1. China/Mexico Case Study [GCP Brazil: Modulo 2]

2. China/Mexico Case Study Basic comparison of China Case Study with Mexico and Argentina Overview of China’s economic reform strategy since 1978 Compare reform strategy with those of other countries we discussed in this course Brief review of tasks for students

3. Comparative Institutional Analysis ChinaMexico Basic Approach“Gradual liberalization” heterodox policies and reforms “Rapid” liberalization: orthodox policies and reforms Main Area of ReformRural industry and agrarian reform; enterprise and capital structure in SOE(s) Banking sector Projects/TransactionsAdmin. and enterprise reform; opening to foreign capital Privatization, bail out, sell out Institutional Infrastructure Foreign X market Lagged legal reform for FM development Legal reforms Regulatory reforms Specific transaction discussed TVEs and strategic stakes in SOB(s) Privatization(s); global issues; FI in domestic securities market

4. Case Study on China in Comparative Perspective China Basic Approach Gradual economic reform; agricultural reform; new entries; government control over FM development Main Area of Reform Hybrid strategies: encourage entrepreneurship while maintaining government control over economy (dual price system; quota system) Projects/Trans actions Gradual transformation of financial sector from state control to self-reliance & prudential regulation in the shadow of state control Institutional Infrastructure Growth without “right” institutions (WC) Property Rights Law enacted 03/2007 Specific transaction discussed Bank of America acquires 9 percent stake in China Construction Bank in summer ’05; CCB launches IPO in Hong Kong in October ’05

5. Introduction to China Case Study Initial conditions Basic Reform Program Policies and Arrangements – Local Markets Policies and Arrangements – Global Markets 1978 Closed, centrally planned economy dominated by Agriculture Gradualism Decentralizatio n Local experimentatio n Encourage New Growth Household Responsibility System Township & Village Enterprises (TVEs) Encourage FDI JV Free Economic Zones Closed for FI 1980s Economy embarks on strong growth driven by new sectors Dual-track economic reforms Fiscal federalism SOE sector remains largely unreformed New entry of firms encouraged New FI, SE suppressed FDI further liberalized (WOS) FFI limited access

6. Introduction to China Case Study Initial conditions Basic Reform Program Policies and Arrangements – Local Markets Policies and Arrangements – global Markets 1990sEconomy growth slows Political problems SOE sector unreformed NPL problems Marco economic controls Banking sector reforms initiated Policy banks/ Asset Mgt Companies to address NPL SOE equity finance Recapitalization of SOBs; profitability declines Local arrangements for financing TVEs Expansion of FDI Gradual opening to FFIs: Hard currency; Foreign clients; Late 1990s: RMB transactions; Chinese clients 2000- 2006 Equity markets slow; credit markets overheat Focus SOEs and SOBs Floating of additional SOE shares; partial SOB privatization AMCs in trouble Banks slated for FI (minority stakes) Non-state financial companies still repressed FS sector opened further Foreign banks to bail out AMC and revitalize ailing state-owned banking sector

7. Q: Chinese Panel What were the key problems in the area of financial organization in China in 2005? What institutional strategies did China use to address these problems? How would you criticize, defend and/or develop the Chinese strategy in hindsight? How does the Chinese strategy compare with the Mexican strategy

8. Q: Mexican Panel What was the Mexican strategy for developing its banking sector How did the Mexican strategy evolve during the decade of the 1990s What other approach could/should the Mexican government have taken, either at the start of the privatization process, or at later time, e.g. before or after the Tequila crisis? What alternative legal and institutional reforms would have been necessary to pursue an alternative strategy?

9. Q: Both panels together How would you compare the Mexican and Chinese strategies for reforming their banking sectors? What were the goals of the two different strategies? What legal and institutional means were chosen to pursue these goals? Were the strategies successful? Was one strategy more successful than the other?