Despite our frequent tendency to feel China is a centrally-directed nation, The Economist highlights how, actually, for many major parts of China’s political and economic system, nobody is really sure who influences final decisions, not even Chinese leaders.
Economist: The government and the Communist Party are intimately entwined with the managers of China’s financial institutions. Working out who is really in charge is almost impossible. Even attempting to do so takes you into sensitive territory. Disclosing information about how the Chinese government works risks violating nebulous secrecy laws or sacrificing business opportunities. Many China-watchers will only speak face to face, concerned about using e-mails or phone calls to discuss what, in the West, would be standard chatter about the status of bankers and their supervisors.
Most importantly for investors, this labyrinth extends into the banking system as well.
Big credit decisions in China are not advanced by any one bank, nor any one banker. Credit is infused and withdrawn by central diktat.
Something like four-fifths of the assets in the banking system are controlled by 17 institutions. In many ways, China Development Bank is easiest for an outsider to understand. It is vast, run by a powerful government official, Chen Yuan (son of Chen Yun, one of the “eight immortals” who created modern China), and supports projects that the government favours. Most of the other big banks are not explicitly run by the government, but regulators attend board meetings and senior management often includes a person with the title “head of discipline”, who represents the Communist Party. Executives are rotated between institutions by government decree.
Thus the entire concept of China deliberately trying to slow its economy in a controlled fashion, or most importantly tighten bank lending methodically, could be complete nonsense. Ironically, communist restrictions on transparency could have created a huge mass of decentralized creative destruction whereby nobody is in charge and ultimately nobody fully understands what’s happening, economically.