The development of capital markets has been a core focus of financialization research. For Epstein, financialization ‘means the increasing role of financial motives, financial markets, financial actors and financial institutions in the operation of the domestic and international economies’, while Pike and Pollard define financialization as the ‘growing influence of capital markets, their intermediaries and processes in economic and political life’. Other scholars also attribute a significant role to capital markets in financialization processes, be it in the dissemination of market-based financial activities and practices, the rise of shareholder value-oriented corporate governance, or ‘the increased ability to trade risk’. At the heart of and as a precondition of many aspects of financialization stand capital markets and their development.
This is not only the case when it comes to financialization in advanced economies, but also with respect to the study of financialization in developing and emerging economies. Financialization processes are not uniform, they are rather variegated and refracted by national institutional settings that lead to different trajectories of financialization. As Lapavitsas and Powell emphasized, ‘both the form and the content of financialization vary according to institutional, historical and political conditions in each country’. This has also been picked up in debates about the relationship between financialization and the state. Previously, many scholars argued that financialization often results in a relative loss of state power vis-à-vis finance and the effects on developing economies are often described as potentially negative with financialization for instance decreasing their borrowing capacity and thereby policy space or deepening existing power asymmetries between states. But stemming from earlier discussions on transformations of the developmental state, more recent scholarship has highlighted that financial market development has often been actively facilitated by states. It argues that an increasing hybridization of financialization processes takes place in which state and (quasi-)state institutions often co-constitute financialization processes.
Contributing to the growing literatures on variegated financialization and the state, in a paper titled ‘Financialization with Chinese characteristics? Exchanges, control and capital markets in authoritarian capitalism’ (recently published in Economy & Society) I argue that states are not only important actors facilitating financialization but can also exercise a considerable degree of control over financialization, thereby shaping its very form. Instead of a financialization process that follows a neoliberal logic and constrains state power, what we see in China is a ‘financialization with Chinese characteristics’ where the state actively tries to manage financialization and its social outcomes.
Since the global financial crisis 2007–2009, capital markets have gradually become an important pillar of China’s socio-economic system of authoritarian state capitalism. Time and again, the Chinese government officially declared that markets had a ‘decisive role’ to play in allocating resources and facilitating growth in the Chinese economy, deciding to give finance a leading role for national development. Consequently, the financial sector expanded rapidly in recent years. Between 2003–2006 and 2014–2017, the average total value of stocks traded increased from 27.2 to 193.2% and market capitalization of listed domestic companies almost tripled from 28 to 67% of GDP. Further, securities market financing by Chinese firms increased from 5% to 30% of Total Social Financing, while the financial sector’s contribution to GDP almost doubled from 5% to 9%. By 2019, China has become home to the 2nd largest stock, bond and futures markets in the world. Capital markets have become a crucial part in China’s political economy, contributing to the increasing financialization of China’s authoritarian capitalism (see for instance the excellent work by Giulia Dal Maso, Jing Wang, Julian Gruin or Yingyao Wang).
But although finance in China is expanding and permeating evermore aspects of economic and political life, this occurs within the context of China’s socio-economic system of authoritarian state capitalism in which the Chinese Communist Party aims to maintain its control over socio-economic development, in part by managing policy uncertainties through the financial sector. Hereby, the authorities try to actively manage financialization to achieve developmental goals. China’s president Xi Jinping for instance made clear that the tasks of China’s financial sector were: ‘[to] better serve the real economy, containing financial risks and deepening financial reforms’. Importantly, this is not done through brute force or command-and-control mechanisms, but through ‘pivotal points’ in market infrastructures that enable the management and steering of financialization processes.
Based on 100 expert interviews conducted with market practitioners in mainland China, Hong Kong and other international financial centres between June 2017 and October 2019, the article analyses the crucial role of China’s state-owned securities exchanges in the development and management of Chinese capital markets between 2009–2019. More than just marketplaces, as providers of market infrastructures exchanges are themselves powerful actors that exercise considerable influence over capital markets. From market data and indices, listing/creation and trading of various securities, commodities and derivatives, to post-trading activities such as central clearing, settlement, custodian and collateral management services – exchanges decide the ‘rules of the game’ and act as gatekeepers, deciding who gets in, what is traded and how trading is conducted. Thereby, they are crucial to shaping capital markets. Embedded within the structures that permeate China’s authoritarian capitalism, China’s exchanges fulfil an important role as intermediaries between the Chinese state, society and finance.
Through such an analysis of the policies and practices of exchanges in managing capital markets, we can gain insights in how Chinese authorities aim to steer China’s variegated financialization process. Capital markets can, thereby, be understood as a site where the authorities exercise ‘statecraft [through] financial control’ which enables them to govern social and economic life. Control in this context should be understood both as exerting control within financialization by monitoring, regulating and intervening into capital markets, as well as exerting control through financialization by directing capital market outcomes towards the accomplishment of certain economic and political objectives linked to state policies that target different aspects of China’s authoritarian capitalism: to decrease financial risk (financial sector); to stabilize the socio-political system through guiding citizens’ market participation (society); to make finance serve the real economy (national development); and to facilitate political-economic reform processes (listed companies). Further, these mechanisms stay in place despite an increasing inflow of international investors (global integration). The article analyses these five dimensions in detail.
Exhibition Hall at Zhengzhou Commodity Exchange
While China’s capital markets have developed rapidly in recent years, they function differently from and fulfil a different role than ‘global’ capital markets whose primary function is to enable the generation of private profit and who often supersede state logic and constrain state power. Rather than a break with China’s authoritarian capitalism, the activities of the Chinese exchanges help to sustain and facilitate China’s socio-economic system. By extending state control within and through capital markets, they shape the financialization of China’s political economy in accordance with its authoritarian capitalism. Thereby, this single case study on China’s capital market development sheds light on debates about neoliberal convergence, models of capitalism and trajectories of financialization.
Since the global financial crisis, China has become the world economy’s engine, accounting for 45% of global GDP growth. Its capital markets have developed and internationalized to an unprecedented degree, turning China into an important player in global finance, but one that plays according to its own rules. In the face of the growing systemic competition between the US and China that offer different visions of organising financial and economic life, more research is required to understand the mechanisms, form and content of this financialization with Chinese characteristics and its place within China’s authoritarian state capitalism.