nep-cna New Economics Papers
on China
Issue of 2007‒12‒08
eight papers chosen by
Zheng Fang
Ohio State University

  1. Structured Microfinance in China By Byström, Hans
  2. Modelling inflation in China - a regional perspective By Aaron Mehrotra; Tuomas Peltonen; Alvaro Santos Rivera
  3. “Leftist”, “Rightist” and Intermediate Decompositions of Poverty: Variations with an Application to China from 1990 to 2003 By Florent Bresson; Kelly Labar
  4. Economic and Financial Integration between Hong Kong and Mainland China before the Open Door Policy 1965-75 By Catherine R Schenk
  5. Total Factor Productivity Growth in Chinese Industry: 1952-2005 By Selin Ozyurt
  6. Hong Kong as An International Financial Centre: Measuring its Position and Determinants By Lillian Cheung; Vincent Yeung
  7. Is the Hong Kong Dollar Exchange Rate "Bounded" in the Convertibility Zone? By Cho-Hoi Hui; Tom Fong
  8. Monetary and Financial Cooperation among Central Banks in East Asia and the Pacific By Hans Genberg; Dong He

  1. By: Byström, Hans (Department of Economics, Lund University)
    Abstract: In this paper we discuss the potential for commercial microfinance in China. Particular emphasis is put on securitization of microloans and on structured microfinance in a China context. Three particular factors that we believe could support a strong growth in Chinese structured microfinance are (i) the lack of currency risk, (ii) the scale advantages and (iii) the massive potential interest from traditional, domestic as well as international, financial firms. On the policy side, structured microfinance could be an important tool for fighting unemployment in China. It could also be used to circumvent corruption or government bureaucracy in the microlending process.
    Keywords: commercial microfinance; structured finance; securitization; China
    JEL: G10 G21 O16 R51
    Date: 2007–11–20
  2. By: Aaron Mehrotra (Corresponding author: Bank of Finland, BOFIT, PO Box 160, 00101 Helsinki, Finland.); Tuomas Peltonen (European Central Bank, Directorate General International and European Relations, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Alvaro Santos Rivera (European Central Bank, Directorate General International and European Relations, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: We model provincial inflation in China during the reform period. In particular, we are interested in the ability of the hybrid New Keynesian Phillips Curve (NKPC) to capture the inflation process at the provincial level. The study highlights differences in inflation formation and shows that the NKPC provides a reasonable description of the inflation process only for the coastal provinces. A probit analysis suggests that the forwardlooking inflation component and the output gap are important inflation drivers in provinces that have advanced most in marketisation of the economy and have most likely experienced excess demand pressures. These results have implications for the relative effectiveness of monetary policy across the Chinese provinces. JEL Classification: E31, C22.
    Keywords: China, Inflation, Regional, New Keynesian Phillips Curve, GMM.
    Date: 2007–11
  3. By: Florent Bresson (CERDI – Université d’Auvergne); Kelly Labar (CERDI – Université d’Auvergne)
    Abstract: This paper investigates the influence of invariance axioms in the decomposition of observed poverty variations into growth and inequality effects. After a complete and critical review of the invariance axioms suggested in the literature, we show that few information is needed for the ordering of the effects respectively obtained through scale, translation and intermediate invariance. Using Chinese data for the period 1990-2003, we find that some commonly observed results of the decomposition are contingent to the invariance axiom choices whilst other are robust to changes in ethical preferences.
    Keywords: Poverty, inequality effect, growth effect, decomposition, scale invariance, translation invariance, intermediate invariance, China.
    JEL: I32 D63 D31
    Date: 2007
  4. By: Catherine R Schenk (University of Glasgow)
    Abstract: The ‘one country, two systems’ structure established to govern the relationship between Hong Kong SAR and Mainland China was an innovative and comprehensive solution to particular economic and political challenges posed by the return of Hong Kong to the PRC in 1997. At the time of the drafting of the Basic Law, the integration of the colony into the regional economy of Southeast China through outward FDI had already begun, and from the mid-1980s this process facilitated the transformation of the Hong Kong economy from a manufacturing base to one dominated by financial and commercial services. It was recognised on both sides of the negotiations that the territory’s viability and future prosperity relied on retaining independence over a range of key fundamentals, including a separate and independent currency and monetary system that was at the foundation of Hong Kong’s attraction as an international financial centre for the PRC and also for the rest of the Asian region. An important credibility mechanism for the HK$ (as for the inconvertible RMB at this time) was the exchange rate link to the US$. Since this was also the anchor for the RMB after 1997, the linked rate system kept the relationship between the RMB and the HK$ stable.
