Another Big Reform in China—Privately Owned Banks Will Be Legalized

A blog about business and economics.
Nov. 15 2013 10:17 AM

Privately Owned Banks Coming to China

Mao.
What would Mao do? Probably not this.

Photo by Feng Li/Getty Images

Hot on the heels of announcing plans to roll back its one-child policy and end forced labor, China, according to reports from the state-run news agency, has decided to undertake another important reform: People will be allowed to launch privately owned banks.

It's often said that China has embraced capitalism, but the PRC economy of the past 20 years is really more like Lenin's New Economic Policy version of socialism than like a free market. That's to say that there are lots of private businesses in China, but the "commanding heights" of the economy—most notably banking and finance—remain in state hands. But now, "China will open up the banking sector wider, on condition of strengthened regulation, by allowing qualified private capital to set up small- and medium-sized banks."

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That still leaves the basic commanding heights dynamic in place since large banks will still be state-owned. But it's fairly obvious that this step would lay the groundwork for full privatization of the banking system down the road.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

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