Financial Reform In China Research Articles

China Railway Construction Corporation (CRCC) and African Development

To talk about Africa’s economic development without referring to infrastructure investments made by large Chinese corporations would be to deny the changes in international cooperation between the countries of the Global South. An economic and political project of the People’s Republic of China, whose strength base has been a Big Government and Big Bank accompanied by economic and financial reforms and a long-term imperial vision, the central hypothesis in Hyman Minsky’s work that underlines the importance of public companies and the exercise of a monetary and fiscal policy focused on employment creation with a significant expansion of capital exports. The Great International Financial Crisis (GIFC) strengthened under the Belt and Road Initiative (BRI) along with a social reproduction process of the State capital with a long-term global vision explains the great Chinese corporations. In this essay, we will demonstrate the positioning and growth of large Chinese corporations, interrelated with profound economic and financial reforms in China since the 1980s. Firstly, the focus will be the investments of China Railway Construction Corporation (CRCC) globally; secondly, there will be a brief account of the investment projects on the African continent; lastly, we will pay particular attention to the institutional investors participating in the CRCC.

Does Shanghai International Financial Center Promote RMB Internationalization?

The construction of the Shanghai International Financial Center was completed in 2020, which signaled the new age of financial reforms in China. The Shanghai International Financial Center plays a significant part in the progress of RMB internationalization. However, empirical proof of the impacts remains few. So, we conducted an empirical analysis to determine if the Shanghai International Financial Center promoted RMB internationalization effectively. To obtain robust results, we conducted regressions with Newey–West standard errors, Cochrane–Orcutt estimation, and Prais–Winsten estimation. We observed that the Shanghai International Financial Center has significant positive effects on RMB internationalization by expanding financial scale and activity. The findings give adequate evidence to support the theories advanced in prior research, and the methodology and indicators used in the study may serve as a guide for future research. We made several policy discussions of the findings regarding the continued expansion of the offshore market and capital liberalization within Shanghai.

Capital Market Liberalization and Investment Efficiency: Evidence from China

For this study, we adopted a recent financial reform in China and used a difference-in-difference model to investigate its impact on corporate investment efficiency. The results indicate that stock market liberalization has significantly improved corporate investment efficiency, primarily by restraining overinvestment. This effect exists chiefly in enterprises without former foreign ownership, those with low analyst coverage, and those that are privately owned. Further analysis reveals that improvements in corporate information disclosure and the corporate governance level are important transmission channels for improved efficiency. This study enriches research on the economic consequences of capital market liberalization and foreign investors’ governance channels, thereby providing implications for governments.

The Influence of Interest Rate Liberalization on Commercial Banks and Its Countermeasures

<p>The liberalization of interest rate is an important part of the financial reform in China under the current economic situation, and it is the inevitable result of the economic development of China to a certain extent. With the deepening of interest rate liberalization reform in China, commercial banks have been affected to a certain extent; the deposit and loan spread, which accounts for the main income of commercial banks, has been narrowed, and the profit space of commercial banks has been further reduced. Therefore, this paper discusses the impact of interest rate liberalization on commercial banks and the choices that commercial banks should make under this situation.</p>

Mutual Fund Herding and Return Comovement in Chinese Equities

This paper explores the role mutual fund herding plays on the return comovement in Chinese equities. The results show that mutual fund herding significantly reduces the return comovement among Chinese stocks, providing evidence for the existence of a rational herding behavior by mutual funds. We find that the negative effect of mutual fund herding on return comovement is larger for stocks with low volatility and high mutual fund ownership. We also observe that mutual fund herding has a stronger impact on return comovement after the implementation of financial reforms in China in 2011 which allowed all shares to be traded freely among all market participants.

Financial frictions, entry and growth: A study of China

With a focus on the entry channel, this paper investigates the role of business deregulation and financial reform in China's credit and stock markets in explaining the rapid economic growth of China over the past twenty years. A dynamic general equilibrium growth model with heterogeneous consumers and firms is developed. Quantitative results using firm-level data show that the structural reforms that facilitated business formation and growth led to significantly higher aggregate output. This was driven by resource reallocation resulting from stronger market competition, in particular caused by the massive influx of new firms. Policy analysis shows that further reform could also have a large impact.

