Finance in Asia

Pots and kettles

The credit crisis has cooled Asia's ardour towards Western banks. But the region stands to gain even more from opening up than Wall Street does

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Readers' comments



Wow, you've gone too far in conspiracy theory, but it is fair to say that Canada habors corrupted money. What you've mentioned was just the most famous case, recently there has been another one, unfortunately the crook in the new case is broke now - and still costing Canadian taxpayers money (in court).


When DXP first opened up China that included authorizing the banks to transact foreign currency. The procedure required China's banks to correspond with foreign banks. This being an entirely new field the necessary laws and banking supervision were not in place. Bank insiders found they could move millions out of their bank branches into foreign banks with literally a click of a mouse. No one said they couldn't and no one knew they if they did. The great bank robbery happened. The bank insiders quickly wired millions then
billions to foreign banks to their personal accounts. They promptly wiped clean the transaction records in their branch and ran.

Now you certainly can't possibly steal that kind of money in hard cash. It would be impossible to park that kind of money in any bank in China. So you have to have the banking instruments to do so to wire the loot and park it abroad. There are only a very few countries where you can wire this kind of money to. They are all in the G8 developed countries, or more specifically the US, Australia, NZ, Canada and the UK. By the time the China's Central Bank caught on billions had already been stolen and their thieves gone. The few unlucky enough not to have escaped in time were promptly shot.

When the receiving bank took in millions into brand new accounts from sources in mainland China there must be something very fishy about the money. Its a no brainer. Everyone in China was poor then and even the top government official drew a salary of less than US$1000 per month.
Private enterprises were then taking baby steps and not a single private enterprise was worth a million bucks let alone have a million in cash to send out. But the G8 banks let it through and kept it. For good and denied they even had received such money up till today.

Who would but a mainland Chinese national turn up promptly without proper personal and travel documentation. Passports and travel out of China was very restrictive then and no bank official would suddenly have a reason to travel to a G8 country on pleasure. He was a fugitive on the run.

Now if you cannot prove who you are you cannot withdraw the money. These were new accounts with no prior history. And even if you prove who you are you have to explain that the money is legally yours. There is a counterclaim from the Chinese government claiming it’s theirs. As a fugitive from China how are you going to produce that kind of proof? Who are you going to complain to? You can't go back to China and you can't even let them know where you are. You have no legal rights and no ready cash for pricey lawyers in the new country. Very likely, for that few million bucks, the host country was willing to grant instant refugee status
and he was on his own thereafter. No money and he can't tell anyone about his caper in China. Neat.

Where these thieves were identified by China the host countries
refused to extradite them as there were no extradition treaties in place. And man did the host countries play up their hypocritical principles about human rights and their abhorrence for capital punishment. They would not send back these crooks to faced the death penalty (never mind China promised no to impose that.) The banks also refused to release records of transfers of monies from China citing privacy laws. There was no way the crooks would be allowed to return to China where they would enable China to reconstruct the accounts to make claim. The were other tricks Western governments and banks sought to keep the loot for themselves.

The most public case was
[China's most famous fugitive - Lai Changxing - could be returned to the country soon if a North American court turns down his final appeal today to avoid extradition. ... Lai, 53, is accused of heading a syndicate, based in coastal Xiamen in southeast China's Fujian Province, that colluded with corrupt government officials to operate the biggest smuggling operation uncovered in China since 1949.

The case involved US$10 billion worth of goods ranging from cigarettes to cooking oil. ]

Canada's trick was to delay the decision until Lai was drained dry of the 2 billion bucks he was reputed to have brought with him. On arrival Lai bought himself a fortress of a mansion(s) and staffed it with round the clock security. Luxury goods. Servants. Expensive lawyers. Multiple court hearings and appeals. Until by the time Canada let him go Lai was a bankrupt.

$428 billion. Wow. I knew it was big. But that big? The real crooks are the western banks and governments. This is a big boys' game. We can only gape in wonder.


China banks are still very young; even they are huge in size. They are still like a baby, should be implanted with basic knowledge and skill of competition, should be protected and guided actively. Now they still should concentrate their energy on improving and strengthening their basic management system, then prudently start the derivative service in the financial fields. Of course they should learn from the western banks when they meet trouble: check the rule and correct it quickly, but not ascribe it to someone’s fault simply.


