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"Howie, Fraser J. T"
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Red capitalism : the fragile financial foundation of China's extraordinary rise
The truth behind the rise of China and whether or not it will be able to maintain it
How did China transform itself so quickly? In Red Capitalism: The Fragile Financial Foundation of China's Extraordinary Rise, Revised Edition Carl Walter and Fraser Howie go deep inside the Chinese financial machine to illuminate the social and political consequences of the unique business model that propelled China to economic powerhouse status, and question whether this rapid ascension really lives up to its reputation.
All eyes are on China, but will it really surpass the U.S. as the world's premier global economy? Walter and Howie aren't so certain, and in this revised and updated edition of Red Capitalism they examine whether or not the 21st century really will belong to China.
* The specter of a powerful China is haunting the U.S. and other countries suffering from economic decline and this book explores China's next move
* Packed with new statistics and stories based on recent developments, this new edition updates the outlook on China's future with the most cutting-edge information available
* Find out how China financed its current position of strength and whether it will be able to maintain its astonishing momentum
Indispensable reading for anyone looking to understand the limits that China's past development decisions have imposed on its brilliant future, Red Capitalism is an essential resource for anyone considering China's business strategies in today's extremely challenging global economy.
eBook
Western Finance, SOE Reform, and China’s Stock Markets
This chapter explores Western Finance, SOE Reform, and China's Stock Markets. China's stock markets are the biggest in Asia, with many of the world's largest companies, and more than 120 million separate accounts trading stocks in nearly 1,800 companies. In China, the stock and real estate markets have evolved into controlled outlets for surplus capital seeking a real return and, for the most part, this capital is controlled by agencies of the state. Stocks and real estate are the only two arenas in China that, although subject to frequent administrative interference, can produce rates of return greater than inflation. The chapter discusses the question of how to improve the performance of SOEs and the recommendations related only to SOEs. International financial, legal, and accounting rules provided the creative catalyst for China's vaunted National Team. Their professional expertise and skills put Beijing and the Communist Party of China in the driver's seat for a strategic piece of the Chinese economy for the first time ever: the central government and the Party's Organization Department own the National Team.
Book Chapter
The National Team and China’s Government
This chapter focuses on the National Team and China's Government. The Chinese government's initial policy objective was to create a group of companies that could compete globally. However, the National Team created by government policy was, from its inception, more politically than economically competitive and, as a consequence, these oligopolies came to own the government. In 2004, the State‐owned Assets Supervision and Administration Commission (SASAC) was created to bring order to the ownership of state enterprises. The SASAC was meant to be the owner of the major central SOEs on behalf of the state and was endorsed as such by the State Council. The state is involved at every stage of the market as the regulator, the policy maker, the investor, the parent company, the listed company, the broker, the bank, and the banker. The scope of foreign influence can be expected to be cut back even further as Chinese securities companies, law firms, and auditors assert themselves and Chinese‐style regulation is extended from Shanghai to Hong Kong.
Book Chapter
Looking Back at the Policy of Reform and Opening
This chapter explores the policy of reform and opening in China. The framework of China's current financial system was set in the early 1990s by Jiang and Zhu. The best symbols of its direction are the Shanghai and Shenzhen stock exchanges, both established in the last days of 1990. In 1994, various laws were passed that created the basis for an independent central bank and set the biggest state banks—Bank of China (BOC), China Construction Bank (CCB), Industrial and Commercial Bank of China (ICBC), and Agricultural Bank of China (ABC)—on a path to become fully commercialized or, at least, more independent in their risk judgments and with strengthened balance sheets that did not put the economic and political systems at risk. Reform was strengthened as a result of the lessons learned from the Asian Financial Crisis (AFC) in late 1997. The 30 years from 1978 to 2008 encompassed by the policy of reform and opening have been the most peaceful and economically successful in the past 170 years of China's history, lifting more than 300 million people out of poverty.
