China Isn't Ready for Creative Destruction

China's system of moral hazard won't be worth much until it passes far more ambitious financial reforms.

Nothing to fear.

Photographer: Feng Li/Getty Images

Has China's Joseph Schumpeter moment arrived? China has suggested its decision to roll out deposit insurance for bank accounts beginning on May 1 will usher in a wave of creative destruction, chastening the cronyism that plagues the country. And there is some logic to the official spin. There's a flip side, after all, to Beijing's declaration that normal consumers will be kept safe in a period of market turmoil -- namely, the banks themselves could be permitted to go bust.

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