Foreign entry into Chinese banking: Does WTO membership threaten domestic banks?

There have been two extreme sentiments among economists and officials toward the impacts of foreign competition on the domestic banking sector. Some are captured by excessive fear about survivability of the extraordinary weak domestic banks while others are much more optimistic given the huge networks of the domestic banks. In any case, how to navigate in the potentially turbulent waters following the WTO accession is the crucial concern for Chinese policymakers today. In this policy paper, we consider the impact of foreign entry in Chinese banking based on the experiences of the Central European fast- track transition economies, taking into account the current situation in China and the prospects for reform. We also take a tentative glimpse into the future that should allay the worst fears of the Chinese authorities.