Chinese reform banks on MBAs. (Market Horizons).

In Beijing, deep in the halls of the Bank of China, glimmerings of a small revolution are appearing. Corporate governance is emerging in China's oldest bank. It can be seen too in Shanghai and Shenzhen--home to the country's largest stock exchanges. The movement can also be found on college campuses.

Financial transparency in China remains rare, but for evidence of changes starting to take place look to the bank that has issued more than 18 million Great Wall credit cards. At the Bank of China the government has installed reformer Liu Mingkang, who has an MBA from the City University of London as well as a reputation for taking on corruption. Last year he released to the public the bank's bad debt figures--a first for a state-owned Chinese bank.

Beijing also installed at the bank four outside directors who run the all-important audit committee. These appointments were motivated by the government's plan to float shares of the bank on the Hang Seng Index in Hong Kong. China's leaders realize that the more the bank conforms to international financial norms, the more money they will take away from the public offering. In April, in an effort to distance itself from the Enron debacle, the Bank's Hong Kong branch dumped auditor Arthur Andersen.

But that's not the only example of China's newfound enthusiasm for sound financial management. The strongest sign is the influx of Chinese students to U.S. colleges and universities. Nearly 6 percent of foreign students in U.S. universities come from China, the largest number from any country, and they are arriving to study business, accounting and finance--not just engineering, mathematics and computer science, as they did in the past. What's more, MBA programs in China itself, often run in conjunction with top-notch foreign universities, are taking off. In April, a joint MBA program between the Olin School of Business at Washington University in St. Louis and Fudan University opened in Shanghai. Its plan? Turn out MBAs who can help reform troubled state-owned companies.

China, like many Asian countries, has a large pool of savings. Its personal savings rate is 40 percent, compared to an average of 6.4 percent in the G-7 countries. But China seems to be taking a different strategy than most of the rest of Asia in determining how its financial markets put those savings to use. In Japan, policymakers over the years have imposed obstacles that essentially prevent financial markets from efficiently allocating capital.

Beijing, which views itself as a world power, has seen Japan's problems and, instead of mimicking its neighbor's approach, is trying to create efficient markets. This should help the country succeed in the long run.

China's financial world provides a good starting point for reform. Its stock markets, which were introduced on an experimental basis in the early l990s, are in their infancy. Nevertheless, the country has an active shareholder class, and retail investors dominate trading on the major exchanges.

In sheer numbers, shareholders in China now surpass those in Japan. The combined capitalization of China's major exchanges reached $520 billion in late March, ranking it second after Japan's. There are more than 1,100 listed companies.

However, financial markets remain prone to abuse, and progress in reform is erratic. In January, the Bank of China was fined $20 million by U.S. and Chinese regulators for making irregular loans through its New York branch.

That glitch is unlikely to stop China's leaders, who want to put China on par with the United States. Beijing understands that it is access to broad, liquid and diverse capital markets that underpins America's power. To measure up, officials are determined to install U.S.-style market infrastructure.

But the social consensus underpinning this transformation remains fragile. A big scandal that undermines trust in financial markets could have political ramifications, and it could mobilize popular support against further economic and financial reform. China's leaders know they cannot afford this--and that is why they hope to spark a new corporate governance revolution.

Stephan Richter ([e-mail]) is publisher of TheGlobalist.com.