Financial Reform with Chinese Characteristics

This essay reviews Financial Institutions and Development in China, by Satyananda J. Gabriel. In this book, the author studies the role played by the financial system in China’s economic expansion and in the gradual transformation of that sector. The author’s description of the financial sector is detailed and the information he provides is useful in picturing the various parts of the Chinese financial system. The author also raises important questions regarding financial reforms in China and how they have shaped capital accumulation. However, he falls short of his ambitious goal of elucidating the role of the financial sector in the Chinese expansion. There are important issues with the organization of the book, the analytical framework used, and the evidence or arguments brought forward to support many of the book’s claims. As such, the reader is left without satisfactory answers to many of the intriguing questions raised in the book.

Risk spillover effects of international crude oil market on China’s major markets

This paper systematically evaluates the influence of international crude oil risk on Chinese macro-financial risks, by quantifying risk spillover effects from international crude oil market to China’s three major markets (stock, foreign exchange and commodity markets). Specifically, this paper initially calculates the risks of international crude oil market and China’s three major markets by adopting a conditional autoregressive value at risk (CAViaR) model, then the spillover index is used to capture the risk spillovers from international crude oil market to China’s major markets. The empirical results indicate that there exists significant heterogeneous risk spillover effects transmitted from international crude oil market to China’s three major markets. To be more specific, the risk derived from international crude oil market is always a dominant driving force of risk in China’s commodity market. However, the shocks of global oil risk do not affect much of the risks of China’s stock and foreign exchange markets in general. In addition, our results further report that international oil risk has considerable effects on China’s macro-financial risks during several specific periods, which can be attributed to several major events. Specifically, the risk spillovers originated from international crude oil market remarkably contribute to the risk of China’s commodity market during the period of global financial crisis. International crude oil risk makes great contribution to the risks of Chinese stock and foreign exchange markets, when several global notable events occur as well as major financial reforms in China are implemented. The empirical results have significant implications for policy-makers and market participants.

The Impact of the Global Financial Crisis on China's Banking Sector

The banking sector had long been left at the fringes of China's reform policies. Major initiatives of the 1990 and early 2000s helped to balance the need for modernization and internationalization with the objective of preserving political control. When the Global Financial Crisis (GFC) erupted in 2007, it hit the Chinese economy but predominantly in its export sector and much less in its financial sector. Yet when exports collapsed and factories closed in the winter of 2008/2009, the Chinese leadership implemented an ambitious stimulus program and used its leverage over the financial sector to re-start economic growth. These factors – GFC and domestic stimulus – created a series of intended and unintended outcomes. Financial reform in China entered a new stage signalling a profound change in China's banking sector. These changes follow two sometimes contradictive, sometimes mutually reinforcing reform dynamics of top-down policies and bottom-up innovation. In this article we follow an institutional approach and discuss the intensified participation of China's big banks in the Go Out strategy, followed by a shift in the pattern of lending. One factor in this change is the rise of shadow banking and particularly an explosive growth in internet-based financial services. Thus, while the initial reaction to the GFC re-emphasized direct, top-down state involvement in the banking sector, the outcomes of the GFC, China's policies and business innovations have facilitated profound bottom-up changes.

Inclusive Finance’s Internal Need: Serving Vulnerable People

Developing inclusive finance plays an important role in achieving one objective of the 13th five‐year plan for advancing financial reform in China.

Implication of Financial Reforms in China and Vietnam for North Korea

North Korea’s financial system is based upon a mono-banking system, centered on the Central Bank of the DPRK. The Central Bank of the DPRK serves diverse functions - aside from financial activities, it also acts simultaneously as a central bank and a commercial bank. From the experiences of China and Vietnam’s financial reform, we draw several implications for North Korea. With the enactment of the Central Bank Law and Commercial Banking Law, North Korea has already laid the institutional foundations for financial reform. What matters is to draft and carry out specific plans for implementation, create an environment conducive to its enforcement, and to continuously put the plan to practice. It is imperative to ensure the explicit prohibition of financial asset provisions via the central bank, to guarantee the smooth transition to commercial banks taking on the primary role in savings and deposits, to acquire substantive tools for currency and foreign exchange market operation, and to stimulate both the capital and foreign currency markets.

