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: Paperback / softback
Length: 184 pages
Publication date: 29 April 2022
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 shielded from international competition. Conversely, in the West, regulatory structures have been progressively dismantled, resulting in an unprecedented secular expansion of asset prices and debt relative to GDP. This fragile equilibrium came crashing down in 2008-09 with the collapse of asset prices. Over the past decade, asset prices and debt in the West have rebounded, but the financial system remains precariously balanced.

In 2018, China made a significant announcement, expressing its intention to accelerate the opening up of its capital markets. This move holds immense significance in the global political economy, as the way in which China's financial system interacts with the West will play a pivotal role in shaping the future trajectory of the world economy.

One of the key differences between China and the West lies in their respective financial systems' regulatory frameworks. In China, the government maintains a strong grip on financial institutions, implementing policies to ensure stability and control over the economy. This includes strict capital requirements, limits on foreign investment, and a focus on domestic growth. On the other hand, in the West, regulatory structures have been gradually dismantled, allowing for greater market freedom and innovation. This has led to the development of complex financial instruments, such as derivatives and securitization, which have contributed to the growth of asset prices and the accumulation of debt.

Another notable difference is the role of the government in the financial system. In China, the government plays a dominant role, both through direct intervention and through its control over key institutions. This includes the People's Bank of China, which serves as the central bank and implements monetary policy to control inflation and promote economic growth. In contrast, in the West, the government's role is more limited, with financial institutions operating largely on a market-based system. This has led to greater competition and innovation, but also increased risk-taking and volatility in the financial system.

Despite these differences, there are also similarities between China and the West in terms of their financial challenges. Both countries have faced significant economic downturn

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 shielded from international competition. Conversely, in the West, regulatory structures have been progressively dismantled, resulting in an unprecedented secular expansion of asset prices and debt relative to GDP. This fragile equilibrium came crashing down in 2008-09 with the collapse of asset prices. Over the past decade, asset prices and debt in the West have rebounded, but the financial system remains precariously balanced.

In 2018, China made a significant announcement, expressing its intention to accelerate the opening up of its capital markets. This move holds immense significance in the global political economy, as the way in which China's financial system interacts with the West will play a pivotal role in shaping the future trajectory of the world economy.

One of the key differences between China and the West lies in their respective financial systems' regulatory frameworks. In China, the government maintains a strong grip on financial institutions, implementing policies to ensure stability and control over the economy. This includes strict capital requirements, limits on foreign investment, and a focus on domestic growth. On the other hand, in the West, regulatory structures have been gradually dismantled, allowing for greater market freedom and innovation. This has led to the development of complex financial instruments, such as derivatives and securitization, which have contributed to the growth of asset prices and the accumulation of debt.

Another notable difference is the role of the government in the financial system. In China, the government plays a dominant role, both through direct intervention and through its control over key institutions. This includes the People's Bank of China, which serves as the central bank and implements monetary policy to control inflation and promote economic growth. In contrast, in the West, the government's role is more limited, with financial institutions operating largely on a market-based system. This has led to greater competition and innovation, but also increased risk-taking and volatility in the financial system.

Despite these differences, there are also similarities between China and the West in terms of their financial challenges. Both countries have faced significant economic growth in recent decades, driven by rapid industrialization and urbanization. This has led to an increase in demand for financial services, including banking, investment, and insurance. However, this growth has also created challenges, such as income inequality, environmental degradation, and financial instability.

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 since ancient times. While China has pursued financial system reform and remains heavily protected from international competition, the West has dismantled regulatory structures and experienced an unprecedented secular expansion of asset prices and debt relative to GDP. The way in which these two financial systems interact constitutes a central issue in global political economy in the years ahead. As China continues to open up its capital markets and the West faces ongoing financial challenges, it will be important to monitor these developments closely and to consider the potential implications for global economic stability and growth.

Weight: 340g
Dimension: 234 x 156 (mm)
ISBN-13: 9780367540319