    Date: 2007–04
  5. By: Selin Ozyurt
    Abstract: This paper presents a timely assessment of Chinese industrial productivity performances over the period 1952-2005. The total factor productivity (TFP) growth analysis is based on a Cobb-Douglas specification with aggregated annual data set. This study tackles some theoretical and methodological issues raised by critics of previous studies. First of all, the use of economic tools allows us to relax some restrictive hypothesis of the neoclassical growth framework such as competitive market behaviour, constant returns to scale production technology and Hicks neutral technological change. In addition, our TFP growth estimates are adjusted for business fluctuations. The paper also deals with the autocorrelation issue prevailing in most previous studies. Our major findings are: (i) In Chinese industry, between 1952 and 2005 capital accumulation has been the main engine of economic takeoff. (ii) During the post-reform period, TFP growth contributed significantly to economic growth. (iii) TFP gains have exhibited a sharply increasing pattern since the late 1980’s, along with the accelerated integration of China into the world economy.
    Date: 2007–11
  6. By: Lillian Cheung (Research Department, Hong Kong Monetary Authority); Vincent Yeung (Research Department, Hong Kong Monetary Authority)
    Abstract: Traditional measures of concentration of financial market activities do not adequately reflect an economy¡¦s status as an international financial centre (IFC). In this paper, we construct alternative measures that better capture the ability of an IFC to attract capital flows and international demand for its financial services, as well as its attractiveness as a place for international financial institutions to congregate. We also explore the determinants of the competitiveness of IFCs in an analytical and empirical framework. Our findings suggest that, in addition to the pull factors of the IFC, push or demand factors from the economies importing financial services from the IFC are also important. The rise of Mainland China represents a potentially important push factor for the demand for financial services exports from Hong Kong, and hence its status as an IFC.
    Keywords: International financial centre, financial services exports, financial sector FDI
    JEL: F21 G15 G28
    Date: 2007–09
  7. By: Cho-Hoi Hui (Research Department, Hong Kong Monetary Authority); Tom Fong (Research Department, Hong Kong Monetary Authority)
    Abstract: The empirical results show that after the introduction of the three refinements to the Linked Exchange Rate system in May 2005 the Hong Kong dollar follows a bounded process that is consistent with a fully credible exchange rate band. The bounded process will limit the movements of the exchange rate to between the strong- and weak-side limits because its variance vanishes at the Convertibility Undertakings making it inaccessible to the limits. The Hong Kong dollar does not show any strong tendency to revert towards the centre of the Convertibility Zone. This is perhaps not surprising as there have been no interventions in the foreign exchange market since May 2005. There may be few forces or incentives for market participants to drive the exchange rate towards 7.80.
    Keywords: Linked Exchange Rate system, target zone, mean reversion, bounded process
    JEL: F31 G13
    Date: 2007–09
  8. By: Hans Genberg (Research Department, Hong Kong Monetary Authority); Dong He (Research Department, Hong Kong Monetary Authority)
    Abstract: In this paper we show that monetary policy frameworks in the East Asia and Pacific region are heterogeneous, with exchange rate policies being subordinate to domestic price stability objectives in most regional economies. We then argue that in this environment it is undesirable to focus regional cooperation on exchange rate policies because of the risk of creating conflicts with domestic objectives that would lead to loss of central bank credibility and possibly speculative attacks. We also argue that the case for coordinated exchange rate policies is in fact weak, even after taking into account the region¡¦s traditional emphasis on export performance and increasing regional trade integration. Rather than focusing cooperation on the setting of policy instruments, we suggest an alternative that centres on developing more liquid financial markets in the region in the foreseeable future, and on harmonising the objectives of monetary policy and designing institutions that could form the basis of deeper forms of cooperation in the longer-term future.
    Keywords: Regional monetary cooperation, exchange rate coordination, East Asia
    JEL: E42 F33 F36
    Date: 2007–11

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