Stanford University

Economic Affairs

Financial Reform in China: Obstacles to Change

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With a new government now in place, what are the prospects for financial reform in China, will interest rates become market-based, will the Renminbi become convertible, will banks begin to price capital economically? The talk explores these themes and discusses some of the obstacles to change that the new government faces.
 
At its core China's financial system is all about its banks. They are the provider of capital to all sectors of the Chinese economy, whether by outright loans or acting as both underwriter and principal investor in the country's growing bond markets. They operate now, as they have always operated, within the narrow framework of interest and currency rates set not by markets but by administrative fiat. For most of their history they have acted as simple conduits of capital based on an economic blueprint contained in a central plan. Some 15 years ago the entities then called specialized banks began to be restructured into what were meant to be commercial banks modeled after international, and particularly, US best practice. The outbreak of the global financial crisis not only called into question this ongoing effort, the massive economic stimulus had the effect of washing away the past decade long effort to transform what had been policy banks into more economically-oriented commercial banks. 
 
Please click here to download the talk slides. 
 
ABOUT THE SPEAKER

Dr. Carl Walter has contributed articles to publications including Caijing, the Wall Street Journal and the China Quarterly. He is also the co-author of Red Capitalism: The Fragile Financial Foundations of China's Extraordinary Rise (2012) and Privatizing China: Inside China's Stock Markets (2005).

Dr. Walter lived and worked in Beijing from 1991 to 2011, first as an investment banker involved in the earliest SOE restructurings and overseas public listings, then as chief operation officer of China's first joint venture investment bank, China International Capital Corporation. For ten years he was JPMorgan's China chief operating officer as well as chief executive officer of its China banking subsidiary.

Dr. Walter holds a PhD in political science from Stanford University, a certificate of advanced study from Peking University and a BA in Russian Studies from Princeton University.

 

McClelland M104
Knight Management Center
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Carl Walter Speaker
Seminars

Have the poor always been less likely to migrate? Evidence from inheritance practices during the Age of Mass Migration

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Using novel data on 50,000 Norwegian men, we study the effect of wealth on the probability of internal or international migration during the Age of Mass Migration (1850–1913), a time when the US maintained an open border to European immigrants. We do so by exploiting variation in parental wealth and in expected inheritance by birth order, gender composition of siblings, and region. We find that wealth discouraged migration in this era, suggesting that the poor could be more likely to move if migration restrictions were lifted today. We discuss the implications of these historical findings to developing countries.

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Journal Articles
Publication Date
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Journal of Development Economics
Authors
Ran Abramitzky

China, the Party and Its Banks

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Speaker:    Dr. Carl E. Walter, Author of “Red Capitalism”

Moderator:  Michael Harris, President of Finance, Ambow Education

Until China began its highly successful reform effort in 1978, banks as institutions hardly existed, they were mostly a channel to provide funding to state enterprises. Yet after the economic reform in the 1980s, there was a rush of banking privatization and this enthusiasm to drive economic growth led to excessive bank lending and high rates of inflation in the 1990s. Following the Asian Financial Crisis and the collapse of Guangdong International Trust and Investment Co., a single party committee for each of the big state banks was created. The objective was to build relatively independent banking institutions with centralized management structures, thus forming special bond between the Party and Banks in China. Dr. Walter will discuss the modern evolution of China’s banks and the challenges in transiting to a more open, consumption-based model of economic development.

Carl E. Walter has worked in China′s financial sector for the past 20 years, participating in many of the country's financial reforms. He played a major role in China′s groundbreaking first overseas IPO in 1992 as well as the first listing of a state–owned enterprise on the New York Stock Exchange in 1994. He held a senior position in China′s first joint venture investment bank where he supported a number of significant domestic stock and debt underwritings for major Chinese corporations and financial institutions. More recently, he helped build one of the most successful and profitable domestic security, risk and currency trading operations for a major international investment bank. He holds a PhD from Stanford University and a graduate certificate from Beijing University.

Stanford Center at Peking University

Carl E. Walter Author of "Red Capitalism" Speaker
Michael Harris President of Finance Moderator Ambow Education
Lectures

Can Cash Transfers Save Countries from Resource Windfalls?

