THERE is no more potent symbol of the relative decline of Western finance than the revolution in Chinese banking over the past decade. While American and European banks have been busy blowing up, China’s have been transformed from communist bureaucracies crippled by bad debts into something resembling world beaters.
That metamorphosis has been completed by
celebrity wigsthe flotation of Agricultural Bank of China, the last of the five big state-owned banks to list (see article). Even by Chinese standards it is colossal, with 320m customers, 441,000 staff and more branches than many Wall Street firms have desks. Four of the world’s ten biggest banks by market value are now Chinese. In 2004 none was. Better-known (and more global) lenders such as Deutsche Bank and Barclays look rather puny by comparison. It’s natural to wonder if more than just firms are being eclipsed: whether a
full lace wigs freewheeling era is being superseded by a “Beijing consensus” of state-managed finance. Though neat, such a conclusion looks wrongheaded.
Whatever their colour, these cats catch mice
As all bankers know, league tables can mislead. Still, China’s rise is more solid than that of Japan’s banks in the 1980s. Finance has huge potential in China—less than 1% of AgBank’s retail customers have mortgages. And the country’s banks had a good crisis, largely because they never entirely left the government’s embrace. So although they make money and have the trappings of public companies, the state owns a majority stake and the Communist Party appoints the top brass, whose pay is a fraction of that of their Western peers. Those bosses, with their dual role as party bigwigs and chief executives, are beholden
lace front wigs to a higher authority than the stockmarket. Their regulators, meanwhile, wield supposedly crude tools to control banks, such as lending caps and reserve ratios, long dismissed by “light touch” supervisors elsewhere. And the system is pretty closed. Some foreign banks have minority stakes in Chinese firms. But foreigners’ own operations on the mainland have a market share of less than 1% by profits, while Chinese banks make less than 4% of their profits abroad.
This patriotic model has done well. Rich countries tried to kick-start their economies by getting central banks to lend to banks, which, frustratingly, have hoarded the liquidity. As in 1999 after the Asian crisis, China’s politicians just cut out the middleman and told the banks to supply more credit. Loans grew spectacularly, from 102% of GDP in 2008 to 127% in 2009, funding
synthetic wigseverything from motorways through paddy fields to yuppie flats in Pudong. Growth stayed strong and China won many admirers. In India and Brazil it is no longer retrograde to argue that state-controlled banks should help counteract the economic cycle. Even in rich countries with privately owned banks, supervisors are eyeing the tools used by China’s regulators to control credit. Communist Party diktat has been relabelled as “macroprudential supervision”.
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