Instead, Beijing has fallen back on its authoritarian instincts and is considering a new watchdog. It will not work. It won’t work for the same reason that its other watchdogs don’t work. In game theory an agent’s best move is to cheat the principal. So the principal appoints a watchdog. Then the agent’s best move is, of course, to suborn the watchdog.

Inflation targeting and municipal bonds also will not work for the same reason. Bureaucracies unless restrained by an independent press and judiciary will, in time, do what ever they want. Bureaucrats will give false information to the inflation targeters and will misspend bond money. They will become rent seekers. Another layer will only make things worse.

The government has not solve any problems, especially the banks. They were insolvent and state controlled before the recapitalization and IPOs. Afterwards, they are still insolvent and state controlled run by uncontrolled senior bureaucrats answerable only to themselves.

Open any edition of the Financial Times and you will see a story about some manager or bureaucrat who has done something questionable and may face prosecution. These institutions are the real watchdogs. Until they are unchanged in China, you can be sure that investors, depositors and the national purse will be pilfered.