Factions and Finance in China

Shih develops a framework with which to analyze the impact of elite politics on both monetary and banking policies.

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 develops a framework to analyze how elite politics impact both monetary and banking policies.The contemporary Chinese financial system encapsulates two possible futures for China's economy. On the one hand, extremely rapid financial deepening accompanied by relatively stable prices are both manifestations of a vigorous growth trajectory that will one day make China the world's largest economy. On the other hand, the colossal store of non-performing loans in the banking sector augurs a troubling future. Factions and Finance in China inquires how elite factional politics has given rise to both of these outcomes since the reform in 1978. The competition between generalists in the Chinese Communist Party and politically engaged technocrats over monetary policies has time and time again prevented inflation from spinning out of control. Shih shows that elite politics has exerted a profound impact on monetary policies and banking institutions in contemporary China.