Financial Sector Liberalization In Transitional Economies: A Comparison Between China And Russia

Financial sector liberalization is a major part of transition from planned to market economy. Russia and China have undergone a similar process of economic transition, but the two countries have implemented different models of the reform. This thesis examines reforms in financial sector in China and Russia during the transition period, provides the comparison of the structural changes and dynamics in financial sector of both countries. The study focuses on three aspects:banking sector reform, capital markets reform and foreign exchange regime reforms. China has taken a gradual approach in financial reforms under the Deng Xiaoping theory. It has also followed the "dual track" model that helped to avoid institutional gap during the transition. In China the level of financial repression is slowly decreasing. Russia has implemented the "shock therapy" doctrine in line with IMF recommendations. After radical financial liberalization the country’s economy and financial system have experienced transformational recession up until "the second birth" of financial system that was closely associated with reemergence of state control in financial sector. Both Chinese and Russian banking sectors have experienced successful transformation from a monobank system to a two-tier banking system with Central bank and commercial banks. Both countries managed to create functional and diversified capital markets. In both countries financial markets are underdeveloped, yet they face different problems at a current stage. Both China and Russia see internationalization of the currency as a possible strategic goal. Although Russia has already liberalized its capital account and China is only getting ready for this step, yet at the current stage yuan has more potential for internationalization. Today Russian and Chinese financial systems share many similarities. As for the dynamics of financial reform, the two countries show convergent trends.