Financial Development, Economic Growth and Adaptive Efficiency： A Comparison between China and Pakistan

The strong economic growth in China is difficult to reconcile with its inefficient financial system. The puzzle of China＇s financial development and growth can be explained through a dynamic criterion of adaptive efficiency, rather than through allocative efficiency. Using the framework of an autoregressive distributed lag model, the present paper tests the hypothesis that the GDP growth rate is dependent on financial development along with other variables in China and Pakistan. The hypothesis cannot be rejected in both cases. However, the results show that economic growth has a negative relationship with credit to the private sector in China. We conclude that financial development is a source of China＇s high growth rate and that the banking system is still under an evolutionary process, involving the pursuit of social objectives instead of the sole objective of profit maximization. Our results provide some implications for other developing countries like Pakistan.     

Business Cycle in China since the Lehman Crisis： Interaction among Macroeconomic Policy,Economic Growth and Inflation

The major objectives of China＇s macroeconomic policy are to stabilize economic growth and inflation, which, in turn, are important factors determining key prices, such as the policy interest rate, the renminbi exchange rate and stockprices. In a framework that distinguishes different phases of the business cycle based on whether the current period＇s economic growth rate and inflation rate are above or below their ＂＇normal＂ values, this paper analyzes the interaction among macroeconomic policy, economic growth and inflation in China since the Lehman crisis, and the implications for these key prices. The path of China＇s economy indicates that stimulus measures taken by the government during the recession phase and tightening measures implemented during the overheating phase have helped minimize the fluctuation over the business cycle. Our analysis shows that Chinese authorities tend to rely more on adjusting the exchange rate than the interest rate to stabilize the economy. Comparing with conditions at the time of the post-Lehman recession, the current slowpace of economie growth in China may reflect not only weakening demand, but also a lowerpotential growth rate associated with the arrival of the Lewis turning point.     

Is the Export-led Growth Hypothesis Enough to Account for China＇s Growth？

One of the missing pieces preventing us from understanding recent Chinese economic development is the role played by openness and capital accumulation in this process. The question is whether the sharp economic＇ growth that the Chinese economy has experienced is another case of export-led growth due to the open-door policy or whether, on the contrary, this growth has been caused by high domestic savings and investment rates （and the consequent capital accumulation）. To answer this question, we employed an empirical framework of the cointegrated vector autoregressive model. The empirical results show that both investment （in physieal capital and R＆D） and exports, as well as the exchange rate policy, are relevant factors in explaining China＇s long-run economic growth over the past 4 decades.     

Financial Intermediation Development and Economic Growth： Does the Chinese Counterexample Exist？

In terms of the degree-of-freedom of bank loan decision-making, the ratio of loans of private enterprises and individuals to total loans is used to measure the development of China ＇s financial intermediation. Applying generalized method of moments estimation developed for dynamic panel data models, the present paper finds that the effect of financial intermediation development on economic growth is positive and statistieally significant when controlling for other variables, such as human capital foreign direct investment, securitization and foreign trade. The empirical results indicate that the concept of the so-called Chinese counterexample in financial development is questionable. Financial system reforms, including encouraging banks to operate independently, reducing or eliminating mandatory loans, and maldngfinancial decision-making more market-oriented, are important for China＇s economic growth.     

Multiple Forces Driving China＇s Economic Development： A New Analytic Framework

Based on economic growth theory and the World Bank's analytical framework relating to the quality of growth, the present paper constructs a framework that encompasses physical, international, human, natural and knowledge capital to synthetically interpret economic development. After defining the five types of capital and total capital, we analyze the dynamic changes of these types of capital in China and in other countries. The results show that since China's reform and opening up, knowledge, international, human and physical capital have grown rapidly, with speeds of growth higher than that of economic growth. As the five types of capital have all increased at varying paces, the savings level of total capital in China has quadrupled in 25 years and overtook that of the USA in the 1990s. The changes in the five types of capital and total capital reveal that there are progressively multiple driving forces behind China's rapid economic development. Implications for China's long-term economic development are thereby raised.     

Autonomy and Effectiveness of Chinese Monetary Policy under the De Facto Fixed Exchange Rate System

This paper uses monthly data to examine the autonomy and effectiveness of monetary policy in China under the de facto fixed exchange rate arrangement in place from 1998 to 2005. The results obtained from Granger causality tests in a vector autoregression framework indicate that： （i） China actually conducted independent monetary policy during the fixed exchange rate period; and （ii） market-oriented policy measures are impotent in influencing real output and prices. The framework of the investigation into the autonomy of monetary policy adapts to the Chinese economic condition that primary loan and deposit rates are set by the central bank. Based on the empirical results, the present paper provides alternative strategies to improve the effectiveness of monetary policy in China, including developing the financial system and solidifying microeconomic fundamentals instead of forcing the adaptation of a more flexible exchange rate regime.     

