Red Capitalism: The Fragile Financial Foundation of China's Extraordinary Rise

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John Wiley & Sons, Jan 19, 2011 - Business & Economics - 250 pages
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For many years to come now, China's economy has seemed unstoppable. A slow appreciation of the renminbi in 2007 brought wave upon wave of liquidity into China and allowed its companies and banks to raise hundreds of billions in dollars via stock market listings. State banks that had started the new century as bankrupt relics of a communist past became the darlings of international investors.

Even the collapse of Lehman Brothers in 2008 and the ensuing global financial crisis seemed to have little impact on China as the government quickly responded with a huge stimulus package. But the Lehman collapse was a dramatic wake-up call to the Chinese leadership. This model of bank and capital market reform had been studiously emulated for more than a decade and had brought great benefits to China. But now, although they believed it to be bankrupt, the Chinese government were bereft of new ideas. In the face of the global financial crisis, the government returned to what it knows best: massive state intervention via the banking system. Ten years of banking and capital market reforms were dead.

In Red Capitalism, Carl Walter and Fraser Howie detail how the Chinese government reformed and modeled its financial system in the thirty years since it began its policy of engagement with the West. Instead of a stable series of policies producing steady growth, China's financial sector has boomed and gone bust with regularity in each decade. The latest decade is little different. Chinese banks have become objects of political struggle while they totter under balance sheets bloated by the excessive state-directed lending and bond issuance of 2009.

Looking forward, the government's response to the global financial crisis has created a banking system the stability of which can be maintained only behind the walls of a non-convertible currency, a myriad of off-balance-sheet arrangements with non-public state entities and the strong support of its best borrowers—the politically potent National Champions—who are the greatest beneficiaries of the financial status quo.

China's financial system is not a model for the West and, indeed, is not a sustainable arrangement for China itself as it seeks increasingly to assert its influence internationally. This is not a story of impending collapse, but one of frustrated reforms that suggests that any full opening and meaningful reform of the financial sector is not, indeed cannot be, on the government's agenda anytime soon.

 

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Review: Red Capitalism: The Fragile Financial Foundation of China's Extraordinary Rise

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Update: Read this review instead, and you'll get in one article what was so damn hard to read in 240 pages: http://www.ft.com/cms/s/2/55019600-2c... I don't know who this was written for, but it sure ... Read full review

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Update: Read this review instead, and you'll get in one article what was so damn hard to read in 240 pages: http://www.ft.com/cms/s/2/55019600-2c... I don't know who this was written for, but it sure ... Read full review

Contents

Preface
Chinas Fortress Banking System
The Fragile Fortress
Chinas Captive Bond Market
The Struggle over Chinas Bond Markets
System
Western Finance SOE Reform and Chinas Stock
The National Team and Chinas Government
The Forbidden City
Select Bibliography
Copyright

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About the author (2011)

Carl E. Walter has worked in China's financial sector for the past twenty years and has actively participated in many of its financial reforms. He played a major role in China's groundbreaking first overseas IPO in 1992 as well as the first listing of a state-owned enterprise on the New York Stock Exchange in 1994. He held a senior position in China's first and most successful joint venture investment bank where he supported a number of significant domestic stock and debt underwritings for major Chinese corporations and financial institutions. More recently, he helped build one of the most successful and profitable domestic security, risk, and currency trading operations for a major international investment bank. Fluent in Mandarin, he holds a PhD from Stanford University and a graduate certificate from Beijing University. Carl is a longtime resident of Beijing.

Fraser J. T. Howie has been trading, analyzing, and writing about Asian stock markets for nearly twenty years. During that time, he has worked in Hong Kong, trading equity derivatives at Bankers Trust and Morgan Stanley. After moving to China in 1998, he worked in the sales and trading department of China International Capital Corporation followed by a stint with China M&A Management Company. He is a regular commentator on China and its financial system, having spoken in Hong Kong, Tokyo, Beijing, Shanghai, Singapore, and Cambridge. He is currently a managing director at a leading Asia-Pacific brokerage firm in Singapore helping international investors invest in both the Indian and Chinese markets.

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