China's Superbank: Debt, Oil and Influence - How China Development Bank is Rewriting the Rules of Finance

"This book reads like fiction. It’s written by two wonderful journalists who are, at heart, wonderful storytellers. They are taking the vehicle of the China Development Bank as a story of modern day China. Through the lens of this bank, they give the reader a real sense of the inner workings—the plumbing of China’s economy, and how it has managed its historic rise, as well as the array of consequences and geopolitical headaches this has spelled for the US. “The US often needs to make a choice between its principles and its bottom line” Also at a personal level, I really admire both of these authors. Forsythe, in particular, got ‘PNG-ed’, State Department speak for [being made a] persona non grata, from Bloomberg and China for his reporting. Much of the best, early reporting on corruption and wealth in the Chinese elite was hat tip to Forsythe, and in my view, the Chinese government eventually presented Bloomberg with a choice: do business or do news in China. There were allegations that Bloomberg buried the story on heavy pressure from the Chinese government. The upshot is that now Michael is with the New York Times and continuing to do wonderful journalism, but the episode in itself offers a sharp reminder that the US often needs to make a choice between its principles and its bottom line in how our companies are faring in China. It really tells the story of the rise of the China Development Bank (CDB), one of a handful of massive state-owned policy banks in China. CDB has a lending portfolio that outstrips the World Bank’s by several orders of magnitude. It has managed to strong-arm other countries into changing their constitutions to ensure China gets paid back, in the case of Venezuela. It is also funded in large part by China’s current account surplus which consists largely of US treasury bills. In this way, CDB is a proxy for the uneven trade relationship that the US and China have, and the ways in which that surplus gets recycled into Chinese state-led foreign investment. The financial engines of China’s ‘Go Out’ campaign—and how these financing streams are intimately related to other issues in the US-China economic relationship, from China’s holdings of US debt, to the US-China trade relationship, is vastly underreported and misunderstood in US policy circles. Exactly right. It also gives you a sense of how what China is doing abroad ties directly back to the makeup of its domestic economy. A lot of what we’ve tried to do in War By Other Means is not only lay out a taxonomy for these various geoeconomic instruments, but also show how they work in combination with one another. Forsythe and Sanderson do this beautifully. Through China’s dealings with other countries, and Venezuela is one they treat at length, you see how the CDB is working through Chinese state-owned enterprises and co-financing ventures with Chinese sovereign wealth funds, and how all of these different Chinese state-owned companies have pots of cash working together in this choreography that’s coming out of Beijing — all for very real geopolitical, as well as economic, effect. Sure, and we never promise in War By Other Means that geoeconomic tools are cost free. Of course these tools cost something. But the point is that so, too, does every other instrument of statecraft, especially, I would argue, military instruments. That’s something that many people, especially in Washington, tend to miss. Effectiveness, of course, depends on what your aim is. If you’re sitting in Beijing, and your signature geopolitical project is, say, undermining US alliances in Asia or chipping away at the dominance the US has had in the western hemisphere, then perhaps if you have, say, fifty billion dollars to put to that cause, another aircraft carrier or another series of military investments likely aren’t your best return on investment there. Or, to put it another way: There are a lot of countries in Africa and Latin America that are hungry for investment. If that investment comes with geopolitical strings, say, predicating Chinese investment on disavowing Taiwan, as we’ve seen Beijing do, that’s a price many countries are willing to pay. So far, China’s gotten some fairly impressive geopolitical return on this investment even if, as you say, the economics of the thing throw good money after bad. It’s an outgrowth of the differences in our respective historical traditions and political economies. China is obviously a country that makes no particular distinction between state and market, and is thoroughly comfortable flexing economic muscle to get what it wants. The US, by contrast, was a country begun as an experiment in limited government. There are certain first principles that should absolutely trump how we, in the United States, engage in the world and the kinds of tools we use. It’s obviously the case that the US is and should be constrained from some of the more brazen shows of geoeconomics that we see coming from China. One of my favourite examples is how Chinese leaders love to punctuate state visits around the world by ordering Chinese airlines to purchase a slew of, say, Embraer aircraft when they go to Brazil. Obama couldn’t exactly order Delta or American Airlines to do this. Still, even given some of our structural and political constraints, there’s a lot more we could be doing."