There are pretty well known analysis of corporate competency and efficiency for banks.

China's entrepreneurs got very little help from banks, most of them started with a few thousand yuan and do not have access to loans until they have become quite successful and can not do it without bribing or befriend with a banker.

In fact even the infrastructure were not jumpstarted by the banks, in the beginning HK firms brought in capital and built them, in exchange for rights to collect toll, the banks had little money and were certainly not interested in risky project. Nowadays those projects are virtually a cash cow and HK firms have totally been shut off, banks are begging to loan, it is a classic story of banks want to loan you money if you don't need it.

The banks were close to insolvent back in the 90s because of the same reason of rackless lending (though still much better off the US real estate bubble where you can get a mortgage if you can breath) in early 90s, mostly to government enterprises and real estate. It is worrisome that history will repeat itself in the next few years, just look at the recent corruption cases involving bankers, a branch manager can often steal more than tens of millions of dollars (yes dollars).

If Chinese banks are as well managed as HongKong then you will probably halve the corruption and lost of capital, not to mention boosting the economy and entrepreneurship.


There is another thing i want to add. Economist MUST stop applying rules that work in developed societies to developing ones. China, so far made much better progress following it's own set of "development" and probably has an idea how and when to let its bank open up. I kind of like the fact that they are not exactly rushing with financial system liberalization.


Eco,i'll tell you what. Capital has a tendency to move where it can get the biggest profit from its utilization. Cheap labor capital equally, manufacturing, and opportunity to hire local talent all lead to rapid economic development, DESPITE of as you said inefficient government controlled financial system.Oh, something else. Not following IMF rules for economical development, also helped.


I wonder: if Chinese Government is so inept, its financial system so inefficient and there is not much opportunity for entrepreneurship, what exactly is behind China's meteoric rise in recent years?


"But rather than viewing this as an education in how an unrigged market works it considers the investments an embarrassment."Unrigged!? Then what is the purpose of the Federal Reserve and the government-backed banking cartel? It is statements like this that give true economic freedom a bad name.Since the banking system periodically causes massive economic destruction, isn't it long past due that its basic foundation be reexamined? How about we try honesty this time instead of fractional reserve banking which is both fraudulent and by turns inflationary and deflationary?The public at large may not understand finance but they understand honesty. And when they find out that fractional reserve banking is the chief culprit behind the business cycle, well, it would be best if the bankers just left the planet.(sorry about the formatting errors on my previous comment)


"But rather than viewing this as an education in howan unrigged market works it considers theinvestments an embarrassment."Unrigged!? Then what is the purpose of theFederal Reserve and the government-backed bankingcartel? It is statements like this that give trueeconomic freedom a bad name.Since the banking system periodically causes massive economic destruction, isn't it long past due that its basic foundationbe reexamined? How about we try honesty this time instead of fractional reserve banking which is both fraudulent and by turns inflationary and deflationary?The public at large may not understand finance but they understand honesty. And when they find out that fractional reserve banking is the chief culprit behind the business cycle,well, it would be best if the bankers just left the planet.


The financial and investment sector in China is a wreckage. The banks are still being run like a government agency, poor service, tedious process, etc. However, I don't see why China must let outside banks become big players, Hong Kong has all the knowhow it needs in banking and investment for now, which China is definitely lagging behind in opening to.

The government is certainly starving off competition so that its most incompotent and profitable sector can stay ahead.

Rajesh Haldipur

A good analogy for the differences in the banking systems in Asia and in the West is the difference in traffic patterns. In the West, there is more efficiency, more traffic per km of road, greater average speed on expressways than, say, Indian highways. However, when accidents do happen in the West, there are far more incidents of pileups -- involving several vehicles - than in India, where pileups are far less frequent.The West has a cultural affinity to tightly coupled systems whereas Asia is more informally, less tightly coupled. Therefore, banks in the West are too dependent on each other -- in a way that only financial disasters highlight -- with no "play" to adjust exposures, due to their overleveraging and excessive exposure to investments in listed securities on their asset side rather than non-transferable loans as Asian banks have a preponderance of. While there is a "coarseness" in this, there is an alternative wisdom: tightly coupled, efficient markets are not necessarily good for long-term survival.


