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To open or not to open: The question of financial liberalization in China

Book review of: Vic Li Yu Wai. 2018. China’s Financial Opening: Coalition politics and policy changes. New-York, Routledge.
Paolo Balmas
Bibliographical reference

Vic Li Yu Wai. 2018. China’s Financial Opening: Coalition politics and policy changes. New-York, Routledge.

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1The question of China’s financial liberalization emerged in the late 1970s and early 1980s, when the chairman Deng Xiaoping kicked off the great transition of China’s economy from a Communist, or Maoist, to a hybrid socialist-capitalist system. The opening of China’s market to foreign capital and the control on domestic capital crossing Chinese borders became two major issues in China’s economic policy. China’s slow but relentless financial liberalization is still ongoing. This book by Yu Wai Vic Li, assistant professor in the Department of Social Sciences at the Education University of Hong Kong, appears at a crucial time for the future of China’s financial liberalization, as China and Western powers led by the US engage in harsh negotiations about reorganizing their economic relations.

2Li’s work admirably contributes to the most recent and updated strand of studies on the evolution of China’s policy-making processes and the role of the state in China’s economic development. The book offers a novel view on this topic. It analyzes policy-making processes with regard to financial liberalization in China through a ‘model of coalition politics featuring the political interplay between pro-opening coalitions and dissenting parties’ (p. 16). This book sheds light on China’s domestic socio-political dynamics, which involve actors at different levels—local and national—and from different sectors—political, financial, public and private. From the book, two main points emerge. First, Hong Kong maintains a prominent role in China’s financial liberalization process; second, coalition dynamics make China not as monolithic as perceived from the outside, with regard to policy-making actors and processes. As the author himself argues from the beginning, ‘China’s financial system evolved in a highly politicized but pluralistic fashion’ (p. 17, emphasis in original). In other words, the author argues that policy-making processes in China are not as centralized as many other studies have concluded. Instead, these processes are characterized by lobbying activities of local authorities and financial institutions such as banks, securities brokers and stock exchanges.

3Yu Wai Vic Li structures his work in six well-organized chapters. The Introduction brings the reader into the complex arena of financial opening and policy change in China, by briefly analyzing various strands in the literature and retracing the history of financial reform in China. The author presents in this chapter the three case studies he analyzes (in chapters 3, 4 and 5), which are the evolution of the outbound equity investment regime, the internationalization of the domestic stock market, and the emergence of the offshore renminbi (RMB) market in Hong Kong. The author then introduces his approach and argument, the latter which is grounded in the assumption that ‘the interplay among coalition constituents and with the resisting forces within Chinese political economy shaped the direction, scale, and outlook of the financial opening’ in China (p. 17).

4The second chapter, The political coalitional perspective of financial policy change, plunges into policy change dynamics in China through the lens of coalition perspective. The author indicates three categories of players – local authorities of financial centers, financial industry actors, and central bureaucrats – and suggests three mechanisms of policy change, namely agenda-setting, leverage, and concessionary politics. Li contends that, in China, pro-opening coalitions are ‘the primary movers of policy change’, and ‘their constituents push the opening agenda, seek political support, and offer concessionary offers to allay dissent’ (p. 28). He argues that coalitions have an issue-specific nature and their composition, as well as the composition of the dissenting parties, are not permanent. This offers a more dynamic and pluralistic vision of policy-making processes in China. Moreover, the coalitional perspective permits the highlighting of the presence and role, too often underestimated, of financial organizations beyond the pervasive and omnipresent banking industry in China: securities firms and stock exchanges. The author succeeds in explaining insightfully how coalitional dynamics influenced the policy-making processes in each of the three case studies in the following three chapters. Their contents provide a taste of the depth of insights this book offers, indeed, which draws the reader into the real world of China’s domestic politics.

