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Barry Naughton on the Pace of Economic Reform in China

Stoneless rivers

The Economist

Trusting investors can easily be gulled by scams designed to relieve them of their savings. In China efforts to educate the unwary extend to the streets. Walls are daubed with murals illustrating the dangers of Ponzi schemes, which pay off early investors with money raised from a larger group of later ones. In one cartoon a swindler, hugging a big pot of cash, sits atop a human pyramid, representing the Ponzi principle at work.

The Ponzi principle has even tempted some of China’s banks, according to a widely cited article in China Daily, an official newspaper. The article was notable because its author, Xiao Gang, is chairman of one of China’s four big banks and may take over the central bank later in 2013. Mr Xiao is worried about the proliferation of wealth-management products (WMPs), which collect money from investors for a fixed term (usually less than six months) and plough it into a variety of financial assets, from short-term bills to long-gestation property projects.

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Barry Naughton is Sokwanlok Chair of Chinese International Affairs. He is the professor of Chinese Economy at the School of International Relations and Pacific Studies. His work focuses on issues relating to industry, trade, finance, and China's transition to a market economy. Recent research emphasizes on regional economic growth in the People's Republic of China and the relationship between foreign trade, investment and regional growth.