China’s Path to Financial Reform

8/11/2019 Chinas Path to Financial Reform

1/39WWW.AMERICANPROGRESS.O

Chinas Path to Financial Reform

Looking Beyond the Market

By Adam S. Hersh October 2014


2/39

Chinas Path to Financial ReformLooking Beyond the Market

By Adam S. Hersh October 2014


3/39

1 Introduction and summary

7 Context for Chinas financial reform

11 Chinas financial trilemma

15 Shifting trilemmas? Moving Chinas exchange rate

and interest rates

23 Financial reform versus financial stability and rebalanci

27 Recommendations: How China can rebalance

30 Conclusion

31 About the author

32 Endnotes

Contents


4/39

1 Center for American Progress | Chinas Path to Financial Reform

Introduction and summary

Las year, Chinas poliical leaders se orh an ambiious and unolding agenda

or financial reorm as par o a broader naional economic sraegy o srucural

rebalancing oward more domesic demand and innovaion, as well as a more

environmenally riendly and more equiable economy.

Tese goals are no new or China bu raher have persised across decades o Chinas

five-year plans. Wha is new is Chinas poliical leadership, and new leaders have

offered a sweeping vision ha ses an ambiious agenda o advance he nex waveo reorm in Chinas long evoluion rom a cenrally planned economy ha began

in 1978. In he November 2013 18h Pary Congress Tird Plenum Decision

which is a once boh a governing policy documen and a poliical saemen

similar o he Sae o he Union addresshe parys Cenral Commitee called

or reorms across virually all aspecs o sociey and pledged ha he economy

should embrace a decisive role or he marke.1Nearly one year laer, he scope

and inenion o hese reorms are saring o come ino ocus.

Cenral o he reorm agenda, and a he hear o is unbalanced economy, is

Chinas sae-dominaed financial sysem. An economys financial insiuions are

undamenal o is economic success, aciliaing he invesmens ha yield he

higher produciviy and innovaion ha lead o economic growh and rising living

sandards. A he mos basic level, financial insiuions do wo hings ha deermine

he quaniy and qualiy o invesmen: Tey provide a means or collecing savings

and selecing he projecs in which o inves hose savings, and hey provide

corporae governance and legal sysems o make sure hose invesmens are being

effecively used.

Unorunaely, Chinas financial insiuions are alling shor on boh hese rons,and he pervasive role o he sae in hese core uncions creaes considerable

srucural ineria ha is likely o keep hings his way or Chinas oreseeable uure.

Sae-owned banks conrol 57 percen o Chinas banking-secor asses, and sae-

owned enerprises accoun or more han 90 percen o he capial raised in Chinas


5/39


corporae bond marke.2Te legacy financial insiuions inheried by Chinas

leaders creae disorions [in] he sysem a every level ha pose dauning

challenges or reorm.3Whas more, even as he sae may be seen o pull back,

because o is compulsive power over hose people and businesses wihin he

counry, Beijing sill has subsanial reedom o se policies ha affec how

virually all oher social insiuions uncion.4

o undersand he challenges China aces in approaching financial reorm, his

repor firs considers Chinas posiion wih respec o he inernaional financial

rilemma. Economic heory suggess ha a counry can atain a mos wo o he

ollowing hree economic policy goals: macroeconomic policy auonomy; a sable,

fixed exchange rae; and open, deregulaed inernaional capial flows.5

China presenly orgoes he hird opionree capial movemenand insead ops

o have he abiliy o conduc is economic developmen sraegy and mainain a

fixed exchange rae or is currency, he renminbi, or RMB, which provides financialsabiliy and promoes expors. In many ways, his ormulaion o he rilemma

provided he oundaion or Chinas hisoric economic ransormaion. Bu i also

creaed coss and now consrains Chinas uure economic developmen and limis

is abiliy o escape he middle-income rap.6Realizing hese problems, he Chinese

governmen las year pledged o open he domesic economy o inernaional capial

flows and o shif oward marke-deermined ineres raes and oher financial

pricesbu gradually and wih significan limiaions and consrains.

Given he rilemma, by choosing o adop he hird opion, economic heory

suggess China will also need o choose o give up eiher independen moneary

policy or a fixed exchange rae. Leaders and op economic policymakers have se

clear inenions o open Chinas capial accoun and o hal direc policy inervenions

in seting ineres raes, he exchange rae, and prices or oher asses and financial

services. Bu Beijing esablished ha changes will ake place gradually over he

nex decade, and policymakers do no ye have a clear pah o ha end.7

A decisive role or he marke in Chinas financial sysem will be difficul o achieve

given he pervasive reach o Chinas one-pary poliical srucure and exensive

sae ownership across he economys financial and nonfinancial secors. As NobelPrize-winning economis Joseph Sigliz wries, Marke Socialiss were misled

ino hinking ha hey could ge all he advanages o he marke economy simply

by using he price sysem.8Te ubiquiy o he pary-saes roos hroughou he

economy creaes a decision-making mechanism ha exiss in parallel o marke


6/39


mechanisms or deciding invesmens worh. Tese compeing nonmarke

insiuions disrup marke-price discovery by corruping he economys micro-

level choices abou which invesmen projecs o choose and on wha erms

financial resources will flow.

In oher words, Siglizs observaion is ha a marke-based financial sysem needsmore han jus ineres and exchange raes ha floa wih supply and demand, as

nonmarke mechanisms will skew no only ineres raes bu also who ges o borrow,

lend, and conrol he invesmens ha amoun o ully hal o Chinas gross domesic

produc, or GDP.9o work effecively, a marke-based financial sysem also requires

open, ransparen public and corporae governance sysems and robus prudenial

regulaions o reeree compeiion and o keep he sysem rom crashing. Insiuing

hese and broader changes are necessary o address srucural problems in Chinas

financial sysem ha sand in he way o economic rebalancing and ataining

Chinas nex sage o economic growh. Skipping over hese seps will pose problems

or China.

Capial accoun opening and ineres rae liberalizaion wihou corporae governance

and regulaory reorms in Chinas sae and privae secors will no lead o marke-

deermined ineres raes in eiher bank lending or Chinas corporae bond markes.

Raher han reflecing supply and demand condiions, decisions abou how much o

lend, how much o borrow, and he perceived risk o an invesmen are made hrough

discree unis o Chinas exising sae-owned financial and nonfinancial enerprises.

For Chinas exchange rae, oo, i is no clear ha markeizaion will bring he desired

effecs o economic rebalancing. In ac, capial accoun opening is likely o move

Chinas exchange rae in he wrong direciondepreciaing agains he U.S. dollar

raher han appreciaing oward a balanced leveleven i moneary auhoriies

were o rerain rom using heir resources and ongoing capaciy o manage Chinas

exchange rae. Increasing capial flows ino and ou o Chinas economy will srain

he financial sysems abiliy o channel capial ino producive invesmens. I will

also limi policymakers abiliy o manage sysemic and macroeconomic sabiliy,

exposing China and he global economy o real risk o banking and financial crises

like so many oher developing counries.

Wheher China is ready or such a marke financial sysem, leaders have chosen o

move ahead wih financial liberalizaion and capial accoun opening. Te quesion

now is how and a wha pace China will do his. Tis repor provides a survey o

he challenges in Chinas financial sysem and explores Chinas ambiious and


7/39


unolding agenda or financial reorm and srucural rebalancing oward an economy

ha is more domesic-demand driven, ueled by innovaion, more environmenally

susainable, and more equiable.

Te repor concludes by offering a series o seps boh Chinese policymakers and

global leaders can ake o shepherd China along he pah o he economic rebalancingand reorm needed or China o develop and inegrae urher ino he world

economy. Tese recommendaions include:

Building Chinas oundaion or inclusive growh

Prioriizing corporae governance reorm

Rebalancing global exchange raes

Seting a high sandard or Chinas reorm effors and global commercial norms


8/39


Key economic concepts

International balance of payments:a system of national accounts that measures all of an

economys international monetary transactions in a given time period, usually quarterly. The

accounts include all transactions conducted by private- and public-sector entities and are

traditionally divided into:10

Current account transactionsfor the sale of exported and imported goods and services

and the transfers and payments of incomes outside the jurisdiction where they are earned.

Capital account transactionsnow designated as the financial account in official

statisticswhich measure the flows of cross-border investments and liabilities divided

among the following three classifications of flows:

Direct investment flows,which involve the acquisition of a controlling interest in foreign

businesses. The Organisation for Economic Co-Operation and Development and the

International Monetary Fund, or IMF, define direct investment as ownership equal to or

exceeding 10 percent; Chinas statistics define direct investment as ownership equal to or

exceeding 25 percent.11

Portfolio investment flows,which include share ownership not exceeding the direct

investment threshold and investment in other financial assets including bonds, derivatives,

and direct lending and borrowing.

Official investment flows,whichinclude the purchase and sale of financial assets by state

and quasi-state bodies, typically for official foreign reserve holdings.

Based on the accounting identities, the capital account balance will be equal to and opposite

of the current account balance.12

Interest rate parity:In open, competitive markets, the price of capital in different economies

the interest rates at which one can borrow money in different marketsshould tend toward

one set of prices for assets depending on the loans risk level and length. If price differences

exist between markets, profit opportunities from arbitragetaking advantage of small price

differences across markets by borrowing in one market where prices are slightly lower to

lend in another market where prices are slightly higherwill lead investors to jump into themarket. Buying assets or borrowing money in the lower price market will drive up prices

there, while selling or lending in the higher price market will drive down prices, with the

effect that both markets converge to the same price. Thus, market forces will tend to drive

interest rates and asset prices toward a common price, or parity, excepting for different


9/39


transaction costs across different markets. In practice, the parity condition may not always

hold in day-to-day markets, but it tends to hold when considering interest rate forward and

futures prices, a more specific condition known as covered interest parity. Consistent

deviation from interest rate parity conditions indicates a financially closed economy.

