A Bank-Dominated Financial System

This chapter sets the scene for the rest of the book by describing the structure of China’s bank-dominated financial system in the 2000s. We focus on six key features: (1) Banks were by far the dominant source of external finance for firms and households. (2) Bank deposits made up most of the financial assets held by households—not just of liquid assets, but of all financial assets. (3) For households, shares were the main alternative financial asset. (4) Non-financial firms accumulated deposits in amounts comparable to households. (5) The banking system was highly concentrated. (6) An interbank market, fostered by authorities, bridged deposit-loan imbalances, and helped banks to manage liquidity.