In This Review

China's Unfinished Economic Revolution
China's Unfinished Economic Revolution
By Nicholas R. Lardy
Brookings, 1998, 280 pp

An economist who specializes in China argues that for the last two decades state-owned banks have channeled a large share of sharply rising household savings into what are mostly unreformed, money-losing companies, and several of China's largest financial institutions are now insolvent. To avoid a major domestic banking crisis, China must end the long-standing practice of making lending decisions on political rather than economic criteria. The share of bad bank loans in China is now higher than it was in Korea or Thailand just before the onset of their financial crises last year. Fraud, corruption, and other lending irregularities are endemic. Like some other Asian countries, China needs not only to reform its financial system but also to restructure its industrial sector, which together will require the state and the party to surrender a great deal of economic and political power. Those who magnify the "China threat" by extrapolating from China's past growth rates are seriously mistaken. The United States needs to assist in China's enterprise and bank restructuring program.