WB warns China over state financial control
The World Bank on Wednesday urged China to accelerate reform of its state-dominated financial sector, warning that failure to address the issue could end "three decades of stellar performance" for the world's second-largest economy.
The ruling Communist Party has pledged a wide range of economic reforms and the Washington-based institution said reducing the "unique and distorted role of the state" in banking and the wider financial sector was crucial.
"Wasteful investment, over indebtedness, and a weakly regulated shadow-banking system," had to be addressed for the broader agenda to succeed, it said.
The comments in the China Economic Update were unusually forthright for the World Bank.
"Unlike other countries, in China the state still maintains pervasive ownership and control of banks and other financial institutions," it said, including with powerful internal Communist Party committees and authorities appointing and dismissing top executives.
"The state has formal ownership of 65 percent of commercial bank assets and de facto control of 95 percent of these assets, making it an outlier by international standards."
In some cases, it added, authorities were simultaneously owners, regulators and customers of banks.
China's financial system was still "unbalanced, repressed, costly to maintain, and potentially unstable", the bank said, repeating its description from a 2012 report.
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