Since 1979, the People's Republic of China (China) has been involved in an on-going process of economic reform with the goal of transforming from a centrally planned economy to a socialist market economy. As one aspect of this process of transition, China has had to address issues of financial-sector and state-owned-enterprise (SOE) reform. With China's accession to the World Trade Organization in 2003 and its related commitments to foreign competition and financial sector reform, the process of transition has taken on a new urgency. In its process of enterprise and financial reform, China has used a policy of gradualism and legislative forbearance, i.e. a certain ambiguity and flexibility in legislating and interpreting policy through law. This is especially apparent in relation to the intersection of enterprise and financial restructuring through asset management companies designed to address nonperforming loans in China's banking and SOE sectors. While this approach to the institutionalization of policy through legislative forbearance is a pragmatic approach to difficult issues, it exposes China's continued development to risk by weakening the progression of the rule of law.