Factions and Finance in China author Victor Shih has an Op-Ed (below) in the Wall Street Journaltoday. Shih’s research examines the push-and-pull between communist party elites and banking practices. In light of global economic slowdown, things are getting interesting.
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Around the world, the banks we see today are very different from their former selves of just a few months ago. The transformation has been most pronounced in the U.S. and Europe, where a combination of mergers and government involvement have reshaped the financial sector. But change is afoot elsewhere as well, and it isn’t always positive. In particular, Chinese banks are currently under enormous pressure to change their business practices in ways that represent a serious step backward.
A year ago, many of us were ready to be impressed with China’s banking system. To be sure, banks were still mainly state-owned, and the Chinese Communist Party continued to be omnipresent. However, the average bank managers were extremely risk conscious, and regulators from the China Banking Regulatory Commission (CBRC) swooped down on bank branches conducting surprise inspections every so often. Bankers were extremely hesitant to make uncollateralized loans to any firm except for the largest corporations.
This was an enormous change from just 10 years ago, when bankers doled out large sums at the slightest urging of the local governments and when banks were considered the “second treasury” by central policy makers. At that time, the nonperforming loan ratio was estimated to be nearly half of all loans outstanding. By January 2008, the official NPL ratio was less than 6%. This transformation wasn’t cheap or easy — it required hundreds of billions of dollars from the government to buy bad loans off bank balance sheets and recapitalize the institutions, and also the participation of Western “strategic partners” brought in to lend their expertise in best practices.
A group of experts, picked to deal within their specific area of expertise
A group of smart people, working on deals with which they are unfamiliar, bombarded with data, and forced to rely on others to succeed
According to Cambridge author A. Alexandra Michel, the second model consistently performs better, and the hard proof can be seen in the recent financial crisis. She’s followed two groups of new bankers in her new book, Bullish on Uncertainty, and has seen these forces at work. Here’s a cool clip of some of her ideas.
The book appears at a propitious time. Just last week, Sen. Charles Grassley (R-Iowa) and Peter Welch (D-Vermont) convened a daylong session in Washington with a couple dozen college presidents in order to pressure them to spend their endowments more freely, especially on financial aid to students. Grassley often has indicated he would like to require the richest universities to spend five percent of their endowments annually, as foundations have been required to do since 1969, and last week’s discussions are thought to be preliminary to formal hearings. Last week, he sounded a slightly softer note, according to reporter Tamar Lewin, writing in The New York Times: “We’d like to encourage you folks to look inward and correct what can be corrected,” he told the assembled presidents.
Please make it easier for us to tinker with your stuff.
Yes, many of us marvel at technological wonders, but others want to engage it, play with it, and even make it better.
Mister Jalopy’s latest mission is taking the Maker mentality to manufacturers, urging them to make products that consumers can easily maintain, repair, repurpose or even reinvent.
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“I really want companies to start thinking about shared innovation,” he said, “to realize that they’re not selling to customers, but to collaborators.”
Collaborative development is certainly gaining foothold, and authors Michele Boldrin and David K. Levine are tireless advocates of extremely relaxed IP law. Wouldn’t it be great if our products were built so that they are inherently customizable? It would require a lot of public knowledge about product design, though hacked iPhones are a testament to how long secrets are kept.
Full of whacking metaphors?! My favorite kind of review!
Marginal Revolution takes Against Intellectual Monopoly to task. In addition to all the whacking, poster Alex Tabarrok does my other favorite kind of review; one that really engages the authors and argues nuances with them.
Against Intellectual Monopoly is a relentless, pounding, take no prisoners attack on patent and copyright law. It joins Lessig’s Free Culture and Heller’s The Gridlock Economy as an instant classic and a must-read on these issues.
Around the world, the banks we see today are very different from their former selves of just a few months ago. The transformation has been most pronounced in the U.S. and Europe, where a combination of mergers and government involvement have reshaped the financial sector. But change is afoot elsewhere as well, and it isn’t always positive. In particular, Chinese banks are currently under enormous pressure to change their business practices in ways that represent a serious step backward.
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