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

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

Carl E. Walter

Language: English

Pages: 256

ISBN: 0470825863

Format: PDF / Kindle (mobi) / ePub

The truth behind the rise of China and whether or not it will be able to maintain it

How 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.

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profits and low problem-loan ratios for 2009, the Tier 1 capital ratios of the Big 3 are rapidly approaching nine percent, down from a strong 11 percent just after their IPOs in 2005 and 2006. Of course, the lending spree of 2009 was the proximate cause. As an analyst at a prominent international bank commented: “The growth model of China banks requires them to come to the capital markets every few years. There’s no way out and this will be a long-term overhang on the market.”9 But it is not just

engine for economic and, to a certain extent, political modernization regardless of who controlled the government. His enthusiasm for engagement with the world paid off as trade with China turned white hot in the years that followed (see Figure 1.2). FIGURE 1.2 Trends in imports, exports and total trade, 1999–2007 Source: China Statistical Yearbook 2008 It was not just trade; foreign direct investment also poured in, jumping to unheard-of levels of US$60 billion a year and peaking at

and higher rankings on the Fortune Global 500. Then came the economic stimulus package, which provided all the excuse needed to do just that. Not even a year later, in early 2010, however, the combination of 50 percent dividend payouts and binge lending have created huge challenges for the banks. Most challenged of all must be Bank of China, whose loan portfolio grew nearly 43 percent in 2009 while the other major banks hit levels over 20 percent. Given the high dividend payouts and asset

Shenzhen and gradually extending to Shanghai and other cities such as Chengdu, Wuhan and Shenyang where shares were traded. In the end, Beijing forced local governments to take steps to cool things down. Restrictions eventually took hold, leading to a market collapse in late 1990. Even so, investors had learned the lesson of equity investing: stocks can appreciate. But Beijing had also learned a lesson: stock trading could lead to social unrest. The decision to establish formal stock exchanges

($10.2 billion) and issuance of new shares ($22.6 billion). This massive injection of capital was used to acquire the MPT’s telecom assets in a further seven provinces. As a result of these two transactions, China Mobile had reassembled the MPT’s mobile communications business in 13 of China’s most prosperous provinces in the form of a corporation that replaced a government agency. What happened to the US$37 billion raised after CMBVI was paid is unknowable since it is a so-called private

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