Financialisation

Key references

Abstract: Despite controversy over the meaning of financialization, there are two major dimensions to understanding whether the city is financialized. This paper explores these dimensions in China, namely whether the Chinese city (increasingly) uses financial instruments to carry out its urban development tasks and whether the utilization of financial instruments imposes a financial logic on urban governance. Financing the Chinese city involves creating land collateral and financial vehicles, extending shadow banking, formalizing and securitizing local government debts, and “deleveraging” developers’ debts through urban redevelopment. Applying land instruments leads to financial securitization, showing a financial logic in operation. However, financializing the Chinese city is engineered by the state through its credit expansion to cope with the Global Financial Crisis and the ramifications of the entrepreneurial model of the “export-oriented world factory.” It is a state-led financial turn, in which the financial logic is imperative but may not occupy a central position.

Abstract: This special issue comprehensively researches China’s financialization and examines the transformation of its development model, state development corporations, local government bonds, productivity, and the extent and characteristics of financialization. While it is widely known that the state plays an important role in enabling and constraining financialization, these papers further reveal that China’s financialization originates from the state’s deployment of financial approaches to urban and regional development under state entrepreneurialism. Through internalizing financial logic into the state development system, the expansion of financial operations reflects the state’s developmental intention and increases its governance capability. Thus, financialization is not a unidirectional process but involves extensive state involvement and participation in finance, to such an extent that it often simultaneously evolves into greater interference and de-financialization.

Abstract: There is a growing body of literature on China’s land reform, land system and land-centred urbanisation. While the contribution of land proceeds to Chinese local public finance and infrastructure investment has been widely acknowledged, few studies examine land through the perspective of financialisation, namely how land development uses financial instruments to generate development finance. The process of land-driven financialisation in China has not been well understood. This paper examines the land mortgage, which has accelerated since 2008, and subsequent waves of financialisation through local government financial vehicles (LGFVs) and Chengtou Bonds (urban construction and investment bonds). We highlight that the adoption of a fiscal stimulus package triggered land financialisation, which started as a development strategy for crisis management in China.

The links between shadow banking, wealth management products, and Chengtou bonds in the financialization of land in China. From the paper above.

Relevant studies

Abstract: The state has been pivotal in both facilitating financialization and dealing with its consequences, through which the state itself has also been reshaped. This paper proposes a “state selective financialization” framework to highlight the intentionality and selectivity of the state in (de)financialization. Based on practices in China, we examine the latest state efforts to reconfigure the land reserve system in order to cope with local financial risks associated with land-backed borrowing. The state de-leverages reserved land locally and uses it to secure bonds through a state-managed top-down process. The changing mechanism demonstrates the central state’s intentional role in selecting financial instruments and recentralizing its control over land financialization, whereby it has tried to mitigate financial risks and oversee local development. Instead of financialization versus de-financialization, we find financialization in China is a selective governance tactic to address state concerns. Moreover, rather than seeing financialization as a process outside the state, this research emphasizes that selective financialization is an internal process to reconsolidate the power of the central state and rebuild alignment among multi-scalar state actors.

Understanding state selective financialization in China based on the reconfiguration of land reserve system. From the paper above.

Abstract: Financialized urban governance means that local governments have been increasingly reliant on financial techniques and in some extreme cases, been captured by shareholders’ interests. However, financialized governance mutates with various characteristics of local governance. This paper unpacks financialized urban governance in China based on the operation of Shanghai Municipal Investment Corporation (SMI). The Shanghai municipal government uses SMI as an intermediary to finance urban development. Based on the latest corporatization of SMI, we illustrate an embryonic form of financialized governance in which the Shanghai municipal government relies on financial means especially shareholding to manage and support SMI. In doing so, the municipal government internalizes financial techniques to manage state assets, seek funding, and guide urban development projects. The power of the state is not undermined during the process of financialization. Instead, the Shanghai government extends its power to the financial market to achieve its goals.

Abstract: In China, state-led financialisation through local government financing platforms resulted in a surge in local government debt. To manage financial risk, the central state introduced local government bonds (LGBs) to replace the platforms as the main financing source for infrastructure investment. The issuance of LGBs is subject to a budgetary process. We argue that LGBs mark a turn to state de-financialisation, as the local state’s financial logic of maximising value extraction from the built environment is restricted by budgetary control. Through developing a database of LGB issuance in over 400 prefectural cities, this article reveals that local indebtedness determines the geographies of bond issuance, confirming the effect of the central state’s objective of restricting local government debt. The dynamics of state-led financialisation change from the inter-jurisdictional competition in infrastructure investment among local states through local government financing platforms to a hierarchical control of LGB issuance led by the central state using the budget. Our findings show that financial expansion may mean state de-financialisation and fiscal resources are not only used to promote state-led financialisation but also to enable state de-financialisation.

The spatial distribution of LGB issuance from 2015 to 2020. From the paper above.

Abstract: Local government bonds (LGBs) have become the most important tool of the Chinese state for financing infrastructure projects. The underwriters and investors in LGBs are mostly commercial banks, with state actors holding the overwhelming majority of shares. We call these state-controlled market actors. This article investigates the role of state-controlled market actors in LGB issuance to extend the understanding of state actors and state–market relations in the financialisation of urban governance. The findings show that they underwrite and invest in LGBs to support the government’s development objectives and make profits. They can hardly affect the government to create the terms and conditions of bonds to favour their financial interests, but they manage to make substantial profits. They follow the policy trends to identify LGBs as risk-free and reflexively change their investment priority towards the bonds. Due to the low interest rates, the banks mainly profit from bond trading in the secondary market and fiscal fund investment. There are preferential policies for LGB trading in the secondary market, and local governments deposit fiscal funds in the banks to motivate them to do LGB business. We argue that reflexively making investment decisions according to the policy environment and making profits by exploiting political resources represented by preferential policies and fiscal funds show the adaptability of the state-controlled market actors.

The capital flows in and derived from LGBs. From the paper above.

Abstract: While the enabling role of the state in the financialization of urban development has been widely noted, the changing and variegated roles of different state actors have been less explored. This paper investigates this issue based on chengtou as financial agencies in China. First, we show that financialization is not merely a state-led process, but that the state also restricted financialization at different stages. Second, albeit with stringent central regulations, local states have striven to support chengtou, which demonstrates intrastate divergence. Third, we illustrate the performance of local states across regions to show that financialization further differentiates the patterns of local financing.

Seeing the state–finance relationship through Chengtou. From the paper above.

Abstract: How urban financialization is achieved across different government levels receives limited attention. This study addresses the gap by examining the deployment of China’s local government bonds (LGBs). LGBs introduce a distinct financialization process in which the government relies on debt-financing for urban development, but in a regulated way to constrain financial risks. Urban financialization is realized through the multi-scalar structure of the government. The centralized procedure strengthens central and provincial regulations on local development projects. The multi-scalar government not only facilitates urban financialization but also executes statecraft by designing the process.