China’s non-performing loans were as high as 35 percent of state banks’ total loans, or about RMB 3,549 billion (about 40 percent of its GDP) in 2000. The adequacy ratios of the four state banks were only between 1.4 percent to 4.6 percent in September 2000. Moreover, non-bank financial institutions as a group as early as 1996 had non-performing assets equal to 50 percent of their total assets. By Western accounting standards, China’s most financial institutions are insolvent. Be conventional standards for measuring financial sector robustness, China is past the point at which a systemic banking crisis might be expected. China faces enormous risks delaying the state bank reforms due to increasing capital account leaks, increasing large proportion of household deposits in banks’ total liabilities, and gradual structural shift of Chinese saving behavior. China needs to resolutely address the financial reforms soon to avoid a financial crisis, which will lead to a broad anti-regime coalition against the Chinese government. Nevertheless, China faces enormous difficulties. First, the 2000 Chinese official estimate puts the financial cost of restructuring the state banks at RMB 2,260 billion ($273 billion), or close to 30 percent of GDP. Second, the current AMC scheme is fraught with difficulties. Finally, the required financial sector reforms are closely interlinked with many other reforms such that a sequential or partial approach will not be effective.