Capital controls:Governments may institute a range of policies to regulate the cross-borderflow of financial investment. Some of these may serve as part of an overall approach to

prudential regulation of the financial system, but capital controls also enable policymakers

to conduct development- and export-targeted macroeconomic policies. This provides

favorable investment terms and exchange rates. The IMFs and World Trade Organizations

Articles of Agreement require financial flows for trade transactions in the current account to

be freely convertible.13

Exchange rate peg:This refers to a macroeconomic policy that fixes a currencys exchange

rate to one or more other currencies. Fixing can be achieved through policy fiatthough

this typically leads to black market trading. More commonly in the modern incarnation,

monetary authorities achieve fixing by intervening in foreign exchange trading to buy and

sell currency at levels sufficient to maintain a stable exchange rate. So long as monetary

authorities control enough resources to be able to out buy, out sell, or at least out bluff other

traders on the market, an exchange rate peg can be maintained. Countries can peg their

currencys exchange rate to one currency or to a weighted average of other currency

exchange rates, known as a basket exchange rate peg.

International financial trilemma:International economic theory establishes that countries

can attain at most two of the following three goals of economic policy: (see Figure 1)14

1. Macroeconomic policy autonomy, which is the power to print money and the ability to

shift interest rates for macroeconomic management or development purposes.

2. A stable, managed exchange rate set by policy interventions rather than by market forces

of supply and demand.

3. Free capital movement, or the open movement of financial flows in the countrys

international capital account.


10/39


Context for Chinas financial reform

For Presiden Xi Jinping and Premier Li Keqiang, managing Chinas economic

reorm agenda is a bi like flying a commercial jeliner while he engineers are sill

designing and building he criical engine upgrades. Tese reorms are, in he words

o Peoples Bank o China Governor Zhou Xiaochuan, carried ou as online repairs

o he complex web o social and economic relaionships ha make up he engines

ha power Chinas economy.15Perhaps he mos dauning iem on he lis o heir

reorm agenda is reorming Chinas sae-led financial sysema sysem ha

Universiy o Caliornia, San Diego, economis Barry Naughon says inroducesdisorions ino he sysem a every level.16

Chinas leaders pledged in November 2013 o open he domesic economy o

inernaional capial flows and o shif oward marke-deermined ineres raes

and oher financial pricesgradually. Bu in order o reool he legacy, sae-led

economic model o one where he marke plays a decisive role, rue financial

reorm mus do more han jus open Chinas capial accounhe collecion o

inernaional invesmens ino and ou o a naional economyand erec acades

o a modern financial sysem. Chinas leaders mus ackle a broad array o issues as

par and parcel o a comprehensive approach o rebalancing oward domesic,

demand-led growh.17

Chinas financial sysem has come a long way since financial reorms began in he

mid-1980s. Tese reorms broke up he monobank Peoples Bank o China, or

PBOC, ino a cenral bank wih responsibiliy o manage moneary policy, and hey

creaed a sysem o separaely adminisered sae-owned commercial banking

eniies.18Noneheless, Chinas financial sysem sill operaes under a raher differen

se o insiuions, principles, and norms han hose in developed economies.


11/39


Te exchange rae mechanism or Chinas currency, he renminbi, is currenly hard

pegged o he U.S. dollar, hough auhoriies have allowed he level o he peg o

crawl gradually upward. While reorms are poised o experimen wih relaxing

exising ineres rae conrols, boh he level o savings and he demand or credi

are driven by orces oher han ineres raes, including:

Households in China, which exhibi he highes savings rae in he world despie

earning a negaive ineres rae on heir savings afer inflaion19

Sae-owned financial insiuions ha comprise more han 92 percen o Chinas

banking sysem and disperse credi hrough ulfilling policy-guided lending,

raher han by weighing poenial risks and rewards20

Sae financial insiuions, which also dominae Chinas developing capial

markes, lending direcly hrough bond markes largely o sae-owned and

quasi-sae enerprises in China, which amouns o more han 90 enerprises

Sae-owned and quasi-sae enerprises ha similarly dominae Chinas corporae

secor and also save oo muchearning profis rom heir ofen monopolisic

posiions and privileged access o economic resources bu unobligaed o disribue

earnings o shareholders due o weak corporae governance sysems

Simple liberalizaion o ineres raes and he exchange rae will no address he

undamenal disorions nor, on heir own, lead o a decisive role or markes in

Chinas financial economy. Mos financial insiuions balance shees ulimaely ie

back o he Minisry o Financewhich simulaneously plays he roles o primary

owner, regulaor, and ulimae guaranor o Chinas financial sysem. Addiionally,

mos o he lending in Chinas financial sysem flows o sae, quasi-sae, and oher

relaional ransacions. Wihou deeper reorm, China will remain mired in he

cycle o inefficien invesmens, rising inequaliy, and he need or policymakers o

walk a razors edge beween inflaionary and sysemic sabiliy pressures.

Chinas leaders are all oo aware o he massive disorions creaed by he counrys

rigid financial sysem, he widespread coss i creaes, and he need o reorm o

rebalance he economy overall. Repors rom he Naional Developmen and ReormCommission, or NDRC, have sough o moivae reorm by highlighing Chinas

mulidimensional imbalances, driven by he counrys naional approach o economic

developmen. Tese severe imbalances exis, according o he NDRC, beween man

and naure, economy and sociey, he coasal and inerior regions o China, urban


12/39


and rural China, and China and he res o he world.21And he causic poenial

o hese combined imbalances underscores why Presiden Xi and Premier Li are

swinging or he ences wih heir reorm ambiions.

Economic reorm is good or China and good or he world. Bu sark incongruiies

exis beween he urgency or reorm, he pace a which Chinas leaders are willingand able o move reorms hrough domesic poliical consrains, and he urgency

wih which oher counries view Chinas curren economic growh model. Tere is

reason or prudence on boh sides. From he perspecive o he Unied Saes and

oher advanced-economy counries, i is imperaive ha as China reorms and

inegraes urher ino he world economy, i mees he high expecaions or open-

ness and ransparency in commercial conduc esablished by he global communiy

and ollows a high road o susainable and inclusive economic growh. Hence he

alphabe soup o bilaeral and mulilaeral rade and invesmen agreemens ha

he Unied Saes, he European Union, and oher groups o counries are racing

o negoiae wih China.

Bu rom Chinas perspecivewhere he 1839 Opium War and resuling reay

o Nanjing pass or recen rade policy hisoryhe experience o he 1997 Asian

Financial Crisis undersandably looms large or Chinese policymakers. Chinas

leaders would no readily accep he loss o policy auonomy o oreign elemens,

financial urmoil, and prolonged economic sasis ha enguled neighbors such as

Tailand, Souh Korea, and Indonesia during he crisis. And he hisory o oher

counries ha have walked Chinas curren pah oward financial opening is replee

wih hose ha have been dashed on he shoals o global financial markes.22

Chinas neighbors and many oher small counries had financial sysems ha proved

ill equipped o handle he wave o shor-erm, ofen highly speculaive money inflows

rom overseas invesors, leading o misallocaing finance heavily ino invesmens

ha uel financial bubbles. Tis ineviably caused a sudden sop o capial and a

wave o ho ouflows when marke expecaions or global condiions shifedan

oucome or which China is also a prime candidae and ha i should seek o avoid

as i approaches financial reorm.

o insiue a decisive role or Chinas financial markes, PBOC Vice Governor YiGang, a member o he op-level Cenral Leading Group or Financial and Economic

Affairs, explained policymakers inended approach o sequence financial reorms.

Firs, he says, You have o, in a bold ashion, liberalize he exchange rae [Ten]

[y]ou can do some cauious, sep-by-sep ineres rae liberalizaion.23In May, a


13/39


senior PBOC researcher oulined plans o make Chinas currency ully converible

by he end o 2015, hough elsewhere leaders suggesed ull capial accoun opening

migh happen by 2020.24No only is his a bi opimisic on iming, bu more

imporanly, he plan reverses he pruden sequencing o reorms. As Sanord

economis Ronald McKinnon explains, When uure exchange raes are unknown,

an efficien inernaional capial marke canno exis because cerain key risks cannobe hedged.25Tis condiion, McKinnon demonsraes, means ha governmens are

compelled o manage he exchange rae in order o ensure macroeconomic sabiliy,

despie he ac ha his disrups marke-based uncions in he financial sysem.

By sheer graviaional orce, given Chinas size and growh rae, dreams or Shanghai

o become a major inernaional financial cenerwhere i rivals ohers o he world

in scale and scopewill surely soon come o pass. Tis, like oher milesones, will

ranspire well beore China qualiaively approaches inernaional norms o ranspar-

ency in financial accouning and corporae governance.

Chinas leaders need o pursue reorms simulaneously on muliple rons, many

seps o which will be difficul o discern rom he ouside. Bu several specific

oucomes will indicae real markers o wheher financial reorms are succeeding in

rebalancing China. Tese include:

I he financial sysem can redirec new invesmen flows away rom areas where

overinvesmen already exiss in Chinas economy and oward producive,

susainable invesmen

I China can conain is sysemically imporan financial insiuions while

opening credi o small and medium-sized enerprises, or SMEs

I China can build insiuions o ease he financial squeeze on households and

sar growing he economy on an environmenally cleaner, more economically

inclusive pah26


14/39


Chinas financial trilemma

In he early 1960s, economiss Rober Mundell and J. Marcus Fleming firs

showed ha counries could atain a mos wo o he ollowing hree goals o

economic policy: (see Figure 1)27

1. Macroeconomic policy auonomy, meaning he power o prin money and

he abiliy o shif ineres raes or macroeconomic managemen or develop-

men purposes

2. A sable, managed exchange rae, meaning a naions exchange rae se by policyinervenions raher han by marke supply and demand orces

3. Free capial movemen, meaning open movemen o financial flows in he counrys

inernaional capial accoun wihou resricions, axes, or oher capial conrols

FIGURE 1

The international trilemma forces policy choices

Economic theory: Countries can achieve only two of the following three goals

Source: Adapted from Joshua Aizenman, Menzie D. Chinn, and Hiro Ito, Assessing the Emerging Global Financial Architecture:

Measuring the Trilemmas Configurations Over Time. Working Paper 14533 (National Bureau of Economic Research, 2008), available at

http://web.pdx.edu/~ito/w14533.pdf.

