While Shanghai and Hong Kong are often viewed as the financial centers of China, Beijing, the capital, is in reality where all financial decisions are made-decisions that affect the country's banking system and overall financial structure, which has implications on a global level. Carl Walter, a managing director of JPMorgan China, spoke at a Stanford China Program seminar on November 1 about the frequent changes in China's banking system since 1949 and the cost of these reforms within and outside of China.

China's banking system is currently controlled by the Ministry of Finance (MOF), which has competed at several points with the People's Bank of China (PBOC) for influence within the state bureacracy. During the Cultural Revolution period, MOF first moved to the fore of China's banking system, merging together the until-then separate PBOC and Bank of China (BOC) and eliminating all other banks. With China's "Open Door" economic reforms of 1978, the banks were again separated, with PBOC having oversight for three commercial banks and MOF for two, including BOC. In 1994, authority for all commercial banks, such as BOC and the Agricultural Bank of China (ABC), moved to PBOC and MOF took control of three newly established policy banks, such as China Development Bank and the Agricultural Development Bank. Premier Zhu Rongji drove these and all other banking reforms until 2003.

Major bank restructuring has taken place since 1998, the big four banks were re-capitalized, problem loans spun off into four "bad" banks and the international accounting system adopted in preparation for international share offering on both domestic and international markets. All four banks successfully raised capital internationally and domestically over the past five years. Two large sovereign wealth fund-like entities came into being-Huijin, controlled by PBOC, and China Investment Corporation (CIC), operated under MOF- that were used to hold the Chinese state ownership of these banks.  The year that it was established in 2007, CIC acquired Huijin and MOF thereby indirectly gained control of all of the banks under PBOC.

The greatly increased level of bank capital achieved through restructuring and recapitalization was eroded, however, due to the enormous growth of loans in 2009 so that China now is faced with raising virtually the same amount of capital again, stated Walter. Everyone is paying the price, including international and domestic equity investors, who are being diluted, and China's own government, which to avoid dilution, must buy new shares at high market prices. The values of these shares, moreover, may be inflated due to the techniques used earlier to remove bad loans from their balance sheets. This has left banks exposed to these now worthless portfolios. To that extent, international accounting firms and market regulators put their reputations on the line when they support capital raising by the banks internationally. In short, the politics and economics of China's bank reforms and the struggles to control the banks have been internationalized.

Walter suggested that China is trapped with a banking system that is suited to the country's political system, but not to its economy. His forthcoming book, Red Capitalism: The Fragile Financial Foundations of China's Extraordinary Rise, co-authored with Fraser J.T. Howie, examines this issue and the recent history of China's financial system in depth.

October 15, 2010 was the 100th anniversary of the birthday of Edwin O. Reischauer, former U.S. Ambassador to Japan and a key leader in establishing the field of East Asian studies. George R. Packard, president of the United States-Japan Foundation, worked with Reischauer in the 1960s and recently published a biography about him entitled Edwin O. Reischauer and the American Discovery of Japan. Packard spoke at the Walter H. Shorenstein Asia-Pacific Research Center on October 28 to share his perspective on Reischauer's life and career.

Reischauer was born to missionary parents in Japan, where he spent the first part of his life. According to Packard, Reischauer had a lifelong appreciation for Japan that deepened with time, but he also recognized that the more time he spent living in and studying Japan, the more that there was for him still to learn. Reischauer attended Oberlin College as an undergraduate and Harvard University as a doctoral student. During World War II, he worked for the U.S. State Department translating intercepted messages.

The Pearl Harbor-era view of Japan in the United States was that of a "treacherous" country-one that still surfaces from time to time, according to Packard. Reischauer's life's work was to improve American education and understanding about Japan. While teaching at Harvard University, Reischauer, along with China studies pioneer John King Fairbank, helped to build the field of East Asian studies in the United States. Packard credits their efforts for changing the British imperial-era designation of the "Far East" to "East Asia." In addition to his works such as Japan, Past and Present and A History of East Asian Civilization, Reischauer was committed to writing about Japan in popular publications like Reader's Digest.

Reischauer served as U.S. Ambassador to Japan from 1961-1966. While there, he helped to diminish the "Occupation mentality" of Americans in Japan and planted the seeds for the eventual return of Okinawa, said Packard. During his time as ambassador, Reischauer suffered many professional and personal setbacks, including the death of President Kennedy, a supporter of his efforts; the escalation of the Vietnam War, for which he drew criticism although he was not a proponent of it; and being stabbed by a deranged student. According to Packard, after the stabbing incident Reischauer was deeply concerned about generating negative sentiment toward Japan, and thus intentionally kept quiet about it to the media. After returning to Harvard University in the late 1960s, Reischauer continued to draw criticism for the Vietnam War and in later decades was labeled as a "Japan apologist."

Despite his critics, the wisdom of Reischauer's work in academia and government rings true today, as evidenced by Japan's place as a global economic power and the successful and significant role that the U.S.-Japan relationship plays in the peace and economic stability of East Asia.