Creeping Reforms Raise Systemic Risk

Abstract

Structural reforms are the essential elements behind full renminbi (RMB) convertibility and, hence, internationalisation. So far, China has been pursuing gradualism in its economic reform and financial liberalisation programmes. This approach has resulted in a creeping reform pace, but it has also avoided major risk blowouts. However, there are reasons to believe that China’s reform process has come to a crossroads, as its economy has become more market orientated and complex. This economic evolution has contributed to China’s confusing and inconsistent reform moves in recent years. This, in turn, underscores our argument that the Chinese leadership lacks a coherent reform vision (see Chapter 6), which will adversely affect the RMB-nisation process going forward.