China's Unfinished Economic Revolution [Hardcover]

Nicholas R. Lardy (Author)

Book Description

Publication Date: September 1998

"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 le ss 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. Nicholas R. Lardy is a 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).

Product Details

• Hardcover: 304 pages
• Publisher: Brookings Inst Pr (September 1998)
• Language: English
• ISBN-10: 0815751346
• ISBN-13: 978-0815751342
• Product Dimensions: 9.3 x 6.3 x 1.1 inches
• Shipping Weight: 1.4 pounds (View shipping rates and policies)
• Average Customer Review: 3.7 out of 5 stars  See all reviews (3 customer reviews)
• Amazon Best Sellers Rank: #4,035,115 in Books (See Top 100 in Books)

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Customer Reviews

Most Helpful Customer Reviews

20 of 20 people found the following review helpful:

5.0 out of 5 stars Timely, critical but not theoretical enough, February 12, 1999

By A Customer

This review is from: China's Unfinished Economic Revolution (Paperback)

This timely book by Lardy explains: 1) the intermingling of China's gradualist reform, the inefficiency of SOE and the evolving banking system; 2) the structure and practise of the banking system of China; 3) some of the implications of the looming financial crisis in China. It thus serves as a critical and timely piece for readers to gauge what has been wrong for China and why are the policy implications. There are a few points worth highlighting. First, the cost of the gradualist reform approach is the resulting inefficiency in SOE and the related banking crisis, a cost which is usually forgot in the debate on the pace of reform for emerging economy. Second, the relative size of SOE in China, despite all the measures to stimulate private sectors for the past two decades, is still large, particularly from the perspective of bank lending. This has been reducing the strength of the banks and limiting the availability of funds to private enterprises. Third, due to the lack of other forms of investment, Chinese banking system has absorbed most of the saving from the private sector. However, because of the fragile banking system, deposit rate has been politically controlled at a very low level. This is effective taxing the Chinese household and subsidising the borrowers, i.e. the inefficient SOE. Forth, related to the third point, liberalisation of capital market will post a serious threat to the banking system because it will take away the funding source from the banking system. Fifth, the Asian flu would post limited short term threat to the Chinese system primarily because it is still a closed system. However, long term implication is clear and the Chinese leaders are aware of the similarity of the Chinese symptoms to those of the Asian flu. The only problem from this reader perspective is the level of theoretical underpinning. The piece is full of details in most of the aspects it is addressing. The missing piece however is that it fails to put the banking crisis into a larger perspective of the transformation of socialist system. Although a full discussion in this aspect may perhaps require an entire book itself, a brief discussion seems appropriate given that Lardy commented on some of the more theoretical aspect of the study in Chapter 5.

18 of 23 people found the following review helpful:

2.0 out of 5 stars A well researched publication, athough biased in argument., March 25, 1999

By 

[e-mail] (Australia) - See all my reviews

This review is from: China's Unfinished Economic Revolution (Paperback)

Firstly, let me say the research Nicholas Lardy has conducted is commendable and a welcome addition to the existing literature. His data sources are vast and highly informative. The major limitation of this publication is that the central argument is biased. Lardy selects those data and pieces of existing literature which support his own view. As a result, major sections of the literature concerning financial reform in transitional economies are simply ignored or brushed over. Lardy's view is the typical Western, dare I say "American" argument. Primarily he uses financial criteria to evaluate the economic performance of China's state banks. This methodoloy is extremely poor - particularly in the context of China's trannsitional economy. Financial criteria are a horrible guide to both internal and allocative economic efficiency. If anyone would like elaboration on this point feel free to email me. In summary, Lardy's book is informative and makes for interesting reading. However as a piece of economic analysis, its usefulness is limited. The major reason for this is a total lack of economic theory(as indicated by the previous reviewer) which has resulted in a poor methodology.

1 of 1 people found the following review helpful:

4.0 out of 5 stars needs an update, May 31, 2006

By 

W Boudville (Terra, Sol 3) - See all my reviews
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This review is from: China's Unfinished Economic Revolution (Hardcover)

It is now 8 years since this book came out. China has continued to astonish the world with its rapid growth, which certainly does not exclude its banking system. Under these circumstances, an update of this book would be timely.

The issues discussed are still germane. Though today's numbers would be expected to be larger. As I write this, just a few days ago, a major Chinese bank had a very successful IPO. It appears that the key issue of bad loans is being gradually ameliorated by policies of the major banks and, implicitly, by the Chinese government, through repeated capital injections.