Financial Development and Banking Stability in China: Evidence from 2000–2021

This paper documents how financial depth and banking-system stability evolved together in China between 2000 and 2021. Using 22 annual observations from the World Bank Global Financial Development Database, it examines private credit by deposit money banks to GDP, deposit money banks' assets to GDP, and China's banking-system Z-score. Private credit rose from 111.01% to 178.13% of GDP and bank assets from 118.39% to 214.23% of GDP, while the Z-score increased from 19.24 to 25.02. In levels, both depth indicators are positively correlated with the Z-score (0.671 and 0.670). Simple robustness checks, however, show that this association is fragile: year-to-year changes in depth and stability are essentially uncorrelated, and within 2006–2014, a period with a consistent data source, the correlation is close to zero. The full-period correlation is driven mainly by long-run trends and by two level shifts in the Z-score, in 2006 and in 2015, the latter coinciding with a change in the underlying data source. The results are descriptive and do not identify a causal effect; they point to bank-level panel data as the next step.