The separation of the government from the industry in telecommunications sector was carried out in a gradualist or experimental manner to make sure a “reform without losers”. Both the supervising ministries and local governments became the “early winners” who were in favor of the status quo. A meaningful industrial reform started from 1994 but ended in 1998. China’s entry into the World Trade Organization (WTO) was just right on time to secure the outcome of the reforms. However, determined by the nature of uncompetitiveness and state monopoly, the telecommunications sector was against the liberalization requested by the GATT/WTO members. Close administrative and financial connections between the supervising ministry and subordinate sector caused a high degree of convergence of their interest that in turn implies that the ministry had strong incentives of protecting the sector. After having terminated the fragmented governance since 1995, the Ministry of Information Industry (MII) successfully prevented the sector from giving much concession compared to the other sectors during Sino- US negotiations. Although a limited concession was made, it is possible that the supervising ministries would not fulfil its commitment. On the one hand, the MII would refuse to cut off its administrative and financial ties with the enterprises. On the other hand, the enterprises would still be willing to be protected by the government for the monopolistic benefits. Even though the door is half-open to international competition, the Ministry had developed other means to block the entry of foreign service providers. A new form of fragmented governance is taking shape since 2003 when the State Asset Supervision and Administration Commission (SASAC) was founded. It created tensions between the bureaucracies and might create loopholes for the foreign entry in the future.

The Article first presents a brief history or survey of some of the earlier problems that associate with China’s banking and financial institutions. The Article then addresses specific problems, in the context of the rules, procedures, and practices of the banking and finance sector, which widely range from non-performing loans, to China’s money market and interbank lending business. These problems also directly associate with the liberalization of the banking and finance sector of the economy, and the requirements of both the WTO rules and China’s WTO Protocol on accession. The Article also briefly explores the US sub-prime mortgage crisis and its contagion effect throughout the world, including the Asian region. In the context of China and the subprime crisis, the Article summarizes some of the problems that associate with China banking and financial institutions, by focusing on the policy implications of the history of banking and finance in China, and what this means in terms of both WTO compliance and greater liberalization of banking and financial institutions, especially pursuant to the WTO GATS, as service industries. All of this, eventually, allows for the presentation of certain conclusions concerning China banking and finance in the new era of a global subprime crisis.