State Bank Privatization: The Role of The China Model and Strategic Directions for Expanding Participation in The Securities Market

Abstract

The transformation and privatization of state-owned banks play a pivotal role in fostering financial stability, improving competitiveness, and expanding capital market participation, particularly in developing economies seeking to modernize their banking systems. Uzbekistan, like many transitioning economies, is undergoing reforms to align its banking sector with global market standards. The state’s dominant position in the financial sector is being re-evaluated through policy measures guided by international experience, especially the strategic “China Model” of bank privatization. Despite growing global interest, there is limited empirical research on the strategic sequencing and effectiveness of privatization models specifically tailored to developing markets, especially concerning the role of state banks in the securities market. This study aims to examine strategic directions for expanding state banks' participation in the securities market during privatization and assess the applicability of the China Model to Uzbekistan’s context. The analysis highlights key areas including institutional reform, public IPOs, restructuring before divestment, and prudential supervision. Empirical data show that staged IPOs, improved governance, and foreign strategic investment enhance transparency and competitiveness. The Chinese model, with its blend of state oversight and market participation, has proven effective in boosting bank performance and reducing non-performing loans. The study introduces a comparative framework for evaluating state bank privatization strategies with emphasis on the role of securities markets, drawing actionable lessons from China’s hybrid model for broader applicability. Findings inform policymakers on balancing efficiency and control during bank privatization. Strategic sequencing, regulatory integrity, and inclusive capital market development are crucial for ensuring successful outcomes in the privatization of state-owned banks.