ECON 455 Lecture 16 Financial reforms

ECON 455 Lecture 16 Financial reforms - Econ455: Economic...

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1 1 Econ455: Economic Development in China Lecture 16: March 14 Financial reforms: Will China have a Financial crisis? Sandra Poncet Lorch Hall, room 207 Email: sponcet@umich.edu Office Hours: 2 Introduction China’s financial system is lagging behind other aspects of China’s economic development. Potential source of vulnerability Financial system is currently the focus of attention from policy-makers: midst of rapid change. Topic will be addressed in 3 steps: -Today: framework, characteristics and issues -March 19 : Integration/efficiency of capital markets -April 9 : Major threats: financial
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2 3 Lecture Outline I- Framework of China’s financial system A-Role of financial systems B-Different types of financial institutions II-Weaknesses of the banking system A-Different types of actors B-Performance: misallocation of funds, overlending, financial repression, credit NPLs, III-Lack of maturity of the other financial markets A-Stock markets: Bad performance until 2006, low capitalization, lack of liquidity, institutional weaknesses B-Bond markets: underdevelopment Conclusion 4 A-Theoretical role of financial systems (positive effect on growth) I- Framework of China’s financial system Direct financial resources to their most productive use Achieve economies of scale in evaluating projects and providing financial services. Empirical findings: positive association of depth of financial intermediation (loans as a share of GDP) with both the level of development (GDP per capita) and the rate of economic growth -produce ex ante information about possible investment -monitor investment and exert corporate governance after providing finance -facilitate the trading, diversification, and management of risk -mobilize and pool savings: safeguard deposits and provide liquidity to borrowers and depositors -ease the exchange of goods and services.
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3 5 In China: Financial performance undermined Undermined by policy lending barriers to interregional lending distorted pricing poor managerial incentives lack of prudential financial regulation I- Framework of China’s financial system Switzerland China Netherlands Japan Hong Kong Germany Spain Malaysia Australia France Italy Luxembourg Korea Thailand USA Brazil Canada Chile India Phil ipines Indonesia Argentina Mexico 0 50 100 150 200 Domestic Credit / GDP in % 6 I- Framework of China’s financial system
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4 7 B-Different types of financial institutions I- Framework of China’s financial system Legacy of a centrally-planned economy
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This note was uploaded on 03/07/2008 for the course ECON 455 taught by Professor Poncetsandra during the Winter '06 term at University of Michigan.

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ECON 455 Lecture 16 Financial reforms - Econ455: Economic...

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