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China's Banking Transformation: The Untold Story
In this timely and provocative book, James Stent, a banker with decades of experience in Asian banking and fluency in Chinese language, explains how Chinese banks work, analyzes their strengths and weaknesses, and sets forth the challenges they face in a slowing economy. Without minimizing the real issues Chinese banks face, China's Banking Transformation challenges negative media accounts and reports of "China bears". Based on his 13 years of service on the boards of China Minsheng Bank, a privately owned listed bank, and China Everbright Bank, a state-controlled listed bank, the author brings the informed view of an insider to the reality of Chinese banking.
China's Banking Transformation demonstrates that Chinese banks have transformed into modern, well-run commercial banks, playing a vital role supporting China's extraordinary economic growth. Acknowledging that China's banks are different from Western banks, the author explains that they are hybrid banks, borrowing extensively from Western models, but at the same time operating within a traditional Chinese cultural framework and in line with China's governance model.
From his personal experience working at board level, Stent describes the governance and management of China's banks, including the role of the Communist Party. He sees China's banks as embedded in ancient concepts of how government and society work in China, and also as actors within a market socialist political economy. The Chinese banking system today bears similarities with banking in Northeast Asian "developmental states" of recent past, and also pre-1949 Chinese banking.
As the first account of Chinese banking by a Westerner who has worked in China's banks, China's Banking Transformation should be read by anyone interested in the political economy of contemporary China, in Asian development issues, and in banking issues generally. The book dispels misconceptions and provides insight into the financial aspects of China's economic growth story.
China's Banking Transformation demonstrates that Chinese banks have transformed into modern, well-run commercial banks, playing a vital role supporting China's extraordinary economic growth. Acknowledging that China's banks are different from Western banks, the author explains that they are hybrid banks, borrowing extensively from Western models, but at the same time operating within a traditional Chinese cultural framework and in line with China's governance model.
From his personal experience working at board level, Stent describes the governance and management of China's banks, including the role of the Communist Party. He sees China's banks as embedded in ancient concepts of how government and society work in China, and also as actors within a market socialist political economy. The Chinese banking system today bears similarities with banking in Northeast Asian "developmental states" of recent past, and also pre-1949 Chinese banking.
As the first account of Chinese banking by a Westerner who has worked in China's banks, China's Banking Transformation should be read by anyone interested in the political economy of contemporary China, in Asian development issues, and in banking issues generally. The book dispels misconceptions and provides insight into the financial aspects of China's economic growth story.
- GenresChinaNonfictionFinance
304 pages, Hardcover
Published December 1, 2016
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Displaying 1 - 6 of 6 reviews
April 21, 2017
Optimistic perspective on Chinese financial reform from a Western-born board member of two separate Chinese banks.
During the Mao era, the People's Bank of China wasn't a bank in the modern sense - it just performed accounting functions for the central government. That began to change after Deng's reforms in the late 1970s, but China's banking system was only really transformed in the 1990s, with Zhu Rongji's tenure in the PBOC. He pushed forward a set of sweeping reforms - clearing out the sclerotic levels of upper management, cleaning up loans to non-performing SOEs, bond issuances, and then listing the banks on international stock exchanges.
This set of reforms continued even during the 1990s Asia economic crisis. Though the relative isolation from FDI insulated China from the worst effects of that regional crisis, Two big banks went bust in 1998 - GITIC and the Hainan Investment Trust. Though now, the thrust of reform is more gradual, and not the drastic change that was needed in the 1990s. The end result, Stent argues, is that the Chinese banking system is fully modernized, complete with modern IT implementation, risk management and auditing capabilities, corporate governance with strict accountability, and retail standards. While there are some structural quirks compared to different bankers, Stent claims that the hybrid 'market socialist' system is at least as functional as market capitalism.
Frankly, I wish I could share his optimism. Though maybe I am just skittish about finance after the past nine years of crisis, but also the recent phenomenon of 'hiding' non-performing loans, railway debt, or the extensive 'shadow banking' system give me pause. In any case, I learned much from this perspective, and anyone interested in the Chinese economy or international development would think so, too.
During the Mao era, the People's Bank of China wasn't a bank in the modern sense - it just performed accounting functions for the central government. That began to change after Deng's reforms in the late 1970s, but China's banking system was only really transformed in the 1990s, with Zhu Rongji's tenure in the PBOC. He pushed forward a set of sweeping reforms - clearing out the sclerotic levels of upper management, cleaning up loans to non-performing SOEs, bond issuances, and then listing the banks on international stock exchanges.
