Former CDB chairman publishes new book
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E-mail China.org.cn, November 8, 2013
Foreword
Chairman Chen Yuan is someone I respect and honor as one of the foremost thinkers and practitioners in the finance industry in China today.
I first met him as the Deputy Governor of the People's Bank of China (PBoC), fresh from a senior position in the Beijing Municipal Government, where he was responsible for designing and planning what is today the Financial District in western Beijing. At PBoC, he was responsible for the implementation of China National Automated Payments System (CNAPS), and I was the World Bank project manager who helped support the design of the project, conceived in 1989 and today forming the payment infrastructure for the modern Chinese financial system. It was through this interaction that I began to admire Chairman Chen for his decisiveness, insight and in-depth knowledge of what needs to be done to move the Chinese financial system into the modern state.
More than two decades later, Chairman Chen has not only formulated his own perspective on Chinese financial reforms, but put it into practice through China Development Bank, which he has led from a relatively small policy-based bank to a leading financial institution with global reach and reputation. In 2011, CDB had an asset base of just under one trillion US dollars, almost three times larger than that of the World Bank, and had loans to emerging markets of 139 billion US dollars, over three times those of the World Bank. I am honored to serve as one of the advisors on CDB's International Advisory Council.
Chairman Chen's book Aligning State and Market, exploring policybased finance, is an important practical and theoretical contribution to the little-explored literature on this subject. The Washington Consensus argued for the gradual withdrawal of policy-based lending on the theoretical basis that state subsidies and intervention would distort market prices and efficient resource allocation. However, the real question is: if the state does not take the risk in moving the economy into areas unknown to its citizens, would the "market" of private individuals or firms enter into these unknown risks? What is the proper role of the state in providing public goods, such as the risks of being "first mover"? Once the market matures, the state can withdraw to allow market forces to work.
This book brings many valuable first-hand practical lessons on what can be done, especially the importance of providing finance where commercial banks and foreign lenders may be unwilling to do so. CDB, under the leadership of Chairman Chen Yuan, and the overall Chinese reform experience suggest that state intervention under the right conditions does bring economic development.
Chairman Chen should be congratulated on his pioneering work and pathbreaking theoretical insights into a vital aspect of development policy – the role of policy-based finance to promote growth, employment and innovation.
Andrew Sheng, Former Chairman, Hong Kong Securities and Futures Commission
July 13, 2012
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