China's Unfinished Economic Revolution

China's Unfinished Economic Revolution offers a fundamentally different interpretation of China's economic reform. The common view that China's gradualistic approach has served it well overlooks the fact that state-owned banks for the last two decades have channeled a large share of sharply rising household savings into what are mostly unreformed, money-losing companies. The result is that several of China's largest financial institutions now are insolvent. To avoid a major domestic banking crisis the book argues that China must recapitalize and restructure its domestic banking system and end the long-standing practice of making lending decisions based on political rather than economic criteria. Nicholas Lardy explains that this course will inevitably be costly in political terms, in part because it will lead for a time to a slower rate of economic growth. But the alternative is even less attractive—permanently slower growth, continued macroeconomic instability, an inability to meet the expectations of the international community for the opening of its domestic financial markets, and insufficient resources to deal with severe environmental deterioration, growing water shortages, and a rapidly aging population. This timely book also analyzes the new reform initiatives China has launched in the wake of the Asian financial crisis, suggests additional steps that must be taken, and evaluates the implications for U.S. policy.

About the Author :
Nicholas R. Lardy is a senior fellow at the Institute for International Economics and a former senior fellow in the Foreign Policy Studies program at the Brookings Institution. His previous books include China in the World Economy (Institute for International Economics, 1994) and Foreign Trade and Economic Reform in China, 1978-1990 (Cambridge, 1992).

Review :
"China's ability to complete successful reform of its banking system is central to the question of whether China will be able to sustain high economic growth. Nick Lardy's book is the most detailed and authoritative study to date of the current state of Chinese banking and of the reforms that are required. Anyone interested in the Chinese reform challenges that still lie ahead will want to read this book. " --Dwight H. Perkins, Harvard University "Nicholas Lardy's China's Unfinished Economic Revolution is a sober, balanced, and realistic discussion of where China has really been in the recent years of economic reform, and where it must go now if it is to continue to be successful. Lardy's analysis of the reforms needed in the banking system and the state-owned enterprises should be read by everyone concerned with China in the political sense, from the economic policy perspective, and certainly everyone involved in investing and doing business with China. I would also hope that this book would be read carefully in Beijing and Washington and that leaders on both sides of the Pacific would listen to its wisdom. " --Peter G. Peterson, Chairman of the Blackstone Group, the Council on Foreign Relations, and the Institute for Internatio