China and the original

Bretton Woods system

Deregulated capital flows

Fixed exchange rateMacroeconomic policy

independence

Eurozone, Ecuador, and the

Argentinian currency board

United States, Canada,

and others


15/39


All counries all ino one corner o his rilemma. For example, he Unied Saes and

mos advanced economies currenly orego he second goal: a sable exchange rae.

Eurozone counries, in effec, have chosen o orgo he firs goal, macroeconomic

policy auonomy, by linking ogeher in a common currency ha ogeher achieves

he firs and hird goals. Counries ha adop ourigh pegs or index o a oreign

currencysuch as Argenina in he 1990s or Ecuador odayorego he firsgoal. China oregoes he hird goalan open capial accounoping or policy

auonomy and a fixed exchange rae insead. Hisorically, counries ha atemped

o achieve all hree policy goals ofen ell ino financial crisis, shown by he 1997

Asian Financial Crisis and Argeninas financial crisis in 2001.

o undersand how counries are bound by his rilemma, consider his economic

heory: Under open inernaional money markes, inernaional arbirage among

invesors will push each counrys ineres raehe price o capial in each respecive

economyo he world ineres rae, allowing or specific risk acors ha exis in

differen counries. Here, global orces o supply and demand and invesors assess-men o he various risks drive he price o invesmen capialhe ineres rae

around he world.

Policies ha disrup he flow o capial ino and ou o naional economies, or capial

conrolsorgoing he hird opioncan drive a wedge beween he naional and

inernaional prices o capial ha creaes a space o make he firs opion possible.

Here, policymakers can subsidize he cos o invesmen and conduc wha ormer

World Bank Chie Economis Jusin Yiu Lin describes as a criical role or public

policies o aciliae indusrial upgrading and diversificaion o quickly develop

new domesic and inernaionally compeiive indusries.28Tis likely conribues

o he mispricing o capial in China, bu he effecs are negligible relaive o he

problem o invesmen-projec selecion and managemen arising rom corporae

governance problems in Chinas major financial and nonfinancial enerprises.29

Inernaionally compeiive indusries also bring he virue o earning hard-currency

oreign exchange ha can be used o manage a sable exchange rae, fixing i relaive

o oher world currencies and deending his peg rom he pressures o inernaional

financial radershe second opion. Mechanically speaking, moneary auhoriies

achieve such a peg by managing he volume o buying and selling heir currency inoreign exchange markes and having sufficien resources o be able o ou buy

or a leas ou bluffall oher raders in he marke. Tese hings allow moneary

auhoriies o mainain a sable marke price or he exchange rae and hereore o

mainain heir abiliy o ip he scales on ineres raes oo.30


16/39


Par o his equaion enails regulaing which playersincluding privae invesors,

companies, and public bodiescan bring money ino and ou o China, how much

hey can bring, and under wha condiions hey can bring i. Anoher par enails

how well he regulaions bind on he supply and demand or capial. While Chinas

economy is relaively open in erms o financial ransacions or rade, China ranges

rom resriced o ully closed in erms o financial ransacions or financial purposes.For inward porolio invesmen, Chinas leaders inend o ully open beween

now and 2020. Meanwhile, policymakers are already opening he floodgaes on

ouflows o direc and porolio invesmens overseas.

On he direc invesmen side, China plans o shif conrol o inward oreign

invesmen rom a posiive-lis regimeha indicaes which areas are accepable

or invesmeno a negaive-lis regime ha indicaes which areas are prohibied

or resriced or invesmen.31Already, reorm oward a negaive lis on oreign direc

invesmen, or FDI, is aking effec in he Shanghai Pilo Free rade Zone, which is

considered a es or naionwide adopion. Bu as ye, here seems o be litle pracicaldifference beween Chinas posiive- and negaive-lis approaches.32Examples o

resriced areas include invesmens in he manuacuring o consrucion equipmen,

which remain off limis o oreigners no operaing in a join venure wih a domesic

parner. Meanwhile, invesmens in movie heaers are resriced o oreigners oher

han Hong Kong and Macao residens.33As explored in oher research, his policy

and he drive o inves in Chinas economy can disadvanage oreign invesors in

business relaionships when i comes o compelling invesmen and ranser o

echnological advanages o Chinese parners.34

And while esablishing an enry ino Chinas economy may be a prioriy or oreign

invesors, oreign invesmen plays a relaively minor role in Chinas oal invesmen.

Alhough China was he worlds op FDI desinaion in 2013, he oal amouned o

a mere 2.9 percen o Chinas overall invesmen.35O Chinas FDI figures, economiss

esimae as much as one-hird is acually domesic capial ha invesors launder

hrough Hong Kong, Macao, and aiwan o pose as oreign invesmen in order o

gain preerenial ax reamen and legal proecions. Hong Kong, Macao, and aiwan

are consisenly he source o more han 60 percen o Chinas FDI inflows. O he

small overall amoun o FDI in Chinas invesmen, invesmens rom he Unied

Saes, Canada, and he European Union combined oal less han 10 percen.36

Wheher China can mainain a handle on he exchange rae as such wo-way capial

flows grow depends on wheher i can coninue o sway a deeper pool o oreign

exchange rading. Pressure on he capial conrol regime can be measured by he


17/39


degree o violaion o he ineres pariy condiionhe proposiion ha ineres

rae differenials beween counries will be driven oward equivalen reurns by

invesmen arbirage. Economiss a he Hong Kong Insiue or Moneary Research

and he Bank o Finland measure his pressure in Chinas covered ineres differen-

ial, where covered means an arbirage rader would hedge exchange rae risk

beween he renminbi and he U.S. dollar.37

Te researchers ound ha or China,he RMB covered ineres differenial is no shrinking bu widening over ime.

Bank or Inernaional Setlemens economiss Guonan Ma and Rober McCauley

concur, finding hadespie some leakage hrough illici capial flighChinas

abiliy o conrol capial flows remains subsanially binding.38


18/39


Shifting trilemmas? Moving Chinas

exchange rate and interest rates

Presenly, China ops or macroeconomic policy auonomy and a sable exchange

rae in he inernaional rilemma. Bu leaders and op economic policymakers have

made clear he inenion o gradually open Chinas capial accoun, as is now being

esed in he Shanghai Pilo Free rade Zone ha launched in Sepember 2013.39

Presumably, his would mean ha China mus pick a new corner in he inernaional

rilemmaeiher economic policy auonomy or a sable exchange rae.

Conrary o he Mundell-Fleming rilemma hypohesis, recen empirical researchby economiss Joshua Aizenman, Menzie Chinn, and Hiro Io shows ha some

developing-economy counries have been able o pursue a balanced approach o

all hree goals o he rilemma a he same imei hey can also mainain sufficien

levels o oreign exchange reserves.40In oher words, jus opening an economy o

capial flows isel is no a sufficien condiion or financial reorm and economic

rebalancing. Looking more closely a how financial prices are se in China reveals

how his can be he case wih ineres raes and he exchange rae.

Interest rates and capital markets

I is no clear ha simply opening he capial accoun o oreign borrowing and

relaxing domesic ineres rae conrols will achieve he marke-price discovery o

ineres raes ha Chinas financial sysem now lacks. Te sequencing o proposed

reorms in effec ges he order backward. Effecive pricing o he exchange rae by

marke mechanisms requires ha invesors ormulae clear expecaions abou he

erm srucure o ineres raesha is, wha ineres raes are charged or differen

levels o risk and or differen lenghs o ime. Te ineres rae erm srucure defines

he price o money, and hereore he level a which i should exchange wih ohernaional currencies given he ineres rae erm srucure and price levels in hose

oher monies. In China, however, he majoriy o financing or invesmenwheher

hrough radiional banking or direc lending or hrough he shadow-banking


19/39


sysemremains in he hands o sae-owned and sae-infleced paries. In hese

relaions, financial decisions are no necessarily based on he price o capial, and he

price o capial is no necessarily se by supply and demand in a compeiive marke.

As a resul, i is no surprise ha Chinas financial markes also remain noably

underdeveloped by inernaional comparison. Chinas sock marke capializaionamouned o jus 59 percen o gross domesic produc in 2011; his is in conras

o Souh Arica, where sock marke capializaion reached 145 percen o GDP in

2011.41Chinas financial auhoriies would love nohing more han o wean sae-

owned enerprises off o reliance on sae-secor financing and ono privae sources

o unds or invesmen, paricularly rom overseas. Tis is especially rue o oreign

ineres o finance Chinese companies hrough public share offerings, which are

resriced o shares ha do no carry voing righs or pay dividends, essenially

providing ree money o Chinese companies. While Chinese sharesin boh

domesic and offshore markesatrac a subsanial pool o capial, limied invesor

righs mean ha shareholders canno ulfill heir role in seting he price o capialand shaping firm governance hrough he mechanism o share prices. Credible

inormaion or guiding invesor decisions is also scarce in China. In January 2014,

sae pressures on accouning and audiing firms o alsiy financial records led he

U.S. Securiies and Exchange Commission o bar Chinese unis o major iner-

naional accouning firms rom conducing business or six monhs.42

Te corporae governance issues exend o he privae secor as well. o ake one

recen example, he leading Chinese online direc sales company JD.com recenly

raised $25 billion in a NASDAQ iniial public offering. Bu ounder Richard Liu, who

serves boh in he role o chairman and CEO, kep 83.7 percen o he voing power

despie owning only 18 percen o he companys equiy.43In he sae-owned secor,

only a minoriy o shares or lised firms are available on he open marke, meaning

ha he saedespie raising money rom he markesays in conrol. And in

Chinas corporae bond marke, i is acually local governmens ha are mopping up

more han 90 percen o all capial borrowed.44Raher han reflecing supply and

demand condiions, ineres raes in bank lending or in Chinas corporae bond

markes acor litle ino decisions abou how much o lend, how much o borrow, or

he perceived risk o an invesmen. Te banking and direc finance channels provide

mechanisms or moving capial beween discree unis o Chinas exan sae-ownedfinancial and nonfinancial enerprises. Corporae governance issues in boh Chinas

sae-owned and privae financial and nonfinancial corporaions will remain uzzy.

