Will Reforms Lose Momentum in China?

Not necessarily, according to Wu Xiaolin, an official government economic advisor writing in Caijing, China's widely respected business magazine:

Thirty years of economic reform set a course for the enormous achievements now apparent in China's financial sector. By and large, a macro-regulation mechanism and a financing system are solidly in place, providing a proper environment for market development.

Nevertheless, China's financial services sector lags far behind the relatively sound system in the United States. Although the United States is currently plagued by an unprecedented financial crisis, it still plays a leading role around the world, with the U.S. dollar holding a dominant position.

China's economy has been integrated into the world economy; we cannot and should not close our door again. However, decision makers that set policy for the financial sector have been excessively cautious. The lack of a trailblazing spirit has created a bottleneck that restricts the further development of China's financial services industry and negatively influences efficient resource allocation.

It takes a brave soul to call for continued deregulation in the current climate, but Wu is exactly right. If the US was out at one end of the regulatory spectrum, with far too little oversight, then China is at the other. Many financial instruments are entirely lacking, and the government already owns most of the banking sector. The country had been making huge strides in putting in place a modern financial system, but recent remarks by some policymakers had called that path into questions.

Wu's arguments are a hopeful sign that the world - or at least China - won't swing too far in learning the lessons of this crisis and forget the benefits a financial system that is market based can bring, as long as it's not permitted to swing entirely out of control.