The Politics of Financial Control in China: Mutual Endangerment in State-Business Relations

For the first two decades of the reform era, China’s financial system was essentially closed to non-state firms. In the early years of the 2000s, however, and accelerating after the global financial crisis, China’s banking system and debt and equity markets opened significantly to the private sector. Non-state firms both established themselves as financial institutions and enjoyed wide access to financial resources. Instead of leading to greater competition and more ‘efficient’ resource allocation, however, financial liberalization led to a pattern of state-business relations that Professor Rithmire calls ‘mutual endangerment,’ by which business and political elites colluded in financial fraud, malfeasance and looting. Much of this behaviour culminated in a financial crisis in 2015, after which the state adopted a much stronger role in corporate governance. The talk draws on interviews, document research and corporate filings to narrate the political rationale for financial liberalization and its political and economic failures. By comparing China to other authoritarian regimes in Asia that underwent similar liberalization processes (Malaysia and Indonesia), Professor Rithmire shows that mutual endangerment is a form of state-business relations with a particular moral economy and obtains when political and business elites fundamentally distrust one another.