Political Hierarchy and Finance: The Politics of China’s Financial Development

Richard W. Carney

in East Asian Capitalism

Published in print July 2012 | ISBN: 9780199643097
Published online September 2012 | e-ISBN: 9780191741944 | DOI:
Political Hierarchy and Finance: The Politics of China’s Financial Development

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This chapter seeks to explore the political underpinnings of the evolving financial system in China. Following an overview of existing explanations for China's financial development, it presents a theoretical model that considers the implications for China's financial arrangements based on the incentives that Communist Party officials face; specifically, the incentive to meet specific economic growth targets for their jurisdiction in order to be promoted. Because of fierce competition, political officials are likely to use the financial system to generate higher growth for their specific jurisdiction while diffusely spreading the costs onto the broader Chinese society. This theoretical model is illustrated through an empirical narrative of banking and stock market development at the critical junctures of political and policy transformations over the past three decades. China's financial system resembles a state-coordinated capitalist system that, due to the structure of the political system, is likely to remain so for the foreseeable future.

Keywords: China; financial development; banking sector; Communist party; political competition; state-coordinated capitalism

Chapter.  8258 words. 

Subjects: Political Economy

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