Even as he sae may be seen o be leting go, economis Lin reminds us, Because

o [he saes] compulsive power, he governmen has subsanial reedom o adop

policies ha affec he uncioning o oher insiuions in sociey.45


20/39


In April 2014, new Peoples Bank o China Chie Economis Ma Jun laid ou an

unofficial plan or China o liberalize ineres raes in seps: firs by esablishing a

cenral-bank-blessed benchmark ineres rae or inerbank lending and hen by

evenually liberalizing deposi and lending raes.46Bu his vision or reorm does no

deal wih he undamenal problems o inerwined policymaking, regulaory over-

sigh, and profi-maximizaion goals refleced in he predominance o sae-ownedfinancial insiuions on boh he buying and selling sides in Chinese financial

markes. Te individual balance shees o hese financial insiuions ulimaely ie

back o he Minisry o Financehrough ownership relaions as well as hrough

is role as ulimae guaranor o Chinas financial sysem. I is hereore inappropriae

o inerpre he buying and selling as open compeiion ha yields a price hrough

orces o supply and demand. As Peerson Insiue or Inernaional Economics

economis Nicholas Lardy observed, Te srange hing abou Chinas bond marke

now is ha mos o he bonds are acually purchased by he banks, so is a litle bi

difficul o differeniae beween bond financing and bank lending.47

New capial will sar flowing in and ou o Chinas financial sysem as China begins

experimening wih several es cases or nonsae financial insiuions. Chinas

leaders pledged o open up o privae banking, bu iniial seps will be limied o

our differen models argeed o es he waers in segmens o he banking sysem

underserved by curren insiuions, hough all he privae invesors approved or

new venures all exhibi srong sae ies.48Te firs pronouncemen on he privae

banking experimens indicaed ha new venures would be required o draw up

living willsplans or unwinding an insiuions financial commimens in he

even i becomes insolven. Te ocus on creaing a mechanism o insulae public

exposure o privae risk-aking was osensibly a lesson ha Chinas leaders and

financial regulaors drew rom waching heir U.S. counerpars scramble in 2008

o cope wih he collapse o Lehman Brohers invesmen bank and insurer American

Inernaional Group. Bu he China Banking Regulaory Commissions mos recen

announcemen in July indicaed ha, raher han pledging living wills, new bank

owners migh be required o ener coningen capial arrangemenswhich is a

way o ensuring ha he owners have sufficien skin in he game and speciying

he proporional losses invesors will ake i he bank goes belly up.49

Tis handul o banking projecs presens an ineresing array o experimens hareveal how Chinas policymakers are hinking abou ackling he microeconomic

problems in heir financial sysem. Bu hese new financial insiuions and widening

compeiion beween exising domesic and inernaional financial insiuions,

when considered wih he expecaions o rising gross, wo-way capial flows, raise

urher consideraions or Chinas financial reorm agenda.


21/39


The exchange rate

o manage he exchange rae, moneary auhoriies srive o own a porolio o asses

o differen currencies, or official oreign exchange reserves. Te Inernaional

Moneary Fund esimaes ha 64 percen o Chinas $4 rillion in official reserves

is cash dollars and U.S.-dollar-denominaed financial asses, primarily bonds romhe U.S. reasury and oher U.S. governmen agencies.50Te more reserves a counry

accumulaes, he more reedom i has o manage he exchange rae and o deend

agains currency speculaors atemps o dislodge an exchange rae peg.51Hisorically,

Chinas moneary auhoriy was pary o more han 90 percen o rades in is oreign

exchange markes.52Wih he ragmenaion o sae-owned financial insiuions

ino more organizaions, i is no longer as easy o ideniy which eniy is doing he

service o inervening in oreign exchange markes. In a briefing ollowing he July

2014 Sraegic and Economic Dialogue, Finance Miniser Lou Jiwei said, I is very

difficul or us o compleely rerain rom oreign exchange marke inervenion.53

PBOC Governor Xiaochuan has said ha he cenral bank will basically exi rom

normal oreign-exchange marke inervenion, bu he also sressed ha China would

reain he auhoriy o conain capial flows and o inervene in he oreign exchange

marke as i saw necessary.54China may no need o ge ou o he business o

managing is exchange rae: Official policymaking has reerred more narrowly o

allowing capial accoun converibiliyhe reedom o conver he renminbi

ino anoher currency, or vice versahowever he exchange rae may be se.


22/39


23/39


24/39


Surging exchange marke pressures creae small spikes and valleys in he esimaed

baske weighsmos noably or he speculaive bubble years ha preceded he

20072008 global financial crisis. When he crisis hi, capial conrols bound igher,

and China revered back o a near-100 percen peg o he U.S. dollar. Tis worked

or a while, bu Chinas capial conrols soon saw more pressure. Tis was due o a

rising ide o capial in inernaional financial markesenabled in par by successiverounds o quaniaive easing o moneary policy rom he Federal Reserve, as well

as by he large gap beween poenial reurns on dollar and RMB asses.58

Figure 3 suggess he weigh o he U.S. dollar in Chinas RMB exchange rae

baske is rending lower, hough i is sill pegged overwhelmingly o he dollar.

Beween 1999 and June 2005, policymakers pegged he RMB 100 percen o he

U.S. dollar. Bu afer 2005, he RMB baske broadened slighly rom he dollar as

China began o accumulae a larger share o reserves denominaed in oher curren-

cies. On average since 2005, China has pegged he RMB o he Singapore dollar a

6.5 percen, he euro a 2.4 percen, and he yen and Ausralian dollar a 1 perceneach. Te Briish pound does no eaure significanly in Chinas exchange rae baske.

Despie his diversificaion in he exchange rae baske, he RMB sill remains more

han 90 percen pegged o he U.S. dollar, even hrough he RMBs crawling period

o appreciaion.

Despie he risks and Chinas grievances wih U.S. fiscal policy poliics and expan-

sionary moneary policy, i is undersandable why Chinas policymakers would

no seek o sray oo ar rom he dollar anchor. In addiion o playing a cenral

role in Chinas overall economic growh model, he realiy is ha he choices or

alernaive inernaional hard currenciesnamely, he euroare less appealing. Tis

is parly because o sysemic ineria and parly because boh poliical and economic

confidence acor heavily ino he choice o inernaional reserve currencies.59Over

he longer erm, Chinas leaders aim o see he RMB play a more pivoal role in

inernaional financehe offshore rading o financial asses, borrowing, and

lending denominaed in RMB. Te pah o his goal poses a number o ormidable

obsacles. Mos noably, he lack o ransparency in moneary policymaking, he rule

o law in China, and Chinas srucurally higher inflaion and inflaion uncerainy are

likely o hinder Chinas goal o promoe he inernaional role o he RMB. Bu key

marke segmens such as rade financing will develop rapidly in RMB-denominaedasses. In ac, he majoriy o he seps aken so ar oward capial accoun opening

in he Shanghai Pilo Free rade Zone aim o develop demand or offshore RMB

use in his way.60


25/39


Increased offshore use o he RMB hrough rade finance leters o credi is a posiive

sep oward recycling capial rom Chinas economy back ou ino he global economy.

More money flowing ou will pu downward pressure on Chinas curren accoun

surplus, hough he PBOC and regulaors will need o keep a careul eye on his area

o credi noorious or creaing credi bubbles. I is common ha he collaeral on

which hese financial obligaions are made is acually nonexisen or already pledgedas collaeral o oher counerparies. Addiionally, rade finance ofen provides a

vehicle or capial fligh and inernaional ax avoidance hrough he deliberaely

incorrec invoicing o rade ransacions.61

In July 2014, Brazil, Russia, India, China, and Souh Arica launched he New

Developmen Bank, also known as he BRICS Bank afer he group o ounding

counries, o provide developmen financinglike he World Bank and oher

mulilaeral developmen banks. Tis is a posiive sep oward recycling Chinas

surpluses back ou ino he world o be pu o use where much invesmen is needed

o boos demand, generae employmen and produciviy growh, and raise livingsandards across he developing world. However, he BRICS Bank will alsolike

he IMFprovide coningen credi aciliies or emergency responses o exchange

marke pressure. Te moivaion o seek alernaive insiuions or he managemen

o financial risks in inernaional oreign exchange markes signals clear disaffecion

wih he exising arrangemens o inernaional moneary relaions in China.62

While he RMBs marke segmen as an inernaional currency will cerainly grow

in rade finance, i is a small share o he overall pie. Chinas wo-way share o he

inernaional rade finance marke amouned o $11 billion in 2013, compared

wih an esimaed global marke o $11.5 rillion.63As global oreign exchange

rading grew o more han $5.3 rillion per day in 2013 rom $1.5 rillion in 1998,

he share o his overall rading in U.S. dollars held seady a 87 percen and has

been increasing since he sar o he U.S. and global economic recovery, according

o he mos recen Bank or Inernaional Setlemens daa.64

Given he expeced ime horizon or achieving capial accoun converibiliy and he

subsanial means a policymakers disposal or managing he exchange rae, he

curren sysem will be in orce or some ime. Wha is less cerain is wheher he RMB

exchange rae will go up or down once China opens. Economic models nooriouslyail a predicing exchange rae movemens, which may sray ar rom expeced

equilibrium values over long periods o ime.65Alhough he level o he RMB

exchange rae oday remains undervalued, hisory shows ha marke orces may no

necessarily drive i up. Te uure direcion o he RMB will be deermined by he ne

balance o wo-way capial flows and he sabiliy o he ensuing financial inegraion,

as discussed below, and his could well be in he wrong direcion or rebalancing.


