Netizens and Private Monitoring in Chinese Banking

Purpose: Much of the criticism directed toward banking in China revolves around self-dealing in relationships between bankers and their clients. Corruption, nepotism, high levels of non-performing loans and the inefficiency of government-directed lending have all been laid at the door of embedded guanxi networks. While valid to an extent, this criticism ignores two important, related points: guanxi networks bring disciplining mechanisms as well as the potential for corruption, and those mechanisms may improve banking governance.Design/methodology/approach: Employing theory from relationship banking, information economics and the business ethics of guanxi, I examine how monitoring by netizens will lead to greater disclosure.Findings: Relationship banking in a Chinese context - with the influence of guanxi in banking - further increases reputational costs when self-dealing is uncovered. Costs of bad banking behavior are increasing just as benefits from staying rich increase. Increased disclosure affects chances of staying rich as disclosure increases the chance that a corrupt relationship will lead to loss of wealth and reputation.Research limitations/implications: This chapter presents a theoretical construct informed by selected examples. An empirical analysis of netizen monitoring leading to improved banking governance would provide additional support for the theoretical construct.Practical implications: Bankers, financiers and government officials must be aware of monitoring by netizens, which forces more ethical financial contracting.Social implications: Rather than weakening financial system governance, guanxi may begin to strengthen the discipline measures inherent in relationship banking as information disclosure increases and private sector monitoring grows.Originality/value: This chapter provides an extension to private monitoring theory in financial contracting which may be applied to netizen monitoring in other regions and countries