratio of bad assets. It is these issues that give prominence to the importance of credit risk, the core of which comes from nothing but the moral hazard in credit market. Therefore it makes great sense to carry out research into this very item— the moral hazard in credit market.The moral hazard in credit market can be divided into mainly two categories according to the type of contract it is based on: one is in debt contract;the other is related to the principal-agency contract within the banking system. In allusion to the first category, the work is carried out with reference to game theory. This thesis thereby holds that the credit environment plays a key role in the forming of moral hazard. As to the second category, this thesis attempts to analyze from the angle of both the banking system itself and the credit environment. The research finds out that the opportunism behavior on behalf of the agency originates from both the malpractice in the principal-agency relationship inside the banking system and the disfigurement in banking ownership structure. And besides, due to the specific phase of development and the very political and economic environment the case is set in, local government of all levels have both motivations and conveniences to interfere with financial activities. Given the fact that the commercialization of state-owned banks is not yet fully completed, a lot of moral hazard in credit market is produced in this way, which is branded as unique only in China.Herein this thesis proposes that it is important to push still forward the reform of property right institution as well as the recast of the organizational structure of banking system in China, so as to keep away from the moral hazard in credit market. And at the same time, it is also helpful to try to set up a better credit environment.