Americans have difficulty
comprehending how and why China works the way it does, giving rise to increasing friction between the two countries. This lack of understanding extends to China’s banking system, which is a microcosm of China’s political economy. Contrary to much media reporting, China’s banks have been transformed over the past 15 years into modern financial institutions. At the same time, shaped by centuries of Chinese institutions and values, and deeply embedded in the Chinese market socialist political economy, Chinese banks fundamentally differ from Western banks. Chinese banks play a dual role– provide shareholders with return on investment (the market role) and support the party-state’s national development agenda (the socialist role).