Скачать или смотреть China’s Financial Crisis Explained, Episode IV: No Reform After Zhu Rongji

Today, the word “reform” is still frequently invoked. Yet after Zhu Rongji, China has had no genuine financial reform in any meaningful sense. What remains is merely the concealment, delay, and transfer of risk.
The reason reforms from the Zhu Rongji era are repeatedly recalled is that he dared to acknowledge problems, expose risks, bear the costs, and rebuild institutions. Whether it was the “grasp the large, let go of the small” restructuring of state-owned enterprises, massive layoffs and reallocation of workers, or the stripping of banks’ non-performing loans, the creation of the four asset management companies, the establishment of regional banks, and the reshaping of the boundary between fiscal and financial systems, the core logic was the same: endure a one-time, concentrated clearing in exchange for long-term stability.
This logic, however, was systematically abandoned after Zhu Rongji. Entering the 21st century, the central problem of China’s financial system has been the accumulation of risk: soft budget constraints for local government financing vehicles, the extreme financialization of real estate, implicit guarantees for state-owned enterprises, and the deterioration of bank asset quality. More crucially, the response path fundamentally changed—no longer clearing risks, but obscuring them; no longer reforming, but delaying.
The problem of non-performing loans in the banking system has no longer been addressed head-on. Instead, it has been made to “disappear” through loan extensions, rolling over old debt with new borrowing, balance-sheet adjustments, and the rewriting of statistical definitions. The non-performing loan ratio has been artificially suppressed at an extremely low level for years, while the capital adequacy ratio has been falsely pushed to lofty heights, becoming a politically correct decorative statistic. Meanwhile, real risks have been shifted into “accounts receivable,” “non-standard assets,” “local government financing vehicles,” and “policy-driven projects,” forming a vast gray zone.
The same is true of local government debt. A genuine reform path should have clarified the boundaries of local public finance, broken implicit guarantees, and allowed selective defaults in order to rebuild budget discipline. Instead, the actual choice has been debt swaps, maturity extensions, interest-rate reductions, and renaming statistical categories. Debt has been transformed from a “short-term problem” into a “long-term condition,” from something that “must be resolved” into something that “must be stabilized.”
The real estate sector is the ultimate embodiment of this strategy of delay. Once real estate became the triple pillar of local public finance, bank assets, and household wealth, any meaningful clearing would trigger systemic shock. As a result, policy goals shifted away from “returning housing to its residential function” toward “preventing prices from falling too fast.” From the “three red lines” to “recognize the home, not the loan,” from aggressive tightening to comprehensive backstopping, the swings appear erratic, but the underlying logic is consistent: do not resolve the problem—just prolong its life.
After Zhu Rongji, China has not lacked policies; it has lacked reforms that are willing to bear real costs. The core objective of all financial policy has shifted from “improving efficiency” to “avoiding loss of control,” from “institutional reconstruction” to “risk postponement.” This is not a matter of insufficient technical capacity, but a political choice. And this is precisely the deepest root of China’s current financial predicament.