26/39


Financial reform versus financial

stability and rebalancing

Chinas choice o a fixed exchange rae wih macroeconomic policy auonomy has

been par and parcel o is economic developmen success. Bu i also clearly disors

prices or capial and oher inpus, as well as real incomes, by suppressing he reurns

o labor relaive o he reurns o capial and by inducing a higher-han-normal

inflaion rae.66In paricular, he mispricing o capial has grossly disored Chinas

patern o invesmen and has conveyed a disequalizing effec on he counrys wealh

disribuion.67Wih nearly 50 percen o Chinas gross domesic produc devoed

o invesmen, no all o his invesmen is going o be producive. Economiss IlHoung Lee, Muraza Syed, and Liu Xueyan esimae ha disorions in Chinas

financial sysem culminae in a oal resource ranser o avored indusries rom

households and small and medium-sized enerprises, and oher unprivileged secors

amoun o 4 percen o GDP, or an esimaed $585 billion in 2013.68Tis siuaion

can go on or some ime, hough he longer leaders prolong change, he seeper

he coss o no changing will be.

Bu i does no necessarily ollow ha opening and floaing will lead o beter pricing,

allocaion, or sysemic sabiliy oucomes. Te world in which Chinas leaders are

making policy is second besa siuaion ha economiss ideniy as one in which

inroducing more markeizaion where marke ailures already exis can creae even

worse oucomes.69Paradoxically, he soluion ofen lies in inroducing oher iner-

venions. Te changes in he gross flows o capial in and ou o Chinahow

producively ha capial is used and he associaed income flowswill deermine

he uure pah o he exchange rae and hereore he compeiiveness o Chinas

domesic producers relaive o oher producers in global markes, as well as he

value o he real asses ha underlie he webs o financial posiions inegraed across

he global financial sysem.

Afer decades o growh, a remendous sock o capial is pen up inside Chinas

beore-now closed financial sysem. Limied in he insrumens o save and sore

wealh and wih profis made rom earlier invesmens in Chinas developmen, big

shares o capial are waiing o flow ou o he counry. Cerainly, many invesors


27/39


will be equally eager o ge a oo in he door o Chinas invesmen marke,

propelled orward no jus by he rack record o exraordinary gains bu by he

expecaions o poenially larger gains in he uure as China progresses wih

economic reorm.

Federal Reserve Bank o S. Louis economis Yi Wen esimaes ha opening hecurren accoun will unleash orrens o capial ouflows rom China as wealh holders

seek o diversiy heir porolios ou o renminbi asses, leading o a significan

depreciaion o he exchange rae.70Separae research rom he Inernaional

Moneary Fund came o he same conclusion, finding ha ne ouflows would

amoun o beween 11 percen and 18 percen o GDP, or abou $1.6 rillion, rom

boh Chinas bond and equiy markes.71Tese resuls provide a cauionary ale

ha opening he capial accoun may no necessarily work in avor o adjusing

Chinas exchange rae o ease is curren accoun surplus.

Noably, Chinas economiss are no unified in his plan o implemen capial accounconveribiliy. Yu Yongding o he Chinese Academy o Social Sciences, among a

group o eseemed inernaional economiss, recommended ha leaders mainain

acive managemen o cross-border capial flows.72In a 2013 speech, economis

Lin enumeraed a lis o reasons why he opposes capial accoun opening.73

Te broader economics research resoundingly shows no economic growh benefis

rom widespread capial accoun liberalizaion bu does show severe poenial

economic risks. Economiss Olivier Jeanne, Arvind Subramanian, and John

Williamson surveyed he empirical evidence and concluded ha ree capial

mobiliy seems o have litle benefi in erms o long run growh.74Capial accoun

opening is associaed wih increased requencies o banking crises and win banking

and financial crises across a broad range o counries.75Whas more, capial accoun

opening is associaed wih sharp rises in income and wealh inequaliy wihin

counries, which adds o he disribuional problems in Chinas financial imbalances.76

Financial crises compound he rise in inequaliy, as he wealhy end o have access

o more ways o ride ou he sorm. Bu he rise occurs boh in capial-opening

counries ha experience crises and hose ha do no.

Economic hisory shows ha financial opening ollows a raher predicable cycle ospeculaion-led economic boom, bubble, and busa process already underway in

China.77Opening provides he opporuniy or domesic companies and financial

insiuions o increase heir overseas and oreign-currency-denominaed borrowing.

Foreign borrowing incurs addiional financial risks o exchange rae movemens


28/39


and ofen does no mach he ime horizon over which an invesmen yields reurns

and a loan or bond maures. Tis makes such borrowing a key ingredien in mos

inernaional financial crises. I is easy o imagine such oreign liabiliies piling up

quickly in Chinaparicularly in an environmen where regulaors will be sraining

o keep up wih he pace o innovaion as China impors and adaps he same kind

o complex financial insrumens, rading pracices, and cozy relaions wih regulaorsha were pioneered by Wesern financial insiuions. Such oreign risk exposures

eaure prominenly in creaing condiions ripe or financial insabiliy in crisis

afer crisis.78

Corporae governance and invesmen misallocaion problems already exis in China,

resuling in a ormidable pile o nonperorming real fixed and financial asses. Chinas

exising sock o nonperorming assesas well as hose likely o become nonper-

orming as growh moderaescreaes ragile financial condiions in Chinas

economy. Chinas policymakers will be challenged o mainain prudenial regulaion

o he sysemprevenion o raud, proecion o invesor righs, and mainenanceo a sable, ransparen financial sysem. Adding o his challenge is Chinas evolving

shadow-banking indusryhe group o russ, hedge unds, privae wealh manage-

men, and oher nonbank financial insiuions ha operae ouside he purview o

bank and marke financial regulaors ha regulaors already srain o manage.

Already, Chinas local governmens alone have racked up more han $3 rillion in

debs hrough such channels.79Being able o prudenly regulae hese emerging areas

o Chinas financial sysem is cenral o achieving boh Chinas inflaion goals and

o mainaining sysemic sabiliy o ensure ha financial insiuions do no expand

credi in unhealhy ways. Reorms in his area are complicaed by he conflics o

ineres apparen when policymakers are simulaneously he owner, regulaor, and

policymaker in he financial arena. As financial insiuions in China learn o adap

and innovae financial pracices, hey will expand lending across he financial

sysemand wih an even more explici guaranee o sovereign backing han in oher

counries ha have recenly undergone bank bailous and resrucurings. Tese

guaranees creae he poenial or moral hazard problemsunscrupulous lending

made wih he expecaion o a publicly financed bailouon an unprecedened scale.

China holds some $4 rillion o oreign exchange reserves and enjoys low oreignborrowing exposure and curren accoun surpluses oday.80While inernaional

capial flows ino and ou o Chinas economy and gross oal o capial inflows and

ouflows will surely rise, he evidence suggess ha he ne effec o hese flows

will be subsanial ouflows. Wha we do know is ha no all o Chinas $4 rillion


29/39


reserve holdings are in readily ranserable asses. Poliical scienis Vicor Shih o

he Universiy o Caliornia, San Diego, esimaes ha moneary policymakers

could weaher a good bi o exchange rae pressure rom ouflows or a while. Bu

evenually, policymakers managing he exchange rae and oreign reserves would

draw down o where he remaining asseshough denominaed by U.S. dollar or

anoher hard currencyare in shares and bonds issued by Chinese insiuions inoffshore markes, comprising roughly one-hird o all reserve asses, according o

esimaes rom Shih.81

Even hough here appears o be a lo o reserves on hand or China, he IMF

esimaes o plausible ne capial ouflows could bring Chinas reserve holdings

down near his uzzy hreshold idenified by Shih. O course, he balance o ne

flows presens jus he ip o he iceberg in erms o sysemic risks in deals where

shor-erm deb is used o finance projecs wih long-erm expeced reurns or

where income is earned in differen currencies han ha in which deb paymens

are due. Given he speed wih which capial flows can sop and reverse, ofen dueo global condiions ouside he economy, balancing inernaional capial flows

and avoiding he risk o financial ragiliy will only be achieved hrough rigorous

prudenial regulaion. For Chinas regulaors, his will be a race o develop

regulaory and corporae governance sandards a leas as as as an opening

financial sysem can increase financial leverage across he economy.

While financial risks cerainly pose concerns or Chinas economy, he realiy is

ha opening alone will no solve he problems ha underlie Chinas muliple

imbalancesnor does liberalizaion mean ha Chinas financial sysem will se

ineres raes on a marke basis hrough open price discovery.


30/39


Recommendations:

How China can rebalance

Figure 4 illusraes ha he gap beween naional savings and invesmen drives

Chinas inernaional economic imbalances. By accouning ideniy, hese measures

o he savings-invesmen gap and he curren accoun balance will be equal, bu

policymakers can move saving relaive o invesmen in a number o ways. Chinas

economy has shown rebalancing since he sar o he global economic recovery,

hough some o his adjusmen can be atribued o shor-erm acors. Chinas

curren accoun surplus shrunk no because China was srucurally rebalancing bu

because invesmen ramped up wih simulus spending, he rapid credi expansion

in Chinas ormal and shadow-banking sysems, and he consrucion-bubble-ueled

rise in global commodiy prices.82

Tis mode o growh is symbioic wih wideningincome and wealh inequaliy wihin China, andas economiss rom Zhejiang

Universiy and he Chinese Universiy o Hong Kong have warnedpresen he

cenral barrier o marke-oriened economic rebalancing.83

FIGURE 4

International rebalancing calls for raising domestic demand

Source: Author's analysis of data from International Monetary Fund, "World Economic Outlook Database," available at http://www.imf

.org/external/pubs/ft/weo/2014/01/weodata/index.aspx (last accessed July 2014)

60%

2000 2002 2004 2006 2008 2010 20122001 2003 2005 2007 2009 2011 2013

50%

40%

Current account surplus (right axis)InvestmentSaving

30%

15%

10%

5%

0%

ShareofGDP

Shareo

fGDP


31/39


Such longer-erm srucural acors drive imbalances in Chinas economy ha resul

in is domesic and inernaional financial posiions: persisenly selling more goods

and services o he world han i buys and undervaluing he exchange rae. In order

o change his equaion, Chinas leaders mus firs ackle he srucural roos o Chinas

unbalanced economy in he financial secor and he wider economy and sociey ha

affec incomes and savings o households criical o shifing growh oward Chinasdomesic economy. Boh Chinese policymakers and oher global leaders can ake

concree seps o shepherd China along he pah o he economic rebalancing and

reorm necessary or i o coninue developing and deepening inegraion ino he

world economy. Tese seps are discussed in he ollowing secions.