This set of reforms continued even during the 1990s Asia economic crisis. Though the relative isolation from FDI insulated China from the worst effects of that regional crisis, Two big banks went bust in 1998 - GITIC and the Hainan Investment Trust. Though now, the thrust of reform is more gradual, and not the drastic change that was needed in the 1990s. The end result, Stent argues, is that the Chinese banking system is fully modernized, complete with modern IT implementation, risk management and auditing capabilities, corporate governance with strict accountability, and retail standards. While there are some structural quirks compared to different bankers, Stent claims that the hybrid 'market socialist' system is at least as functional as market capitalism.
Frankly, I wish I could share his optimism. Though maybe I am just skittish about finance after the past nine years of crisis, but also the recent phenomenon of 'hiding' non-performing loans, railway debt, or the extensive 'shadow banking' system give me pause. In any case, I learned much from this perspective, and anyone interested in the Chinese economy or international development would think so, too.
December 1, 2017
Seeing Stent’s background as a History undergraduate and decades of frontline Chinese banking experience, I had hoped for a unique perspective. Unfortunately, the banking technocrat has overpowered his university training. Stent’s technical insights into China’s banking system are discerning and free from over-reliance on jargon. He exudes confidence about China’s banks’ wide scale professionalism (their ‘night and day’ transformation, as he terms it) and holds steadfast belief in the Party’s capacity for benevolent economic management. Stent’s professional experience forms the basis of his argument, which unfortunately detracts from a rigorous interrogation into political science and economic literature. The result is China’s government and banking sector portrayed in a personalised narrative. This experience is taken to be emblematic of national practice.
Stent’s proposed theoretical framework is hardly in contention: contemporary institutions’ behaviour are a result of the country’s history and political economy. The question begs, to what extent does this influence bear upon current operations? This question could have been profitably explored in greater depth.
While I understand and applaud the integration of history and culture as analytical lenses into contemporary political economy, Stent feels unsteady when employing a reductionist framework to construct China’s past and to drive his argument. We are presented with three cultural traits that guide China’s banking operations: stability, pragmatism, and strategy. The old sage is dragged by the top knot into contemporary affairs, and Voltaire’s Confucian-inspired scholar-kings are resurrected to gloriously guide China’s banking system.
If, as Stent claims, China is indeed guided by Confucian-inspired benevolent dictators whose ultimate objective is social stability, he on occasion uses odd justification to substantiate his points: ‘the state must therefore assure its people economic opportunities and a social safety net.’ Economic opportunities? Sure. A social safety net? Certainly not. Stent presents an amorphous Confucianism which holds all the virtues of its idealised form wedded to a cultural pragmatism that dominates governance practices. Though far more even-handed and convincing, I can’t help but picture the rent-seeking sycophant Daniel Bell nodding along with some of the depictions within.
The argument Stent advances needs a more cohesive link. We are told that China was subjected to ‘humiliation for over a century, the turbulence of civil wars and revolutions’ only to have to long-divided Kingdom united by the exalted Communist Party. Despite these tribulations, however, contemporary China draws upon ‘a cultural legacy [which] has deep roots’. I happen to be sympathetic to aspects of this interpretation. In particular, the echoes of similar governance structures between imperial and modern China. However, until a convincing mode of transmission is presented – especially considering the corrosive effects the successive Great Leap Forward then Cultural Revolution had upon China’s social fabric and its inversion of the imperial political order – declarations about pervasive Confucian influence in contemporary China will remain unconvincing.
The book of course isn’t an analysis of political dissent, but I found Stent’s obfuscation particularly distasteful. He writes, ‘inflation is believed to have been one of the factors underlying the student disturbances in the first half of 1989.’ The student disturbances? Yes, a similar disturbance one might experience from an impolite bump at Guomao subway station. Or perhaps an equivalent disturbance of being awakened by a buzzing mosquito. George Orwell is rolling in his grave.
Stent drinks his baijiu deep from the beizi and buys the grand vision trope. Take this assertion, for example: ‘A key aspect of strategy is sequencing and setting of priorities… the leadership had made the decision that economic growth would take precedence over environmental quality.’ Easy to use a silver tongue with the benefit of hindsight. The CCP have mastered historical revisionism through public policy vagaries which can be moulded to suit any contemporary messaging. We uncritically accept these assertions at our own peril.
Useful for technical insights and sector development; less convincing on theory and argument.
