Since the eruption of the global financial crisis in 2008, China has used massive economic stimulus to sustain growth. But unresolved structural problems have meant that the stimulus packages generated significant fiscal and financial risk, while doing little to improve China's capital stock.

In the coming years, China's government will have to confront significant challenges to achieve stable, inclusive and sustainable economic growth. But, with mounting fiscal and financial risks threatening to derail its efforts, policymakers must act quickly to design and implement prudent policies.

Since China's era of reform and opening up began, the country has experienced three instances of large-scale public-finance problems. In the late 1970s, it faced a debilitating fiscal deficit. In the 1990s, its corporate sector was plagued by "triangular debts". Later that decade, financial institutions were burdened by bad debts generated by state-owned enterprises.