Building Chinas foundation for inclusive growth

China needs o grow more inclusively o bring down saving raes and increase

domesic consumpion wih greaer financial securiy and more broadly inclusive

income growh. Specifically, China needs o move quickly o build a comprehen-

sive se o social insurance programs, which are now necessary in he more flexibleeconomy. Tese programs will preven people rom geting caugh in he gears o

he economys creaive desrucion, shif oward a more progressive ax srucure,

and accelerae reorm o inegrae migran populaions ino he economic main-

sream. By building insiuions needed o srenghen and broaden Chinas middle

class, China will bring down precauionary saving raes while mainaining he

growh needed by raising disposable incomes and qualiy o lie o ulfill Chinas

ransiion o a domesic, demand-led growh model. Noably, Chinas policymak-

ers are aking seps o implemen a deposi insurance sysem much like he Federal

Deposi Insurance Corporaion, or FDIC, in he Unied Saes, hough mos

savers already presume an implici sae guaranee. Finally, Chinese leaders can kill

wo birds wih one sone by ransorming overinvesed privae housing ino social

housinga key prioriy or domesic and social rebalancing.

Prioritizing corporate governance reform

Corporae governance reorm in Chinas sae-owned financial insiuions and

sae-owned enerprises should oupace financial opening. Tis is imporan or

wo reasons. Firs, i is a necessary condiion or insiuing a decisive role o he

marke. Second, Chinas bankers and financial regulaors need o be ready o receive

and direc capial inflows o producive uses ha do no leave Chinas economyragile o sudden sops or reversals o capial flows ha could jeopardize Chinas

growh successes. Reorming corporae governance is no only a necessary

condiioneconomically speakingo he marke aking a leading role, bu i is

also criical or leaders o ensure hey do no replicae he financial misakes o he

pas as policies move he ocus or invesmen o Chinas wes and overseas.


32/39


Rebalancing global e xchange rates

Bilaeral negoiaions wih he Unied Saes and mulilaeral effors hrough he

G20 o ge Chinaand oher counrieso realign undervalued exchange raes

have yielded litle progress. alk, i seems, is insufficien when bargaining is no

mached wih credible promises o ake counervailing measures. Policymakers in

he Unied Saes and oher G20 counries should explore domesic measures oradjudicaing rade remedies or disored exchange raes and bringing exchange

rae issues ino inernaional agreemens on rade and invesmen.

China should oresall speculaive expecaions and move o raise is exchange rae

agains he U.S. dollar while also moving o an exchange rae regime buil around a

broader baske o counries han jus he Unied Saes. For example, China could

peg o a rade-weighed average o G20 counry exchange raes or, heoreically, o

an inernaional currency. Te Unied Saes, China, and oher G20 member

counries should open discussions on updaing mulilaeral insiuions or moneary

relaions beore more ragmenaion o he mulilaeral sysem, like ha whichoccurred wih he BRICS Bank, develops.

Seting a high sandard or Chinas reorm effors and global commercial norms he

Unied Saes and oher counries mus build an alliance or a high road o global

inegraion based on open, ransparen compeiion in he commercial marke-

place ha srenghens social inclusiviy and deepens overall human developmen.

Engagemen should insis on widespread implemenaion o bes pracices in

corporae governance, inernaional accouning, and financial reporing sandards,

as well as a social proecion agenda ha encompasses labor righs, environmenal

susainabiliy, and communiy sakeholder engagemen.84

Te jury is sill ou on Chinas gradual experimenaion wih privae financial

insiuions, bu old issues o ensuring sandards o naional reamen and

commercial cyberspying will be joined by an array o new issues in he openness

o new paymen sysems and daa and consumer privacy. Chinas policymakers are

smar o approach his move on he principle ha insiuions should operae wih

incenives o align owners incenives wih pruden perormance, while insulaing

he public rom he coss o individual insolvencies.


33/39


34/39


About the author

Adam S. Hershis a Senior Economis a he Cener or American Progress ocusing

on economic growh and inequaliy in he Unied Saes, China, and he global

economy. Hersh is a leader in he Ceners work on he economics o inequaliy

and growh and co-auhored he repor Te American Middle Class, IncomeInequaliy, and he Srengh o Our Economy: New Evidence in Economics. He

publishes and is cied regularly in boh academic and popular venues.


35/39


Endnotes

1 China.org.cn, Communiqu of the Third Plenary Sessionof the 18th Century of the Communist Party of China,January 15, 2014, available at http://www.china.org.cn/china/third_plenary_session/2014-01/15/con-tent_31203056.htm.

2 Authors analysis of data from CEIC, China Economic &Industry Data Database, available at http://www.ceicdata.com/en/countries/china(last accessed August 2014).

3 Barry Naughton, The Economic Relationship.In Nina Hachigian, ed., Debating China: The U.S.-ChinaRelationship in Ten Conversations(New York: OxfordUniversity Press, 2014).

4 Justin Yifu Lin, Development and Transition: Idea,Strategy, and Viability(Cambridge, England: Universityof Cambridge Press, 2009).

5 Robert A. Mundell, Capital mobility and stabilizationpolicy under fixed and flexible exchange rates,Canadian Journal of Economic and Political Science 29 (4)(1963): 475485; J. Marcus Fleming, Domestic financialpolicies under fixed and floating exchange rates. InCooper, Richard N., ed., International Finance(New York:Penguin Books, 1969).

6 World Bank and Peoples Republic of China DevelopmentResearch Center of the State Council, China 2030:Building a Modern, Harmonious, and Creative Society(2012), available at http://www.worldbank.org/content/dam/Worldbank/document/China-2030-complete.pdf.

7 Adam Hersh, Assessing Chinas Economic Reform Agenda(Washington: Center for American Progress, 2014),available at http://www.americanprogress.org/issues/economy/report/2014/05/01/88864/assessing-chinas-economic-reform-agenda/.

8 Joseph Stiglitz, Whither Socialism? (Cambridge, MA: TheMIT Press, 1996).

9 Authors analysis of CEIC, China Economic & IndustryData Database.

10 International Monetary Fund, Balance of Payments andInternational Investment Position Manual, 6th Edition(2013), available athttp://www.imf.org/external/pubs/ft/bop/2007/bopman6.htm.

11 United Nations Conference on Trade and Development,Definitions of FDI, available athttp://unctad.org/en/Pages/DIAE/Definitions-of-FDI.aspx (last accessedSeptember 2014); National Bureau of Statistics, ChinaNational Statistical Yearbook Database, available athttp://www.stats.gov.cn/english/statisticaldata/AnnualData/(last accessed September 2014).

12 For example, Chinas (the United States) trade surplus(deficit) in the current account is offset by payments forthe net acquisition (sale) of financial assets by China(the United States) in the capital account. Here, Chinascapital export to purchase U.S. assets essentially financesU.S. consumption of Chinese goods and services in

excess of what the United States sells to China. Accountsneed not balance exactly between any two countries,but globally, all payments for current and capital accounttransactions will balance.

13 International Monetary Fund, Articles of Agreement ofthe International Monetary Fund, Article VIII, Section2(a), available at http://www.imf.org/External/Pubs/FT/AA/#a8s2 (last accessed August 2014); World Trade

Organization, Articles of Agreement, Article XV (2014),available at http://www.wto.org/english/res_e/booksp_e/gatt_ai_e/art15_e.pdf.

14 Mundell, Capital mobility and stabilization policyunder fixed and flexible exchange rates; Fleming,Domestic financial policies under fixed and floatingexchange rates.

15 Zhou Xiaochuan, Chinas Monetary Policy Since theTurn of the Century, Caixin Online,November 30, 2012,available at http://english.caixin.com/2012-11-30/100467497.html.

16 Naughton, The Economic Relationship.

17 China.org.cn, Communiqu of the Third Plenary Sessionof the 18th Century of the Communist Party of China.

18 World Bank, China Financial Sector and InstitutionalDevelopment (1990).

19 Guonan Ma and Yi Wang, Chinas high saving rate: mythand reality. Working Paper 312 (Bank for InternationalSettlements, 2010), available at http://www.bis.org/publ/work312.pdf;Nicholas R Lardy, Integrating Chinainto the Global Economy (Washington: Brookings Institu-tion Press, 2002).

20 Carl E. Walter and Fraser J. T. Howie, Red Capitalism: TheFragile Financial Foundation of Chinas Extraordinary Rise (Singapore: Wiley, 2011); Michael F. Martin, ChinasBanking System: Issues for Congress (Washington:Congressional Research Service, 2012), available athttp://fas.org/sgp/crs/row/R42380.pdf.

21 Institute for New Economic Thinking, Political Economyof Structural Adjustment - Louis Kuijs, available athttp://ineteconomics.org/video/bretton-woods/political-economy-structural-adjustment-1-7(lastaccessed July 2014).

22 Carmen M. Reinhart and Kenneth Rogoff, This Time IsDifferent: Eight Centuries of Financial Folly(Princeton, NJ:Princeton University Press, 2009).

23 Lingling Wei and Bob Davis, PBOC Vice Governors StarRises, China Real Time, June 9, 2014, available at http://blogs.wsj.com/chinarealtime/2014/06/09/pboc-vice-governors-star-rises/?mod=WSJBlog&mod=chinablog.

24 Lingling Wei and Bob Davis, IMF Urges Cautious ChinaCapital Moves, The Wall Street Journal, July 17, 2013,available at http://online.wsj.com/news/articles/SB30001424127887324263404578611480166001050.

