Asia Briefing: World Bank makes open call for reform of ‘distorted’ role of the state in China

In many ways, the stock market's woes have come at a particularly difficult time with the World Bank calling on China to reform.

In its China Economic Update report, the Washington-based lender said that the world's second biggest economy needed to speed up reform of its financial sector, which is dominated by state institutions.

The World Bank is normally pretty cautious in how it approaches issues such as reform in China, because of the knotty political backdrop, but this time it was forthright, criticising the “unique and distorted role of the state” in banking and the finance sector generally, and warned that failure could bring to an end “three decades of stellar performance”. It said “wasteful investment, over-indebtedness, and a weakly regulated shadow-banking system” needed to be dealt with.

"Unlike other countries, in China the state still maintains pervasive ownership and control of banks and other financial institutions," it said, including with powerful internal Communist Party committees and authorities appointing and dismissing top executives.

The French news agency Agence France Presse subsequently reported that the World Bank removed a critical portion from its China Economic Update, saying the section had not been adequately reviewed.