Finance in China - Removing ambiguity over governments role

TLDR: This article pointed out that three major emerging development problems of the Chinese financial system -region misallocations, the equity overhang, and the funding of infrastructure, each have their roots in an uncertain and increasingly dysfunctional ambiguity in the dividing lines between state and market-driven control.

Abstract: Chinese economic development is placing increasing demands on the financial sector. There are many aspects to this, including the pressing need to upgrade institutional capacity. Some aspects of the challenge expose deeper issues. This note focuses on one pervasive aspect. It points out how three major emerging development problems of the Chinese financial system - regional misallocations, the equity overhang, and the funding of infrastructure, each have their roots in an uncertain and increasingly dysfunctional ambiguity in the dividing lines between state and market-driven control. Drawing on both international experience and recent research findings specific to China, the paper illustrates the damaging effects showing how hitherto apparently unrelated problems may reflect an aspect of the same ambiguity. A reorientation and clarification of the dividing line between state and private thus offers wide-ranging benefits.