25 Ronald I. McKinnon, Exchange Rates Under the East AsianDollar Standard(Cambridge, MA: The MIT Press, 2006).

26 Il Houng Lee, Murtaza H. Syed, and Xin Wang, TwoSides of the Same Coin? Rebalancing and InclusiveGrowth in China (Geneva, Switzerland: InternationalMonetary Fund, 2013); Julan Du, Hong sheng Fang, andXiangrong Jin, Chinese Political and Economic

Governance System and the I mbalance betweenConsumption and I nvestment (Geneva, Switzerland:International Monetary Fund, 2013).

27 Mundell, Capital mobility and stabilization policyunder fixed and flexible exchange rates; Fleming,Domestic financial policies under fixed and floatingexchange rates.
http://www.china.org.cn/china/third_plenary_session/2014-01/15/content_31203056.htmhttp://www.china.org.cn/china/third_plenary_session/2014-01/15/content_31203056.htmhttp://www.china.org.cn/china/third_plenary_session/2014-01/15/content_31203056.htmhttp://www.ceicdata.com/en/countries/chinahttp://www.ceicdata.com/en/countries/chinahttp://www.worldbank.org/content/dam/Worldbank/document/China-2030-complete.pdfhttp://www.worldbank.org/content/dam/Worldbank/document/China-2030-complete.pdfhttp://www.americanprogress.org/issues/economy/report/2014/05/01/88864/assessing-chinas-economic-reform-agenda/http://www.americanprogress.org/issues/economy/report/2014/05/01/88864/assessing-chinas-economic-reform-agenda/http://www.americanprogress.org/issues/economy/report/2014/05/01/88864/assessing-chinas-economic-reform-agenda/http://www.imf.org/external/pubs/ft/bop/2007/bopman6.htmhttp://www.imf.org/external/pubs/ft/bop/2007/bopman6.htmhttp://unctad.org/en/Pages/DIAE/Definitions-of-FDI.aspxhttp://unctad.org/en/Pages/DIAE/Definitions-of-FDI.aspxhttp://www.stats.gov.cn/english/statisticaldata/AnnualData/http://www.stats.gov.cn/english/statisticaldata/AnnualData/http://www.wto.org/english/res_e/booksp_e/gatt_ai_e/art15_e.pdfhttp://www.wto.org/english/res_e/booksp_e/gatt_ai_e/art15_e.pdfhttp://english.caixin.com/2012-11-30/100467497.htmlhttp://english.caixin.com/2012-11-30/100467497.htmlhttp://www.bis.org/publ/work312.pdfhttp://www.bis.org/publ/work312.pdfhttp://fas.org/sgp/crs/row/R42380.pdfhttp://ineteconomics.org/video/bretton-woods/political-economy-structural-adjustment-1-7http://ineteconomics.org/video/bretton-woods/political-economy-structural-adjustment-1-7http://blogs.wsj.com/chinarealtime/2014/06/09/pboc-vice-governors-star-rises/?mod=WSJBlog&mod=chinabloghttp://blogs.wsj.com/chinarealtime/2014/06/09/pboc-vice-governors-star-rises/?mod=WSJBlog&mod=chinabloghttp://blogs.wsj.com/chinarealtime/2014/06/09/pboc-vice-governors-star-rises/?mod=WSJBlog&mod=chinabloghttp://online.wsj.com/news/articles/SB30001424127887324263404578611480166001050http://online.wsj.com/news/articles/SB30001424127887324263404578611480166001050http://online.wsj.com/news/articles/SB30001424127887324263404578611480166001050http://online.wsj.com/news/articles/SB30001424127887324263404578611480166001050http://blogs.wsj.com/chinarealtime/2014/06/09/pboc-vice-governors-star-rises/?mod=WSJBlog&mod=chinabloghttp://blogs.wsj.com/chinarealtime/2014/06/09/pboc-vice-governors-star-rises/?mod=WSJBlog&mod=chinabloghttp://blogs.wsj.com/chinarealtime/2014/06/09/pboc-vice-governors-star-rises/?mod=WSJBlog&mod=chinabloghttp://ineteconomics.org/video/bretton-woods/political-economy-structural-adjustment-1-7http://ineteconomics.org/video/bretton-woods/political-economy-structural-adjustment-1-7http://fas.org/sgp/crs/row/R42380.pdfhttp://www.bis.org/publ/work312.pdfhttp://www.bis.org/publ/work312.pdfhttp://english.caixin.com/2012-11-30/100467497.htmlhttp://english.caixin.com/2012-11-30/100467497.htmlhttp://www.wto.org/english/res_e/booksp_e/gatt_ai_e/art15_e.pdfhttp://www.wto.org/english/res_e/booksp_e/gatt_ai_e/art15_e.pdfhttp://www.stats.gov.cn/english/statisticaldata/AnnualData/http://www.stats.gov.cn/english/statisticaldata/AnnualData/http://unctad.org/en/Pages/DIAE/Definitions-of-FDI.aspxhttp://unctad.org/en/Pages/DIAE/Definitions-of-FDI.aspxhttp://www.imf.org/external/pubs/ft/bop/2007/bopman6.htmhttp://www.imf.org/external/pubs/ft/bop/2007/bopman6.htmhttp://www.americanprogress.org/issues/economy/report/2014/05/01/88864/assessing-chinas-economic-reform-agenda/http://www.americanprogress.org/issues/economy/report/2014/05/01/88864/assessing-chinas-economic-reform-agenda/http://www.americanprogress.org/issues/economy/report/2014/05/01/88864/assessing-chinas-economic-reform-agenda/http://www.worldbank.org/content/dam/Worldbank/document/China-2030-complete.pdfhttp://www.worldbank.org/content/dam/Worldbank/document/China-2030-complete.pdfhttp://www.ceicdata.com/en/countries/chinahttp://www.ceicdata.com/en/countries/chinahttp://www.china.org.cn/china/third_plenary_session/2014-01/15/content_31203056.htmhttp://www.china.org.cn/china/third_plenary_session/2014-01/15/content_31203056.htmhttp://www.china.org.cn/china/third_plenary_session/2014-01/15/content_31203056.htm


36/39


28 Justin Yifu Lin, New Structural Economics: A Frameworkfor Rethinking Development and Policy(Washington:World Bank, 2012).

29 It is worth noting that a sea change in economics inrecent years has placed capital controls squarely in therealm of prudent financial regulatory policy. SeeJonathan David Ostry and others, Capital Inflows(Washington: International Monetary Fund, 2010);Anton Korinek, The New Economics of PrudentialCapital Controls, IMF Economic Review59 (3) (2011):523561; Markus Brunnermeier and others, Banks and

Cross-Border Capital Flows: Policy Challenges andRegulatory Responses (Washington: BrookingsInstitution, 2012).

30 Maurice Obstfeld, Models of Currency Crises withSelf-Fulfilling Features, European Economic Review40(1996): 10371047; Paul Krugman, A Model ofBalance-of-Payments Crises,Journal of Money, Credit,and Banking 11 (3) (1979): 311325.

31 Chinese statistical convention defines foreign directinvestment as 25 percent or more; internationalconvention defines it as 10 percent or more. In July2014, policymakers revised the list from 190 to 139areas. Much of the cuts in restricted line items camefrom the reorganization of duplicate listings. For moreon Chinas negative list, see Hersh, Assessing ChinasEconomic Reform Agenda. See also Bulletin ofShanghai Mun icipal Peoples Government, Special

Administrative Measures (Negative List) on ForeignInvestment Access to the China Shanghai Pilot Free

Trade Zone (2014 Amended Version) (2014), availableat http://www.deloitte.com/assets/Dcom-China/Local%20Assets/Documents/Services/Tax/ftpa/cn(zh-cn)_tax_shpftz_2014negativelist_070714.pdf.

32 Timothy P. Stratford and others, Navigating the FTZ Special Coverage (Shanghai, China: American Chamberof Commerce in Shanghai, 2013), available at https://www.amcham-shanghai.org/NR/rdonlyres/89B7633D-3682-4EBF-AC3F-F64D40151D1A/20363/1Cover1.pdf.

33 Bulletin of Shanghai Municipal Peoples Government,Special Administrative Measures (Negative List) onForeign Investment Access to the China Shanghai PilotFree Trade Zone.

34 Ibid.

35 United Nations Conference on Trade and Development,Annex Tables. In World Investment Report: 2014(2014),available at http://unctad.org/en/PublicationChapters/wir2014Annex_en.pdf.

36 Authors analysis of CEIC, China Economic & IndustryData Database.

37 Yin-Wong Cheung and Risto Herrala, Chinas CapitalControls: Through the Prism of Covered InterestDifferentials (Hong Kong: Hong Kong Institute forMonetary Research, 2013).

38 Guonan Ma and Robert N. McCauley, Efficacy of ChinasCapital Controls: Evidence from Price and Flow Data,Pacific Economic Review13 (1) (2008): 104123.

39 Hersh, Assessing Chinas Economic Reform Agenda.

40 Joshua Aizenman, Menzie D. Chinn, and Hiro Ito,Assessing the Emerging Global Financial Architecture:Measuring the Trilemmas Configurations over Time.Working Paper 14533 (National Bureau of EconomicResearch, 2008), available athttp://www.nber.org/papers/w14533.

41 Thorsten Beck and others, Financial Development andStructural Dataset (updated Nov. 2013), World Bank,available at http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTRESEARCH/0,,contentMDK:20696167~pagePK:64214825~piPK:64214943~theSitePK:469382,00.html(last accessed August 2014).

42 Securities and Exchange Commission, Initial DecisionRelease No. 553, Administrative Proceeding, File Nos.3-14872, 3-15116 (2014), available at http://www.sec.gov/alj/aljdec/2014/id553ce.pdf.

43 John Plender, US investors should beware ChineseIPOs, Financial Times, May 27, 2014, available athttp://www.ft.com/intl/cms/s/0/a1d3a73c-e572-11e3-8b90-00144feabdc0.html.

