One has to rub his eyes on reading title of this post. I did too. Lessons of Banking from China? That too on future? Really?
But Spontaneous Finance Blog thinks so. And the lessons are not about how China made the right banking policy etc. But how it made the policy which led to troubles:
There is a fundamental difference between the Chinese banking system and the Western one however. Chinese banks, despite being extremely large, have historically had no ability to grow outside of the Communist party’s grip and no ability to adapt to consumer demand as a result. Citi points out that there were only 8.1 bank branches per 100,000 adults in China, vs. around 30 in the Eurozone and the US. With little banking presence, fintech firms have found it easy to rapidly grow.
Yet, developed economies do have a lesson to learn from the Chinese experience. The more regulatory constraints are put in place on banks, the more innovative ways around them will spontaneously emerge and the more complex and opaque (‘Frankenstein-like’) the financial system will become. And sadly, it looks like Europe and the US have decided to follow China’s footsteps.
Shadow banking system hasp become pretty large in China as pointed by the post. Fintech companies have exploited the gaps in a big way.
It is all so circular actually.
Shadow banking developed seeing a highly regulated banking system. The recent crisis happened atleast initially due to these shadow firms which grew too large without anyone looking. The eventually one realised the regulated banking firms were no less in becoming careless.
Anything emerging from the clutches of high regulation should generally be seen as something positive. But it may not be the case. Either way one is doomed.