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4882. Global Imbalances and Financial Reform with Examples from China
- Author:
- Raghuram G. Rajan
- Publication Date:
- 07-2006
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- I will focus on a familiar issue, the problem of global current account imbalances, and will describe how financial sector reform can help narrow them, using examples from China. The United States is running a current account deficit approaching 6.25 percent of its GDP and over 1.5 percent of world GDP. To help finance it, the United States pulls in 70 percent of all global capital flows. Clearly, such a large deficit is unsustainable in the long run. The current situation has its roots in a series of crises over the last decade that were caused by excessive investment, such as the Japanese asset bubble, the crises in emerging markets in Asia and Latin America, and most recently, the IT bubble. Investment has fallen off sharply since, with only very cautious recovery. This is particularly true of emerging Asia and Japan. The policy response to the slowdown in investment has differed across countries. In the industrial countries, accommodative policies such as expansionary budgets and low interest rates have led to consumption- or credit-fueled growth, particularly in Anglo-Saxon countries. Government savings have fallen, especially in the United States and Japan, and household savings have virtually disappeared in some countries with housing booms. By contrast, the crises were a wake-up call in a number of emerging market countries. Historically lax policies have been tightened, with some countries running primary fiscal surpluses for the first time, and most bringing down inflation through tight monetary policy. With corporations cautious, and governments abandoning the grandiose projects of the past, investment has fallen off. Instead, exports have led growth. Many emerging markets have run current account surpluses for the first time. In emerging Asia, a corollary has been a buildup of international reserves.
- Topic:
- Financial Crisis, Reform, Finance, Economy, and Deficit
- Political Geography:
- China, Asia, North America, and United States of America
4883. Renminbi Controversies
- Author:
- Morris Goldstein
- Publication Date:
- 07-2006
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- No topic in international monetary economics has probably been more debated over the past three years than what should be done about China’s currency regime and about the exchange rate for the renminbi (RMB). In this article, I take up three questions that are at the center of the current debate, namely: (1) Is the RMB undervalued and, if so, by how much? (2) Would an RMB appreciation of 20–25 percent be particularly harmful for China’s economic growth and development, as well as for its domestic financial stability? (3) Was the July 21, 2005, currency reform a large or tiny step forward?1
- Topic:
- Economics, Economic Growth, Currency, and Financial Stability
- Political Geography:
- China and Asia
4884. Five Persistent Myths About China's Banking System
- Author:
- Jonathan Anderson
- Publication Date:
- 07-2006
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- Of all the various topics and issues facing observers of the Chinese economy, it is safe to say that none arouses more spirited debate than the role of the financial system, and in particular the state of Chinese banks. Is the mainland on the verge of a financial crisis? Has the recent economic overheating created a new flood of bad loans? Do banks know how to allocate capital, or are they simply quasi-fiscal agencies acting at the mercy of the government? And does the rapidly opening financial system represent a gold mine or a “black hole” for foreign investors? The answers to these questions are not always straightforward, but in our experience the truth lies very much away from the extremes so often presented in the financial press. Chinese banks are by no means “out of the woods,” first and foremost because they remain stateowned institutions, but they are now well advanced from their situation only a decade ago. This means that the economy is protected from the risk of a financial crisis—but, on the other hand, the banking sector is more a sunset industry than an exciting growth sector. There are a number of myths about banks and the financial system in China but the following are the most important and most persistent: (1) China’s cost of capital is far too low; (2) Mainland banks are unreconstructed quasi-fiscal agencies; (3) Bank recapitalization is a sham; (4) Banks are already “out of the woods”; and (5) The Chinese banking system is an exciting growth industry. Let us now examine these five myths.
- Topic:
- Economics, Financial Crisis, Finance, Economic Growth, and Banking
- Political Geography:
- China and Asia
4885. Managing Uncertainty: Formulating A U.S. Grand Strategy for China
- Author:
- Christopher E. Schildt
- Publication Date:
- 05-2006
- Content Type:
- Journal Article
- Journal:
- Journal of Public and International Affairs (JPIA)
- Institution:
- School of Public and International Affairs (SPIA), Princeton University
- Abstract:
- This paper posits that in the face of uncertainty over China’s rise to power, traditional realist and liberal theories of international relations are impractical for formulating U.S. policy. Instead, this paper outlines a new way of thinking about international order and then uses a game theory model to analyze U.S.-Sino relations in light of this new framework. The model fi nds that a mixed strategy equilibrium exists whereby the United States pursues both competitive and cooperative policies toward China. This U.S. policy of “guarded engagement” could induce Beijing to cooperate but leaves the United States prepared for confl ict if it does not.
- Topic:
- International Relations, Foreign Policy, Grand Strategy, Game Theory, and Uncertainty
- Political Geography:
- China and Asia
4886. U.S.-China Relations: The Case for Economic Liberalism
- Author:
- James A. Dorn
- Publication Date:
- 10-2006
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- In its 2005 Report to Congress, the U.S.-China Economic and Security Review Commission—also known as the U.S.-China Commission (USCC)—recommended that China appreciate its currency, the renminbi (RMB), “by at least 25 percent against the U.S. dollar” or face “an immediate, across-the-board tariff on Chinese imports.” The commission argued that such an action could be justified under Article XXI of the World Trade Organization (WTO), “which allows members to take necessary actions to protect their national security.” The key idea behind the commission’s protectionist policy stance is that “China’s undervalued currency has contributed to a loss of U.S. manufacturing, which is a national security concern” (USCC 2005: 14).
