Financial Fragility Without Financial Instability: Reform in the Chinese Banking System: Zhu Rongji's and Its Aftermath

Leonardo Burlamaqui

Economics Working Paper Archive from Levy Economics Institute

Abstract: Between the late 1990s and mid-2000s, China's banking sector underwent a profound yet largely underappreciated transformation--arguably one of the most consequential episodes of financial restructuring in recent economic history. This paper analyzes the Chinese banking reform process through a Minskyian lens, with particular attention to the conceptual ambiguity between financial fragility and financial instability in Minsky's own formulation. The core contribution lies in demonstrating that the reforms implemented under Zhu Rongji successfully resolved a condition of deep and systemic financial fragility without tipping into full-blown financial instability. In that sense, China’s banking overhaul constitutes a non-Minskyian resolution to what was, in classical terms, a Minsky-type problem. The Chinese case thus provides a rare empirical example of mounting financial fragility managed without crisis--offering critical insights for contemporary efforts at financial stabilization under conditions of systemic vulnerability.

JEL-codes: B5 E02 G28 (search for similar items in EconPapers)
Date: 2025-07
New Economics Papers: this item is included in nep-cna, nep-fdg, nep-his and nep-sea
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