(Implication of Financial Reforms in China and Vietnam for North Korea)

Korean Abstract: 북한의 금융시스템은 중앙은행 중심의 일원적 은행제도(monobank system)에 기초하고 있다. 조선중앙은행은 재정활동과 더불어 중앙은행기능과 상업은행 기능까지 수행하고 있다. 이러한 기본 틀은 고난의 행군, 화폐개혁 등을 거치면서 국가통제력의 약화, 시장경제 영역의 확대와 함께 적지 않은 변화를 겪었다. 중앙은행의 자금공급기능은 약화되었으며, 그 틈새로 사금융이 자리를 잡고 있다. 특히, 2009년의 화폐개혁에 이은 물가와 환율 급등으로 북한 원화와 금융기관에 대한 신뢰가 추락하였으며, 달러라이제이션(dollarization) 현상이 심화되고 있다. 이처럼 북한에서는 민간부문의 저축이 금융기관을 통해 기업의 투자재원으로 공급되는 금융 본연의 기능이 작동하지 못하는 데다 핵 문제 등으로 국제금융시장 접근도 불가능하여 경제발전을 위한 내·외자 동원이 난관에 봉착해 있는 실정이다. 북한은 최근 들어 내자동원의 중요성을 인식하고 나름대로 예금 증대와 외화 흡수수단을 강구하고 있는 것으로 보인다. 또한 중앙은행법, 상업은행법 등을 제정하여 이원적 은행제도의 이행의지를 내비치기도 했다. 그러나 북한의 현 상황은 일부 금융 운용방식 변경이나 제도 개선만으로 해결될 수 없으며, 금융이 경제발전을 견인하기 위해서는 근본적인 개혁이 필요하다. 본고에서는 중국과 베트남의 금융개혁 경험을 분석함으로써 북한의 금융개혁에 주는 시사점을 모색하고자 하였다. 이를 위해 북한의 현 금융상황 파악과 함께 중국·베트남의 금융개혁 과정을 개혁이전부터 초기 제도정비기까지에 초점을 맞추어 구체적으로 살펴보았다. (후략)English Abstract: North Korea’s financial system is based upon the mono-banking system centered around the Central Bank of the DPRK. The Central Bank of the DPRK serves diverse functions - aside from financial activities, it also acts simultaneously as a central bank and a commercial bank. Such framework, however, underwent considerable changes with events such as the Arduous March and the monetary reform in 2009, along with weakening of state control and increase in marketization. The Central Bank’s function of providing capital has attenuated, with private finance filling the gap. Especially, the 2009 monetary reform triggered a spike in both the price level and exchange rates, sparking the disbelief towards the North Korean won and financial institutions as well as worsening the dollarization trend. North Korea is facing challenges in utilizing domestic and foreign capitals to foster economic growth. The financial sector which is supposed to channel private saving into investment through financial institutions is malfunctioning, and North Korea’s nuclear issues makes it incapable of accessing the foreign finance market. North Korea seems to know the significance of domestic finance in stimulating the economy, and is seeking to foster savings and absorb foreign capitals. The Central Bank Act or the Commercial Banking Law also indicates the nation’s willingness to move towards the two-tier banking system. However, North Korea’s current situation cannot be resolved merely through a partial change in operational methods nor through institutional adjustments and therefore a fundamental change is necessary in order for the financial system to fulfill its role as a catalyst for economic progress. This research aims to use China and Vietnam’s experience of financial reforms to draw out implications for North Korea’s financial reform. Along with an analysis about current North Korea’s situation, we focus on China and Vietnam’s reform process, specifically from pre-reform to early institutional settlement phase. (the rest omitted)

Explosive bubbles in the US–China exchange rate? Evidence from right-tailed unit root tests

In this article we apply novel right-tailed unit root (sup Augmented Dickey-Fuller (SADF) and generalized sup ADF) tests to the China–US exchange rate. The empirical results document that the recent financial crisis in 2008 may be preceded by early warning signs of exuberance. Using the SADF test, evidence of an explosive behavior in the nominal exchange is found from 2005 onwards. This period coincides with both financial reforms in China and early indications of an impending US crisis that both have been reported in the literature. Our findings suggest that such an explosive behavior may be attributable to differences in the relative prices of traded goods. Policy implications are also derived.

The social order of Chinese capitalism: socio-economic uncertainty, communist party rule and economic development, 1990–2000

China's financially repressed economy remains characterized by a distinctly resilient political structure (the Chinese Communist Party, CCP) that penetrates both increasingly rational ‘private’ (market) and ‘public’ (state) organizations. How are we to understand the financial system's role in this persistently illiberal yet marketizing political economy? This paper develops a theory of China's financial reform as the management of socio-economic uncertainty by the CCP. Since the early 1990s, the financial system has formed a locus of the CCP's capacity both to manage and to propagate socio-economic uncertainty through the path of reform. The unique path of financial reform in China should thus not be viewed solely in terms of ‘partial’ or ‘failed’ free-market reform, but rather as the product of a more concerted vision of how the financial system enabled a mode of economic growth that combined the drive for accumulation of capital with the distinctive legacies of China's post-1989 socio-political circumstances.

