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Inside the engine-room of China's economic growththe China Development Bank. Authors Henry Sanderson and Michael Forsythe- both Bloomberg journalists working in Beijing- combine on-the-scene reporting and interviews from across the wolrd with numbers crunched from Chinese bond prospectuses to put CBD in perspective, and help you understand the economic phenomenon that is China

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  • Henry SandersonMichael Forsythe

    Debt, Oil, and InuenceHow China Development BankIs Rewriting the Rules of Finance

    FREE eChapter

  • Henry SandersonMichael Forsythe

    Debt, Oil, and InuenceHow China Development BankIs Rewriting the Rules of Finance

    9781118176368 HardcoverUS$49.95 224pages Nov 2012

    Available wherever books and ebooks are sold

    Chinas rise as a global economic superpower, the success of its top companies, and its continuing domestic boom is intricately tied to China Development Bank (CDB). This less-than transparent institution, which is wholly owned by the Chinese government, has become the financial enabler of this nations growth and is arguably the most powerful bank in the world. While development banks have long existed to finance political projects, infrastructure, and other initiatives, nothing comes close to CDB in scope.

    In Chinas Superbank, authors Henry Sanderson and Michael Forsytheboth Bloomberg journalists working in Beijingcombine on-the scene reporting and interviews from across the world with numbers crunched from Chinese bond prospectuses to put CDB in perspective, and help you understand the economic phenomenon that is China. Along the way, youll not only become familiar with the growing accomplishments and influence of CDB, but youll also gain valuable insights into the darker side of this political-financial institutionone that has never had to answer to anyone apart from its state shareholders. Youll also discover how Chinas seemingly unstoppable banking system could potentially be saddled with bad debt from trillions of Yuan invested in projects with questionable economic value both at home and abroad.

  • Henry SandersonMichael Forsythe

    Debt, Oil, and InuenceHow China Development BankIs Rewriting the Rules of Finance

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    sampler on your blog or website, or emailit to anyone you think would enjoy it!

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    Extracted from Chinas Superbank: Debt, Oil, Influence- How China Development Bank is Rewriting the Rules of Finance published in 2013 by John Wiley & Sons Singapore Pte. Ltd., 1

    Fusionopolis Walk, #07-01, Solaris South Tower, Singapore 138628. All rights reserved.

    Copyright 2013 by Henry Sanderson, Michael Forsythe.

    No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise,

    except as expressly permitted by law, without either the prior written permission of the Publisher, or authorization through payment of the appropriate photocopy fee to the Copyright Clearance Center. Requests for permission should be addressed to the Publisher, John Wiley & Sons Singapore Pte Ltd., 1 Fusionopolis Walk, #07-01, Solaris South Tower, Singapore 138628,

    tel: 65-6643-8000, fax: 65- 6643- 8008, email: enquiry@wiley.com

    Chinas superbank

  • Contents

    03

    Contents

    Preface ixAcknowledgments xix

    Chapter 1 Let 10,000 Projects Bloom 1The Wuhu Model 4The Chongqing Model 9Global Financial Crisis 12A Town Called Loudi 15Lis Story 18Manhattan in China 22Credit Risk in a One-Party State 26Cracks in the System 29

    Chapter 2 Turning a Zombie Bank into a Global Bank 39A Life in the Party 41The Princeling Party: The Beginning ofState Capitalism 50Taking Over a Basket Case 55Transforming CDB from an ATM Machine 58

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    CHINAS SUPERBANK

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    Developing a Slogan 62Beating the Commercial Banks 64Gao Jian: Creating a Market for Risk-Free Bonds 68The West Self-Destructs: The Financial Crisis 72Moving Beyond Wall Street 75

    Chapter 3 Nothing to Lose but Our Chains:China Development Bank in Africa 85Made in Ethiopia 90Ethiopias Zone: Exporting to the West 94ChinaAfrica Development Fund: TheStates Private Equity Arm 96Rising Role of China in Africa 101Fixed Capital: Western-Style Lending 105African Tiger: Can Ghana Escape theResource Curse? 108Fresh Capital 116

    Chapter 4 Risk versus Reward: China DevelopmentBank in Venezuela 123Default in Bolvars Country 125Chinas Venezuelan Adventure 126Loans for Oil 132Cars, Housing, and Gold: Good Business for China 136Ecuador 139Russia 140China in the Backyard of the United States 141

    Chapter 5 Funding the New Economy 147Obamas Dream 151Default-Free Bond Market 153Financing Chinas Global Company: Huawei 157The Final Frontier: Private Equity 163Acting as a Gatekeeper 167Imprint of the State 169

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    vi C O N T E N T S

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    Chapter 6 The Future 175

    About the Authors 181Index 183

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    Contents vii

    CHINAS SUPERBANK

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    Preface

    Hugo Chvez, resplendent in crisply pressed fatigues and para-trooper boots with red shoelaces, had a very special guest.Meeting him that mid-September day in Caracas was theworlds most powerful banker, who had lent Chvezs government atleast $40 billion over four years, or about $1,400 for every man, woman,and child in Venezuela.

