The Red Dream

Preface xi

List of Abbreviations xix

Chapter 1: From Turning Point to Turning Point 1

An Abrupt About-Face 2

The Golden Age: A Short Story 4

Underlying Conditions 7

The Yin and the Yang of the China Dream 10

Convergence 20

Chapter 2: The Shadow Fiscal System 23

China's "Centralized" State and Localized Financing 24

Aspirational Central Finances, Fiscal Collapse and the 1994 Budget Law 29

The Continual Local Scramble for Funds 35

Then There Was the Land but It Is Not Free, 1999-2007 38

Paving the Country Over 45

The Vulnerability of Local Governments, Banks, and Enterprises 46

Implications 48

Chapter 3: China's Banks and the Deposit Bonanza 57

China's State Banks and the "Tree" Model of Banking 58

Command Lending and Funding 66

Fintech and Other Challenges to Bank Deposits 72

Bank Capitalization 80

Implications 83

Chapter 4: Trees Can Grow to Heaven! 87

Evolution of Chinese Balance Sheet Management Techniques 88

Outcomes in Financial Engineering Chinese-Style 91

Channels to Support State Bank Performance Metrics 93

Implications 115

Chapter 5: Beautifying Bank Balance Sheets 119

Parking Assets-- the Interbank Market and "Repos" 120

Flexible Loan Agreements 124

Local Government Bonds 127

Government "Guidance" Funds 137

Off-Balance-Sheet Items 138

Comments 146

Chapter 6: After 30 Years, Was Deng Xiaoping Right? 151

A Summary State Balance Sheet 152

Inefficient Investment Equals Extrabudgetary Funding 154

The Promise of the Stock Markets 156

Massive Growth in Deposits 164

"Opening" the Door to Foreign Investment 166

Excessive Reliance on Debt 168

Deterioration of State Finances 169

Summing Up 173

So Was Deng Right, Can Capital Markets Be Used in a Socialist Economy? 178

Chapter 7: China versus the United States: Comparing the Costs of Financial Crises 183

Summary Financial Crises, China and the United States 184

Comparisons of Crises 189

Macro Comparisons and the Role of Central Banks 203

Comparisons of State Net Worth 206

Comments 208

Chapter 8: Japanese Bubbles 211

Bubbles and Japan's Banking Crisis of the 1990s 212

Why Did Resolving Japan's Banking Crisis Take So Long? 215

More Points of Comparison, China versus Japan 218

Comparative Cashflow Chains 222

How Might the Party Change Its Spots? 223

The Value of Chinese State Industrial Enterprise Assets 226

Comments 232

Chapter 9: Chinese Balloons 235

The Party's Ruling Paradigm 238

Chinese Balloons 239

Convergence Revisited 241

Appendices 245

Selected Bibliography 251

Index 257