The financial systems of China and Vietnam are defined by a shifting balance between state and market forces. Both countries have banking systems that are large and increasingly market-oriented, yet the government still retains a significant role through the ownership of major banks. China and Vietnam initially based their banking systems on the Soviet model of a single government-owned bank. Both countries altered this model substantially in the 1980s and 1990s as they began to open and reform their economies. The subsequent process of banking reform in China and Vietnam has been gradual and piecemeal. While this approach has generally resulted in financial stability, both countries have faced significant financial crises that stemmed from unfinished reforms.
This Asia Focus examines similarities in the process of banking reform in China and Vietnam, analyzes how both countries have dealt with financial crises, and draws lessons from their shared experiences that may be useful for other countries undertaking financial reforms.