There is a lot of negative comment and schedenfreude in the responses to your articles on finance.The essential nature of banking and finance in a modern society seems to be easily forgotten.Perhaps a summary of:- losses to total revenues (over 40 years, or a generation ?)- number of banking transactions per day (making commerce and daily life more simple)- total assets under management- total gain in world wealth (over 40 years, or a generation ?)etc...With my pension under management and using a bank with a wonderful telephone service and internet options I have enough free time to comment on Economist articles.


The conclusion paragraph does seem lazy and self-serving. It would be like a tech powerhouse at its height of power and looking at emerging competitors armed with a different technology/approach to the market: their own analysis begin with earnest and best intentions, highlighting/listing pros and cons, and then WISHFUL thinking kicks in and claims we shall remain OK/superior... The history of the industry proves such introspection sadly wrong."Put yourself in others' shoes" --- please, do try to do a search of articles/news in any Asian language, and one would be hard-pressed to find anyone there identifying with the conclusion here. Why is that? While I am not economic historian, but I think financiers had all once been viewed with suspicion and/or relegated/supressed to lower social rank. Historically until late 19th century/early 20th century, the class of intellects are accorded with far more prestige and class than the financiers/traders/merchants. I can't help but wonder, perhaps it is the late financial industry that is an aberration than the new norm.The state of the finance in US is simple and pure greed running rampant and reshaping the political landscape to underwrite and justify its place and activity in the economy. This stigma will not be lost on the world as the world learns the cause of what ails US/European banks with huge losses.In time, I am sure Asians will spend time examine differences in US and countries in Europe and study how differences lead to different outcomes. They will strive to incorporate benefits of the adoption while engender them at the pace and characteristics in accordance to their own social-cultural perspectives. After all, I recall reading an Economist article on Finland and it reports Finnish society do, well at least psychologically, feel a sense towards unity (less income gap) and a sense of guilt towards too much wealth. Undoubtedly, there are good aspects of the Western finance. The real question is, speculation in the end does not serve the society well except the lucky speculators and so how shall a financial system be ushered into place to provide benefits (of say risk management) while suppressing speculation. Western bankers/financiers lose their lusters precisely because they have played their game and blown up financial nuclear bombs. Pocketing their gains while offloading the society at large to contend with the problems, now they hop on a flight and doll out advices to enable them to have more means to speculate in the market over there... It serves them right to be shunned.

Alan McCrindle

From a systems biology perspective the western finance system and free markets systems are forms of cancer for the earth body system. In a healthy earth body these system would be serving the health of the overall earth body. Instead the tables have been turned and they have become the masters. And as masters they are all consuming self referential, short term, positive feedback loops fixated on growth for its own sake and are bleeding the earth body dry. Economies, free markets, finance systems, democracy etc. no longer serve us - we serve them. We are continually asked to make sacrifices to these systems.The reductive, competitive, strategic, scientific, managerial, short term, self interested mindsets that underpin these systems have not yet evolved to deal with the complexities of the integrated, interdependent system we live in.Those who laud over the "progress" we have made in the western world with free markets, democracy and the finance system might also pause for a moment and reflect that is has a negative side that is threatening our future survival - pollution, unsustainable renewable resource depletion, climate change, obesity, chronic disease etc. Short term "progress" does not guarantee long term sustainability.These systems are cancerous parasites. But who is going to apply the restraints - the negative feedback loops to stop this self inflicted suicidal behaviour. Who is going to transform these systems into systems that serve the greater good. The "democratic" system is yet another short term positive feedback loop - it is a self referential poll driven system in the hands of special interest groups such as the finance system. We can't expect to fix the problems we have created with the same level of intelligence that created the problems. We need feedback systems that reflect all the costs and apply the appropriate restraints. Free markets that ignore "externalities" are not sufficient. We are dealing with a global integrated system. What we need is a global immune system with the appropriate negative feedback loops.



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