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Red Capitalism: The Fragile Financial Foundation of China's Extraordinary Rise
John Wiley and Sons Ltd, Jan 2011, Pages: 256
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.
Reviews
“...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
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
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