Chinese Banking Reforms: An Analysis and Evaluation of Non-Performing Loans

The objective of this study is to examine the effect of corporate governance, and government influence on non-performing loans of Chinese banks. It is further identified the main causes of non-performing loans in developing and transition economies. The problem of non-performing loans causes inefficiency and non-productivity in the banks. Chinese banking sectors has suffered with this chronic disease. Several reforms and measures have taken to counter with NPLs problem by China. The data on Chinese listed commercial banks over the period of 2000-2013 has used for the analysis. The data of Chinese Banks are collected from CSMAR, a very reputable database of Chinese listed firms and from Almanac of China Finance and Banking a detailed periodic survey book on Chinese banking. The results of this study revealed that after getting privatized, the banking performance of Chinese banks has improved significantly. Further, The results suggest that the corporate governance practices has some influence on Chinese banking sector NPLs such as, board size and board independence are negatively and positively influence the Chinese banking sector NPLs respectively. This result is rather unusual as banking NPLs literature suggested. Our results suggest that a large board size may reduce the banking NPLs in China. However, the increased board independence works oppositely.