This work argues that 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 household savings into money-losing companies. It suggests China should recapitalize and restructure its banking system.

This timely book 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. 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.