Former CDB chairman publishes new book
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E-mail China.org.cn, November 8, 2013
Foreword
Chairman Chen Yuan of China Development Bank here gives the world an understanding of the critical role that development finance has played in the growth of the Chinese economy.
People the world over both acknowledge and esteem the "Chinese miracle", but too often fail to ponder the gargantuan scale of the capital formation that has been required to promote it.
Many understand that something special has happened in China: its rapid development cannot be explained simply by reference to central government financing or to the ambitious activities of commercial banks. There had to be another ingredient – and there was – the development of a unique layer of project and infrastructure financing of a kind that no single country has previously achieved. Chen Yuan's book – Aligning State and Market tells this important story.
Importantly, the story itself is told not by a storyteller but by the progenitor of the transition from often ad-hoc policy lending to structured development finance. For this reason, if not for its insightful commentary, Aligning State and Market is a compelling publication.
Chen Yuan's approach to the vexed issue of development banking has been informed by the moral clarity he has brought personally to this national undertaking. He makes clear in his text his ambition that policybased banks should be "not merely subsidy-feeding lossmakers, but ... profitable and self-sufficient finance institutions." In CDB's case, he says, many considered it to be a policy-based bank in name but an extension of the treasury in fact; its loans were akin to fiscal handouts – as he termed it, a free lunch "to projects that left borrowers under no real obligation to pay." A lesser CEO would have skirted that vast moral chasm, but he did not.
Under his leadership, CDB's ratio of non-performing loans fell from 33% in 1998 to under 1% in 2004 – a truly remarkable outcome. As a consequence, the nascent CDB transitioned to become an institution of great utility to the Chinese people and to its government.
CDB's unique development is an example of what China has done so well: looking at the manner in which western institutions operate – in this case, one like the World Bank – and then adapting it to Chinese national needs and conditions.
The scale of CDB's balance sheet perhaps best attests to the success of its adaptation: with assets over one trillion US dollars, it is now three times the size of its international cousin, the World Bank.
Few would have believed that a local development bank in China could have benchmarked itself against global best practice while at the same time creating markets where commercial banks feared to tread.
Chen Yuan's China Development Bank has done this. It is a testament to his and the Bank's galloping ambition and integrity.
Paul Keating, Former Prime Minister and Treasurer of Australia
9 January 2013
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