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U.S.-China Economic AND Security Review Commission

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    The U.S.-China Economic and Security Review Commission is a legislative branch commission created by the United States Congress in October 2000 with the legislative mandate to monitor, investigate, and submit to Congress an annual report on the national security implications of the bilateral trade and economic relationship between the United States and the People’s Republic of China, and to provide recommendations, where appropriate, to Congress for legislative and administrative action.

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    The U.S.-China Economic and Security Review Commission is chartered to monitor, investigate, and report to Congress on the national security implications of the bilateral trade and economic relationship between the United States and the People’s Republic of China. The Commission meets its research mission by submitting to Congress an Annual Report, as well as by conducting staff-led reports, contracted research, and more.

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China’s Banking Sector Risks and Implications for the United States

05/27/2020
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Despite four decades of promised liberalization, the Communist Party-state retains the ability to intervene decisively in China’s banking system to achieve desired outcomes. This comprehensive report lays out how China’s banking system has reached an important juncture, as two ongoing and competing constraints have been exacerbated by the current COVID-19 pandemic: (1) Banks of all sizes are under pressure to clean up their balance sheets, raise new capital, and dispose of bad loans; and (2) Beijing is forcing them to boost lending to struggling companies at nonmarket rates to forestall a further slowdown in the pace of economic growth. Further, Beijing’s focus on maintaining stability and control warps market incentives by encouraging investors, creditors, and depositors to evaluate a bank based on its likelihood of receiving government support if there is a risk of insolvency rather than on its individual fundamentals​.

As the COVID-19 fallout grows, exchange rates are the most likely channel through which economic pain could be transmitted to U.S. investors. But a number of other channels, such as the inclusion of Chinese equities into major international indexes, are also raising the exposure of U.S. investors and savers to China’s risky banking system. The report concludes by providing policy considerations for Congress and describes the opportunities and tradeoffs involved in the deepening integration of the U.S. and Chinese financial sectors.

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China’s Banking Sector Risks and Implications for the United States894.64 KB

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