Finance and the Real Economy: China and the West since the Asian Financial Crisis

China and the West have different philosophical foundations in finance and the real economy, with China heavily protected from international competition and the West's financial system on a knife-edge. In 2018, China announced the intention to accelerate the opening up of its capital markets, constituting a central issue in global political economy.

Format: Hardback
Length: 170 pages
Publication date: 06 October 2020
Publisher: Taylor & Francis Ltd

The contrasting approaches taken by China and the West towards finance and the real economy are rooted in fundamentally divergent philosophical foundations that have evolved since ancient times. Since the Asian Financial Crisis in 1997-98, a remarkable transformation has occurred in the financial systems of both China and the West. While China has consistently pursued financial system reform, it remains heavily protected from international competition. In contrast, regulatory structures in the West have been progressively dismantled, resulting in an unprecedented secular expansion of asset prices and debt relative to GDP. This expansion came to a catastrophic end with the collapse of asset prices in 2008-09. Over the past decade, asset prices and debt in the West have rebounded, but the financial system remains precariously balanced.

In 2018, China announced its intention to accelerate the opening up of its capital markets, further integrating its financial system with the global economy. The way in which the Chinese and Western financial systems interact will play a pivotal role in shaping the global political economy in the years to come.

One of the key differences between the two systems is the level of government intervention. In China, the government plays a more active role in regulating the financial sector, with a focus on maintaining stability and preventing financial crises. This interventionist approach has helped China to build a robust financial system that is less vulnerable to external shocks. In contrast, the West has largely relied on market mechanisms and self-regulation to govern financial institutions. While this approach has promoted economic growth and innovation, it has also led to increased financial instability and the emergence of financial crises.

Another difference is the role of the banking sector. In China, the banking sector is heavily regulated and dominated by state-owned banks. These banks play a crucial role in the country's economic development, providing financing to businesses and individuals and contributing to the growth of the real economy. In contrast, the banking sector in the West is more diversified and competitive, with a large number of private banks and financial institutions. This competition has led to the development of more sophisticated financial products and services, but it has also increased the risk of financial instability.

Another area of difference is the level of financial innovation. China has been a leader in financial technology (FinTech) and digital finance, with a number of innovative companies and platforms emerging in recent years. These innovations have helped to improve the efficiency and accessibility of financial services, particularly for rural and low-income populations. In contrast, the West has been slower to adopt FinTech and digital finance, with many traditional financial institutions still relying on legacy systems and processes.

Despite these differences, there are also some similarities between the Chinese and Western financial systems. Both systems are facing challenges related to the aging population, rising debt levels, and the impact of climate change. Both China and the West are also exploring new technologies and approaches to address these challenges, such as digital currencies, green finance, and sustainable investment.

In conclusion, the contrasting approaches taken by China and the West towards finance and the real economy are rooted in fundamentally divergent philosophical foundations that have evolved over centuries. While China has pursued a more interventionist and regulated approach to financial system reform, the West has relied on market mechanisms and self-regulation. The way in which these two systems interact will play a pivotal role in shaping the global political economy in the years to come. As the world continues to evolve, it will be important for policymakers and financial institutions to navigate the complexities of these two systems and find ways to promote economic growth, stability, and sustainability.

Weight: 424g
Dimension: 163 x 240 x 17 (mm)
ISBN-13: 9780367474256