An eye-opening deep dive into the sources and consequences of how China has financed it’s rise to global economic prominence
In The Red Dream: The Chinese Communist Party and the Financial Deterioration of China, veteran finance executive Carl Walter uses his unique experience in Chinese finance to deepen his exploration of how the Chinese Communist Party finances its obsession with GDP growth and social control. Overwhelmingly debt-fueled, the party’s financial strategy has driven an unsustainable growth in banking and state enterprise assets. Inevitably the party’s own financial health is being severely weakened and China’s future over the next decades put in doubt. You’ll also find:
- A discussion of the financial power of local governments and the Ponzi scheme created by their sale of land use rights
- How China’s entry into the World Trade Organization gave rise to today’s China
- How the party and China’s regulators enable banks to present outstanding performance metrics
- An exploration of the party’s financial assets and liabilities since 1979
- Examples of financial crisis management and related costs incurred by China and the US
- A look at Japan’s experience as a potential guide for China future development
An essential read for anyone interested in international economics, geopolitics, and finance, The Read Dream will also earn a place in the hands of finance professionals, bankers, policymakers, corporate strategists, and investors.
Table of Contents
Preface xi
List of Abbreviations xix
Chapter 1: From Turning Point to Turning Point 1
An Abrupt About-Face 2
The Golden Age: A Short Story 4
Underlying Conditions 7
The Yin and the Yang of the China Dream 10
Convergence 20
Chapter 2: The Shadow Fiscal System 23
China’s “Centralized” State and Localized Financing 24
Aspirational Central Finances, Fiscal Collapse and the 1994 Budget Law 29
The Continual Local Scramble for Funds 35
Then There Was the Land but It Is Not Free, 1999-2007 38
Paving the Country Over 45
The Vulnerability of Local Governments, Banks, and Enterprises 46
Implications 48
Chapter 3: China’s Banks and the Deposit Bonanza 57
China’s State Banks and the “Tree” Model of Banking 58
Command Lending and Funding 66
Fintech and Other Challenges to Bank Deposits 72
Bank Capitalization 80
Implications 83
Chapter 4: Trees Can Grow to Heaven! 87
Evolution of Chinese Balance Sheet Management Techniques 88
Outcomes in Financial Engineering Chinese-Style 91
Channels to Support State Bank Performance Metrics 93
Implications 115
Chapter 5: Beautifying Bank Balance Sheets 119
Parking Assets - the Interbank Market and “Repos” 120
Flexible Loan Agreements 124
Local Government Bonds 127
Government “Guidance” Funds 137
Off-Balance-Sheet Items 138
Comments 146
Chapter 6: After 30 Years, Was Deng Xiaoping Right? 151
A Summary State Balance Sheet 152
Inefficient Investment Equals Extrabudgetary Funding 154
The Promise of the Stock Markets 156
Massive Growth in Deposits 164
“Opening” the Door to Foreign Investment 166
Excessive Reliance on Debt 168
Deterioration of State Finances 169
Summing Up 173
So Was Deng Right, Can Capital Markets Be Used in a Socialist Economy? 178
Chapter 7: China versus the United States: Comparing the Costs of Financial Crises 183
Summary Financial Crises, China and the United States 184
Comparisons of Crises 189
Macro Comparisons and the Role of Central Banks 203
Comparisons of State Net Worth 206
Comments 208
Chapter 8: Japanese Bubbles 211
Bubbles and Japan’s Banking Crisis of the 1990s 212
Why Did Resolving Japan’s Banking Crisis Take So Long? 215
More Points of Comparison, China versus Japan 218
Comparative Cashflow Chains 222
How Might the Party Change Its Spots? 223
The Value of Chinese State Industrial Enterprise Assets 226
Comments 232
Chapter 9: Chinese Balloons 235
The Party’s Ruling Paradigm 238
Chinese Balloons 239
Convergence Revisited 241
Appendices 245
Selected Bibliography 251
Index 257