Stent’s proposed theoretical framework is hardly in contention: contemporary institutions’ behaviour are a result of the country’s history and political economy. The question begs, to what extent does this influence bear upon current operations? This question could have been profitably explored in greater depth.
While I understand and applaud the integration of history and culture as analytical lenses into contemporary political economy, Stent feels unsteady when employing a reductionist framework to construct China’s past and to drive his argument. We are presented with three cultural traits that guide China’s banking operations: stability, pragmatism, and strategy. The old sage is dragged by the top knot into contemporary affairs, and Voltaire’s Confucian-inspired scholar-kings are resurrected to gloriously guide China’s banking system.
If, as Stent claims, China is indeed guided by Confucian-inspired benevolent dictators whose ultimate objective is social stability, he on occasion uses odd justification to substantiate his points: ‘the state must therefore assure its people economic opportunities and a social safety net.’ Economic opportunities? Sure. A social safety net? Certainly not. Stent presents an amorphous Confucianism which holds all the virtues of its idealised form wedded to a cultural pragmatism that dominates governance practices. Though far more even-handed and convincing, I can’t help but picture the rent-seeking sycophant Daniel Bell nodding along with some of the depictions within.
The argument Stent advances needs a more cohesive link. We are told that China was subjected to ‘humiliation for over a century, the turbulence of civil wars and revolutions’ only to have to long-divided Kingdom united by the exalted Communist Party. Despite these tribulations, however, contemporary China draws upon ‘a cultural legacy [which] has deep roots’. I happen to be sympathetic to aspects of this interpretation. In particular, the echoes of similar governance structures between imperial and modern China. However, until a convincing mode of transmission is presented – especially considering the corrosive effects the successive Great Leap Forward then Cultural Revolution had upon China’s social fabric and its inversion of the imperial political order – declarations about pervasive Confucian influence in contemporary China will remain unconvincing.
The book of course isn’t an analysis of political dissent, but I found Stent’s obfuscation particularly distasteful. He writes, ‘inflation is believed to have been one of the factors underlying the student disturbances in the first half of 1989.’ The student disturbances? Yes, a similar disturbance one might experience from an impolite bump at Guomao subway station. Or perhaps an equivalent disturbance of being awakened by a buzzing mosquito. George Orwell is rolling in his grave.
Stent drinks his baijiu deep from the beizi and buys the grand vision trope. Take this assertion, for example: ‘A key aspect of strategy is sequencing and setting of priorities… the leadership had made the decision that economic growth would take precedence over environmental quality.’ Easy to use a silver tongue with the benefit of hindsight. The CCP have mastered historical revisionism through public policy vagaries which can be moulded to suit any contemporary messaging. We uncritically accept these assertions at our own peril.
Useful for technical insights and sector development; less convincing on theory and argument.
August 1, 2021
Took me a while to finish this one. Book reminded me of my university times, sort of a class about Chinese banking and macroeconomics.
Not for everyone, but if you want to understand asian and Chinese banking systems, transformation and reforms; this should be must read. Couple of pages dedicated to chinese fintech
Not for everyone, but if you want to understand asian and Chinese banking systems, transformation and reforms; this should be must read. Couple of pages dedicated to chinese fintech
July 30, 2021
Thorough and insightful
March 9, 2023
Really good book at explaining Chinese banks, loved chapter 10 and wish it would have gone in more depth about the problems - but the footnotes look to be solid reading material for that.
December 19, 2016
Terrific book. Must read to understand the Chinese financial system
Jim Stent is one of the few people on earth who has been on the 'inside', having been on the main boards of Minsheng and Everbright Banks. He starts with the 30,000 foot view with an insightful analysis of the social, historical and economic backdrop which created the second largest economy globally. The hybrid banking system came from this and there is much sophistication and professional in this 'guided' system. His analysis of the banks themselves is dead on and his conclusions that the banks will have a soft landing is one I also share. This book is a must read for the naysayers who have not been on the inside as Jim has.
Jim Stent is one of the few people on earth who has been on the 'inside', having been on the main boards of Minsheng and Everbright Banks. He starts with the 30,000 foot view with an insightful analysis of the social, historical and economic backdrop which created the second largest economy globally. The hybrid banking system came from this and there is much sophistication and professional in this 'guided' system. His analysis of the banks themselves is dead on and his conclusions that the banks will have a soft landing is one I also share. This book is a must read for the naysayers who have not been on the inside as Jim has.
Displaying 1 - 6 of 6 reviews