The Case for Stabilizing China＇s Exchange Rate： Setting the Stage for Fiscal Expansion

China＇s financial conundrum arises from two sources. First, its large saving （trade） surplus results in a currency mismatch because it is an immature creditor that cannot lend in its own currency. Instead, foreign currency claims （largely US dollars） build up within domestic financial institutions. Second, economists, both American and Chinese, mistakenly attribute the surpluses to an undervalued RMB. To placate the USA, the result was a gradual and predictable appreciation of the RMB against the dollar of 6 percent or more per year from July 2005 to July 2008. Together with the fall in US interest rates since mid-2007, this one- way bet in the foreign exchanges markets not only attracted hot money inflows but inhibited private capital outflows from financing China＇ s huge trade surplus. Therefore, the People＇s Bank of China had to intervene heavily to prevent the RMB from ratcheting upwards, and so became the country＇s sole international financial intermediary as official exchange reserves exploded Because of the currency mismatch, floating the RMB is neither feasible nor desirable, and a higher RMB would not reduce China＇ s trade surplus. Instead, monetary control and normal private-sector finance for the trade surplus require a return to a credibly fixed nominal RMB/USD rate similar to that which existed between 1995 and 2004. However, for any newly reset RMB/USD rate to be credible as a monetary anchor, foreign ＂China bashing＂ to get the RMB up must end. Then the stage would be set for fiscal expansion to both stimulate the economy and reduce its trade surplus.     

RMB Exchange Market Pressure and Central Bank Exchange Market Intervention

The present paper uses the model-dependent and the modeL independent approach to measure the RMB exchange market pressure （EMP） and the central bank＇s intervention using monthly data from January 1999 to June 2008. It is determined that the RMB has been under great appreciation pressure over the past decade. However, the pressure has been weakening since 2005. The two approaches provide significantly different results in terms of the estimated RMB EMP indices and the estimated central bank＇s interventions. The differences may lead to different predietions of potential currency crises. According to the estimation of the RMB EMP, and based on the model-independent approach, the paper shows that China has been under threat of an appreciation currency crisis since 2008. Therefore, China should adopt a moreflexible exchange rate regime to prevent a potential crisis.     

Declining Labor Share： Is China＇s Case Different？

This paper explores why labor share in China has declined since the middle of the 1990s. Existing literature usually ascribes the labor share decline in developed countries to biased technological progress. However, our investigation shows that China ＂s case is different. Using a simultaneous equation model estimated with three-stage least squares, we find that FD1, levels of economic development and privatization have negative effects on the labor share. The negative influence of FDl on labor share results from regional competition for FD1, which weakens labor forces＂ bargaining power. A U-shaped relationship exists between labor share and the level of economic development, and China is now on the declining part of the curve. The negative effects of privatization on the labor share stem from the elimination of the so-called ＂wage costs eroding profit ＂ situation and the positive supply shock on the labor market.     

Retesting the Separability of China＇s Rural Households

This article retests the separability of China’s rural households in light of growing doubt about the sustainability of high economic growth in China.If a household’s production decisions are "separable "from the household’s consumption decisions,generally this suggests there is no surplus labor.Many scholars aver that China’s surplus rural labor has spurred rapid economic growth,but concerns have arisen as to whether China still has surplus labor available.We investigate this issue using rural household panel data from 1993 to 2009.The regression results confirm that households in rural China have progressed from being non-separable to separable.The estimation results for both the entire country and regions reject the separability hypothesis before 2004 but fail to reject the hypothesis after 2004(with the exception of the central region).These results suggest that China ’s surplus labor supply is dwindling,especially in the eastern and the western regions.The sustainability of China’s high economic growth is questionable in the absence of a large reservoir of surplus rural labor.     

The Empirical Analysis of the Reason and the Influence of the Rapid Growth of Foreign Exchange Reserves in China

The fluctuation of Chinese foreign exchange （Forex） reserve is affected by those factors, such as the volume of the Balance of Payments, the M2, the balance of external debts and so on. In this paper, the author establishes a model for the fluctuation of China＇s official foreign exchange reserve with the method of econometrics, finding out that it is the surplus of the balance of payments that results in the rapid growth of foreign exchange reserves. Then, this paper uses substantial data to objectively demonstrate the negative impact of position for Forex purchase and its sterilization operation on monetary policy and the economic development of the diverse sectors and regions.     

RMB Internationalization and Its Implications for Financial and Monetary Cooperation in East Asia

This paper emphasizes the importance of the denomination of financial assets rather than trade invoicing as a long-term determinant of an international currency. China needs to liberalize and open its financial system and make the RMB fully convertible, and to adopt a moreflexible exchange rate system to speed up its currency internationalization, for which China could follow either a global or regional approach. The global approach is a riskier and more unpredictable strategy because it would demand a scope and timeframe of financial liberalization that is likely to be beyond China＇s institutional capacity over the coming decade. There are two options that could be taken in following the regional approach. One is creating an ASEAN＋ New 3 （the Chinese Mainland, Hong Kong, and Taiwan） RMB bloc and the other is liberalizing China＇s financial industries and internationalizing the RMB by playing a leading role in East Asia＇s economic integration within the framework of ASEAN＋ 3, This paper concludes that the latter is a more realistic and effective approach for China.     

