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Factions and Finance in China: Elite Conflict and Inflation 1st Edition

4.4 out of 5 stars 7 customer reviews
ISBN-13: 978-0521872577
ISBN-10: 052187257X
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Editorial Reviews


"This impressive new book makes several important contributions: the case studies provide never before available accounts of elite politics, with vivid details of the personal and political differences among top leaders; the model of inflationary cycles provides new insights into how financial policy changed to cool an over-heating economy. It is both a fascinating portrait of elite politics in China and a rigorous test of an analytical model. Most scholars are good at one approach or the other. Shih shows he is equally gifted at both."
Bruce Dickson, George Washington University

"Shih offers a political-economic explanation of a dual feature of the post-reform Chinese financial system-an inflationary cycle and a large amount of non-performing loans. This book will make a valuable contribution to understanding the Chinese financial system and the reasons for the lack of reform thereof."
Chung Lee, University of Hawaii at Manoa

"In this forthcoming book, Northwestern University Professor Victor Shih presents a compelling alternate framework for a key slice of Chinese politics-economic and financial policy making. He argues that rather than a duel between conservatives and reformists, Chinese policy making represents a series of compromises between a "generalist" faction that derives support from local provincial authorities vying with a "technocrat" faction supported by central government bureaucrats seeking to consolidate control in Beijing...Prof. Shih presents a statistical model that aims to prove his theory, but the book comes to life when he launches into a narrative depicting the post-1978 struggles among China's political elite...As China's role in buoying the global economy continues to deepen, building a proper framework for understanding that push and pull in elite politics-and using those tools to foresee possible outcomes of Chinese policy becomes essential. Prof. Shih's work makes an important contribution to that effort."
Rick Carew, Dow Jones Newswires, Far Eastern Economic Review

"Shih's elegant factional model provides a novel explanation for the monetary and policy fluctuations under Deng Xiaoping and Jiang Zemin...Factions and Finance in China offers an invaluable window into the workings of elite politics in a regime better known for its opacity, and will soon become a staple in literature on China's contemporary political economy."
Kellee S. Tsai, Johns Hopkins University, Perspectives on Politics

Book Description

Nearly all financial institutions in China are managed by members of the Communist Party, yet economists do not have a framework with which to analyze the links between banking and politics. This book is the first to develop a framework with which to analyze how elite politics impact both monetary and banking policies.

Product Details

  • Hardcover: 268 pages
  • Publisher: Cambridge University Press; 1 edition (December 3, 2007)
  • Language: English
  • ISBN-10: 052187257X
  • ISBN-13: 978-0521872577
  • Product Dimensions: 6.1 x 0.8 x 9.2 inches
  • Shipping Weight: 1.2 pounds (View shipping rates and policies)
  • Average Customer Review: 4.4 out of 5 stars  See all reviews (7 customer reviews)
  • Amazon Best Sellers Rank: #3,269,101 in Books (See Top 100 in Books)

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Top Customer Reviews

Format: Hardcover
As someone with some knowledge of China, I picked up this book because the title sounded interesting. Also, I wanted to know more about the financial system in China. It was kind of a whim, but I am so glad I got the book. Dr. Shih provides an insightful and poignant analysis unveiling the deep interdependencies between Chinese banking policy of the last two decades and the evolving political landscape of the Chinese Communist Party. First of all, I learned a LOT about the banking system in China, probably more than I ever needed to know. It's really stunning how much the Communist Party in China still controls the banks. Although parts of the book are too theoretical and pedantic (all the stats!), the book as a whole is nuanced, elegant, and backed by a rich set of primary data, including really detailed accounts of high-level intrigue. I was really impressed that Dr. Shih used classified Chinese government sources to construct behind-the-scene accounts. For example, top level technocrats used anti-corruption campaigns to stop inflation! That's not something you read in the Wall Street Journal. In sum, this book offers experts and laypersons alike a compelling framework for understanding financial policy decisions in China and their longer-term implications. Once you get past all the theory and stats (chapters 4 and 5), it's an engaging read that offers a lot of useful and interesting information about the financial sector and elite politics.
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Format: Kindle Edition
Shih's model is simple and brilliant. Though it complicates the normal factional model that I've seen elsewhere, Shih is convincing in his historical rooting of the actors. The only thing I wish he had explored with a bit more gusto would have been the role that institutionalization of power in China has weakened factional competition, and whether or not this could lead to reform of the financial sector. But even without this, I have to give Shih 5 stars.
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Format: Paperback
Shih's book is a very clear, well-researched explanation of the dynamic driving China's reforms. It is especially good as a companion to Yasheng Huang, Capitalism with Chinese Characteristics(2008). Where Huang laments that China's reforms imploded in an orgy of statist meddling, Shih allows us to see the compelling motivations for why reform took the path it did.

According to Shih, the many committees of China are naturally divided into factions. There are many of these, but we are interested in two categories of factions, the "generalist" and the "technocratic" (both of which are, after a fashion, reformers). The generalists belong to regional groupings, such as first secretaries in provincial governments (1) or the mayor of Shanghai. The generalists favor an aggressive developmentalist agenda, with decentralized control over the money supply; the technocrats, represented by members of the State Council, favor centralized control over the money supply. Until quite recently, the contest was over control of the People's Bank of China (PBoC), the central bank and one-time universal bank (2). The PBoC, like the early Federal Reserve (1913-1933), was decentralized, with provinces having considerable influence over the money-creating powers of their branch.

During the first phase of the reform period, the two leading reformers were Deng Xiaoping and Chen Yun; both were major figures of the Chinese Civil War (1947-1949) and architects of the planned economy (1949-1957), and both were purged in the Cultural Revolution (Deng, twice).
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Format: Paperback Verified Purchase
Factions and Finance is a fascinating bridge from understanding politics in China to understanding monetary and fiscal policy. The two could not be more closely linked in China as they are in most countries: ultimately, Central Bankers get appointed by politicians, have dual or convoluted mandates and tend to have a strong sense of where their bread is buttered. To that end they are pretty responsive to politics and Central Bank independence really depends upon the political pressure being manageable. This was a controversial idea when I was in university but its abundantly clear now with negative real rates in the US, troubles in Europe and the like.

Vic Shih draws upon extensive work on factional allegiances and policies in China to explain the core dialectic of Chinese monetary and fiscal policy: local government leaders get promoted and occasionally paid for growth in their region and do not care about inflation or fiscal solvency that much. The central government and central bank does, and the fate of provincial mayors is not their concern. Factional allegiances are drawn up accordingly and the ebb and flow of these groups' priorities and patronage networks drive most of policy.

Mancur Olson's Rise and Decline of Nations explains how interest groups ultimately become important, stagnate and then impair policy. I think there are lessons for this in China today and to get a full grip on them there really isn't anything else out there as good as this book.
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