Red Capitalism: The Fragile Financial Foundation of China's Extraordinary Rise PDF
Preview Red Capitalism: The Fragile Financial Foundation of China's Extraordinary Rise
RED CAPITALISM ffffiirrss..iinndddd ii 2255//0011//1122 1111::0088 PPMM ffffiirrss..iinndddd iiii 2255//0011//1122 1111::0088 PPMM RED CAPITALISM The Fragile Financial Foundation of China’s Extraordinary Rise Revised and Updated Carl E. Walter and Fraser J. T. Howie John Wiley & Sons Singapore Pte. Ltd. ffffiirrss..iinndddd iiiiii 2255//0011//1122 1111::0088 PPMM Copyright © 2012, 2011 John Wiley & Sons Singapore Pte. Ltd. Published in 2011, 2012 by John Wiley & Sons Singapore Pte. Ltd., 1 Fusionopolis Walk, #07-01, Solaris South Tower, Singapore 138628. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as expressly permitted by law, without either the prior written permission of the Publisher, or authorization through payment of the appropriate photocopy fee to the Copyright Clearance Center. Requests for permission should be addressed to the Publisher, John Wiley & Sons Singapore Pte. Ltd., 1 Fusionopolis Walk, 07-01, Solaris South Tower, Singapore 138628, tel: 65-6643-8000, fax: 65-6643-8008, e-mail: [email protected]. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the Publisher is not engaged in rendering professional services. If professional advice or other expert assistance is required, the services of a competent professional person should be sought. Neither the authors nor the Publisher is liable for any actions prompted or caused by the information presented in this book. Any views expressed herein are those of the author and do not represent the views of the organizations he works for. Other Wiley Editorial Offi ces John Wiley & Sons, 111 River Street, Hoboken, NJ 07030, USA John Wiley & Sons, The Atrium, Southern Gate, Chichester, West Sussex, P019 8SQ, United Kingdom John Wiley & Sons (Canada) Ltd., 5353 Dundas Street West, Suite 400, Toronto, Ontario, M9B 6HB, Canada John Wiley & Sons Australia Ltd., 42 McDougall Street, Milton, Queensland 4064, Australia Wiley-VCH, Boschstrasse 12, D-69469 Weinheim, Germany ISBN 978-1-118-25510-0 (Hardcover) ISBN 978-1-118-25511-7 (e-book) ISBN 978-1-118-25512-4 (e-book) ISBN 978-1-118-25513-1 (e-book) Typeset in 10/12pt, Sabon-Roman by MPS Limited, a Macmillan Company, Chennai, India. Printed in Singapore by Markono Print Media. 10 9 8 7 6 5 4 3 2 1 ffffiirrss..iinndddd iivv 2255//0011//1122 1111::0088 PPMM To John Wilson Lewis ffffiirrss..iinndddd vv 2255//0011//1122 1111::0088 PPMM ffffiirrss..iinndddd vvii 2255//0011//1122 1111::0088 PPMM Contents Preface to the Second Edition ...............................................................xi Preface to the First Edition ................................................................xvii List of Abbreviations ............................................................................xxi 1. Looking Back at the Policy of Reform and Opening ................................................................................1 Thirty years of opening up: 1978–2008 .......................................2 Thirteen years of reform: 1992–2005 .........................................10 The end of reform: 2005 .............................................................15 China is a family business ..........................................................22 2. China’s Fortress Banking System ...........................................27 Banks are China’s fi nancial system ............................................29 China’s banks are big banks ......................................................31 Crisis: The stimulus to bank reform, 1988 and 1998 ............................................................................33 China’s fortress banking system in 2010 ....................................41 The sudden thirst for capital and cash dividends, 2010 .............47 3. The Fragile Fortress .................................................................53 The People’s Bank of China restructuring model ......................56 The Ministry of Finance restructuring model ............................66 The “perpetual put” option to the PBOC ...................................73 The new Great Leap Forward Economy ....................................76 China’s latest banking model .....................................................82 Valuing the asset management companies .................................85 Implications ................................................................................88 vii ffttoocc..iinndddd vviiii 2255//0011//1122 88::5533 PPMM viii (cid:129) (cid:129) (cid:129) Contents 4. China’s Captive Bond Market ................................................95 Why does China have a bond market? .......................................98 Risk management .....................................................................102 The base of the pyramid: Protecting household depositors .................................................................................116 5. The Struggle over China’s Bond Markets ............................125 The CDB, the MOF, and the Big 4 Banks ................................126 Local governments unleashed ..................................................134 Credit enhancements ................................................................141 China Investment Corporation: Linchpin of China’s fi nancial system .......................................145 Cycles in the fi nancial markets .................................................158 6. Western Finance, SOE Reform, and China’s Stock Markets ...........................................................163 China’s stock markets today .....................................................164 Why does China have stock markets? ......................................168 What stock markets gave China ...............................................172 7. The National Team and China’s Government .....................185 Zhu Rongji’s gift: Organizational streamlining, 1998..............186 How the National Team, its families, and friends benefi t .......................................................................................196 A casino or a success, or both? .................................................209 Implications ..............................................................................212 8. The Forbidden City ................................................................215 The Emperor of Finance ...........................................................217 Behind the vermillion walls .....................................................220 An Empire apart .......................................................................227 ffttoocc..iinndddd vviiiiii 2255//0011//1122 88::5533 PPMM Contents (cid:129) (cid:129) (cid:129) ix Have the walls been breached? ................................................231 Cracks in the walls ...................................................................235 Imperial ornaments ...................................................................239 Appendix ....................................................................................245 Select Bibliography ...................................................................249 Index ..........................................................................................251 ffttoocc..iinndddd iixx 2255//0011//1122 88::5533 PPMM
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