Reforming the financial sector is a top priority for China's government as it works to ensure that the country's current accelerated growth can continue in an orderly fashion. A more robust financial infrastructure will help to ensure both sustainable economic growth and social progress. 

This new report from Deloitte Research examines some of the practical elements of forging the new financial system in China and of building on the current foundations developed by the government.  In particular the report recommends a two pronged approach that would enable reforms within both regulatory and financial institutions at the same time.

The banking system presents the largest challenge that must be addressed and there are two critical areas requiring immediate action:

• Corporate governance issues arising from the changing legal status of the state-owned commercial banks into joint-stock companies.
• The implementation of a deposit insurance system and necessary controls.

The investment required in corporate risk-management and governance systems within China's major financial institutions could cost in excess of $1.2billion over the next three to five years but it is a price worth paying.

To ensure that the government will achieve rapid and robust progress China's financial system should be enhanced in a way that will foster greater transparency, build international investor confidence, and reduce the likelihood of conflicts of interest.  This study contains several recommendations for forging the new system and the priorities can be summarized as:

• Reforming corporate governance
• Enhancing regulatory authorities and supervisory practices
• Establishing an entity to represent the State as shareholder in state owned commercial banks
• Creating a deposit insurance system and authority
• Upgrading the compliance, corporate governance and risk management systems within Chinese financial institution

Read the full report in the PDF below.

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