‘Capital markets with Chinese characteristics’
Book manuscript (currently being finalised)

This is a book about China – the world’s second largest economy  – and about capital markets, the foundations of the post-Bretton Woods global financial order. In 1989, capital markets did not exist in China. Fast forward three decades and China had become home to the world’s second largest stock, bond and futures markets globally. And whereas China’s markets have been virtually closed from the outside world for decades, especially since the global financial crisis 2007-2009 they have become connected to global markets ‘at an unprecedented pace’. While previously peripheral to its bank-based, state-controlled financial system, capital markets have gradually become an important pillar of China’s political economy. However, capital markets are often assumed to have liberalising effects. In IPE literature ‘global’ capital markets are usually discussed as forces that facilitate an increasing convergence of economic activities according to a (neo)liberal playbook, while in CPE research capital markets are viewed as the dominant coordination mechanisms of financial systems within liberal market economies. Capital markets are understood as one particular form of economic coordination, but they are often conceptualised as uniform entities and as primary facilitators of a convergence towards a liberal, Anglo-American model of capitalism. The growth and internationalisation of capital markets in China’s non-liberal economy therefore poses an important puzzle.

The central argument of this book is that capital markets are not uniform entities and that capital markets in China function fundamentally different from ‘global’ markets because the organisation of these markets is informed by different institutional logics. The book demonstrates that the defining difference between liberal and state-capitalist logic is not the existence and prominence of capital markets per se but rather the principles that underlie market organisation (profit creation vs state objectives) and the actors that dominate/shape these markets (private finance capital vs state institutions). While the primary underlying principle of global markets is to create ‘efficient’ outcomes by enabling profit creation for private finance capital (liberal logic), in China the primary underlying principle is state control of market behaviour and directing market outcomes towards national development objectives (state-capitalist logic). Consequently, Chinese capital markets function differently, fulfil different socio-economic roles and lead to different societal outcomes than global markets.

The book’s analytical focus thereby lies on (Chinese) stock and futures exchanges. Rather than investors that are active within markets, exchanges play a much more architectural role as they create the infrastructural arrangements that enable the functioning of capital markets in the first place. From market data access, which financial products are traded to trading rules, exchanges shape the characteristics of capital markets. They are powerful actors that define the rules of the game according to which capital markets function, but their organisation of markets is heavily influenced by their institutional contexts. How exchanges are governed and which constraints and incentives they face matters: within Chinese state capitalism and Anglo-American liberal capitalism, exchanges create fundamentally different capital markets.

Drawing on a multi-method research design, this research is based on an analysis of descriptive financial statistics, policy documents (e.g. trading rulebooks, regulatory reports), financial news coverage as well as 132 expert interviews and ethnographic data from 27 sites collected during eight months of fieldwork in Shanghai, Beijing, Hong Kong, Singapore, London and other international financial centres between June 2017 and November 2019. Manuscript is being finalised.

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Financialization under state capitalism: A comparative analysis of states and capital markets in emerging economies
German Research Foundation (DFG), Goethe University Frankfurt
investigators: A. Nölke, K. Koddenbrock and J. Petry (PI) (project-no.: NO 855/7-1; 2020-2024)

With the increasing financialization of emerging markets, the link between capital markets and the economic systems they are embedded in requires closer scrutiny. By situating capital markets within state capitalism, this research project proposes a theory-led comparative analysis of financialization processes across emerging markets that explores whether capital markets in state capitalist economies function differently, fulfil a different socio-economic role, and lead to different societal outcomes than ‘global’ capital markets. To achieve this objective, the project conducts a comparative institutional analysis of capital markets and their development in six increasingly financialised state-capitalist economies: Brazil, China, India, Russia, South Africa and South Korea (BRICSS).

Through this project, we bring together three central concepts in political economy literature: state capitalism, neoliberalism and financialization. We argue that rather than being uniform, capital markets can function according to different logics – which we place on a continuum between neoliberalism and state capitalism – and which consequently has important consequences for the socio-economic outcomes these markets produce. Therefore, our findings have important implications for political economy debates on the transformation of state capitalisms, trajectories of financialisation, neoliberalism as a policy paradigm as well as the study of capital markets.

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Wall Street in China: Capital markets, Chinese state capitalism & the liberal global financial order
IRC Postdoctoral Fellowship at the SCRIPTS Centre of Excellence, Freie Universität Berlin (2020-2021)
mentor: Mark Hallerberg (Hertie School)

My postdoctoral research project at SCRIPTS focuses on the international implications of China’s financial development, specifically China’s evolving relationship with the liberal global financial order. By 2020, Chinese capital markets have become the second largest stock, bond and futures markets in the world. They have also integrated with global markets to an unprecedented degree with international investors allocating more than RMB1 trillion ($155 billion) into Chinese markets in 2020 alone. However, China’s capital markets function fundamentally differently from ‘global’ capital markets that underpin the global financial order as they are shaped by China’s political-economic system of state capitalism.

This research project therefore analyses three dimensions of China’s relationship with the global financial order:
(1) Whether and/or how Chinese capital markets resist pressures to conform with global finance despite their increasing integration (main focus: Hong Kong’s role as China’s financial gateway).
(2) Whether and/or how Chinese capital markets actively contest the global financial order as they themselves internationalise (main focus: Chinese financial infrastructures along the Belt and Road Initiative).
(3) Whether and/or how global finance is malleable by accepting China’s non-liberal rules of capital markets when engaging with China (main focus: the increasing reallocation of financial assets towards China and the US-China trade war).

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Steering capital: the international political economy of index providers
Research project funded by the CORPNET ERC Project & the PetGov Research Group, University of Amsterdam (2019-2021)
investigators: Jan Fichtner, Eelke Heemskerk & Johannes Petry

Since the global financial crisis, there is a massive shift of assets towards index funds. Rather than picking stocks, index funds replicate stock indices such as the S&P 500. But where do these indices actually come from? This research project analyses the politico-economic role of index providers. We argue that these index providers have become actors that exercise growing private authority as they steer investments through the indices they create and maintain. While technical expertise is a precondition, their brand is the primary source of index provider authority, which is entrenched through network externalities. Rather than a purely technical exercise, constructing indices is inherently political. Which companies or countries are included into an index or excluded (i.e. receive investment in- or outflows) is based on criteria defined by index providers, thereby setting standards for corporate governance and investor access. Hence, in this new age of passive asset management index providers are becoming gatekeepers that exert de facto regulatory power and thus may have important effects on corporate governance and the economic policies of countries.

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Pathway to instability? Capital markets with Chinese characteristics
PhD Doctoral Fellowship by the Economic Social Research Council and Department of Politics and International Studies, University of Warwick (2016-2020)
supervisors: Timothy J. Sinclair and Lena Rethel (Warwick)

In my PhD research project, I analyse the development of Chinese capital markets and their integration into global finance and focus on the role (stock and derivative) exchanges play as crucial actors in processes of capital market development. While they share some characteristics with ‘global’ capital markets, Chinese capital markets function quite differently because China’s state-owned exchanges facilitate the development of capital markets that follow an institutional logic of and are embedded in China’s state capitalism. Instead of following a neoliberal rulebook, the exchanges facilitate the state’s ability to control capital markets and to direct market outcomes towards certain national development policies, both within China and internationally. These findings have important implications for political economy debates on the transformation of China’s capitalism, its integration into the global financial order, trajectories of financialisation as well as the politics of infrastructures in global finance.