China's Superbank: Debt, Oil and Influence - How China Development Bank is Rewriting the Rules of Finance

by Henry Sanderson, Michael Forsythe

Inside the engine-room of China's economic growth--the China Development Bank. Anyone wanting a primer on the secret of China's economic success need look no further than China Development Bank (CDB)--which has displaced the World Bank as the world's biggest development bank, lending billions to countries around the globe to further Chinese policy goals. In "China's World Bank," Bloomberg authors Michael Forsythe and Henry Sanderson outline how the bank is at the center of China's domestic economic growth and how it is helping to expand China's influence in strategically important overseas markets.

100 percent owned by the Chinese government, the CDB holds the key to understanding the inner workings of China's state-led economic development model, and its most glaring flaws. The bank is at the center of the country's efforts to build a world-class network of highways, railroads, and power grids, pioneering a lending scheme to local governments that threatens to spawn trillions of yuan in bad loans. It is doling out credit lines by the billions to Chinese solar and wind power makers, threatening to bury global competitors with a flood of cheap products. Another $45 billion in credit has been given to the country's two biggest telecom equipment makers who are using the money to win contracts around the globe, helping fulfill the goal of China's leaders for its leading companies to "go global."

Bringing the story of China Development Bank to life by crisscrossing China to investigate the quality of its loans, "China's World Bank" travels the globe, from Africa, where its China-Africa fund is displacing Western lenders in a battle for influence, to the oil fields of Venezuela.Offers a fascinating insight into the China Development Bank (CDB), the driver of China's rapid economic developmentTravels the globe to show how the CDB is helping Chinese businesses "go global"Written by two respected reporters at Bloomberg News

As China's influence continues to grow around the world, many people are asking how far it will extend. "China's World Bank" addresses these vital questions, looking at the institution at the heart of this growth.

Genres: China, Economics, Finance, Politics, Nonfiction, International Relations

250 pages, Hardcover

First published October 10, 2012

Reviews

[Thilina Panduwawala · Rating 5 out of 5]

Highlight for me was how the CDB balance sheet was cleaned up of its NPLs and recapitalized in the late 1990s. And overall enjoyed all the great stories behind the varied types of lending CDB had done within and outside China.

[Ethan · Rating 3 out of 5]

An important contribution. Anyone who's stuck in the old belief paradigm that Western banks rule the world and Western bankers control the levers of power would do well to read this book. And on the policy side, if you still think the World Bank and the IMF are pulling the strings, you should probably wake up from 1997 and give Sanderson and Forsythe's book a once over.

The first chapter had a range of inexplicable typos, grammatical errors, and poorly constructed sentences, and the end lacked a strong wrap-up and/or concluding section. Regardless, it's a must-read for those following this kind of thing.

[Shrikant · Rating 4 out of 5]

Talks about the most powerful bank in the world: China Development Bank.

- The start of CDB as a policy bank with a focus on infra investments in China. Financing projects in China with local governments through financing vehicles.
- Its support for state-owned companies to grow locally as well as globally.
- Line of credit worth billions to ZTE, Huawei and clean energy companies.
- Loans-for-oil schemes with countries like Venezuela, Ghana, Angola, etc.
- Moving China's manufacturing to other countries like Ethiopia: leather products manufacturing so that it can import those goods in China.

[Mike O · Rating 4 out of 5]

Rating based on how much I learned from this book.

However, far from impressed by the title. I wouldn't say they are rewriting the rules, more so ignoring them with little regard for future consequences. Albeit with strong sovereign backing... so it is all safe for now.

Would love to see what happens at maturity for the external loans. Attitudinal changes toward China across the globe and the historically poor fiscal management, not least the potential for instability, in some of its new debtor nations, might not bode well for the CDB 'masterplan/formula'.

[Carlisle · Rating 3 out of 5]

The most interesting chapters were about CDB’s work in Africa and Venezuela. Otherwise, book was a bit meandering and a touch too time specific to feel confident the knowledge gained here can carry over.

