The Impact of the Global Financial Crisis on China's Banking Sector

  • Michiel Haasbroek
  • Jörn-Carsten Gottwald
Keywords: Global financial crisis, China, banking, internet finance, regulatory reform


The banking sector had long been left at the fringes of China's reform policies. Major initiatives of the 1990 and early 2000s helped to balance the need for modernization and internationalization with the objective of preserving political control. When the Global Financial Crisis (GFC) erupted in 2007, it hit the Chinese economy but predominantly in its export sector and much less in its financial sector. Yet when exports collapsed and factories closed in the winter of 2008/2009, the Chinese leadership implemented an ambitious stimulus program and used its leverage over the financial sector to re-start economic growth. These factors – GFC and domestic stimulus – created a series of intended and unintended outcomes. Financial reform in China entered a new stage signalling a profound change in China's banking sector. These changes follow two sometimes contradictive, sometimes mutually reinforcing reform dynamics of top-down policies and bottom-up innovation. In this article we follow an institutional approach and discuss the intensified participation of China's big banks in the Go Out strategy, followed by a shift in the pattern of lending. One factor in this change is the rise of shadow banking and particularly an explosive growth in internet-based financial services. Thus, while the initial reaction to the GFC re-emphasized direct, top-down state involvement in the banking sector, the outcomes of the GFC, China's policies and business innovations have facilitated profound bottom-up changes.


Andreosso-O'Callaghan, Bernadette and Jörn-Carsten Gottwald 2013. 'How red is China's red capitalism? Continuity and change in China's financial services sector during the global crisis'. Asia Pacific Business Review 19(4): 444-460.

Bergsten, C. Fred, Charles Freeman, Nicholas R. Lardy, and David J. Mitchell 2010. China's Rise: Challenges and Opportunities. Washington D.C.: Center for Strategic and International Studies.

Bottelier, Pieter 2010. 'China and the International Financial Crisis'. In A. Marble and T. Tanner (eds), Strategic Asia 2009-2010. Washington D.C.: The National Bureau of Asian Research.

Chen, Kaiji, Ren, Jue. and Zha, Tao 2016. 'Unintended consequences of monetary and regulatory policies on banks' risk-taking behaviour: A closer examination of China's shadow banking'. NBER Working Paper 21890. January 2016.

Chivakul, Mali, and W. Raphael Lam 2015. Assessing China's Corporate Sector Vulnerabilities. Working Paper No. 15/72. Washington: International Monetary Fund.

Collins, Neil and Jörn-Carsten Gottwald 2014. 'Market Creation with Leninist Means: the Party-State, Private Authority and the Regulation of Financial Services in the People's Republic of China'. Asian Studies Review 38(4): 620-638.

Cull, Robert and Lixin Collin Xu 2003. 'Who gets credit? The behavior of bureaucrats and state banks in allocating credit to Chinese state-owned enterprises'. Journal of Development Economics 71(2003): 533-559.

Eichengreen, Barry and Masahiro Kawai 2014. 'Issues for Renminbi Internationalization: An Overview'. Tokyo: ADBI Working Paper Series.

Farrell, Henry and Newman, Abraham L. 2010. 'Making Global Markets: Historical Institutionalism in International Political Economy'. Review of International Political Economy 17(4): 609-638.

Gordon, Roger H. and Wei Li 2011. Provincial and Local Governments in China: Fiscal Institutions and Government Behavior. Washington: National Bureau of Economic Research Working Paper 16694.

Gottwald, Jörn-Carsten 2012. 'Regulating Financial Services in the EU: A Case of Successful Institutional Learning'. In H. Zimmermann and A. Duer (eds.), Key Controversies in European Integration. London: Palgrave MacMillan 2012: 131-137.

Gottwald, Jörn-Carsten and Neil Collins 2012. 'The Chinese model of a regulatory state'. In D. Levi-Faur (ed.), Handbook on the Politics of Regulation. Cheltenham: Edward Elgar 2012: 142–55.

Gourevitch, Peter 1978. '2nd Image Reversed: International Sources of Domestic Politics'. International Organization 32(4): 881-911.

Green, Stephen 2013. 'China – Masterclass: What Makes 40 Million Local Government Officials Tick?' Hong Kong: Standard Chartered On the Ground. April 2013.

Hale, Galina and Cheryl Long 2010. What Are the Sources of Financing of the Chinese Firms? Hong Kong: HKIMR Working Paper No. 19/2010.

Heep, Sandra 2014. China in Global Finance. Domestic Financial Repression and International Financial Power. New York: Springer International Publishing.

Heep, Sandra 2017. 'The role of government in the banking and financial systems'. In S. Heilmann (ed.), China's Political System. Lanham: Rowan and Littlefield 2017: 212-217.

Heilmann, Sebastian 2005. 'Regulatory Innovation by Leninist Means: Communist Party Supervision in China's Financial Industry'. The China Quarterly 181 (March 2005): 1-21.