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Abstract:

The discovery of oil or gas in a poor country is potentially beneficial and, simultaneously, potentially calamitous. While countries could put oil revenues toward building much-needed schools and roads, fixing and staffing health systems, and policing the streets, many resource-rich states fare little better—and often much worse—than their re resource-poor counterparts. Too often public money is misallocated and funds meant to be saved are raided, and citizens pay the price. While there is much discussion about how to respond to windfalls, solutions to counteract potential corrosive effects are highly elusive. Todd Moss leads CGD's Oil-to-Cash initiative, which is exploring one policy option: paying revenues directly to citizens. Under this proposal, a government would transfer some or all of the revenue from natural resource extraction to citizens in universal, transparent, and regular payments. The state would treat these payments as normal income and tax it accordingly—thus forcing the state to collect taxes, and addinng additional pressure for public accountability and more responsible resource management. Todd will talk about the idea, the pitfalls, and some of the emerging models experimenting with aspects of the Oil-to-Cash model.

Todd Moss is vice president for programs and senior fellow at the Center for Global Development, a Washington-DC based thinktank. Moss previously served in the US State Department, worked at the World Bank, and was a lecturer at the London School of Economics.  He is the author of African Development: Making sense of the issues and actors (2011).

Encina Ground Floor Conference Room

Todd Moss Vice president for programs and senior fellow at the Center for Global Development Speaker Washington-DC based thinktank
Seminars

Stanford Conference on Japanese Entrepreneurship

On June 6 and 7, the Stanford Project on Japanese Entrepreneurship (STAJE) of SPRIE at the Stanford Graduate School of Business, in cooperation with the Stanford Technology Ventures Program (STVP) of the Stanford School of Engineering, will present the 5th Annual Academic Conference on Japanese Entrepreneurship at the Huang Engineering Center at Stanford University. The theme of the conference is "Entrepreneurial Policy, Outcomes, and Strategies in Japan: Lessons for the Rest of the World". We invite papers, as in past years, from the fields of management, strategy, organizations, sociology, political science and economics to be submitted to this conference, which will be attended by scholars from Japan, the United States, and Europe.

Consul General Hiroshi Inomata will give the opening address.

The following scholars will deliver keynote speeches:

Hugh Patrick, Columbia University
Tom Byers, Stanford University
Tina Seelig, Stanford University

The following scholars will present papers:

Christina Ahmadjian, Hitotsubashi University
Serguey Braguinsky, Carnegie-Mellon University
Steven Casper, Keck Graduate Institute, Claremont Colleges
Joseph Cheng, University of Illinois at Urbana-Champaign
Robert Cole, UC Berkeley
Charles Eesley, Stanford University
George Foster, Stanford University
Masayo Fujimoto, Doshisha University
Kathryn Ibata-Ahrens, DePaul University
Martin Kenney, UC Davis
Robert Kneller, Tokyo University
Masahiro Kotosaka, Oxford University
Kazuyuki Motohashi, Tokyo University
Renee Rottner, New York University
Ulrike Schaede, UC San Diego
Kay Shimizu, Columbia University
Janet Smith, Claremont-McKenna University
Richard Smith, UC Riverside

The following are confirmed discussants:

Charla Griffy-Brown, Pepperdine University
Richard Dasher, Stanford University
Robert Eberhart, Stanford University
Kathleen Eisenhart, Stanford University
Nobuhiko Hibara, WASEDA Business School
Glenn Hoetker, University of Arizona
Takeo Hoshi, Stanford University
Riitta Katila, Stanford University
Christine Isakson, Stanford University
Joachim Lyon, Stanford University
Tammy Madsen, Santa Clara University
William F. Miller, Stanford University
Tom Roehl, Washington University
Steve Vogel, UC Berkeley
Dan Wang, Stanford University
Jennifer Wooley, Santa Clara University

The following practitioner and financial supporter will give short talks:

Mike Alfant, CEO Fusion Systems, President ACCJ

STAJE applies the principles of entrepreneurship to the academic domain by creating opportunities for innovative, creative and multidisciplinary approaches to research on contemporary Japan. During this conference we will present high quality contributions on issues related to entrepreneurship, institutions, and Japan such as empirical studies, case studies, political and social institutional studies in Japan, and new research methodology including experimental design.

