The next few years will test the resilience of the posttransformation Chinese banking system. Banks must cope with the transition to the “New Normal” and decelerating growth as the economy moves to a more balanced and sustainable model. This will cause a rise in NPLs, but as long as government policy eases the economy into a “soft landing,” NPLs will not rise to crisis levels. The transformation has succeeded in producing a banking system that is stable, that is reasonably efficient, and that provides broad financial access. The challenge for the West will be to understand China’s banking system on its own terms, not through a “Western lens.” The banking system is a microcosm of China’s political economy as a whole, so understanding of how it works will assist in understanding how China’s economic and political systems work successfully. Understanding requires dropping a doctrinaire Western analytical framework.
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