Made it to Raleigh-Durham last night, to my amazement, via Charlotte.
Spoke for 2hrs before mid-career class of DoD/USG/private sector logistics managers at Rizzo Conference Center owned by U North Carolina. Then did 45 Q&A, then did 30 signing books, then did 30 lunching. Audience of probably 100.
Saw this book review of Red Capitalism in FT by John Plender. It's a good review of what seems like a great book that I will check out in airport stores.
Here's the bit that sold me:
The financial crisis has delivered a heavy blow to the American model of capitalism. Chinese officials do not hesitate to trumpet the point as they rejoice in the shift in the balance of economic power to Asia. Yet there are questions about how well their own model stands up to scrutiny. In Red Capitalism Carl Walter and Fraser Howie, both long-standing experts in Chinese banking and securities markets, ask quite a few; and their conclusions are unflattering.There are, in effect, two Chinese economies. One is dominated by foreign-owned and family-run private companies that generate phenomenal growth mainly in Guangdong and the Yangtze River Delta. These two areas, which operate a free market form of capitalism not unlike Britain’s in the 19th century, attract 70 per cent of China’s foreign investment and contribute more than 70 per cent of exports, albeit with the help of a manipulated exchange rate.
Then there is the slower-growth economy dominated by state-owned enterprise, which still provides some social security for its workers. This is a bank-based model, even if the stock exchanges of Shenzhen and Shanghai are dominated by minority stakes in state-owned companies.
While the state-owned system has many of the trappings of western financial models such as stock exchanges, bond markets, interbank markets and so forth, Walter and Howie argue that this is just camouflage. On the exchanges, initial public offerings merely redistribute capital among state entities with occasional leakage to retail investors. The government bond market mainly shuffles paper between different arms of state enterprise at officially administered interest rates no different from those charged by banks. Capital allocation is controlled by the Communist party.
If the book has a hero, it is Zhu Rongji. While premier, he opened up state-owned enterprise to foreign capital and to increased market discipline. The big four banks, saddled with non-performing loans that state enterprise had declined to service, were recapitalised. This reform programme was taken forward after Mr Zhu’s departure in 2003 by officials at the People’s Bank of China against fierce opposition from the Ministry of Finance.
Come the global crisis in 2008, a huge stimulus package driven by frenetic bank lending swept away 10 years of reform. Having set up its own sovereign wealth fund, China Investment Corporation, in competition with the central bank’s fund, the Ministry of Finance used it to claw back control of large chunks of the banking system. The collapse of Lehman Brothers thus robbed the reformists of credibility and influence.
Wonderfully concise bit of history-writing there, with credit to Plender for summarizing. Worth filing away mentally.
Bottom line: why hopes and fears of the rise of redback won't be realized soon. This underlying weakness in the banking sector makes Beijing too conservative to press ahead with the liberalization of the capital account necessary to take what is not an internationalization of the RMB and turn it down the path of becoming a serious reserve currency.
It's almost the financial equivalent of China being unwilling to have overseas military bases. You can cite the "internationalization" of the military, but it's a thin veneer with nothing solid to undergird it.
The realistic Chinese are not being humble when they say, "We are more a developing country still than a developed one." The notions of China surpassing the US in the power realm, as I have often recently argued, remain somewhat fantastic.