Speaker: Adam Liu, National University of Singapore

The Henan bank protest, the Evergrande crisis, and the perennial local government debt issue in China all point to one thing: there’s something wrong with the country’s banking system and Beijing needs to fix it. In particular, it needs to better regulate the numerous small banks that are now so intimately intertwined with much of China’s economic challenges. Beijing is working on it but it’s hard to do. This talk explains why. First, the exponential proliferation of small banks in the past three decades is hardly a natural phenomenon of economic/financial development; it is the outcome of a grand historical central-local bargain that’s difficult for current central leaders to upend. Second, and relatedly, many small banks have become the dominant players in local banking markets and are thus a crucial pillar of local economic development. Tight regulation and excessive punishment will therefore hurt local growth further in this difficult time. Beijing will have to juggle.

This event series is made possible by the generous support of the MIT Sustainable Urbanization Lab, the School of Community and Regional Planning at the University of British Columbia, and the Harvard Fairbank Center for Chinese Studies.