For seven years in a row (2013â2019), the Forbes Global 2000, an index presenting the rankings of publicly traded companies around the world, listed the Industrial and Commercial Bank of China (ICBC) on the top spot. Other Chinese banks, such as the China Construction Bank and the Agricultural Bank of China performed equally well, remaining in the top fifteen spots for years, including 2024.
Forbes Global 2000 is a good compass to gauge the strength of national economies using companies and their strength as a key variable. The indices and the metrics used to measure the strength are: sales, profits, assets and market value. The number of companies contributing to the list also matters. Researchers should also take into account the taxation regimes in China and the United States proper. Low taxation regimes, such as that of the USA, push up the ranking of the companies as profits and value of assets soar up. China is a true sheer competitor to the United States.
In 2003, the United States contributed 776 companies while China and Hong Kong had just 43. But in 2014 the United States contributed 564 companies while China and Hing Kong 207. The low taxation regime in the United States apart, from 2014 to 2019 China added up 102 publicly-traded corporations to the USAâs 11. Many of the Chinese companies listed on the Forbes Global 2000 since it first appeared (2000) are banks. What has been the contribution of Chinese banks in the global economic rise of China? This is the key research question Chenzhu Song endeavours to answer in the âRed Banks.â
Chenzhu follows a truly global historical macro-economic perspective. She looks at the economic and financial system of China under Chairman Mao Zedong and its interactions with Western economies. These interactions proliferated with the opening up of China to Western capital and the market reforms, a process that, roughly speaking, coincided with the so-called stagflation â stagnation accompanied by high inflation â in the Western economies and the interest rates hike of the American Fed under Paul Volcker. Inflation was defeated by the West failed to achieve the growth rates and prosperity it registered during the so-called âGolden Age of Capitalismâ. In these qualified contexts and eschewing econometric models â a habit very dear to those preoccupied with âbusiness economicsâ â Chenzhu moves on to a meticulous review of the banking system of China from 1980 to 2020. She insists that the management of Chinaâs political economy under Chairman Mao Zedong was the one that laid the ground for the opening up to global markets and the successful liberalisation of the economy pursued by the Chinese elite after his death in 1976.
The Chinese elites accepted free market settings and facilitated profit-making enterprises to function in the economy. However, they did not liberalise the capital account of the Chinese state, and this is perhaps one of the key reasons why the Renminbi cannot advance in global currency markets competing on equal footing with the dollar and the euro as a reserve currency. This may sound as a disadvantage, but is it?
The Chinese state is involved directly or indirectly in most of the business activities carried out by financial and non-financial corporations. State-owned enterprises constitute more than 65% of the total Chinese economy. The banks are no exception, yet they are performing well and abide by international standards. Chenzhuâs âRed Banksâ is an original and detailed examination of all types of Chinese banks (âpolicy banksâ, commercial banks, joint-stock commercial banks etc.) and the way they contributed to the development of the real economic sector of China, creating such conditions of accumulation at home which necessitated strategic expansion abroad. From the late 1990s onwards, China, having become the worldâs key manufacturer, would become a major exporter registering trade surpluses and virtuous investment cycles. Importantly, the Chinese banking system operating under state-capital controls had avoided excessive speculation. This simply meant that âfinancialisationâ, a phenomenon analysed well by heterodox political economists in the West, did not take root in China. In the Western core, after the end of the Bretton Woods era in 1971 which led to a floating dollar and exchange rates regimes, many entrepreneurs abandoned the sphere of material production moving instead to private banking and finance. They saw this as a source of easy profiteering without any re-investment of their super-profits to manufacturing. Over time, this created an unsustainable chain of papers assets and profits, which eventually blew up in what came to be called as âthe Great Recessionâ of 2007â08. Western transatlantic banks and various other agencies, such as the shadow banking sector, had been the mediators through which the financialisation process had operated. Thus, the crisis that hit the Anglo-American banks in 2007 was felt in the Eurozoneâs banking system, especially the French and German banks. This extraordinary shaking-up of the Western system of economic and financial power did not contaminate China. Although China lost some of its economic power due to contraction of global trade and investment, in the main China and the Chinese banks remained in good health. Having said this, maintaining capital controls in global conditions of neo-liberal globalisation cum financialisation is not necessarily a bad thing, in fact it proved to be quite beneficial in the long-run.
âRed Banksâ is an original, thorough and perhaps a unique account in English of the story of the Chinese banking sector and the way in which it contributed to the global economic rise of China. It is a magnificent and scholarly contribution to our understanding of what many of us call, for some time now, power-shift to Asia.
Vassilis K. Fouskas
Professor of International Politics & Economics
Founding Editor of the Journal of Balkan and Near Eastern Studies
Centre for the study of States, Markets & People (STAMP)
Royal Docks School of Business & Law
University of East London