[TigerLikesRooster]

RE #26

I am not talking about Chinese economy in the future when its domestic economy is well-established. But its domestic economy now. Any serious financial crisis can damage both domestic and export sectors. With sound financial sector and no state-sector bleeding the rest of economy, China can have self-sustaining domestic economy. But I do not think China is there yet. Hence, the vulnerability.

[AIG]

It's hard to move from a 100% communist to 100% market financial sector very quickly. Even despite China's banking problems, foreign investment in China this year will be the highest it's ever been. I remember during the 1997 Asian financial crisis also that China was about the only economy in the region not to be affected due to the non-convertibility of its currency. It would seem that China's economy is more insulated than vulnerable to external shocks.

[AIG]

Probably what holds China back from reforming its banking sector more quickly than otherwise is that those banks are needed to continue to provide money to China's state sector, so that workers are not laid off in a too-quick manner. If workers are laid off at a moderate rate, then China's overall economy can absorb them. But if workers are laid off too quickly, China's overall economy can't absorb them so there might be social unrest, which doesn't serve China's long-term interests or America's.