WTO and China's Financial Services Sector

Financial services, particularly securities markets, insurance and commercial banking, have played a crucial role in China's post-1978 economic reforms. China has so far established a market structure and a legal framework, and has a growing understanding of how financial services operate in the modern world economy. We will review China's progress in financial services reforms over the last 22 years, describe the commitments China has made to gain WTO entrance, and then evaluate the potential benefits and costs to China's financial sector of WTO accession. We conclude that even with the substantial challenges presented by greatly increased post-WTO foreign competition, China will benefit from the WTO because of a number of factors including a growing pool of well-trained personnel, lessons learned from domestic and foreign development experiences, increasing Chinese economic strength, and continual advancement of China's financial infrastructure.     

The Privatization of Urban Housing in China and its Contribution to Financial System Development

The privatization of urban housing and the subsequent development of a mortgage market have played a major role in the development of China's financial system. This paper explores the history and development of China's urban housing market, its impact on the financial system, and the government's efforts to grapple with new issues that have surfaced alongside these reforms. This paper concludes that although housing privatization has helped strengthen the financial standing of state-owned enterprises, urban residents, and commercial banks alike, systematic weaknesses must be addressed in order to promote sustainable economic growth.     

Rural China and the WTO

China's entry into the World Trade Organization has been applauded for the benefits it will confer on China's economy and for granting recognition to China's modernizing efforts. The scrutiny of the outside world will force China to regularize many of its practices, such as legal and economic practices. But most of the discussion of the WTO has focused on a very limited segment of China's society. This article considers the realities of rural Chinese life, warning that the consequences of China's increased pressure to reform may be more negative than positive and that the prospect for rural China is far from clear.     

Rethinking the Chinese World Order: the imperial cycle and the rise of China

Looking to China's imperial history to understand how China as a great power will behave in the twenty-first century, some scholars have rediscovered the concept of the traditional Chinese world order coined by John K. Fairbank in the 1960s in the reconstruction of the benevolent governance and benign hierarchy of the Chinese Empire, and portrayed its collapse as a result of the clash of civilizations between the benevolent Chinese world order and the brutal European nation-state system. China was forced into the jungle of the social Darwinist world to struggle for its survival. As a result, China's search for power and wealth is to restore justice in an unjust world. China's rise would be peaceful. This article finds that while imperial China was not uniquely benevolent nor uniquely violent, the reconstruction of China's imperial past to advance the contemporary agenda of its peaceful rise has, ironically, set a nineteenth century agenda for China in the twenty-first century to restore the regional hierarchy and maximize China's security by expanding influence and control over its neighborhoods.     

Uneven Opening of China's Society,Economy, and Politics: pro-growth authoritarian governance and protests in China

This article evaluates China's model of development, especially its main component, i.e. its model of governance. It suggests that China's model of development is marked by an imbalance between fast opening of the economy and the society and sluggish opening of the political system. The Chinese society has become much more open, reflected in the Chinese growing awareness of their legal rights. The Chinese economy has become highly internationalized and open, but much of Chinese politics is closed. China's governance is marked by pro-growth authoritarianism. The Chinese state is effective in opening up the economy, promoting reform, and generating economic growth, but offers weak protection of people's rights and ineffectual mitigation of social grievances. These imbalances help produce social protests. Viable solutions are discussed.     

Stock market integration in Hong Kong and China

The Hong Kong Stock Exchange currently ranks sixth in terms of trading volumes in the world while China's fledgling securities industry at Shanghai and Shenzhen Stock Exchanges combined is barely more than 7 years old. With 1997 handover of Hong Kong to China, the securities industries of the two sides ought to integrate into one market. However, the Basic Law governing Hong Kong maintains unchanged British Common Law system as well as the life style of Hong Kong capitalist society, at least for the next 50 years. To understand how the stock exchanges operate under such a situation and how they cooperate in the future is the theme throughout this paper. This paper first describes the market backgrounds separately in Hong Kong and China. It intends to answer how, what and why China needs Hong Kong market and how, what and why Hong Kong, at a different level, needs China's. Then it deals with the interactions or cooperation in the primary market operations. The paper also deals with broader issues such as the RMB convertibility with respect to the integration of the stock exchanges and tries to forecast the future trend in the regional as well as international perspectives. It concludes that as part of the ‘one country, two systems’, the SEHK will be stronger as it has an added value to China's financial window to the world.     