    The guest, stooped and looking older than his 66 years, drankchrysanthemum tea, staring across the table at Chvez, bald from hischemotherapy treatments. He handed the president of the BolivarianRepublic of Venezuela a 600-page book filled with recommendations onhow Chvez should run, manage, and build ports, roads, and railroads.

    What bank in this day and age can lend so much money to one ofthe worlds riskiest regimes, a nation with two centuries of creditdefaults, and then tell its debtor how to spend the proceeds of the loan?

    Not Goldman Sachs. Chvezs banker had governmental ties thatthe legendary New York firm, incubator to US Treasury SecretariesHank Paulson and Robert Rubin, could only dream of. The man sittingacross from Chvez was the Chinese equivalent of royalty. His father

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    was one of the founding fathers of the Peoples Republic of China. Hiscompany was banker to China Inc.

    Not the World Bank. That Washington-based product of PaxAmericana had a loan book only a fraction of the size of this manscompany, the worlds biggest policy bank. Chvezs Chinese bank hadbragging rights over the World Bank as well, having been front andcenter in crafting the biggest and arguably most successful poverty-reduction program in history that saw hundreds of millions of Chinesepeasants become city dwellers. In Africa, the bank has funneled billionsof dollars into the continent, stoking Ethiopian exports and revivingGhanas railroad network after decades of neglect.

    Not the Fed. The Federal Reserve Bank might have trillions ofdollars at its disposal, and it might rightly be credited with staving off adepression in the wake of the 2008 financial meltdown. But when itcomes to results, Chvezs bank arguably has an even more impressiverecord. The bank devised a system to fund local infrastructure projectsthat is credited with helping China sail through the global financial crisiswhile the United States and Europe stumbled.

    Chvezs guest was Chen Yuan, chairman of China DevelopmentBank (CDB), the worlds most powerful banker.

    You cant buy shares in CDB: It is wholly owned by the Chinesegovernment. But it would be a mistake to call it a governmentbureaucracy that is at the states beck and call. It is a bank, claiming thelowest nonperforming loan rate of any major Chinese lender and areputation for hardball negotiations with both domestic and foreignclients. While other countries have long formed development banksto help fund their national companies and bolster economic growth tocatch up to more advanced powers, the scale of CDB and the amount itcan lend makes it a different animal.

    But the worlds most powerful bank? Yes. Let us count the ways.Exhibit 1: China. The bank wrote the manual for the biggest

    economic and urbanization boom in history, pioneering a system oflending to local government-backed companies that funneled morethan $2 trillion across China to build roads, bridges, subways, andstadiums and was later used to stimulate growth when the worldeconomy was crippled by the global financial crisis. The turnkey systemit set up, beginning in 1998 in Anhui Province, meant that Chinese

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    growth barely registered a hiccup while the United States went into thedeepest economic crisis since the Great Depression. CDBs recentlyretired vice president, Gao Jian, is regarded as the father of Chinas bondmarket. CDB in one year sold more bonds than Chinas Ministry ofFinance.

    Exhibit 2: Africa. CDB lending is starting to move ahead of that ofthe World Bank and other international organizations, focused onbuilding industry and infrastructure for the next stage of Africas growthand harnessing its biggest clients, Chinas elite state-owned companies,to do much of the work. While much of Chinese lending in Africa isfocused on the extraction of oil and metals to fuel Chinas insatiablethirst for raw materials, in part driven by the banks funding of thenations urbanization, that is only part of the story. The banks privateequity arm, the China-Africa Development Fund, is spurring the con-tinents manufacturing as labor costs rise at home, helping transformEthiopia into an exporter of leather and Chinese companies such asChery Auto to open factories. In Ghana, CDB is financing roads, rail-roads, and an oil terminal and pipeline network with a $3 billion loan,the biggest in that countrys history, and guaranteeing Chinese com-panies will win most of the contracts.