[Matthew · Rating 2 out of 5]

It's an admittedly excellent work of reportage at parts but the book ends up repetitive and too long, rather like an extended, and extended, Bloomberg article. The first chapter is best. It describes China's economic model and financial system and the role that CDB plays in it; specifically, CDB helped local governments finance significant amounts of infrastructure building by lending the government large sums, with the loans backed by the future sale of real estate surrounding the infrastructure,e.g. a railway station or highway. When in 2011 the so called local government financing platforms restructured their debts, partly by injecting income generating or valuable assets into these indebted corporate entities, according to the authors, they were really injecting even more real estate. The chapter brings home quite powerfully the dependence of the Chinese economy on real estate; the point is not new, but some of the details and color are. I have a gripe though, which is that the authors claim this is unique to CDB; I don't think this is true, as Singapore and Hong Kong use this model too. The problem with China, however, is that this model is carried out everywhere and anywhere, at an extreme and excessive scale.

The following chapters are all right -- good reportage on the size and type of loans that CDB has made to resource rich geographies, such as Africa or Chavez's Venezuela, and to 'green' technologies like solar power as well as to IT vendors Huawei and ZTE. The book makes the point that many of these companies would not be at the scale they are at without CDB's financing -- point taken, but again, America did the same thing so I don't think CDB is unique in this respect. Good color, nothing substantially qualitatively new.

There is a chapter on Chen Yuan, the man who led CDB down this strategic direction. I liked this chapter, but thought it could discuss in greater depth how and why CDB has managed to carve out such a powerful role among Chinese institutions, in many ways a nearly independent economic development body with huge funding and influence.

[Julian Haigh · Rating 3 out of 5]

Bigger than the World Bank, China Development Bank (CDB) has become an important valve of the national government through the funding of projects as local government financing vehicles (LGFV). Under Governor Chen Yuan (son of Chen Yun, one of the eight elders of the Communist Party) it has dispersed 1.6 trillion yuan in loans to projects as diverse as the three gorges damn, loan-for-oil in Venezuela, or backing the rapid development of Chery Auto, Huawei or Chinese solar panel companies.

This is a financial lever of central authority that has dramatically expanded in the last fifteen years. Now they are developing their financial system under the authority of the state and benefiting through increased integration with the international financial system. The relationship between banks and government is a confusing one for most countries and it may be very nerve-racking when it comes time for 68 year old Chen Yuan to give up the mantle where he's been since 1998.

This book provides both good and bad faces to the bank, but seems most to decry the movement away from its original mandate as a policy bank to getting into 'private' equity. There are many strains of China's approach that are weaved together - gave me a new appreciation.

[Mariusz · Rating 3 out of 5]

A thoroughly researched piece, containing the explanation of CDB's path to greatness. One thing is missing - the conclusion that in a market economy the tools by which this greatness is being achieved would not be available. Disposessing smallholders of their land plots by local authorities at prices a fraction of their true market value and offering fixed negative real interest rates by commercial banks to private depositors would be unthinkable in an economy where market rules prevail and where fundamental principles of fairness are applied. It is these two elements which drive the unparalleled growth of CDB.

[Devin · Rating 3 out of 5]

Good general over view of the structural highlights of the bank's involvement in creating government-backed bond-issued debt and the bank's current efforts to invest overseas. The personal story of the CDB's founder had a few good moments but was to brief and fragmented to capture significant interest. While sufficient detail was given in the three main topics of; the bank's history, internal and external lending practices, the book lacked significant detail and offered no analysis.

[Paul Ducard · Rating 3 out of 5]

Very informative but the timeline was frequently all over the map, the authors jumping from one year to another, one interview to another.

[Umberto · Rating 2 out of 5]

China is profligate with credit

backs all local debt in the country

serious future shock/risk of cascading defaults

[A · Rating 3 out of 5]

Needs an editor as there is a story here. Too much shock mongering and unfinished narrative threads.