Banking Reform in China: An Assessment in Macroeconomic Perspective

China has been delaying its adoption of a flexible exchange rate system with free capital flows. The main excuse is that its financial sector is still in its fragile stage and is not able to withstand any external shocks. A big bang approach towards such liberalization will only lead to financial crisis as observed by experiences of many Asia-Pacific countries during the Asian Financial Crisis. With this in mind, this paper attempts to uncover the approach and strategies adopted by China in its banking reform since 1978 and then assess these reform measures in macroeconomic perspective. The paper argues that since China is still lingering on export-oriented strategy in promoting economic growth and monetary independence for demand management is still a long way to go, it is still in China’s best interest not to adopt a flexible exchange rate system at this point of time. As to capital account liberalization, the main focus is to engineer a controlled and systematic capital outflows through outward investment in particular portfolio investment. At the micro level, China should continue its banking reforms until the financial sector is strong enough to withstand the severe pressure of globalization. By then, will China, with its matured financial system be ready to consider the adoption of a flexible exchange system with free capital flows.China, banking reform, non-performing loans, state-owned enterprises, corporate governance, regulation and supervision, financial liberalization

Impact of A Rising Chinese Economy and ASEAN’s Responses

The emergence of China as one of the largest trading nation provides challenges and opportunities to its neighboring ASEAN countries. In the face of the rise of China, there were concerns that ASEAN economies may be adversely affected. One of the concerns is that the world export markets of labor intensive goods will be threatened if China turns into the world low cost manufacturing workshop. Meanwhile, trade between China and ASEAN countries increased dramatically during the past decade. Not surprisingly, China’s accession to WTO and the future establishment of a Free Trade Area (FTA) between ASEAN and China will further change the trade relations between the two areas. The paper analyses the past trade patterns between China and ASEAN countries and find out the impact of the FTA on ASEAN countries, in particular, the impacts to specific industries in each individual country. Secondly, the paper also examines the ever increasing role of foreign direct investment between the two regions and finally, it analyzes the possible policy responses of the ASEAN countries and consequences of these policies.ASEAN trade policy, rising Chinese economy

China’s “Triangle of Woes” and Its Impact on Financial Stability

The purpose of this paper is to apply Dean’s (2001) model of the ‘Asian governance triangle’ to assess the symbiosis relationships among the Chinese government finance, state-owned enterprises (SOEs) and the banking system in China. According to Dean, the relationship as a whole is fragile and unhealthy. This is because crises of such character are interdependent and contagious in that crisis in any one corner could readily lead to crises in the others. However, China has so far managed to avoid a financial crisis, which according to Dean (2001), is due to three reasons. Firstly, China remains willing to pour public funds into its SOEs and banks. Partly, as a result, hundreds of millions of ordinary Chinese people keep adding to their bank deposits, which enable the banks to sustain their flow of non-repayable loans to the SOEs. Secondly, China remains shielded from the crisis by its holding of massive foreign exchange reserves. Finally, the financial system is well protected by its exchange and capital controls. However, over the years, a series of reforms of its SOEs and banking system has severed the symbiosis relationships through the introduction of banking and corporate governance in the system. Any disruption of the gradual approach towards the reforms by hastily adopting a f lexible exchange rate and free capital flows would do more harm than benefit China in the long run.China, corporate governance, banking governance, banking reforms, government finance, state-owned enterprises, state-owned banks

The Development and Growth of Foreign Exchange Markets in the SEACEN Countries

An attempt is made to assess and analyse the development and growth of foreign exchange markets in the SEACEN region, in addition to providing an overview of the structure and characteristics of exchange markets in the region. The paper discusses some basic conditions for active exchange markets, and the underlying economic constraints which hamper an orderly development of foreign exchange markets in the region.

Changing Trade Patterns in the SEACEN Countries

This is a background note on the changing patterns and composition of external trade in the SEACEN countries. Section I of this paper examines the changing composition of both exports and imports since 1970. Section II analyses the changing direction of trade, while Section III reviews the general growth performance and developments over the last fifteen years.

Strategic Policy Implications for Southeast Asia

The purpose of this paper is to analyze strategic policy implications arising from possible threats and opportunities in the face of the emergence of China as an economic powerhouse. The focus of the paper is not on the regional approach through mainly regional co-operations but more on policy strategies and responses at the national level. Depending on their degree of national economic development, economic structure and comparative advantage, eight strategic positionings have been identified. Of these eight positionings, direct competition is considered as an unwise move, considering China being endowed with relatively cheap labour resources. Together with its huge domestic market which can serve as a magnet for direct foreign investment, competition in attracting FDI can be a daunting task for most to the Southeast Asian countries. Instead, competition based on niche areas through branding, for instance provides a feasible alternative. The other alternative is to avoid direct competition by upgrading its economy, venturing into those areas where China has no comparative advantage as well as looking inward for sources of growth. Others may adopt ‘connecting’ strategies such as complementing or supplementing the Chinese economy by meeting China’s increasing demand for natural resources or exploiting its huge domestic market. Still others may explore the possibilities of forging strategic alliance with China in the global market or playing the role of a middleman between China the West

Determinants Of Exports In Malaysia : 1970-2008

Kajian ini menyiasat faktor-faktor yang menentukan eksport di Malaysia

Its Threats and Opportunities from the Perspective of Southeast Asia

The purpose of the paper is to examine the economic impact of China on the Southeast Asian countries, mainly in terms of trade and investment. The paper attempts to examine whether the rise of China poses a threat to Southeast Asia as a region in the area of international trade, especially competition in the third markets. Can they be comrades rather than competitors in international market? Secondly, the paper also questions the concentration of foreign direct investment (FDI) in China implies a diversion of FDI away from the region. Are the FDI in China and Southeast Asian region complement each other in the international division of labour? On the other hand, the increasing role of China as an international trader and global investor provides an opportunity for Southeast Asia countries to integrate with the Chinese economy. The huge domestic market of China also provides vast opportunities for investment, especially through connections of their respective ethnic Chinese businesses in the region. In return, Southeast Asian countries, through their respective ethnic groups can also play a middleman role between China and the West, as well as between China and India together with the Middle East

Exchange Market Pressure and Central Bank Policy: An Application of the Girton and Roper Monetary Model in the SEACEN Countries

This paper aims to study the reaction of the SEACEN countries to external shocks during the period 1970-1984. It examines the rationales underlying the choice of various policy options adopted by the SEACEN countries. In effect, the study revolves around the basic question of whether a further development of the existing foreign exchange market will increase the policy options, and thereby help improve the effectiveness of exchange rate and monetary policies in mitigating external shocks.

Some Aspects of the Informal Sector in the SEACEN Countries

A cursory survey on the nature and structure of the informal financial sector (IFS) in the SEACEN countries is provided in this paper. Section I gives an idea on the size and magnitude of IFS in the SEACEN countries. The types of credit supplied by the IFS are also examined. Section II is an analysis of the utilization of credit by the borrowers in the IFS, while Section III examines the trend and structure of interest rates in the IFS. The concluding section attempts to rationalize the persistence of IFS despite various efforts on the part of the SEACEN government to contain their activities.