Abstract
ABSTRACTChina's financial system is rapidly evolving. Both the emergence of shadow banking since 2009 and the growth of fintech since 2013 as forms of ‘non-bank credit intermediation’ have catalysed market-oriented institutional change beyond the banking system, with potentially far-reaching economic and political implications. In this article we assess these developments in the broader trajectory of China's financial reform and economic development. Through an analysis of two key sectors of non-bank credit intermediation – wealth management products and online lending platforms – we find that the growth of both shadow banking and fintech can be located in the same trajectory of reform and development that has animated Chinese financial policy since the early 1990s. The toleration of WMPs and promotion of internet lending constitutes the latest stage of the Chinese Communist Party's efforts to construct a more efficient and sustainable market economy whilst simultaneously preserving political supremacy and custodianship of macro-social development. The difference in policy response is commensurate with the degree to which each financial sector meets the Party's twin objectives of economic development and political control. Counterintuitively from a Western liberal perspective, the very forces behind deep and broad financial liberalisation are also consolidating the Chinese Communist Party's overall legitimacy and ruling capacity.
Highlights
The image of China’s financial system as deeply repressed and dominated by a few large state-owned commercial banks (SOCBs) is rapidly becoming outdated
As we argue below, China’s financial policymakers are incorporating fintech into a programme of financial and economic development that deepens and broadens the reform process that wealth management products (WMPs) and other offline forms of non-bank credit intermediation (NBCI) initially catalysed in the post-crisis conjuncture
In this article we have argued that the rise of fintech as a mechanism for market-oriented institutional change in the financial system can be explained by its congruence with the core politico-economic priorities at the heart of China’s authoritarian capitalism
Summary
The image of China’s financial system as deeply repressed and dominated by a few large state-owned commercial banks (SOCBs) is rapidly becoming outdated. Financial reform continues to present numerous risks, not just to financial stability, but to the deeper resilience of Communist Party macro-social and economic authority over an increasingly diverse range of actors wielding influence over market dynamics and the capital allocation process within an evolving economic growth model The answer to this conundrum for the CCP has been to develop mechanisms for control and oversight over key actors in the emerging fintech ecosystem, representing a commensurate upgrading and transformation of how the CCP exercises control over both the economic and political dimensions of China’s changing political economy. At a time of steady consolidation of CCP power under Xi Jinping, it is clear to firms that in order to pursue business strategies that involve market-oriented financial services and the opening up of new modes of capital allocation, deepening party-firm cooperation is a necessary survival strategy, but constitutes a key source of competitive advantage itself
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