China＇s Construction Land Expansion and Economic Growth： A Capital-output Ratio Based Analysis

Since 2003, the Chinese Government has included land policy as an important component of macroeconomic policy. The present paper analyzes the impact of the expansion of construction land on economic growth in terms of the capital-output ratio. Using provincial panel data for China from 1999to 2005, we conclude that the excess expansion of China＇s construction land led to an increase in the capital-output ratio. Therefore, expanding construction land has made little contribution to economic growth. This paper argues that contractionary land policy does not deter high economic growth, and is a necessary condition for sustainable economic growth.     

Chinese Offshore RMB Currency and Bond Markets： The Role of Hong Kong

This paper discusses the role of Hong Kong in China’s grand scheme to build up the RMB as a global reserve currency.We highlight the economic importance of Hong Kong to China in terms of channeling foreign direct investment into China,some of which,in the future,will be denominated in the RMB.We discuss the development of China’s RMB currency swap and deposit markets in Hong Kong.These offshore markets enable the RMB to trade freely, setting the stage for the RMB to become fully convertible and allowing market forces to play a role in pricing the value of the RMB,and help in the development of the RMB-denominated bond(or dim sum bond)market in Hong Kong.Finally,we present evidence of the phenomenal growth of the dim sum bond market in Hong Kong,which can further enhance and strengthen the use of the RMB outside China.     

Employment Effectiveness of China＇s Economic Stimulus Package

Using an input--output method, this paper simulates the impacts of the global financial crisis and the decline of exports on China＇s economy and employment. With shrinking external demand, boosting domestic demand becomes crucial for maintaining economic growth and promoting employment. Our simulated results indicate that an investment scenario with employment as a priority can achieve the objective of employment maximization without significantly reducing growth. Public investment should focus on employment, education, health, housing and social security to rebalance China＇s economy so that it can realize sustained and stable economic growth.     

Effectiveness of Capital Controls and Sterilizations in China

Since 2003, China has been facing a trilemma of determining how to maintain independent monetary policy and limit exchange rate flexibility simultaneously, while facing persistent and substantial international capital flows. The present paper is an empirical evaluation of the effectiveness of China＇s sterilizations and capital mobility regulations, measured by sterilization and offset coefficients, respectively, using monthly data between mid-1999 and March 2009. We find that the effectiveness of China＇s sterilizations is almost perfect in terms of the monetary base, but not in terms of M2, and that China＇s capital controls still work but are not quite effective. Recursive estimation reveals that increasing mobility of capital flows and decreasing effectiveness of sterilizations might undercut China＇s ability to maintain monetary autonomy and domestic currency stability simultaneously. To solve the trilemma smoothly, China＇s monetary authority should continue to relax the management of the exchange rate, and take further steps towards deregulation of capital outflows.     

China＇s ApprOach to Rebalancing： A Conceptual and Policy Framework

This article seeks to develop a conceptual and policy framework for understanding China’s role in the global economic imbalances.China’s contribution to these imbalances via recurrent trade and financial surpluses corresponds with a phase of deepening structural risks to China s economic growth and development.These structural challenges include:the composition of growth resulting from China’s dynamic internal transformation,China’s trade orientation,the trajectory of resource use and Commissions,welfare problems relating to distribution and international constraints.This article develops a conceptual framework for examining the relationship between the processes of long-run structural transformation in China,its economic imbalances,and the role of institutional reform in dealing with these structural challenges.As such,economic policy should extend beyond short-term macro management to pursue an institutional reform agenda to facilitate broader structural change to mitigate constraints to future growth and to improve economic welfare.     

Long-Term Development Trend of China’s Economy and Importance of the Circular Economy

In 2003, China’seconomy grew at a rateof over 9 percent with per capita GDP hittingUS$ 1,090 for the first time, which means that China’s economy and socialdevelopment have entered a high-growth cycle characterized by rapid structuralchanges. However, this round of high growth is based on resources and an ecologicalenvironment completely different from those of twenty five years ago. Based on ananalysis of the new features of future economic development in China, as well as theresource an…     

Development and application evaluation of industrial common technology in Liaoning

This paper focuses on the theories and studies related to industrial common technology. Adopting Hall＇s 3-D structure analysis tool in systematic engineering and taking the regional economic characteristics of Liaoning Province in China into consideration, this paper carries out deep studies on the feasibility of the development and application evaluation of the industrial common technology in Liaoning Province of China, provides reference information for the development of Liaoning regional industrial common technology studies and makes its modest contributions to the regional economic development of the province.     

Is There a ＂Middle-income Trap＂？ Theories, Experiences and Relevance to China

Through review of relevant studies and analysis,this article indicates that the "middle-income trap " is in line with the framework of the mainstream economic growth theories, and,therefore,it is a useful concept through which we can analyze economic growth phenomena in specific economic growth phases.The empirical experiences of many countries also indicate that at specific middle-income stages,economies with high rates of growth tend to encounter economic slowdown or even stagnation.The article shows that China is facing the challenge of determining how to move smoothly beyond the middle-income stage of economic development,while taking into account the shifting population structure,changing resource endowment and growth patterns.The article,drawing on international experiences, puts forward several policy suggestions relating to improvement in total factor productivity, expansion of human capital accumulation and deepening of system and government function reforms.