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China's Superbank: Superb Introduction to CDB's Arrival on the World Stage
on November 1, 2012
China's Superbank by Henry Sanderson and Mike Forsythe is, simply put, a superb introduction to the arrival of China Development Bank on the world stage. The book traces the evolution of the CDB from funding development at home to securing oil and influence for China in Africa and Latin America.
Before I continue my review of China's Superbank, I must make two disclosures. First, I work with both of the co-authors in the Beijing office of Bloomberg News, so they are friends. I like these guys. Secondly, while I had no hand in the writing or editing of this book, the authors did draw on some of my reporting for passages on Huawei and ZTE. My work is cited in two footnotes to the text. These two factors preclude me from claiming to be an entirely objective reviewer.
That being said, the authors did not request that I write this review, and I paid for my own electronic Kindle copy at $30.69 through Amazon.com. Perhaps that's my first criticism, the price. For a slender volume some 203 pages in length, it would have been nice to see at least the Kindle version priced a bit more affordably. There is practically no discount from the $31.65 price on the hardcover, which is not yet available for shipment.
With my initial disclosures in mind, I believe I can still fairly say that even if I didn't know the authors, and despite the price, I would still give this book a strong recommendation. China's Superbank is a highly insightful and readable account of the role of China Development Bank both in its home market and abroad.
I have been following developments in China since my first trip to Beijing in 1991 and I've lived in the country three times for a combined total of about 12 years. While I know firsthand a fair bit about China and its development in the past two decades, there is plenty in this book that I did not know. I'd imagine the same is true for just about anyone who hasn't been pouring over Chinese-language bond prospectuses as Sanderson and Forsythe have.
The book traces the China Development Bank from its founding, and shows how in its home market it pioneered a model whereby local governments financed development loans by the expropriation and transfer of land rights. They explain how this became the central mechanism for paying back loans to the CDB and, as a result, people must be removed from their land at below market prices, feeding into rural unrest.
``Without suppressing land compensation, local governments can't make the margins to pay back the banks,'' the authors quote U.S. scholar Victor Shih as saying.
The book chronicles CDB's role in development of the country's bond market, and shows how CDB is unique among Chinese lenders in being financed almost completely by bond sales rather than deposits. The commercial banks that buy those bonds then assign them a zero-risk rating, and so set no capital against them even as CDB ramps up lending to new commercial sectors, and begins to spread its wings abroad in countries with long histories of default, including Venezuela. Thus the bank gives new meaning to ``too big to fail'' the authors say.
China is now lending more to developing countries than the World Bank. In the case of Venezuela the lending is a staggering $40 billion. The authors show how the CDB's oil-for-loans programs help China secure large deliveries of oil for its growing economy, and that's not all. Since much of the proceeds of those loans are then used to buy Chinese goods and services, ``China wins twice,'' the authors say.
I highly recommend this book for anyone looking for an introduction to how the CDB moved from funding development at home, to the frontlines of both China's global quest for energy and natural resources as well as the expansion of Chinese enterprise abroad.
One wishes the authors had been able to drill into these subjects in even greater detail. Also, more context and comparison of CDB with other development banks globally would have been useful. While more would be better, there is plenty here to get you started on the global role of the little understood and increasingly influential China Development Bank.