The Incentive Problem Standing in the Way
Despite the central leadership’s strong reform motive, the economic system is plagued by incentive incompatibility problems. This has resulted in a battle between positive and negative forces that are influencing reforms. On the one hand, the central reform determination delivered some macroeconomic success on restructuring the economy even before the Xi Jinping administration. There is evidence for China engaging in massive creative destruction in the 1990s. Mr Xi is trying to build on this success by intensifying structural changes. On the other hand, incentive problems are obstructing his government’s efforts to make deeper changes to resolve the Impossible Trinity policy puzzle.
KeywordsStructural Reform Capital Account Incentive Problem Financial Reform Trust Company
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