Tumbled Stock Market, RMB Devaluation and Financial Reform in China

Introduction To Chinese officials who are in charge of financial reform, the summer of 2015 has been disturbingly eventful. China’s stock market has plunged since mid-June after months of sharp rise. In less than three months, the Shanghai Stock Exchange (SSE) Composite Index dropped from 5,166 point on 12 June to 2,927 point on 26 August, representing a 43% drop in stock value. The RMB devaluation in August took global investors and international trading partners by surprise, causing an unin...

The effects of domestic and international news and volatility on integration of Chinese stock markets with international stock markets

This paper provides a comprehensive and up-to-date analysis of time-varying return co-movements between Chinese stock markets and stock markets in the USA, UK, France and Japan by employing smooth transition conditional correlation (STCC-GARCH) and double smooth transition conditional correlation (DSTCC-GARCH) models with specific emphasis on the role of domestic and international news and volatility. Unlike earlier literature, we reveal that there are noticeable rising trends in conditional correlations among these markets particularly following the financial reforms in China. Moreover, the empirical results of DSTCC-GARCH specifications with time and various volatility measures generally indicate that the correlations increase, not only over time but also during calm periods, suggesting that Chinese stock markets may be safe harbors during global financial crisis.

Financial deepening and income inequality: Is there any financial Kuznets curve in China? The political economy analysis

The interconnectedness of financial deepening and income inequality has been a highly controversial discussion which has not been concluded despite many empirical and theoretical studies up to date. One of the basic building blocks for many research designs is the reliance upon the Kuznets inverted U-shaped curve which postulates that in the first phase of economic growth income inequality increases, peaks and then decreases to a tolerable level in the later phase after a certain income level had been attained. The role of financial deepening in financing economic growth is an indispensable and necessary condition enabling us to easily draw an analogy between financial deepening and income inequality in a financial version of the Kuznets curve. In spite of 30 years of economic and financial reforms in China, which represents a fairly young history of economic growth and development, there are many indicators that Chinese experience significantly deviates from the presupposed inverted U-shaped curve trajectory and its final equalizing effect. This paper relies on financial deepening data measured by monetary aggregate M2/GDP and domestic banking credit/GDP ratios in its claim that they significantly correlate with rising income inequality. The author’s intention consists not in claiming that financial deepening per se causes income inequality, but provides a political economy analysis of the specific institutional and power configuration which leads to their positive relationship. This configuration is determined by the prevailing banking model, the hukou system, financial repression and the decentralized authoritarian system. On the other hand, the absence of inequality-narrowing institutitons further aggravate the problem. All the aforementioned factors are geared at avoiding mechanical and spurious claims that financial deepening increases or decreases income inequality across countries. A historical institutionalism approach to explain China’s path related to the Kuznets curve prediction shows the central validity of open and inclusive institutions in generating inequality-narrowing benefits of financial deepening.

The Internationalization of the RMB, Capital Market Openness, and Financial Reforms in China

This paper provides an overview of Chinese financial and trade integration in recent decades, and the challenges facing China in the coming years. China had been a prime example of export-led growth, benefiting from learning by doing, and by adopting foreign know-how, supported by a complex industrial policy. While the resultant growth has been spectacular, it comes with hidden but growing costs and distortions. The Chinese export-led growth path has been challenged by its own success, and the Global Financial Crisis forced China toward rebalancing, which is a work in progress. Reflecting on the internationalization of the CNY, one expects the rapid accelerating of the commercial internationalization of the CNY. In contrast, there are no clear-cut reasons to rush with the full CNY financial internationalization: The gains from CNY financial internationalization are overrated.

Research on Evaluation Index System of Risk Management Capacities of Private Banks in China

With the gradual deepening of financial reform in China, the development prospect of private banks is bright. However, the fierce competition in the banking sector and the nature of the private banks themselves make them face complex and diverse risk. Thus, it’s particularly important to construct a reasonable evaluation index system of risk management capacities of private banks to reach an objective and clear evaluation of risk management level.

Rural Financial Reform in China: Progress Made and the Path Forward

Significant progress has been made in reforming China's rural financial system. Nevertheless, the current institutions are unable to meet the multilayered and diversified demands for rural financial services. Establishing a comprehensive and efficient rural credit system to support the dynamic
 commercial sector of the rural economy, small-scale farming and small and medium-size enterprises is the major challenge in China. This article identifies bottlenecks and suggests policies to develop a well-functioning and sustainable agricultural and rural financial system that would address the diverse needs of the rural and agriculture sectors. To preview the policy recommendations, attention should be given first to legislation and supervision, and then to the corporate governance structure of financial institutions.