This paper addresses questions related to the cost of China's bank restructuring and financing. We first propose a framework for recognizing losses. Then, we examine the recent major moves by the Chinese government to repair the country's bank balance sheets. Finally, we explore the implications of the Chinese ways of funding the bank restructuring. We find that the Chinese government has been decisive in confronting the costly task of bank restructuring. Looking through the elaborate funding arrangements adopted so far, the Chinese taxpayers have paid most of the bill.


I am grateful to my BIS colleagues and to participants in the CEPII seminar “China's financial system: the links between openness and banking crisis” (Paris, September 2005) and the Asian Economic Panel Meeting (Seoul, May 2006). I am particularly indebted to Robert McCauley, Wing Thye Woo, and Rikuichi Nikawa. Of course, any remaining errors are mine. The views expressed in this paper are those of the author, and are not necessarily the views of the BIS.

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