More information on last year's conference can be found at:
http://sprie.gsb.stanford.edu/news/sprie_hosts_4th_annual_stanford
_project_on_japanese_entrepreneurship_conference_20120521/

For additional information or to request an invitation, please write to Robert Eberhart at eberhart@stanford.edu.

Sponsors

 

      

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Mackenzie Room, 3rd floor, Huang Engineering Center, School of Engineering, 475 Via Ortega, Stanford, CA 94305

Conferences
Stanford Project on Japanese Entrepreneurship (STAJE)

The Han-Minority Achievement Gap, Language and Returns to Schools in Rural China

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The goal of this article was to document and explain the gap in educational achievement between Han and minority students in primary schools in western China. In our survey of 300 schools in Shaanxi, Gansu, and Qinghai provinces (involving nearly 21,000 fourth- and fifth-grade students), we find large differences in achievement on standardized exams between Han and minority students. On average, minority students perform 0.25 SD lower in math and 0.22 SD lower in Chinese. Most strikingly, minority students who do not generally speak Mandarin as their primary language score 0.62 SD lower than Han in math and 0.65 SD lower than Han in Chinese.

Using decomposition methods pioneered by Oaxaca (1973) and Blinder (1973), we find that most of the achievement gap between Han and minority students with no alternative ethnic language can be explained by differences in endowments of student, family, and school characteristics. Of these, differences in students and family characteristics appear to contribute the most to differences in achievement. Little of the gap between Han students and non-Mandarin minority students (Salar and Tibetan in our sample), however, can be explained by endowment differences. Comparing these students only to Han students in the same schools significantly reduces the size of the achievement gap, yet a difference of more than 0.2 SD persists. None of this remaining gap is explained by differences in endowments. Although several explanations are possible, we believe that a likely explanation is that the ability of students to learn may be hindered by difficulty comprehending instruction in Mandarin (given that no schools in our sample provided instruction or texts in minority languages). While we cannot say with certainty why these students may benefit less from a given amount of schooling inputs, our analysis suggests that teachers play a significant role.

While we believe that the findings of this article are important, admittedly, the study has a number of limitations. First, although our sample contains suf- ficient numbers of minority students to conduct analyses, studies involving a larger sample of minority students (particularly non-Mandarin minority stu- dents) would provide further insight into the achievement gap. Second, our survey did not collect information on the Mandarin ability of individual students (although we tested students on the Chinese curriculum, this may be distinct from pure language ability). Future studies should employ such information to assess to what degree language is contributing to the underperformance of students belonging to groups that do not speak Mandarin as their primary language.

Despite these limitations, however, our results call for the attention of policy makers to approaches to address the underperformance of minority students in China’s rural areas. Given the large and increasing importance of educational attainment to economic well-being, addressing the large achievement gap between Han and minority students may help to mitigate economic disparities in the future. On the basis of our results, promising approaches to address the achievement gap would include those focused on improving the returns to minority students of given schooling inputs (e.g., through pedagogical practice). Further, if future studies show language to contribute significantly to the gap, interventions such as remedial tutoring in Mandarin may also yield large benefits. 

 

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Journal Articles
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Huan Wang
Scott Rozelle
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Economics of Development & Cultural Change

Performance Legitimacy, State Autonomy and China's Economic Miracle

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All the theories that explain post-Mao China’s economic success tend to attribute it to one or several “successful” policies or institutions of the Chinese government, or to account for the success from economic perspectives. This article argues that the success of the Chinese economy relies not just on the Chinese state’s economic policy but also on its social policies. Moreover, China’s economic success does not merely lie in the effectiveness of any single economic or social policy or institution, but also in the state’s capacity to make a policy shift when it faces the negative unintended consequences of its earlier policies. The Chinese state is compelled to make policy shifts quickly because performance constitutes the primary base of its legitimacy, and the Chinese state is able to make policy shifts because it enjoys a high level of autonomy inherited from China’s past. China’s economic development follows no fixed policies and relies on no stable institutions, and there is no Chinese model or “Beijing consensus” that can be constructed to explain its success.

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Working Papers
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CDDRL Working Papers
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