Book Chapter
China’s Captive Bond Market
This chapter explains China's Captive Bond Market. Its bond markets have enjoyed record issuance volumes, developed standardized underwriting procedures, and allowed some foreign participation. China's beautiful market infrastructure is necessary, but insufficient to raise the bond market above its primitive stage. As a result of manipulated pricing, corporate issuers are indifferent to the choice of debt instruments; bonds or loans are the same to them. More importantly, underwriters and investors are also indifferent to this market because they cannot make money. The chapter explains why this is so. Caught up in guidelines left over from the Soviet central planning era, interest rates do not reflect true market forces, so debt valuations are distorted. China's bond markets have evolved over the past 30 years because the national budget needs to be financed; however, its tax‐collecting capacity was, and remains, too weak. The chapter also discusses the severe challenges faced by China's banks. The banks are fully exposed to both interest rate‐related and credit‐induced write‐downs in the value of their fixed income securities portfolios.
Book Chapter
The Forbidden City
This chapter explores how the workings of the Forbidden City in imperial times serve as a metaphor for China's government and political practice today. Forbidden City, the heart of China's capital, is a masterpiece that belongs to both China and the world, for surely by now half the world must have walked through its spaces. Perhaps the significance of its structural layout exceeds even the riches left by the Yuan, Ming, and Qing Dynasties and goes to the heart of Chinese organizational culture. As the China Development Bank's attempt to replace the Ministry of Finance in the bond markets and the tug of war between the MOF and the People's Bank of China over control of the major banks have shown, there is a great deal of predatory behavior exhibited within the walls of this monumental edifice. China has been a series of booms and busts within its overall growth story; it deserves and repays far closer scrutiny from all sides, including the Chinese themselves, but especially from those in the West.
Book Chapter
China’s Fortress Banking System
This chapter focuses on China's Fortress Banking System. In China, the banks are the financial system; nearly all financial risk is concentrated on their balance sheets. The heart of China's financial system includes just four banks: Bank of China (BOC), China Construction Bank (CCB), Agricultural Bank of China (ABC), and Industrial and Commercial Bank of China (ICBC). In China, capital begins and ends with the Big 4 banks and Bank of Communications. The banking system has thousands of entities if the 12 second‐tier banks, the urban and rural banks, Postal Savings Bank, and credit cooperatives, are included. In 1977, China was bankrupt; its commercial and political institutions were in tatters. There was no real national economy, only a collection of local fiefdoms held together by a broken Party organization. The chapter discusses the strategy used to pull it all back together. It also provides a straightforward comparison between U.S. and Chinese banks that is based on their total assets.
Book Chapter
The Struggle over China’s Bond Markets
This chapter discusses the struggle over China's Bond Markets. The combination of bank restructuring and the stock market's collapse from mid‐2001 catalyzed dynamic growth in China's bond markets. Many issuers struggled to get a piece of this market, none more significant than the China Development Bank (CDB). The CDB had begun to challenge for the dominant position, becoming, in effect, the country's second Ministry of Finance. The chapter also discusses cycles in the financial markets. It is well recognized that China's currency policy of fixing the RMB exchange rate against the U.S. dollar greatly limits flexibility in interest rates. China's banks depend on Party‐guaranteed profitability created by mandated minimum spreads between deposits and lending rates. The profit generated here from corporate borrowers subsidizes their investment in sub‐market‐priced government securities. This can work only so long as they operate in a protected domestic oligopoly well insulated from outside pressures.
Book Chapter
The Fragile Fortress
This chapter discusses the fragile situation of the banking sector in China. The various PBOC securities, as well as the 1998 MOF bond, are clear obligations of the sovereign. The chapter seeks to understand how these obligations arose and what they practically represent in order to determine their value and structural implications for the banking system as a whole. From the viewpoint of strengthening the banks, the original PBOC model was the most effective, providing additional capital to the banks through a combination of more new money and better valuations for problem loans. The story of the past 10 years suggests that China's banks, despite their Fortune 500 rankings, are not even close to becoming internationally competitive. They simply do not operate like banks as understood in the developed world. Their years of protective isolation within the system have produced institutions wholly reliant on government‐orchestrated instruction and support. These banks are undeniably big, as they always were, but they are neither creative nor innovative. Their market capitalizations are the result of clever manipulation of valuation methodologies, not representative of their potential for value creation.
Book Chapter