Red Capitalism by Carl E. Walter & Fraser J. T. Howie

Author:Carl E. Walter & Fraser J. T. Howie [Walter, Carl E. & Howie, Fraser J. T.]
Language: eng
Format: epub
ISBN: 9780470825860
Publisher: Wiley
Published: 2011-01-13T06:00:00+00:00

THE CDB, THE MOF AND THE BIG 4 BANKS

The rapid growth in the China Development Bank’s funding and lending activities coincides with the ascension of the new Party and government leadership in 2003 and the start of a continuing debate about China’s economic development model. During this time, the CDB became the darling of those supporting a return to both a more state-planned economy domestically and a natural-resource-based foreign policy internationally. But understanding the CDB’s position is complicated by the fact that, on the one hand, it represented a challenge to the prevailing banking model sponsored by Zhou while, on the other, it depended on the PBOC for approval of its annual bond-issuance plan. The dramatic increase in its bond issuance during this period may be the result of the PBOC’s antipathy toward the MOF; but the MOF also had its own tactics.

Chen Yuan, the bank’s very ambitious founding chairman, positioned the CDB deliberately as an alternative model to the Big 4 banks. The Big 4, under Zhou Xiaochuan’s reform program, followed a path modeled after their international counterparts, including the deliberate introduction of international banks as strategic investors. As we saw earlier, Chen Yuan was opposed to what he referred to as “that American stuff.” Instead, he proposed to “develop around our own needs and build our own banking system” which, he said, “must provide the capital to meet the needs of our high-growth economy, resolve the various financial bottlenecks of our enterprises and provide a channel for capital for various types of enterprise.”2

The bank’s investment projects, once included in the national budget, are now independent of it; the CDB can, to a certain extent, determine on its own “commercial” principles what projects to invest in and what not. Nonetheless, its projects are state projects and its obligations are state obligations. The CDB, unlike the Big 4 banks, was established as a ministerial-level entity with quasi-sovereign status reporting directly to the State Council. It is a typical example of an organization, not an institution, built around one man, the son of a powerful revolutionary-era personage. Chen’s father, Chen Yun, was the planner whose famous “Bird Cage” theory provided the ideological foundation for the Special Economic Zones in the 1980s. Political conservatives were able to accept the idea of foreign investment as long as it was “caged” inside these special zones. This powerful political concept has now morphed and provides the inspiration for the distinction between “inside” and “outside” the system. Unless there are bounds imposed by a determined Party leader, as was the case during Zhu Rongji’s era,3 “princelings” such as Chen Yuan can drive the political and economic process in ways contrary to the national interest, as we will see further in the next chapter. In Chen’s case, the goal has long been to add both an investment bank and a securities company to the CDB portfolio and become China’s first universal bank (and this in spite of his avowed aversion to “American stuff”). If the CDB can

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