【正文】 State Development Bank, Agriculture Development Bank, China ExportImport Bank — to relieve state mercial banks of their traditional policy mandates. Third, the government promulgated central banking and mercial banking laws in 1995 to provide the legal foundation for banking reform. Fourth, beginning from 1996 the government began to vigorously pursuit enterprise reform that paved the way for banking reform, even this resulted in large and painful layoffs of redundant state workers. Pursuing enterprise reform ahead of banking reform was necessary considering that stateowned enterprises were the main clients of state banks and hence their main source of nonperforming loans NPLs, which was at the same time the contingent liability to the government. Hence, unless the reform of stateowned enterprises takes hold, any reform effort of the state banks would be in vain. On the other hand, as soon as the stateowned enterprise reform was pressed forward, the banking reform could no longer be postponed. This is because as stateowned enterprises were restructured, liquidated, merged, or bankrupted out of existence, the banks must start to recognize the hidden losses on their books. This, in turn, triggered the need to recapitalize the banks, as a large amount of nonperforming loan was writtenoff. Fifth, the State Council in February 2020 decided to reform solely stateowned mercial banks into internationally petitive financial enterprises, transform them into statecontrolled shareholding mercial banks,and encourage listing their shares in the market. Sixth, China Banking Supervisory Committee was created in 2020 to raise the regulatory capacity to supervise banks. Finally, adhering to the 2020 WTO accession agreement, the government uses the entry of foreign banks into the local banking market to inject petitive pressure to the local banking industry in order to gain efficiency. Beginning from the end of 2020, foreign banks can engage in local currency business. . Reforming corporate governance and restructuring the balance sheet The country’ s large state banks have followed several steps to undertake internal corporate reform. The first is to reform the corporate governance by inviting other investors to dilute the sole state ownership while still retaining its dominance. In 4 particular, the banks have made an effort to seek foreign strategic partnership with the view to bringing in modern banking practices and technology. The broadening of ownership also entails selling a portion of bank shares to the equity market to make bank management accountable to the marketplace. To successfully woo outside investors, be it strategic partners or public investors, the banks must put forward a creditable inhouse reform plan and implement it credibly. No doubt, the better and more credible the internal reform plan is, the more likely it is for the banks to attract reputable outside partners and fetch a better deal with their counterparts or in the equity market. Hence, the first step the government undertook was to strengthen the balance sheet of state banks whose credit flows had been clogged up by inadequate capital and piles of bad debts accumulated under the previous economic planning regime. In 1998, the government issued RMB270 billion (US$ billion) worth of 30year fiscal bonds to recapitalize the balance sheets of the four largest state banks: ICBC, BOC, CCB, and ABC in order to ply with the international capital adequacy standards. Again, on December 30, 2020, the government provided US$ billion each to CCB and BOC, with US$15 billion provided later in April 2020 to ICBC to support their respective listings in the Hong Kong stock the four largest state banks, CCB was the first to have its shares successfully listed in the Hong Kong stock exchange and thus the first to have its reform effort passed by the market test. In addition, as part of the scheme of recapitalization, the banks also issued subordinated debt to the local market:BOC, RMB60 billion。 % for CCB。 BOC,%. In the meantime, asset quality continued to improve as the NPL ratio continued to drop. By the end of June, the NPL ratio of ICBC and CCB were, respectively, % and %, representing a decline of and percentage points, respectively, from the end of 2020. Judged by record profit, much improved asset quality, and high ROE,the recent financial performance of the four large state mercial banks is nothing short of spectacular. Furthermore, as fee and mission ine and more broadly retail banking revenue has taken off to bee a strong source of profit growth, banks appear on track to realize their longterm strategic goal of diversifying into a more stable base of ine generation that is less prone to business cycle risks. Thus, large state mercial banks appear to have e a long way in reforming themselves into a modern mercial bank. This oute should be a surprise to some of earlier research findings that argue state mercial banks did not seem to have changed bank behavior fundamentally after launching banking reform. For instance,Podpiera (2020) shows that banks do not appear to make lending decision based on a mercial basis. Dobson and Kashyap (2020) assemble macroeconomic, microeconomic and anecdotal evidence suggesting that the pressure to make policy loans is continuing despite the reforms. However, the recent empirical work by Demetriades et al. (2020) seems to counter their findings by showing that bank loans is positively correlated with future value added and TFP growth during 1999– 2020, even for stateowned enterprises. Moreover they find that firms with access to bank loans tend to grow faster in regions with greater banking sector development. Can this financial performance of banks be sustained? It appears that the good financial performance has be