Finance under state capitalism: Re-conceptualising capital markets through China’s financial transformation — Johannes Petry

As I argue in an article that was recently published in Economy & Society, states can potentially exercise a considerable degree of control over financialization, thereby shaping its very form. What we can hence observe is a ‘financialization with Chinese characteristics’ where the state actively shapes financialization and its social outcomes. Although finance in China is expanding and permeating evermore aspects of economic and political life, this occurs within the context of China’s socio-economic system of authoritarian state capitalism in which the Chinese Communist Party aims to maintain its control over socio-economic development, in part by managing policy uncertainties through the financial sector. Thereby, the authorities try to actively manage financialization to achieve developmental goals. China’s president Xi Jinping, for instance, repeatedly made clear that the tasks of China’s financial sector were: ‘[to] better serve the real economy, containing financial risks and deepening financial reforms’. Importantly, this is not done through brute force or command-and-control mechanisms, but through ‘pivotal points’ in market infrastructures that enable the management and steering of financialization processes....

In contrast to the premise that markets are uniform, following the likes of Keynes and Polanyi, economic sociology has shown that markets are ‘embedded in distinct sets of social and political institutions’ and that ‘markets do not emerge out of a vacuum’. While functionally all capital markets are characterised by market-based mechanisms of coordination between buyers, sellers and investors, applying the concept of institutional logics to capital markets reveals how the institutional embeddedness of markets and market organisers leads to different market dynamics and outcomes. Consequently, how exchanges (i.e. market organisers) are governed and which constraints and incentives they face matters for the types of markets they organise....

Contra the naturalistic myth about "free" markets. Markets are institutionally embedded and determined by institutional arrangements rather than operations of  "natural law" based on the principle of least action (natural efficiency).

Economic Sociology and Political Economy
Finance under state capitalism: Re-conceptualising capital markets through China’s financial transformation
Johannes Petry | Postdoctoral Fellow at the SCRIPTS Cluster of Excellence at Free University of Berlin and CSGR Research Fellow at the University of Warwick

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