Synopses & Reviews
Praise for Red Capitalism
"The most important financial book of the year." James Grant Editor, Grant's Interest Rate Observer
"Red Capitalism peels back the faÇade of China's economy and reveals how the dominant role of the state has led to enormous financial leverage and endemic malinvestment. China's major role in the global economy makes Red Capitalism required reading for any financial industry fiduciary." Mark L. Hart III Chairman, Corriente Advisors, L.L.C.
"China is bent on superpower rivalry; reserve currency status for the renminbi is a glint in the party's eye. Red Capitalism puts a powerful case that its economy and financial system are not fully equipped to support such aspirations." Financial Times
"This book allows us to further deepen our analysis and prepare for the tumultuous events which impend." Socialism Today
"Walter and Howie possess a rare depth of experience in the analysis of the Chinesefinancial sector. Their hard-hitting conclusions,based on a wealth of empirical research, will stimulate debate about the future of theChinese financial system at a critical point in its evolution." Peter Nolan Sinyi Professor of Chinese Management, Cambridge Judge Business School, University of Cambridge
"Concise and erudite, Red Capitalism is a fantastic deep dive into China's structurally flawed financial system." China Economic Review
"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 splutter 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
"Red Capitalism is an important addition to the reading list of any China-watcher."The Hindu
"Red Capitalism is a superb guide to China'sfinancial labyrinth. It's a must-read for anyone who wants to understand the sources ofChinese economic power, and the threat posed by the nation's vast hidden debts."Arthur Kroeber Editor, China Economic Quarterly
NAMED A BEST BOOK OF THE YEAR BY THE ECONOMIST
Review
“...China is bent on superpower rivalry; reserve currency status for the renminbi is a glint in the party’s eye.
Red Capitalism puts a powerful case that [China’s] economy and financial system are not fully equipped to support such aspirations.”
– Financial Times, January 2011
“So pervasive has this view [that the 21st century is China's for the taking] become that any effort to examine whether it's actually true comes as a breath of fresh air. "Red Capitalism" is such a work. Authors Carl E. Walter and Fraser J.T. Howie, both investment bankers, argue that China isn't so different from other economies nor so immune from normal economic laws as cheerleaders argue. An examination of the financial system—or "how China's political elite manages money and the country's economy," as the authors put it—offers a useful lens through which to view much broader issues.”
– The Wall Street Journal, January 2011
“[The authors’] ongoing research is an indispensable resource for those seeking the reality behind the often nauseating and sycophantic hyperbole surrounding China’s capital markets.”
– China Economic Quarterly, December 2010
“In their new book, "Red Capitalism: The Fragile Financial Foundation of China's Extraordinary Riser Carl E. Walter and Fraser IT. Howie paint a troubling portrait of the Chinese economy and financial system. Despite the nation's mind-boggling growth and images of gleaming skyscrapers and luxury cars, the authors say the Chinese growth model is flawed and fragile, and they warn about substantial risks accumutating in its banking system.”
– The New York Times & International Herald Tribune Asian edition, January 2011
“If Walter and Howie are right, China may be approaching a period when it can no longer hide the systemic flaws in its banking system; the more profound and problematic question the authors of Red Capitalism want their readers to ask is what this means for China as a whole. The answer will likely impact not just the Chinese, but people around the world as well.”
– Asia Times Online, January 2011
The most important financial book of the year."
— James Grant, editor, Grant's Interest Rate Observer
“Red Capitalism peels back the facade of China's economy and reveals how the dominant role of the state has led to enormous financial leverage and endemic malinvestment. China's major role in the global economy makes Red Capitalism required reading for any financial industry fiduciary.”
— Mark L. Hart III, Chairman, Corriente Advisors, L.L.C.
Review
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 landmines that threaten to undermine China's hard fought economic success in the years ahead.
--Rick Carew, Former Asia M&A Reporter, The 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 which 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, and 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, Judge Business School, University of Cambridge
Synopsis
In 1974 China’s last Emperor, Deng Xiaoping, traveled to New York to speak at the United Nations. This was the first time such a senior Chinese leader had ever visited the United States. As the delegation prepared its trip the question was asked, “How can we pay?”A mad scramble ensued in the capital as the Emperor’s men called all the banks to assemble foreign currency. After searching high and low, they were able to scrape up only $38,000. Now just 30 years later China appears to have won the global Monopoly game with foreign exchange reserves of over $2 trillion and an economy the government says will grow at 8% despite recession of the world’s other economies. Everyone is looking to China.
