Turf wars hobble China
If institutional infighting were an Olympic sport, China would sweep the medals at August’s Games.
Turf battles in the financial sector have erupted over everything from beefing up the bond market to diversifying the government’s currency reserves and allowing people to invest directly in Hong Kong shares.
The received wisdom that China is a political monolith that can’t put a policy foot wrong has been shown to be wrong.
China does not have a lock on poor inter-agency cooperation: witness the U.S. subprime debacle and the failure of a trio of regulators in Britain to spot looming trouble at Northern Rock, a home-loan lender that had to be bailed out by the government.
But the cost of inadequate regulatory teamwork is rising as the economy becomes more complex, said Stephen Green, head of China research at Standard Chartered Bank in Shanghai.
“We are moving to the stage where we do need more coordination, but we get more competition instead fastcash. You can see that across the environment sector and energy policy as well. It’s at the stage where it’s holding back reforms,” he said.
Take the market in corporate bonds, a mainstay of any advanced economy, where institutional investors ensure capital is allocated efficiently by passing judgment on the profit prospects of firms before deciding whether to buy their paper.
In China, the corporate bond market is tiny and tangled up in red tape. If a firm needs money, it usually turns instead to state-owned banks, which are still dogged by a reputation for lending for political patronage, not profit.
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