The Wall Street Journal published a book review of The Great Rebalancing: Trade, Conflict, and the Perilous Road Ahead for the World Economy by Michael Pettis. The reviewer calls Pettis a “brilliant economic thinker” and gives a good background of the financial situation in China and why it needs to be rebalanced. If you are not quite sure what the book is about or what exactly is going on with the Chinese economy and why it is important at all, this book review is a great place to start.
A Banking Paper TigerChina Development Bank underwrote a massive stadium in Loudi, Hunan Province—a city that lacks a professional sports team.
China’s economy sometimes seems the work of miracles: three decades of economic growth, with GDP compounding at an annual rate of around 10%; the world’s highest levels of savings and investment; vast trade surpluses, which feed the largest foreign-exchange reserves in history. The financial system has played a key role in delivering these economic feats, and no single institution within it has been more important than China Development Bank. “Understand CDB,” Henry Sanderson and Michael Forsythe write in “China’s Superbank,” “and you understand the core of China’s state capitalism.”
This so-called policy bank, founded less than two decades ago, boasts a larger loan book than J.P. Morgan ChaseJPM +3.41% . Over the past 15 years, CDB has lent trillions of dollars to finance China’s urbanization policy. More recently, it has dished out vast sums across the globe to secure China’s long-term energy supplies. Hugo Chávez, whose country has been the largest single foreign recipient of CDB’s loans, proclaims his financial benefactor as the bank “with the most money in the world.”