5The first and the second case studies are strongly connected. They provide evidence of evolving strategies for liberalizing capital markets in China. The first analyzes the dimension of outbound equity investments (Chapter 3). Since public and private actors in China started to accumulate fortunes, mainly due to trade surpluses, the government has faced the issue of an overheating economy. The author shows how central bureaucrats supported local authorities and financiers in promoting or blocking overseas investment initiatives. While ‘distributional implications’, which mostly affected local players, were at the heart of coalition formation, policy risk (a mix of ‘political risk resulting in adverse consequences specific to a certain bureaucratic agency, and systemic risk with ramifications for the larger domestic economic and financial system’—pp. 36-37) was the main concern for central decision-making actors. This was true for the second case study as well, the internationalization of China’s stock market in Shanghai (Chapter 4). In this case, the author offers evidence of how Shanghai developed a new regulatory framework to match the needs of domestic stock market internationalization while also endorsing the development of Shanghai as an international financial center (IFC). Nevertheless, the author explains how the implementation of an international board to allow offshore companies to sell shares in domestic currency in Shanghai was impossible, mainly due to disapproval on technical issues, like standards and prices to apply to foreign companies to list on the local stock exchange. Only the Stock Connect schemes, bridges between mainland and Hong Kong exchanges, could eventually provide for both inbound and outbound equity investments.

6The third case study (Chapter 5) presents Hong Kong as the key promoter of RMB internationalization. The author argues that Hong Kong authorities and financiers were the primary promoters of the liberalizing agenda, who were then ‘joined by sympathetic central bureaucratic actors in the mid-2000s’ (p. 122). Contrasts emerged with local authorities in Shanghai, where interests in competing for the leadership in RMB business became prominent. Concessionary politics allowed Shanghai to become a parallel mainland hub for RMB internationalization. In any case, the pro-opening coalition efforts made Hong Kong the largest and unchallenged RMB center worldwide.

7In the Conclusion, Li summarizes the major findings of the three case studies and explains briefly how they provide ‘strong evidence for the three policy change mechanisms’ (p. 163). Even though the author achieves his aims, the reader needs to be aware that he relies a great deal on grey literature, newspaper articles from both Hong Kong and mainland China, in Chinese. In addition, some pressing questions emerge and remain unanswered, for instance, on the role of domestic banking industry executives in China’s financial opening. Given the nature of powerful Chinese commercial banks and their unique condition under state control and partial foreign private ownership, an analysis of their role in influencing and shaping pro-opening and dissenting coalitions would offer a more comprehensive view of policy-making dynamics with regard to financial reform. Furthermore, while the role of Hong Kong is generally highlighted, the author significantly underplays the international dimension, even if it is explicitly acknowledged how the global financial crisis influenced China’s central bureaucratic decision-making processes. Although the author evidently focuses on domestic dynamics of policy change, studying this without referring to international actors results in incomplete understanding when it comes to analyzing agency in an IFC (in this case Hong Kong). Moreover, recent studies have shown how Western lobbying activities in mainland China have influenced decision-making processes in China (Weil, 2017), and this is something that Li could have paid more attention to.

8However, despite these critiques, this book provides a novel view of China’s political dynamics as it ‘challenges top-down paradigm of China’s central, local relations in implementing policy agendas’ (p. 168). In addition, it shows how agency does not fit perfectly under the labels of progressive or conservative policies, suggesting a more pluralistic and flexible political environment for coalitions formation and policy change in China. One more merit of the book is that it opens avenues for further research under new light shed on China’s domestic dynamics of financial opening. Li’s work not only provides a new perspective for further research on China’s policy-making dynamics, but also offers a reference point for further ‘comparative exercises beyond China’. Even though the author refers mainly to research in the domain of IPE, this study is a valuable resource for economic and financial geographers as it reveals local and regional dynamics of policy agency with regard to the development of IFCs, namely Hong Kong, Shanghai, Shenzhen and Tianjin.

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Weil S., 2016. Lobbying and Foreign Interests in Chinese Politics. New York, Palgrave Macmillan.

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Electronic reference

Paolo Balmas, To open or not to open: The question of financial liberalization in ChinaArticulo - Journal of Urban Research [Online], Book Reviews, Online since 18 April 2019, connection on 21 April 2024. URL:; DOI:

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About the author

Paolo Balmas

Paolo Balmas is a PhD Fellow at the Luxembourg Institute of Socio-Economic Research (LISER). He is working on China's financial networks in Luxembourg and Europe. His project aims at analysing how the globalisation of Luxembourg-based Chinese financial activity is organised and at understanding the transformation of the European financial system by analysing the reasons, socio-spatial organisation, and impacts of the newly localizing Chinese banks in Luxembourg. He is interested in China, Belt and Road Initiative, symbolic power, finance, and banks. His research is funded by the Luxembourg National Research Fund (FNR).

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