How did China in just 30 years pick itself off the floor and become America’s largest creditor, positioning itself if not to surpass the United States, then perhaps acquire major aspects of its crumbling economy? In Red Capitalism authors Carl Walter and Fraser Howie go deep into the Chinese financial machine to illuminate the social and political consequences of China’s unique business model and pose the question whether it has, in fact, lived up to all the hype surrounding it and whether, after all, the 21st century really will be China’s century.
Red Capitalism is indispensable reading for those who would understand the limits that China’s past development decisions have imposed on its brilliant future. No one who is considering China business strategies in today’s extremely challenged global economy can afford to miss this book.
Synopsis
A look at how China built its economic power and whether it will maintain its astonishing momentumHow did China manage to turn a backwards economy into a global powerhouse and the United States' largest creditor in just three decades? In Red Capitalism, Carl Walter and Fraser Howie go deep into the Chinese financial machine to illuminate the social and political consequences of China's unique business model, posing the question along the way as to whether China has lived up the hype and whether it will maintain its economic dominance in the twenty-first century. This is indispensable reading for those who want to understand the limits that China's past development decisions have imposed on its brilliant future. No one doing business in China or considering Chinese business interests in today's challenging economy should go without it.
Synopsis
The truth behind the rise of China and whether or not it will be able to maintain itHow 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.
Synopsis
In the space of just a few short decades, China has transformed itself from a nation scarcely able to cover the cost of sending its highest-ranking dignitary to speak at the UN to one with financial reserves numbering trillions of dollars. In Red Capitalism: The Fragile Financial Foundation of China's Extraordinary Rise, Revised Edition, Carl Walter and Fraser Howie, experts in Chinese finance, tell the story of China's incredible ascension, how it got to where it is now, and what the future holds.
Exploring how China's financial institutionsfrom banks to corporationsand most importantly, the national Communist Party, shape the country's economic choices, development, and reform and what this means within China and for the rest of the world, the book examines whether or not the twenty-first century really will belong to China, calling into question the sustainability of the current system. Going deep inside the Chinese financial machine to illuminate the social and political consequences of the unique business model that has transformed the country into an economic powerhouse, Walter and Howie investigate whether the incredible gains of the last thirty-plus years really live up to their reputation.
While China has seemingly adopted a Western style of economic and commercial growthcomplete with stock-listed corporations and a growing class of accountants, lawyers, and investment bankersthe reality is that China remains a Communist country, one in which the state canand frequently doesstep in to save struggling industries. In contrast to the common view of China as an unstoppable freight train of growth, Red Capitalism shows how the country's decades of development have been marked not by steady ascension but rather an ongoing series of booms and busts that many corporations would not have been able to weather without large-scale government intervention.
With new and expanded coverage of China's "Big 4" banks; why assigning credit ratings is still a problem; the rapid growth of Chinese national debt; and more, this fully revised edition of Red Capitalism is indispensable reading for anyone looking to understand the limits that China's past development decisions have imposed on its promising future.
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.
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 the Author
Carl E. Walter lived in China for twenty years and actively participated in numerous 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 was a member of the Management Committee at China International Capital Corporation, 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. More recently, he helped build one of the most successful and profitable domestic security and currency trading operations for a major global investment bank. Fluent in Mandarin, he holds a PhD from Stanford University and a graduate certificate from Beijing University. He currently lives in New York where he acts as an independent consultant.
Fraser J. T. Howie studied Natural Sciences (Physics) at Cambridge University and Chinese at Beijing Language and Culture University. For nearly twenty years he has been trading, analyzing, and writingabout Asian stock markets. During that time he has worked in Hong Kong, trading equity derivatives at Bankers Trust and Morgan Stanley. After moving toChina in 1998, he worked in the sales andtrading department of China International Capital Corporation followed by a stint with China M&A Management Company. He has contributed to the SCMP, AWSJ, China Economic Quarterly,and China Economic Review as well as being a regularChina commentator on CNBC, BBC, Al Jazeera, and Bloomberg. Currently, he is a Managing Director at a leading Asia Pacific Brokerage firm in Singaporehelping international investors invest in both the Indian and Chinese markets.
Table of Contents
Preface to the Second Edition xiPreface 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
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 financial 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 benefit 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
Have the walls been breached? 231
Cracks in the walls 235
Imperial ornaments 239
Appendix 245
Select Bibliography 249
Index 251