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The Red Dream

The Chinese Communist Party and the Financial Deterioration of China

Walter, Carl E.

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1. Auflage September 2022
288 Seiten, Hardcover
Wiley & Sons Ltd

ISBN: 978-1-119-89615-9
John Wiley & Sons

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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.

Preface

List of Abbreviations

Chapter 1 From Turning Point to Turning Point

An Abrupt About-Face

The Golden Age: A Short Story

Underlying Conditions

The Yin and the Yang of the China Dream

Convergence

Notes

Chapter 2 The Shadow Fiscal System: Local Governments, National Budgets

China's "Centralized" State and Localized Financing

Aspirational Central Finances, Fiscal Collapse, and the 1994 Budget Law

The Continual Local Scramble for Funding

Then There Was the Land, but Land Is Not Free

Paving the Country Over

The Vulnerability of Local Governments, Banks, and Enterprises

Implications

Notes

Chapter 3 China's Banks and the Deposit Bonanza

China's State Banks and the "Tree" Model of Banking

Command Lending and Funding

Fintech and Other Challenges to Bank Deposits

Local Bank Consolidation

Wealth Management Products

Peer-to-Peer Lending

Tao Bao, MyBank, and Yu'e Bao

Bank Capitalization

Implications

Notes

Chapter 4 Trees Can Grow Up to Heaven!

Evolution of Balance Sheet Management Techniques

Outcomes in Financial Engineering Chinese-style

Channels to Support State Bank Performance Metrics

State Asset Management Companies

Trust Companies and Trust Plans

Asset-Backed Securities

Huida Asset Management Company and Structured Entities

Wealth Management Products

Asset Exchanges and Online Auctions

Local Asset Management Companies

Debt-to-Equity Swaps

Implications

Notes

Chapter 5 Beautifying Bank Balance Sheets

"Parking" Assets - The Interbank Market

Flexible Loan Agreements

Local Government Bonds

Government "Guidance" Funds

Off-Balance-Sheet Items

Entrusted Loans

Debt-to-Equity Swaps

Other Contingent Liabilities

Unconsolidated Structured Entities

Comments

Notes

Chapter 6 After 30 Years Was Deng Xiaoping Right?

A Summary State Balance Sheet

Inefficient Investment Equals Extra-Budgetary Funding

The Promise of the Stock Markets

Massive Growth in Deposits

"Opening" the Door to Foreign Investment

Excessive Reliance on Debt

Deterioration of State Finances

Summing Up

China Evergrande and Local Budgets

China Huarong: The Crack in the Foundation

So Was Deng Right, Can Capital Markets Be Used in a Socialist Economy??

Notes

Chapter 7 China versus the United States: Comparing the Costs of Financial Crises

Summary Financial Crises, the United States and China

Comparisons of Crises

The US Savings and Loan (and Banking) Crisis, 1980-1994

The Asian Financial Crisis and Chinese Bank Restructuring, 1997-2007

The US Mortgage Crisis, 2008-2015

China's Deleveraging Campaign from 2016 to 2019

Macro Comparisons and the Role of Central Banks

Comparisons of State Net Worth

Comments

Notes

Chapter 8 Japanese Bubbles

Bubbles and the Japanese Banking Crisis of the 1990s

Why Did the Resolution of Japan's Banking Crisis Take So Long?

Further Points of Comparison, China versus Japan

Comparative Cashflow Chains

How Might the Party Change Its Spots?

The Value of Chinese State Enterprise Assets

Comments

Notes

Chapter 9 Chinese Balloons

The Party's Ruling Paradigm

Chinese Balloons

Convergence Revisited

Notes

Appendices

Appendix 1: China Government-Only Debt Obligations, 2009, 2015-2019

Appendix 2: The State Sector Balance Sheet

Selected Bibliography

Index
Carl E. Walter worked in China for over three decades. He has done IPOs of state enterprises, worked in joint venture investment banks, helped build out onshore banking platforms and was a member of the board of a large Chinese bank. Fluent in Mandarin, he holds a graduate studies certificate from Peking University and a PhD from Stanford University. Carl is the co-author of Red Capitalism and Privatizing China.