SOAS Research Online

Abstract

This dissertation analyses the financialisation of the Chinese economy by considering the transformation of the state sector, including state-owned enterprises (SOEs), the financial system (especially banks) and local governments. After surveying the theoretical and empirical literature, I illustrate that neither the framework of financialisation of core capitalist countries nor that of subordinate financialisation of peripheral countries fully fits the development in China. To facilitate the analysis of the transformation of China’s state sector, I develop a political economy framework that departs from the conduct of three fundamental economic agents in the state sector. Specifically, the framework focuses on the altered mix of financial and non-financial activities of SOEs, the changing role of the banking sector, the shifting sources of revenue and the altered financing behaviour of local governments. I then show that the three agents in the state sector, namely, SOEs, the financial sector and the local governments experienced great changes with the rise of finance in China, particularly in the twenty-first century. But in essence, they possess the same characteristics as in the early reform era of the 1980s and 1990s. Specifically, I show that central SOEs are turning into “small kingdoms” that are more financially sophisticated, have skills in undertaking market finance transactions, and earn financial profits. The banking sector has developed a domain of “shadow banking” and local governments have adopted the practices of corporations. Moreover, the state governs SOEs and the financial sector increasingly through financial methods. However, the financing of SOEs continues to rely heavily on banks, and SOEs have even formed tighter relations with banks through shadow banking practices. The banking sector remains centred on the provision of finance to enterprises and operates under a strong state presence, especially regarding interest rates and International capital flows. Moreover, relational and government controlled structures in finance have not been replaced by arm’s length and private mechanisms. The analysis is supported empirically – thus placing the work more firmly in the literature – by constructing a dataset comprising 362 non-financial central SOEs that are publicly listed in Chinese mainland in Shenzhen and Shanghai Stock Exchange over the period of 2000 – 2019. Drawing on the theoretical discussion and using a range of statistical measures, the dissertation concludes that there is no sufficient ground to claim that the Chinese economy is becoming financialised. The complex interplay between SOEs, the financial system, and the local governments in China are more likely to be credit expansion. Further transformations towards these directions might still result in the financialisation of the Chinese economy, but it seems not yet.