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.

Mariano-Florentino Cuéllar  (MA ’96, PhD ’00), a lawyer, scholar, and former official in the Clinton and Obama administrations, will assume the position of co-director of the Center for International Security and Cooperation (CISAC) at Stanford's Freeman Spogli Institute for International Studies (FSI) at the conclusion of the current academic year, FSI Director Coit D. Blacker and Law School Dean Larry Kramer have announced.

An expert in administrative law, international security, and public health and safety, Cuéllar is Professor and the Deane F. Johnson Faculty Scholar at Stanford Law School, and is also professor (by courtesy) of political science in the School of Humanities and Sciences. He is a longtime affiliated faculty member at CISAC, where he currently serves on the executive committee. He has collaborated with or served on the boards of several civil society organizations, including the Haas Center for Public Service, Asylum Access, and the American Constitution Society.

“I’m delighted that Tino has agreed to serve as co-director of FSI’s Center for International Security and Cooperation,” says Coit D. Blacker, FSI’s director and the Olivier Nomellini Professor in International Studies. “He will bring to the job just the right combination of skills, talents, and sensibilities to assure the Center’s continuing relevance and future success. Tino is an acclaimed scholar, an outstanding teacher, and an experienced policymaker who thinks hard and very creatively about the most pressing national and international security issues of our time – including problems of executive power and accountability, public health, and migration. Finding someone to take the reins at CISAC following Scott D. Sagan’s long and successful tenure as co-director was never going to be easy. But with Siegfried S. Hecker and now Tino Cuéllar at the helm, I think we’ve put together a winning team.”

Cuéllar has had an extensive record of public service since joining Stanford Law School faculty in 2001. Recently, he served in the Obama Administration as Special Assistant to the President for Justice and Regulatory Policy at the White House. In that role, he led the Domestic Policy Council’s work on criminal justice and drug policy, public health and food safety, regulatory reform, borders and immigration, civil rights, and rural and agricultural policy.  Among other responsibilities, he represented the Domestic Policy Council in the development of the first-ever Quadrennial Homeland Security Review, and coordinated the President’s Food Safety Working Group.

"Tino's decision to become co-director of CISAC is good for everyone,” said Larry Kramer, Richard E. Lang Professor and Dean of Stanford Law School. “It's a great opportunity for him to pursue and build on his expertise in national security. It adds an innovative and forward-thinking mind and voice to CISAC. And it will generate tremendous new opportunities for collaboration between the Law School and CISAC, to the great benefit of our students and faculty."

In July 2010, when Cuéllar left the Obama administration to return to Stanford, he also accepted an appointment from the President of the United States to the Council of the Administrative Conference of the United States, a non-partisan agency charged with recommending improvements in the efficiency and fairness of federal regulatory programs.  Before joining the White House staff, Cuéllar co-chaired the Obama-Biden Transition’s Immigration Policy Working Group.  Earlier in his career, during the second term of the Clinton Administration, Cuéllar worked at the U.S. Department of the Treasury as Senior Advisor to the Under Secretary for Enforcement, focusing on countering financial crime, improving border coordination, and enhancing anti-corruption measures.

Cuéllar graduated from Calexico High School in rural Southern California, going on to receive a BA magna cum laude from Harvard University in 1993, a JD from Yale Law School in 1997, and a PhD in political science from Stanford University in 2000. Cuéllar clerked for Chief Judge Mary M. Schroeder of the U.S. Court of Appeals for the Ninth Circuit from 2000 to 2001.

Cuéllar will join current CISAC co-director Siegfried Hecker, professor (research) of management science and engineering and FSI senior fellow, in leading one of the country’s preeminent university-based research centers on international security and cooperation. He will succeed longtime co-director Scott Sagan, who has been leading the Center since 1998. “I am extremely pleased that Tino Cuéllar will be joining me,” said Hecker.  “He will build on the extraordinary leadership that Scott Sagan has provided over the last 12 years, and his outstanding academic credentials and deep experience in Washington crafting security policy will be a tremendous asset to CISAC."

Sagan, the Caroline S.G. Munro Professor of Political Science and FSI senior fellow, will continue as an important presence at CISAC and FSI, with plans to focus on policy-related research for the American Academy of Arts and Science's Global Nuclear Future Initiative, where he serves as the co-chair with Harvard’s Steven Miller. Sagan has been instrumental in building CISAC’s capacity as an international leader in interdisciplinary university-based research and training aimed at tackling some of the world's most difficult security problems. “CISAC is a small national treasure inside this great university: a multidisciplinary research institution that consistently produces rigorous policy-relevant scholarship and creatively trains the next generation of international security specialists,” said Sagan. “I am proud to have helped lead the Center for the past 12 years, and am equally excited to be staying on at CISAC as a faculty member in residence."

"Tino Cuéllar will be a spectacular co-director for CISAC,” he added. “His joint legal and political science training brings new perspectives to international and national problems and his research on the security implications of U.S. immigration law, on efforts to combat terrorist financing, and on the politics of transnational law enforcement places new and important subjects directly onto the CISAC global policy agenda."