Do Financing Biases Matter for the Chinese Economy?
on May 1, 2006
It is widely acknowledged that China’s financial system is deeply troubled. Its banks have very high nonperforming loan ratios and its stock market has lost 50 percent of its value since 2001 amidst a GDP growth rate averaging some 9 percent a year. This paper sheds light on the extent of financial system problems in China and argues that there are alternative financing mechanisms that contribute to the high GDP growth despite the distorted financial system.
Topics:
Economy
Organization:
Cato Institute
Does China Save and Invest too Much?
on May 1, 2006
China’s much-praised tendency to save and invest over 40 percent of its GDP has become dangerous and destabilizing, both for China and the global economy. China’s avid savers expect to increase their wealth by forgoing current consumption. There are good reasons to expect that they will be sorely disappointed if saving continues to be bottled up inside China. This paper suggests that if the Chinese population does not start consuming, there will be an excess capacity in the tradeable goods sector, resulting in pressure for currency undervaluation and export promotion along with heavy real estate speculation in the domestic sector. China should learn from the experiences of Japanese savers during the lost decade of the 1990s.
Topics:
Economy
Organization:
Cato Institute
A Framework for Independent Monetary Policy in China
on May 1, 2006
As China's economy becomes more market-based and continues its rapid integration into the global economy, having an independent and effective monetary policy regime oriented to domestic objectives will become increasingly important. Specifically, the authors recommend an explicit low long-run inflation objective, operational independence for the People's Bank of China (PBC) with formal strategic guidance from the government, and a minimal set of financial sector reforms (to make the Chinese banking system robust against interest rate fluctuations). They argue that anchoring monetary policy with an explicit inflation objective would be the most reliable way for the PBC to tie down inflation expectations, and thereby enable monetary policy to make the best contribution to macroeconomic and financial stability.
Topics:
Economy
Organization:
International Monetary Fund (IMF)