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11. Assessing China’s Financial Reform: Changing Roles of the Repressive Financial Policies

Author:
Yiping Huang and Tingting Ge
Publication Date:
01-2019
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
When China began economic reform in 1978, it had only one financial institution, the People’s Bank of China (PBOC), which, at that time, served as both the central bank and a commercial bank and accounted for 93 percent of the country’s total financial assets. This was primarily because, in a centrally planned economy, transfer of funds was arranged by the state and there was little demand for financial intermediation. Once economic reform started, the authorities moved very quickly to establish a very large number of financial institutions and to create various financial markets. Forty years later, China is already an important player in the global financial system, including in the banking sector, direct investment, and bond and equity markets. However, government intervention in the financial system remains widespread and serious. The PBOC still guides commercial banks’ setting of deposit and lending rates through “window guidance,” although the final restriction on deposit rates was removed in 2015. Industry and other policies still play important roles influencing allocation of financial resources by banks and capital markets. The PBOC intervenes in the foreign exchange markets from time to time, through directly buying or selling foreign exchanges, setting the central parity, and determining the daily trading band. The regulators tightly manage cross-border capital flows, and the state still controls majority shares of most large financial institutions.
Topic:
Economics, Foreign Exchange, Reform, Financial Markets, and Banks
Political Geography:
China and Asia

12. China's Future and the Determining Role of the Market for Ideas

Author:
Ning Wang
Publication Date:
01-2017
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
The ultimate success of China’s search for economic prosperity, cultural renaissance, and a “peaceful rise” depends, in large part, on whether a free market for ideas can reemerge and flourish in China. The concept of the “market for ideas” (sixian shichang) was first introduced to a Chinese audience by Ronald Coase and myself in How China Became Capitalist (Coase and Wang 2012, see also Coase 1974). It quickly won acceptance among academics and the media. China is the only leading economy where the production and communication of ideas remains under strict state control. Universities, the primary venue where new ideas are produced, are run by the state. Newspapers, radio and TV stations, and publishers are all controlled by the state; ideas unwelcome by the state have a hard time to see the light of day. Because the freedom to supply ideas, choose ideas, and criticize ideas is severely limited, the creativity of the Chinese people is underutilized and their innovative potential undertapped.
Topic:
Economics, History, and Freedom of Press
Political Geography:
China and Asia

13. Making Inroads: China's New Silk Road Initiative

Author:
Christine R. Guluzian
Publication Date:
01-2017
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
China’s New Silk Road initiative is a multistate commercial project as grandiose as it is ambitious. Comprised of an overland economic “belt” and a maritime transit component, it envisages the development of a trade network traversing numerous countries and continents. Major investments in infrastructure are to establish new commercial hubs along the route, linking regions together via railroads, ports, energy transit systems, and technology. A relatively novel concept introduced by China’s President Xi Jinping in 2013, several projects related to the New Silk Road initiative—also called “One Belt, One Road” (OBOR, or B&R)—are being planned, are under construction, or have been recently completed. The New Silk Road is a fluid concept in its formative stages: it encompasses a variety of projects and is all-inclusive in terms of countries welcomed to participate. For these reasons, it has been labeled an abstract or visionary project. However, those in the region can attest that the New Silk Road is a reality, backed by Chinese hard currency. Thus, while Washington continues to deliberate on an overarching policy toward Asia, Beijing is making inroads—literally and figuratively— across the region and beyond.
Topic:
Infrastructure, Soft Power, Belt and Road Initiative (BRI), and Trade
Political Geography:
China and Asia

14. Rent Seeking and Entrepreneurship: Internet Startups in China

Author:
Tain-Jy Chen and Ying-Hua Ku
Publication Date:
10-2016
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Against all odds, China has developed one of the most vibrant Internet industries in the world. According to Atomico (2015), which tracked venture capital (VC)-funded startups in the world, there were 156 Internet startups that had been founded in 2003–14 and that had become billion-dollar companies (based on market capitalization) by the end of 2014 after initial public offerings (IPOs). The United States leads the list with 86 companies, followed by China’s 30, and Sweden’s 5. All Chinese billion-dollar startups are consumer-related, while billion-dollar startups in other countries include business applications, games, and others. Similarly, the Wall Street Journal tracked unlisted VC-funded startups and identified 78 of them whose market valuation (measured by financing terms in the most recent round of funding) had exceeded one billion dollars in March 2015 (Table 1). The list includes startups in the Internet as well as other sectors. Again, the United States leads the list with 50 ventures, followed by China’s 8. All Chinese ventures are Internet-related, if Xiaomi, which tops the list of all startups and sells smartphones on the Internet, is also counted as an Internet company (Dow Jones Venture Source 2015). In short, Chinese startups are numerous, vigorous, and most successful in Internet-based consumer business.
Topic:
Science and Technology, Internet, Entrepreneurship, and Business
Political Geography:
China and Asia