- Topic:
- Bilateral Relations, Economy, Trade, and Liberalism
- Political Geography:
- China, Asia, North America, and United States of America
4887. China’s Stock Market: A Marriage of Capitalism and Socialism
- Author:
- Sonia M. L. Wong
- Publication Date:
- 10-2006
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- The rise of China’s stock market during the 1990s was nothing short of breathtaking. For more than 30 years after 1949, China was a centrally planned economy in which virtually all enterprises were state owned or collectively owned. Investments were centrally planned and funded by government fiscal grants as well as by loans from the state-owned monobank system as dictated by the government’s central credit plan. In the late 1980s, as part of enterprise reforms that took place during China’s gradual transition to a market economy, local governments in China started experimenting with selling shares of collectively owned enterprises directly to domestic individuals in order to raise equity capital. Curbed trading of enterprise shares soon began and was quickly followed by over-the-counter (OTC) trading in more organized but still informal exchanges. In 1991, two stock exchanges, one created by the Shanghai municipal government and the other by the Shenzhen municipal government, were launched, with the central government’s formal approval. Between 1992 and 2003, the market raised a total of 796.79 billion yuan of equity capital. At the end of 2003, China’s stock market had 1,287 listed enterprises and more than 70 million investor accounts (CSRC 2004).
- Topic:
- Economy, Investment, Socialism, State Capitalism, and Stock Markets
- Political Geography:
- China and Asia
4888. Tokyo's Quandary, Beijing's Moment in the Six-Party Talks: A Regional Multilateral Approach to Resolve the DPRK's Nuclear Problem
- Author:
- Kuniko Ashizawa
- Publication Date:
- 09-2006
- Content Type:
- Journal Article
- Journal:
- Pacific Affairs
- Institution:
- University of British Columbia
- Abstract:
- The record of Japan's diplomacy in the Six-Party Talks (SPT), the key multilateral mechanism to address North Korea's unflagging nuclear ambitions, is unpronounced. Tokyo's position in the SPT process has been often viewed as a secondary one, as if it was functioning as Washington's henchman, and at times as unproductive, thanks to its attempts to address the abductions issue in this multilateral setting. This represents an interesting contrast to China's SPT diplomacy, which has seen Beijing play an indispensable role, projecting itself as an honest broker. Further, the contrast between the two countries is intriguing when their general policies toward regional multilateral institutions over the past decade are taken into account. Both countries made a conspicuous shift in their attitudes toward regional multilateral institution-building, from negative and skeptical to positive and active. In the case of the SPT, a new multilateral institution in Asia, Tokyo's activism appeared to be muted, while Beijing positioned itself in a most visible manner. With this backdrop, the article examines Japanese policy making toward the SPT through a specific comparison with the country's general attitude toward regional institution-building and with China's SPT diplomacy. It argues that three aspects of the decision-making context—the nature of foreign policy questions, the composition of actors, and the type of available diplomatic tools—unique to Japan's dealings with the SPT essentially shaped its diplomacy and thus brought about a conspicuous contrast with its general attitude toward regional institution-building and with Beijing's growing regional activism.
- Political Geography:
- Japan, China, Washington, Beijing, Asia, North Korea, and Tokyo
4889. Australia, America and Asia
- Author:
- Mohan Malik
- Publication Date:
- 12-2006
- Content Type:
- Journal Article
- Institution:
- University of British Columbia
- Abstract:
- This article examines the changing nature of Australian-American relations in the aftermath of the Iraq imbroglio and China's rise. While many observers see differences in Australian and US approaches toward China as a reflection of different interests, it is the contention of this paper that these different Australian-US perspectives on China are, in fact, premised more on some highly skewed assumptions and fallacious beliefs, misconceptions and myths that have lately come to underlie Australia's China policy than on divergent Australian-US interests. This article looks at the proposition that China's rise has the potential to divide Australia and America but concludes that Beijing is unlikely to succeed in driving a wedge between Washington and Canberra. The shared values and shared strategic interests ensure broad support for the Australia-US alliance in Australia which has now expanded into a global partnership encompassing the transnational security issues as well as the traditional geopolitical issues of managing the rise of new powers.
- Topic:
- Security
- Political Geography:
- China, America, Beijing, Asia, and Australia
4890. Australia, the US and East Asia: Are Close Ties with the Bush Administration Beneficial?
- Author:
- Mark Beeson
- Publication Date:
- 12-2006
- Content Type:
- Journal Article
- Institution:
- University of British Columbia
- Abstract:
- Australian policymakers have traditionally made cultivating close strategic ties with the dominant power of the era the centerpiece of foreign policy. As Australia's prominent role in the "coalition of the willing" in Iraq demonstrates, this strategy is alive and well. It is, however, no longer clear whether this strategy is in either Australia's national interest or that of the international community more generally. I argue that, in reality, close ties with the current Bush administration have been costly and may further complicate Australia's relations with an East Asian region in which China is becoming an increasingly important actor.
- Political Geography:
- China, East Asia, and Australia