44 Hersh, Assessing Chinas Economic Reform Agenda.

45 Lin, Development and Transition: Idea, Strategy, andViability.

46 Lingling Wei and Bob Davis, New China Central BankChief Economist Pushes Liberalization Plan, The WallStreet Journal, April 9, 2014, available athttp://online.wsj.com/news/articles/SB10001424052702304819004579490431001335944?mg=reno64-wsj.

47 Wang Liwei, Nicholas Lardy: China Is on the RightTrack, but Reforms Must Continue, Caixin Online, July 8,2014, available at http://english.caixin.com/2014-07-

08/100701203.html.

48 Reforms will target four distinct models. First, a bank willfocus on collecting small deposits and making smallloans in a joint venture between e-commerce companyAlibaba and Zhejiang local-government-affiliated auto-parts manufacturer Wanxiang Groupthough they haveyet to file a plan for approval. Second, social networkingcompany Tencent and Baiyeyuan I nvestment Co. inShenzhen will launch a bank that collects large depositswith minimum requirementsand disburses smallloans. Third, Tianjin Shanghui Investment Holdings andcopper producer Huabei Group will launch a lenderfocused solely on corporate finance. Fourth, Zhejianglocal government and electrical equipment manufacturerChint Group, along with local-government-affiliatedchemical producer Huafon Group, will launch a bankfocused on serving rural markets and small and medium-sized enterprises. Finally, private industrial giant Fosun

Group, with Shanghais private airline and diversifiedconglomerate JuneYao Group, were approved to file aplan for a new commercial bank venture but have notyet submitted a proposal for approval to the ChinaBanking Regulatory Commission. See Wu Hongyuran,Private Banks in Pilot will Have Four Models to ChooseFrom, Caixin Online, March 12, 2014, available at http://english.caixin.com/2014-03-12/100650585.html;Shanghai Municipal Government, 10 Firms Picked forPrivate Bank Trial, March 13, 2014, available at http://www.shanghai.gov.cn/shanghai/node27118/node27818/u22ai75360.html; Huo Kan and Liu Caiping, CBRCApproves Three Private Banks as Part of Pilot, CaixinOnline, July 28, 2014, available at http://english.caixin.com/2014-07-28/100709742.html.

49 Ibid.; Chinese Banking Regulatory Commission, IRBApproach: Supervisory Requirements on Risk Mitigation(2012), available athttp://www.cbrc.gov.cn/chinese/

files/2013/E5623422085F456F83B43AE2E5C6561E.pdf.

50 International Monetary Fund, Reserve Accumulationand International Monetary Stability (2010).

51 Obstfeld, Models of Currency Crises with Self-FulfillingFeatures.
http://www.deloitte.com/assets/Dcom-China/Local%20Assets/Documents/Services/Tax/ftpa/cn(zh-cn)_tax_shpftz_2014negativelist_070714.pdfhttp://www.deloitte.com/assets/Dcom-China/Local%20Assets/Documents/Services/Tax/ftpa/cn(zh-cn)_tax_shpftz_2014negativelist_070714.pdfhttp://www.deloitte.com/assets/Dcom-China/Local%20Assets/Documents/Services/Tax/ftpa/cn(zh-cn)_tax_shpftz_2014negativelist_070714.pdfhttps://www.amcham-shanghai.org/NR/rdonlyres/89B7633D-3682-4EBF-AC3F-F64D40151D1A/20363/1Cover1.pdfhttps://www.amcham-shanghai.org/NR/rdonlyres/89B7633D-3682-4EBF-AC3F-F64D40151D1A/20363/1Cover1.pdfhttps://www.amcham-shanghai.org/NR/rdonlyres/89B7633D-3682-4EBF-AC3F-F64D40151D1A/20363/1Cover1.pdfhttp://unctad.org/en/PublicationChapters/wir2014Annex_en.pdfhttp://unctad.org/en/PublicationChapters/wir2014Annex_en.pdfhttp://www.nber.org/papers/w14533http://www.nber.org/papers/w14533http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTRESEARCH/0,,contentMDK:20696167~pagePK:64214825~piPK:64214943~theSitePK:469382,00.htmlhttp://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTRESEARCH/0,,contentMDK:20696167~pagePK:64214825~piPK:64214943~theSitePK:469382,00.htmlhttp://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTRESEARCH/0,,contentMDK:20696167~pagePK:64214825~piPK:64214943~theSitePK:469382,00.htmlhttp://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTRESEARCH/0,,contentMDK:20696167~pagePK:64214825~piPK:64214943~theSitePK:469382,00.htmlhttp://www.sec.gov/alj/aljdec/2014/id553ce.pdfhttp://www.sec.gov/alj/aljdec/2014/id553ce.pdfhttp://www.ft.com/intl/cms/s/0/a1d3a73c-e572-11e3-8b90-00144feabdc0.htmlhttp://www.ft.com/intl/cms/s/0/a1d3a73c-e572-11e3-8b90-00144feabdc0.htmlhttp://www.ft.com/intl/cms/s/0/a1d3a73c-e572-11e3-8b90-00144feabdc0.htmlhttp://online.wsj.com/news/articles/SB10001424052702304819004579490431001335944?mg=reno64-wsjhttp://online.wsj.com/news/articles/SB10001424052702304819004579490431001335944?mg=reno64-wsjhttp://online.wsj.com/news/articles/SB10001424052702304819004579490431001335944?mg=reno64-wsjhttp://english.caixin.com/2014-07-08/100701203.htmlhttp://english.caixin.com/2014-07-08/100701203.htmlhttp://english.caixin.com/2014-03-12/100650585.htmlhttp://english.caixin.com/2014-03-12/100650585.htmlhttp://www.shanghai.gov.cn/shanghai/node27118/node27818/u22ai75360.htmlhttp://www.shanghai.gov.cn/shanghai/node27118/node27818/u22ai75360.htmlhttp://www.shanghai.gov.cn/shanghai/node27118/node27818/u22ai75360.htmlhttp://english.caixin.com/2014-07-28/100709742.htmlhttp://english.caixin.com/2014-07-28/100709742.htmlhttp://www.cbrc.gov.cn/chinese/files/2013/E5623422085F456F83B43AE2E5C6561E.pdfhttp://www.cbrc.gov.cn/chinese/files/2013/E5623422085F456F83B43AE2E5C6561E.pdfhttp://www.cbrc.gov.cn/chinese/files/2013/E5623422085F456F83B43AE2E5C6561E.pdfhttp://www.cbrc.gov.cn/chinese/files/2013/E5623422085F456F83B43AE2E5C6561E.pdfhttp://english.caixin.com/2014-07-28/100709742.htmlhttp://english.caixin.com/2014-07-28/100709742.htmlhttp://www.shanghai.gov.cn/shanghai/node27118/node27818/u22ai75360.htmlhttp://www.shanghai.gov.cn/shanghai/node27118/node27818/u22ai75360.htmlhttp://www.shanghai.gov.cn/shanghai/node27118/node27818/u22ai75360.htmlhttp://english.caixin.com/2014-03-12/100650585.htmlhttp://english.caixin.com/2014-03-12/100650585.htmlhttp://english.caixin.com/2014-07-08/100701203.htmlhttp://english.caixin.com/2014-07-08/100701203.htmlhttp://online.wsj.com/news/articles/SB10001424052702304819004579490431001335944?mg=reno64-wsjhttp://online.wsj.com/news/articles/SB10001424052702304819004579490431001335944?mg=reno64-wsjhttp://online.wsj.com/news/articles/SB10001424052702304819004579490431001335944?mg=reno64-wsjhttp://www.ft.com/intl/cms/s/0/a1d3a73c-e572-11e3-8b90-00144feabdc0.htmlhttp://www.ft.com/intl/cms/s/0/a1d3a73c-e572-11e3-8b90-00144feabdc0.htmlhttp://www.ft.com/intl/cms/s/0/a1d3a73c-e572-11e3-8b90-00144feabdc0.htmlhttp://www.sec.gov/alj/aljdec/2014/id553ce.pdfhttp://www.sec.gov/alj/aljdec/2014/id553ce.pdfhttp://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTRESEARCH/0,,contentMDK:20696167~pagePK:64214825~piPK:64214943~theSitePK:469382,00.htmlhttp://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTRESEARCH/0,,contentMDK:20696167~pagePK:64214825~piPK:64214943~theSitePK:469382,00.htmlhttp://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTRESEARCH/0,,contentMDK:20696167~pagePK:64214825~piPK:64214943~theSitePK:469382,00.htmlhttp://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTRESEARCH/0,,contentMDK:20696167~pagePK:64214825~piPK:64214943~theSitePK:469382,00.htmlhttp://www.nber.org/papers/w14533http://www.nber.org/papers/w14533http://unctad.org/en/PublicationChapters/wir2014Annex_en.pdfhttp://unctad.org/en/PublicationChapters/wir2014Annex_en.pdfhttps://www.amcham-shanghai.org/NR/rdonlyres/89B7633D-3682-4EBF-AC3F-F64D40151D1A/20363/1Cover1.pdfhttps://www.amcham-shanghai.org/NR/rdonlyres/89B7633D-3682-4EBF-AC3F-F64D40151D1A/20363/1Cover1.pdfhttps://www.amcham-shanghai.org/NR/rdonlyres/89B7633D-3682-4EBF-AC3F-F64D40151D1A/20363/1Cover1.pdfhttp://www.deloitte.com/assets/Dcom-China/Local%20Assets/Documents/Services/Tax/ftpa/cn(zh-cn)_tax_shpftz_2014negativelist_070714.pdfhttp://www.deloitte.com/assets/Dcom-China/Local%20Assets/Documents/Services/Tax/ftpa/cn(zh-cn)_tax_shpftz_2014negativelist_070714.pdfhttp://www.deloitte.com/assets/Dcom-China/Local%20Assets/Documents/Services/Tax/ftpa/cn(zh-cn)_tax_shpftz_2014negativelist_070714.pdf


37/39


52 Hassanali Mehran, Monetary and Exchange SystemReforms in China: An Experimen t in Gr

Date post:	02-Jun-2018
Category:	Documents
Upload:	center-for-american-progress
View:	216 times
Download:	0 times