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

Walter, Carl E.; Howie, Fraser J. T.

Hardcover

ISBN 10: 0470825863 ISBN 13: 9780470825860

Publisher: John Wiley & Sons Ltd, 2011

Synopsis

In Red Capitalism, Carl Walter and Fraser Howie detail how the Chinese government reformed and modeled its financial system in the 30 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 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.

About this title

About the Author

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.

From the Back Cover

"Carl Walter and Fraser Howie debunk a number of common myths about China's financial markets in this excellent new book. Investors stuffing their portfolios with China stocks would be wise to heed their warnings on the fragile foundations of China's banking system. The authors have done their homework, digging beneath the surface of "China's financial world to reveal uncomfortable truths about a financial system riddled with hidden land mines that threaten to undermine China's hard-fought economic success in the years ahead."?Rick Carew, former Asia M&A Reporter, Wall Street Journal

"In Red Capitalism, Carl Walter and Fraser Howie give a powerful, albeit controversial explanation of the fragile underpinnings of the financial edifice that financed the seemingly unstoppable rise of China on the global stage?which is all the more persuasive thanks to their careful mining of the data. Their thesis?that China has the trappings of a market system but not the substance?should be considered by anyone dealing with or investing in China?categories that embrace most of the world today. Their contention that China ultimately is a 'family business' explains much that is puzzling to outsiders."?Henny Sender, Chief Correspondent, International Finance, Financial Times

"Red Capitalism is a superb guide to China's financial labyrinth. It's a must-read for anyone who wants to understand the sources of Chinese economic power, and the threat posed by the nation's vast hidden debts."?Arthur Kroeber, Editor, China Economic Quarterly

"Finally, a way into the world's most important and least understood financial system. For insight into how China's economy actually operates, begin here!"?Thomas Easton, Asia Business Editor, The Economist

"A penetrating analysis that demonstrates how hard it is to follow the old adage 'follow the money,' and how rewarding it is to understand what will really drive China into the future."?Christian Murck, President, American Chamber of Commerce in China

"Walter and Howie put the Chinese financial system under the microscope to examine how an absence of leadership, institutional squabbling, and complacency have seen appetites for reform sputter out, replaced by stagnation and dysfunction. Theirs is a fascinating, entertaining, and necessary corrective to the hyperbole surrounding China's seemingly miraculous rise."?David Wilder, Beijing Bureau Chief, Market News International

"Walter and Howie's penetrating study addresses a critically important issue in China's political economy. They possess a rare depth of experience in the analysis of the Chinese financial sector. Their hard-hitting conclusions, based on a wealth of empirical research, will stimulate debate about the future of the Chinese financial system at a critical point in its evolution."?Peter Nolan, Sinyi Professor of Chinese Management, Cambridge Judge Business School, University of Cambridge

From the Inside Flap

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.

Edition details

• Publisher: John Wiley & Sons Ltd
• Publication date: 2011
• ISBN 10: 0470825863
• ISBN 13: 9780470825860
• Binding: Hardcover
• Language: English
• Edition number: 1
• Number of pages: 256