The Chinese Financial System (review)

Reviews 443 Cecil R. Dipchand, Zhang Yichun, and Ma Mingjia. The Chinese Financial System. Contributions on Economics and Economic History, no. 157. Westport and London: Greenwood Press, 1994. ix, 223 pp. Hardcover $59.95. Writing about China's financial system is a little like a cartographer dealing with the former Soviet Union: every time you are ready to go to print someone moves a border or changes a name and the map is out of date. Since the fall of the Qing dynasty at the beginning ofthis century, China's financial system has endured, and been shaped by, a remarkable series of twists and turns, beginning with a revolution and followed by a republic, warlords, an occupation, civil war, a communist government, the Cultural Revolution, and finally, since 1979, by a transition from a State-run, centrally planned economy to market socialism with room for private enterprise and greater reliance on market forces to allocate resources. A constantly changing financial system is one result ofthe constantly changing political situation in China, making any book on the subject soon out of date. The authors adapt to this difficulty by first presenting a carefully detailed description of China's financial institutions as they existed during, and by the end of, the 1980s. With this as both background and starting point, they then present a "cautious and reserved review of the immediate future"—to use the author's careful wording—in which they sketch a series ofchanges that are likely ifthe market elements ofthe Chinese financial system are further expanded. This book is more descriptive than prescriptive, telling what is, rather than what should be or might have been. It also carefully avoids any vestiges ofa personality cult: no name ofany official at a financial institution is mentioned, and no decision or policy is attributed to an individual—and among government authorities I found only two references to Deng Xiaoping and one for Jiang Zemin. The book will interest readers who want to know the structure of the Chinese Financial system as it developed during the 1980s and existed at the start ofthe 1990s. Furthermore, by describing the system in place, it makes the next developments , whatever they may be, easier to understand ifthe authorities, as expected, attempt to engineer the transition to market socialism with Chinese characteristics and ifthe struggle between economic development, political control, and ideology plays out in the post-Deng years. The three authors come from diverse backgrounds appropriate to this work. y niversity ^hang js awell-published professor ofmoney and banking in China, Ma is an official of the Bank of China, and Dipchand is a Canadian professor offinance who directs a program in China. They have access to documentation ofthe Chinese financial system that is not available elsewhere. ofHawai'i Press 444 China Review International: Vol. 2, No. 2, Fall 1995 The book begins with a short description of the economy prior to 1980 and ends with an appendix describing the economy for 1980-1990. These sections are less important than the material in between. The description offinancial institutions begins in chapter 2, starting with the People's Bank ofChina, and this is followed in subsequent chapters by discussions ofthe specialized banks that operate in designated business activities or industrial sectors, comprehensive banks with broader responsibilities in national or regional areas, and the increasingly important nonbank financial institutions. Included among them are rural credit cooperatives , urban credit cooperatives, trust and investment companies, and leasing, finance, and insurance companies. Each discussion usually includes detailed information on institutional origin, general functions, activities, organizational structure, and financial statistics up to 1990. Chapter 6 covers two important additions of the 1980s which lessen the control of the central authorities: the interbank market, which facilitates the movement of funds from bank to bank, and the foreign-exchange swap centers, which supplement the State's allocation of exchange . The reappearance of foreign banks is covered in chapter 8. I especially appreciated the inclusion ofchapter 7 on the reemerging securities markets, a remarkable development so soon after the severe repression ofprivate -enterprise ownership during the Cultural Revolution. Securities markets enable market forces, not just central planners, to influence the allocation of funds. Even more...