Book excerpt: Finance and Society in 21st Century China

WHILE THE world was inclined to look to China to possibly lift the global economy out of the recession caused by the sub-prime mortgage market collapse, beneath its impressive $2.65 trillion-plus foreign exchange reserves recorded in September 2010, and the 8.7% gross domestic product (GDP) growth for 2009 and an estimated 10% growth for 2010, China is, in fact, challenged by increasing social and economic threats and uncertainties. Overtaking Japan and becoming the second largest of the world’s economies means China’s socio-economic stability and sustainability have an unprecedented influence on global order and peace.

Despite the fact that, at 8.7%, GDP growth in 2009 was stronger than many other countries could have achieved, it was the slowest for the Chinese economy since 2001. It is suspected that about 80% of the 8.7% growth was attributed to a Renminbi (RMB)4 trillion stimulus package and, if this really is the case, it only reflects the fact that the massive Chinese domestic economy does not yet have the capacity to be resilient in the face of global financial and economic crises without government stimulus.

Those who believed that China had already outgrown its reliance on its western counterparts might have been disappointed by the reality that the country was still very much dependent on exports and foreign investments. The collapse in exports and the slowdown of foreign investment have, in turn, caused job losses throughout China.

Underlying the 8.7% economic growth was the total amount of new bank loans extended in 2009, equivalent to (RMB)9.6 trillion versus (RMB)4.2 trillion in 2008. Alongside this huge amount of lending, massive infrastructure projects were undertaken and there was an upsurge of property prices in major cities throughout the country. Also in 2009, the Shanghai Stock Exchange had the third-largest trading turnover anywhere.

Even so, the rate of urban registered unemployment was 4.3%, compared with 4.2% a year before. The unemployment situation elsewhere in the labour force, including the urban unregistered workforce, migrant workforce and surplus rural workforce, remain unknown. Nevertheless, from the fact that farmers were refusing to buy government subsidised electrical appliances, fearing they would not be able to afford the utility costs to operate them, it is reasonable to guess that the rural unemployment situation is not improving.

While the sub-prime-led recession has undoubtedly exposed underlying Chinese social and economic problems, it has also raised concerns about the country’s sustainability. Taking lessons from the sub-prime financial crisis, Bernard Lietaer points out that the financial system provides the foundation for the sustainability of other socio-economic sub-systems.

To a large extent, therefore, the stability of the Chinese financial system is the core consideration determining the future of both the country and its trading partners. The present Chinese financial structure, however, is very much operated and evaluated according to a mathematically driven and politically dominated orientation. Any connection between the financial structures and the roots of Chinese culture, or any integration of finance and culture, seems to be missing. It is sadly the case that socioeconomic foundations not properly embedded in wider culture tend to be fragile and unsustainable.

During the seven years I have spent in China since my first visit to Beijing back in 1983, I have witnessed a growing disconnection between the Chinese people and their original traditions and cultures. It is very sad and worrying to see a younger generation that is largely obsessed with materialism and compulsive greed. Their loss of identity and values has led to emptiness and purposelessness. Life is, indeed, occupied by the pursuit of money and selfish pleasure. As an entrepreneur and ex-investment banker, I see and understand the risk of short-termism, particularly when it has become a dominant trait of Chinese society at large. Short-termism is one of the most damaging causes of financial instability.

On the one hand, this book addresses concerns about the socio-economic reality of today’s China and, on the other, it reflects awareness of a disconnection between currently witnessed phenomena and traditional Chinese thinking involving a belief in there being an important cosmic rhythm. It is possible that this disconnection between cultural traditions and present reality could lead to disintegration and unsustainable development.

The implicit traditional Chinese belief is in a correspondence, whereby everything is interconnected, in tune with a cosmic rhythm shared by all. Accordingly, it is thought that if any one of the cosmological elements is missing or in disorder, the overall rhythm will be interrupted and chaos will result.

This book aims to provide a view and understanding of the critical issues of banking and finance from both global and local Chinese perspectives. On the one hand, it is intended to raise awareness of the severe social and economic disruption that finance has caused from a global perspective. It also aims to increase consciousness of the particular threats and challenges resulting from the current disengagement of finance in China from its cultural roots.

The Chinese economy is increasingly important to global development and there is a plan for Shanghai to become a leading international financial centre. Roger Lindsay, senior vice president, Asia Pacific, for Timken, takes the view that it would be good for Shanghai to be such an international financial centre. He also makes the point, however, that challenges associated with transparent financial reporting, freedom of foreign exchanges, financial compliance and ethical behaviour present hurdles that need to be overcome. It is important for Shanghai to become a centre that supports financial stability and broader socio-economic sustainability.

This book aims to encourage reconnection of the Chinese financial system with its original cultural roots. It offers Chinese society a new kind of financial knowledge and illustrates the theory and practice of a ‘finance-in-society model’ that can be established, developed and operated.

Such a Chinese-contextualised model could effect a transformation during the 21st century, leading to a sustainable financial system based on trust.

Finance and Society in 21st Century China, Chinese Culture versus Western Markets, by Junie T. Tong

Published August 2011, Gower Publishing