China's Monetary Challenges: Past Experiences and Future Prospects

China's Monetary Challenges: Past Experiences and Future Prospects

Richard C. K. Burdekin

Language: English

Pages: 272


Format: PDF / Kindle (mobi) / ePub

Despite the People's Republic of China's remarkable growth over the post-1978 reform period, questions have arisen about the sustainability of its exchange rate policy and the soundness of its financial system. This book focuses on the key monetary challenges to China's continued advancement and addresses such topical issues as the buildup of foreign exchange reserves, monetary control, credit allocation difficulties, and the expanding role of China's asset markets and stock exchanges. Current and past monetary policy strategies are examined in detail as are the banking sector reforms leading up to full foreign competition in December 2006. The analysis also assesses the People's Republic's role within Greater China (including Hong Kong and Taiwan) and the potential for future renminbi monetary hegemony within Asia. The treatment of these issues is intended to be accessible to non-economists and does not assume prior immersion in the underlying formal models.

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head margin: 1/2 gutter margin: 7/8 cuus233 978 0 521 88016 9 China’s Reserve Buildup and Global Imbalances May 13, 2008 37 portion of China’s bilateral surplus with the United States reflects the activity of US, rather than Chinese, firms. In 2004 the Bush administration and the Kerry campaign found agreement in asserting that the US trade deficit was primarily a Chinese problem, deriving from the Chinese currency, the renminbi, being too cheap relative to the US dollar and thereby making

government bonds and raising reserve requirements. He et al. (2005, p. 5) calculate that 42% of the overall domestic liquidity effects of the reserve growth were offset over the 2001–2004 period. However, continued concerns with overheating prompted new attempts to slow the economy via administrative controls on bank lending rates. Just prior to the May holidays in 2004 the central government promised to choke investment in “overheated” sectors such as property and ordered the dramatic arrest of

This section focuses on the evolution of the HSBC stock price over the 1927–1937 period, thereby taking advantage of a consistent data series on an institution that stood out as a major player in both Chinese and Hong Kong financial markets. HSBC actually operated as an official arm of Chinese monetary policy prior to the Nanking decade and remained “the most important foreign bank in China [that] had long dominated international finance there . . . ” (Schenk, 2002). HSBC has, of course, retained

formation of the People’s Republic of China on October 1, 1949. Continued rapid renminbi issuance was accompanied by high rates of inflation during 1949– 1950 until stabilization was achieved in March 1950 (see Chapter 3). During the last inflationary surge in early 1950, wholesale price rose by 56% in Shanghai, and by 77% in Tianjin, between January and March 1950 (Burdekin and Wang, 1999). The renminbi depreciated by 100% against the US dollar, by 106% against the pound sterling, and by 115%

13, 2008 173 find that greater volatility in “A” shares relative to “B” shares persisted over the August 1994–July 2000 period – with “A” shares revealing a consistently stronger tendency to overreact to both good and bad news. Later policy changes have removed the strict separation between the “A” and “B” share markets. The purchase of “B” shares by domestic individuals was legalized in February 2001, whereas limited foreign investor entry into the “A” share market was approved in December

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