Heilmann, Sebastian 2008. 'From local experiments to national policy: The origins of China's distinctive policy process'. The China Journal 59 (2008): 1–30.

Heilmann, Sebastian 2011. 'Making Plans for Markets: Policies for the Long Term in China'. Harvard Asia Quarterly 13 (2): 33-40.

Heilmann, Sebastian, and Elizabeth Perry (eds.) 2011. Mao's Invisible Hand: The Political Foundations of Adaptive Governance in China. Cambridge, MA: Harvard University Press.

Herd, Richard, Samuel Hill and Charles Pigott 2010. China's Financial Sector Reforms. Working Paper No. 747. OECD Economics Department.

Huang, Hui 2010. 'Institutional Structure of Financial Regulation in China: Lessons from the Global Financial Crisis'. Journal of Corporate Law Studies 10(1): 219-254.

Huang, Yasheng, Saich, Tony and Edward Saul Steinfeld (eds.) 2005. Financial Sector Reform in China. Cambridge, MA: Harvard University Press.

Kroszner, Randall S. and Philip E. Strahan 2000. Obstacles to Optimal Policy: The Interplay of Politics and Economics in Shaping Bank Supervision and Regulation Reforms. Chicago: The Centre for Research in Security Prices Working Paper No. 512. February 2000.

Lardy, Nicholas R. 2014. Markets Over Mao: The Rise of Private Business in China. Washington: Peterson Institute for International Economics.

Levy-Faur, David 2012a. 'Regulation and Regulatory Governance'. In D. Levy-Faur (ed.) Handbook on the Politics of Regulation, Cheltenham: Edward Elgar 2012: 3-23.

Levi-Faur, David 2012b. 'The regulatory state and regulatory capitalism: An institutional perspective'. D. Levi-Faur (ed.) Handbook on the Politics of Regulation, Cheltenham, Edward Elgar Publishing. 2012: 662–71.

Mayntz, Renate 2012 (ed). Crisis and Control. Institutional Change in Financial Market Regulation. Frankfurt am Main: Campus.

Mayntz, Renate, and Fritz W. Scharpf (eds.) 1996. Gesellschaftliche Selbstregelung und Politische Steuerung. Frankfurt/New York: Campus.

Moody's Investor Service 2013. China: Liquidity Crunch, 24 June 2013.

Nee, Victor, and Sonja Opper 2012. Capitalism from Below: Markets and Institutional Change in China. Cambridge, MA: Harvard University Press.

North, Douglas C. 1991. Institutions, Institutional Change and Economic Performance. Cambridge / New York: Cambridge University Press.

Pearson. Margaret M. 2007. 'Governing the Chinese Economy: Regulatory Reform in the Service of the State'. Public Administration Review, July/August (2007): 718-730.

Pearson, Margaret M. 2011. 'Variety Within and Without: The Political Economy of Chinese Regulation'. In S. Kennedy (ed.) Beyond the Middle Kingdom. Comparative Perspectives on China's Capitalist Transformation. Stanford: Stanford University Press 2011: 15-43.

People's Bank of China (PBOC) 2015a. Financial Stability Report China. Beijing: PBOC.

Ping, Xie, Chuanwei Zou, and Haier Liu 2016. Internet Finance in China: Introduction and Practical Approaches. London & New York: Routledge.

Prasad, Eswar 2016. Gaining Currency. The Rise of the Renminbi. New York: Oxford University Press.

Standard and Poor's 2013. Why Shadow Banking is yet to Destabilize China's Banking System. March 2013.

Shih, Victor 2007. Factions and Finance in China: Elite Conflict and Inflation. New York: Cambridge University Press.

Subacchi, Paola 2017. The People's Money. How China is Building a Global Currency. New York: Columbia University Press.

Takeshi, Jingu 2014. 'Internet finance growing rapidly in China'. Normura Research, Iakyara 189 (2014), 10 March 2014.

Tsai, Kellee 2015. 'The Political Economy of State Capitalism and Shadow Banking in China'. Issues & Studies 51(1): 55-97.

Vogel, Steven K. 1998. Freer Markets, More Rules. Ithaca: Cornell University Press.

Walter, Andrew 2010. 'Chinese Attitudes towards Global Financial Regulatory Cooperation: Revisionist or Status Quo?' In E. Helleiner, S. Pagliari and H. Zimmermann (eds.) Global Finance in Crisis: The Politics of International Regulatory Change. London/New York: Routledge: 153-169.

Walter, Carl E. and Fraser J.T Howie 2011. Red Capitalism, The Fragile Financial Foundation of China's Extraordinary Rise. Singapore: John Wiley and Sons.

Williamson, Oliver E. 1998. The Economic Institutions of Capitalism. New York, NY: Free Press.

Wong, Christine 2011. 'The Fiscal Stimulus Programme and Public Governance Issues in China'. OECD Journal on Budgeting 3: 1-20.

Yu Yongding 2010. The Impact of the Global Financial Crisis on the Chinese Economy and China's Policy Respons. Third World Network. Penang: MacAlister.