Remapping the financial system in a transition economy: The case of China

China's economic transition began at the end of 1978. The traditional planned economic system resulting artificial low interest rates, price, and overvalued exchange rates still heavily govern the financial system. The government now faces the challenge of ensuring their effective implementation in financial system where inherited structural constrain is the main problem. Ultimately, the financial sector need to be mobilized by which the resources could be allocated in a more effective and prudent manner, to support stable and sustainable growth, improved quality of life and better employment opportunity. This case study describes the nature of China financial market and offers a big picture of its current performance. It focuses on Chinese capital market and examines the appropriate role for an efficient capital market. The paper also analyzes the structure and behavior of the banking industry and critically discusses the central bank, the effectiveness of fiscal and monetary instruments, and it’s implication on exchange rate system. Finally, it illustrates the design of emerging banking regulation in transaction process and the future challenges and policy recommendations.