Chinese Corporate Governance and Prospects for Reform

A critical element in China's current economic reform program is the creation of modern corporate governance structures in its corporations. Many of China's largest firms are caught between market incentives and political pressures, creating a situation ripe for managerial inefficiency. This article examines the financial and regulatory structures necessary for an efficient corporate governance system to function in China, and it assesses how these structures currently operate in the economy. The article identifies key failures in fostering modern corporate governance practices, which in turn jeopardize central elements of the government's reform program. The article includes a case study of the governance practices of PetroChina Company Ltd, the internationally listed subsidiary of China National Petroleum Corporation. The success or failure of the government's efforts to create proper governance mechanisms will carry important economic and political ramifications for China. Indeed, the successful implementation of corporate governance reforms may mark the final stages of China's evolution into a market economy.     

International Political Economy from a Chinese Angle

In the 1990s, international political economy (IPE) as a set of concepts to interpret the current and future world system caught on quickly among Chinese scholars and policy analysts. Recent events (the Asian financial crisis and the US role, WTO negotiations, US‐Japan trade disputes) combined with China's historical experience (imperialism, war, revolution) and aspirations (to be a regional power) have given IPE specialists a different perspective on and language for the issues and events of today's global political economy. Zhu Wenli highlights the divergence between US and PRC views and interpretations on concepts of hegemony (the role of the US in a unipolar system), globalization, development models, and economic security, arguing that understanding this theoretical gap helps us to understand the current policy gap. She concludes with a reference to the limited role that international relations concepts and ideas play in the formation of foreign policy.     

China's Approach to BRICS

The economic rise of the BRICS (Brazil, Russia, India, China and South Africa) inevitably leads to a redistribution of power in the international system. Chinese leaders today accord a considerable priority to this group, and there are elements of realism, liberalism/institutionalism and constructivism in their approach. This article intends to study China's policy towards BRICS and examine the above elements so as to better understand how the Chinese leadership perceives China's role in the international system, and how it seeks to articulate its interests and enhance its influence.     

The political economy of banking reforms in China, 1993–1997

The weakness of China's banking system poses a serious threat to the sustainability of the country's economic development. This article measures the extent of this weakness and analyzes its causes. It focuses especially on the structural changes in the banking sector, the economic crisis of 1992–1993, and the subsequent financial reforms implemented. The evidence gathered by the author shows that the banking reforms initiated since 1994 have produced mixed results. Although central bank autonomy and bank supervision have improved, political, economic, and institutional constraints have prevented the government from taking more decisive measures to re‐capitalize banks, restructure the debt of state‐owned enterprises, and increase competition in the banking sector quickly. Despite the apparent effectiveness of the short‐term measures taken to bolster public confidence in the banking system, China's banking reform will be a difficult and prolonged process.     

Foreign banks in the People's Republic of China

Many foreign banks are attracted to the PRC economy, as a result of its continuing economic growth and financial liberalisations. This paper provides an empirical analysis of the factors contributing to this development and of the features of those foreign banks choosing to enter this market. In addition, a survey questionnaire permits an assessment of the attractions and weaknesses of the PRC banking market as perceived by foreign banks. It has been shown that large, financially sound foreign banks have helped to stimulate trade and investment in the PRC. However, China's restricted movement of capital and inadequate legal framework has reinforced the need for international banking services from Hong Kong.     

Between Confrontation and Assimilation: China and the fragmentation of global financial governance

This article explains China's multilateral approach towards regional and global financial institutions in the early twenty-first century. Challenging the dichotomous views of ‘eventual assimilation’ and ‘systemic conflict’, the article argues that China's strategic behavior suggests neither one-way assimilation into an American-centered liberal order nor a collision course with the United States and its Group of Seven (G-7) allies. China seems intent on exploring both global and regional options lest it should limit the range of strategic options available to itself. China has been pursuing a risk-averse counterweight strategy, that is, developing regional financial institutions and thereby avoiding overdependence on G-7-centered global institutions while maintaining collaborative relations with those global institutions. Such behavior will facilitate the emergence of a more fragmented and multilayered form of global financial governance in the post-global crisis world.     

Commercialization of Banks in China: Institutional changes and effects on listed enterprises

To meet the continuing growth of the socialist market economy, the latest focus on China's banking reforms is to transform the 100% state-owned commercial banks into independent, market-oriented commercial banks. This paper will show that listed enterprises in China have generally perceived that institutional changes leading to improvement over the legal and business environment are important for the success of the bank commercialization process (BCP). The effects of BCP on them are positive. Recognizing how poorly managed banking systems in East Asia have suffered in the financial crisis, the Chinese government has quickened the pace of the banking reforms in China.     

