From the Pacific Exchange Blog
China’s money market is growing rapidly and playing an increasingly important role in the financial system. It serves as both a key channel for monetary policy and as a source of funding for a variety of financial institutions. Recent data reveal that non-bank financial institutions have emerged as the largest borrowers, bringing along new risks to financial stability.
China now has one of the highest leverage ratios among emerging economies, with its corporate debt-to-GDP ratio greater than any other major economy. The debt overhang poses challenges to the country’s economic transition and financial stability, although a full blown banking crisis is unlikely.
Remittances exceeded $600 billion worldwide in 2015 with more than two-thirds going to developing countries. Developing Asia receives more remittances than any other region—roughly $200 billion—and in some countries remittances even exceed foreign direct investment inflows. Meanwhile, innovations in payment systems can reduce remittance fees dramatically, increasing the earnings sent back to migrants’ friends and families—and supporting economic growth in Asia.
This Asia Focus outlines the history of financial and banking reforms in Taiwan, analyzes problems that developed in the banking sector after liberalization, and evaluates current initiatives by regulators to address those problems.