15. China's Political-Economic Institutions and Development

Author:
Chenggang Xu
Publication Date:
10-2015
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
After more than three decades of economic reform, China has transformed from being one of the poorest economies in the world to being the second-largest economy measured by nominal exchange rates, or the largest economy measured by purchasing power. As such, it is important to elucidate the determinants of China’s future development. This article will focus on China’s institutions. I argue that although the size of China’s economy is extremely important in terms of its impact on the global economy, it is misleading to ignore political and economic institutions. Indeed, forecasts based on extrapolating past trends could be erroneous (see Pritchett and Summers 2014). China was the largest economy in the world before the end of the 19th century but then lost ground to Western nations that established the rule of law and free trade. To understand China’s past and future development, one has to examine its institutions.
Topic:
Economics, Reform, and Global Political Economy
Political Geography:
China and Asia

16. The Power of Ideas and Leadership in China's Transition to a Liberal Society

Author:
Weiying Zhang
Publication Date:
02-2015
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
History and casual observations suggest that ideas and leadership are the two most important forces in all institutional changes. However, they have been absent or downplayed in conventional economic analysis of institutional changes. Conventional economics has exclusively focused on the notion of “interest” in explaining almost everything, from consumers' choices to public choices to institutional changes. IN particular, institutional changes have been modeled as a game of interests between different groups (such as the ruling and the ruled), with the assumption that there is a well-defined mapping from interests into outcomes.
Topic:
Economics
Political Geography:
China

17. Book Review: Foreign Policy Begins at Home: The Case for Putting America's House in Order

Author:
Travis Evans
Publication Date:
07-2014
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
For the better part of a decade, the United States has been mired in mediocrity, settling for what feels like a new normal of low eco- nomic growth, stagnant wages, political intransigence, and an unending war or terror. Many think America's better days are behind it. Richard Haass, the president of the Council on Foreign Relations, disagrees. In Foreign Policy Begins at Home , Haass attempts to reverse American defeatism and assuage fears of American decline, arguing instead that the United States is simply underperforming, suffering from "American made" problems that can be corrected by restoring the "foundations of its power." He explains that America's true strength abroad comes from its strength at home, and if America is to provide global leadership it "must first put its house in order." While much of Foreign Policy focuses on policy prescriptions that would restore American strength, the true contribution of the book is its explanation of why such a strategy is needed.
Topic:
Foreign Policy
Political Geography:
Japan, China, and America

18. The Renminbi's Prospects as a Global Reserve Currency

Author:
Eswar Prasad and Lei Ye
Publication Date:
10-2013
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Popular discussions about the prospects of China's currency, the renminbi, range from the view that it is on the threshold of becoming the dominant global reserve currency to the concern that rapid capital account opening poses serious risks for China. A number of recent academic studies have pointed to the renminbi's rising importance in the international monetary System, although these studies are divided on the renminbi's prospects of becoming a dominant global reserve currency (see Eichengreen 2011a, Subramanian 2011, Frankel 2012, and Yu 2012).
Political Geography:
China

19. Does Internationalizing the RMB Make Sense for China?

Author:
Yukong Huang and Clare Lynch
Publication Date:
10-2013
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
The last time a Chinese currency was used as an international medium of exchange was four centuries ago, when China's share of global GDP in PPP terms was nearly 30 percent (about twice its current level), the country was a major global trading power, and Chinese copper coins circulated throughout East Asia to India and even beyond (Horesh 2011). In the following centuries, silver dollars and paper bills replaced copper coins and China's share of external trade declined. Now, with China's return to the position of largest global trader and second-largest economy in the world, it is not surprising that discussion of internationalizing China's currency has resumed.
Topic:
Economics
Political Geography:
China and East Asia

20. Capital Freedom in China as Viewed from the Evolution of the Stock Market

Author:
Zhiwu Chen
Publication Date:
10-2013
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Since reforms started in 1978, China has made commendable progress in achieving capital freedom and individual liberty. Prior to 1978, private enterprises with more than eight employees were prohibited and there were no capital markets. Private entrepreneurs were labeled “Capitalist tails,” and political movements were launched frequently to “cut the capitalist tails.” For several decades, Chinese citizens could only obtain employment and economic means from government organizations and state-owned enterprises, which strictly limited individual liberty. Today there are more than 10 million privately owned enterprises, making up more than 80 percent of each year's employment growth. As a result of less regulation and more room for entrepreneurship, it is relatively easy to register and start a business. Public equity offering opportunities and bank financing are also increasingly available to private firms as well. Chinese, young and old, can choose among jobs provided by government organizations, SOEs, private businesses, and foreign-owned firms. As capital freedom has increased, the rise of the individual and liberty is one of the highlights achieved in China's development over the past 35 years.
Topic:
Economics
Political Geography:
China