China's Sovereign Wealth Funds: origins,development, and future roles

China has established two of the world's newer large sovereign wealth funds (SWFs): the official China Investment Corporation (CIC), and the non-official and less transparent State Administration of Foreign Exchange (SAFE) Investment Company (SIC). Both provide alternative investment opportunities for China's exploding foreign exchange reserves, at US$2.4 trillion at the end of 2009, the largest in world history. This paper will address how China has accumulated its huge and growing foreign exchange reserves, and what roles these reserves, until 2007 managed only by the State Administration of Foreign Exchange (SAFE), have played in the establishment and development of China's two new SWFs. We will look specifically at why China's foreign exchange reserves have developed, and how the new SWFs are a part of broader efforts to provide investment alternatives for China's ballooning foreign exchange surpluses, particularly in light of the inflow of ‘hot’ foreign speculative funds. We will then point out some of the difficulties for China's financial officials of SWFs as they try to pursue multiple and sometimes competing goals, set by boards of directors representing different bureaucratic and economic interests, all within the context of a general lack of transparency and a rapidly growing economy. Finally, we will present our conclusions about the future roles of the two SWFs as well as of the policies being developed to decentralize foreign exchange reserve holdings while at the same time not slowing the growth of China's foreign trade surpluses, nor its foreign direct investments, nor its overall economic growth. We will also examine the effects of US-promoted Chinese currency appreciation on the future of China's foreign exchange reserves and its sovereign wealth funds.     

Implications of WTO Membership for China's State-owned Banks and the Management of Public Finances: Issues and strategies

WTO membership will dramatically change the environment within which China's financial institutions operate. It increases the urgency of many reforms, including the re-capitalization of state-owned commercial banks and the establishment of a healthy credit culture. The severe under-capitalization of state banks and many state enterprises is part of a growing domestic debt problem that cannot be solved through normal fiscal policy adjustments. It will require the sale or securitization of state assets on a much larger scale than has been undertaken so far. The approach that was taken by the government's four Asset Management Companies to non-performing loan clean-up in 1999 and 2000 was flawed and should not be repeated. State banks should play a larger role in absorbing their own accumulated losses. China should leverage its external financial strength for domestic financial clean up. If the balance of payments remains strong, a mild appreciation of the nominal exchange rate--when the risk of deflation has passed--may serve China's interest. A large and growing proportion of state assets is held in the form of non-tradable shares in partially privatized state companies. To protect state solvency, many of these shares will have to be made tradable and sold in the next 5-10 years. A further strengthening of the fiscal system, along with rapid development of domestic capital markets is essential. Breaking up some or all of the four large state-owned commercial banks into smaller units may facilitate their restructuring and eventual privatization.     

Hong Kong joins the National People's Congress: A first test for one country with two political systems

Before its reversion to Chinese sovereignty in July 1997, Hong Kong was preoccupied with safeguarding its autonomy while China insisted on keeping separate the two political systems of Hong Kong and the mainland. Toward these ends, everyone focused on Hong Kong's own governing councils and ignored its future status within China's congress system. Not until the December 1997 deadline approached for naming Hong Kong's delegation to the March 1998 meeting of China's new Ninth National People's Congress, did the full implications of this oversight become apparent. Hence, the institutional channels whereby the two systems must interact are actually rooted in the reforming structure of China's congress system. Delegate selection in Hong Kong revealed a new ‘bridging’ function whereby the two legislative systems are linked through the old organization tactic of concurrent membership. The bridging function also illuminates previously unheralded features of Hong Kong's new post‐1997 government, as a replica and appendage of China's people's congress network.     

China in Global Food Security Governance

The Chinese public's domestic expectation is that its state will ensure a safe and affordable supply of food. However, in doing so, China has acquired large amounts of farmland abroad which has raised concerns among many developing countries. It has been argued that land grabbing in the developing world is a form of neo-colonialism. This role of a colonial power is in conflict with China's historical role, which presents China as a leader of the developing world. In order to bring these role expectations into conformity with each other, China has taken a more active role in global food security governance. It has brought food security to what is becoming the core of the global governance decision-making system, the G20. China's historical role, together with its growing economic power, has helped to push the G20 to understand the importance of food security. This has shifted the G20's understanding of economic global governance away from the traditional fields of banking and trade regulation toward understanding the developmental-oriented economic structure.     

The Tenacious Tributary System

Recently, some writers on Chinese foreign relations have argued that the tributary system is a useful concept for describing imperial China's relations with its neighbors, and that it can even serve as a model for the future of international relations in East Asia. An examination of China's historical practice of foreign relations shows that there was no systematic tributary system, but instead multiple relationships of trade, military force, diplomacy and ritual. Furthermore, China's neighbors did not accept the imperial center's definition of hierarchy and subordination, but interpreted ritual relationships in their own way. Even in the 1930s, when scholars invoked Chinese history to advocate peaceful relations, they recognized the importance of military force, colonial settlement and domination in East Asian state relationships. The current myth of the tributary system ignores historical reality and misleads us about China's true position in East Asia and the world.