Management of SBCs in Transition Economies: China's Banking Decentralization in the Twentieth Century

In 1978, China started its "reform and opening up" policy in order to liberate social productivities. One of the main reform purpose was to solve soft budget constraints (SBCs) being regarded as one of the main causes of low productivity level at that time. SBCs phenomenon is one of the most important incentive problems in transition economies. This paper takes SBCs in transition economies as objects of study through summarizing and analyzing the main stream theoretic studies on SBCs. The paper studies China's SBCs problems and banking decentralization in the twentieth century's, urging that China is necessarily to start a new transition in order to realize sustainable development.