Topic_8_Econ162bw - Economics 162 The Economy of China...

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Unformatted text preview: Economics 162 The Economy of China Topic 8 Financial System Professor David Roland-Holst Department of Agricultural and Resource Economics Tuesday and Thursday, 12:30-2PM, 10 Evans Hall Roland-Holst 2 Economics 162 Economics 162 Economics 162 Evolution of Chinas Financial System I Before 1983 Monobank: Peoples Bank of China (PBOC) Both the Central Bank and commercial bank Subordinated to the Ministry of Finance After 1983 PBOC becomes the Central Bank Four state-run specialized banks Industrial and Commercial Bank of China (ICBC) Agriculture Bank of China (ABC) Bank of China (BoC) China Construction Bank (CCB) Urban and Rural Credit Cooperatives Roland-Holst 3 Economics 162 Economics 162 Economics 162 Evolution of Chinas Financial System II In the 1990s Two stock markets opened Three policy banks established State Development Bank Export-Import Bank Agriculture Development Bank Central Bank Law and Commercial Bank Law passed PBOC reorganization: large region branch bank Credit plan abolished More banks established, but the big four continues to dominate Roland-Holst 4 Economics 162 Economics 162 Economics 162 Financial Deepening Concept of Money M = Cash in circulation (narrow money) M 1 = Cash + demand deposit M 2 = Cash + all demand deposit + all time deposit (broad money) Household Bank Deposits (household demand deposits + household time deposits) Financial deepening Increase of financial assets as share of GDP 2001: household savings deposits surpassed 7 trillion yuan, greater than 70% of GDP In comparison, household holdings of publicly traded stocks only around 1 trillion yuan Roland-Holst 5 Trends of Financial Deepening 0% 20% 40% 60% 80% 100% 120% 140% 160% 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 M2 / GDP Household Saving Deposits / GDP Roland-Holst 6 Economics 162 Economics 162 Economics 162 Direct vs. Indirect Financing Direct financing investors-> securities market -> projects (households) (firms) Indirect financing investors-> banks -> projects (households) (firms) Roland-Holst 7 Economics 162 Economics 162 Economics 162 Financial Instruments Debt: fixed payment obligations Bonds in securities market (government bonds, municipality bonds, corporate bonds) Bank deposits, bank loans Maturity mismatch problem Equity: no fixed payment obligations Shares in stock market Roland-Holst 8 Economics 162 Economics 162 Economics 162 The Banking System The most important part of Chinas financial system The banking system is dominated by the big four State banks are state-owned enterprises, subject to more government intervention Banks are special financial intermediaries with liquidity provision function Trust investment or investment firms are financial intermediaries without that function Deposit side: very impressive and successful Lending side: very problematic and fragile Roland-Holst...
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This note was uploaded on 04/05/2009 for the course UGBA 137 taught by Professor Staff during the Spring '08 term at University of California, Berkeley.

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Topic_8_Econ162bw - Economics 162 The Economy of China...

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