Red Capitalism by Carl Walter, Fraser Howie Read Free Book Online Page A

quickly made his comeback and, in 1966, threw the country into chaos for a further 10 years.
    Under such chaotic circumstances, how much of a government, much less any planning system, really could have been put in place? Whatever the answer, there was no banking system when the Gang of Four was deposed in 1976; everything had to be rebuilt and the only model anyone knew of was based on blueprints the Soviet advisors had left behind. At the start of the reform era in 1978, there was only one bank, the PBOC, and it was a department buried inside the MOF. From this small group of only 80 staff, a great burst of institution building began.
    New banks and non-bank financial entities proliferated wildly in the government’s enthusiasm for what it saw then as financial modernization (see Table 2.2 ). By 1988, there were 20 banking institutions, 745 trust and investment companies, 34 securities companies, 180 pawn shops and an unknowable number of finance companies spread haphazardly across the nation. Every level of government succeeded in establishing its own set of financial entities, just as they have now set up “financing platforms” of every kind. It was as if money could be conjured up simply by hanging up a signboard with “financial” on it.
    TABLE 2.2 The proliferation of financial institutions in the 1980s
Type and number of institution
Date founded
1)
20 banking institutions including:
People’s Bank of China
January 1978
Bank of China
January 1978
People’s Construction Bank of China
August 1978
Agricultural Bank of China
March 1979
Industrial and Commercial Bank of China
January 1984
China Investment Bank
April 1994
Xiamen International Bank
December 1985
Postal Savings
January 1986
Ka Wah Bank
April 1986
Urban Credit Cooperatives
July 1986
Aijian Bank and Trust Co.
August 1986
Wenzhou Lucheng Urban Credit Cooperative
November 1986
Bank of Communications
April 1987
China Merchants Bank
April 1987
CITIC Industrial Bank
September 1987
Yantai Housing and Savings Bank
December 1987
Shenzhen Development Bank
December 1987
Fengfu Housing and Savings Bank
December 1987
Fujian Industrial Bank
August 1988
Guangdong Development Bank
September 1988
2)
745 trust and investment companies including:
China International Trust & Investment Corp.
October 1979
ICBC Trust
April 1986
Shenyang Municipal Trust & Investment Co.
August 1986
China Agricultural Trust & Investment Corp.
1988
Bank of China Trust & Investment Co.
1988
China Economic Development Trust
1988
Guangdong International Trust & Investment Co.
December 1980
3)
34 securities companies
1988
4)
180 pawn shops
from 1984
5)
an unknown number of finance companies
from 1984
    At such an early stage of revival, and lacking any professional staff, banks could hardly be anything other than an appendage of the Party organization and the Party did not understand how to use the banks. This can be seen in the mission statement devised by the government for banks: “The central bank and the specialized banks should take as their objective economic development, currency stability and increasing social productivity.” This statement juxtaposed economic growth with a stable currency, but in the Party’s hands, the former will always win out. More critically, there was a basic flaw in institutional design: the banks were organized in line with the government administrative system. Although the PBOC may have been a part of the State Council in Beijing, its key operational offices were at the provincial level and here they were subordinate to local Party committees. Throughout the 1980s and into the 1990s, the local Party controlled the appointment of the senior PBOC branch managers as well as those of the other banks. Of course, the preference of the local government will always be for growth and easy access to money. As the consequent raging inflation in the late 1980s attested, combining poorly trained staff with political enthusiasm was tantamount to playing with fire.
    Just as in