CHINA FINANCIAL RESEARCH NETWORK
2009-09-01 第2卷 第5期
Federal Reserve Bank of San FranciscoCenter for Pacific Basin Monetary & Economic Studies
Hainan UniversitySchool of Economics
Nottingham UniversityBusiness School
Bank of ItalyInternational Economic Analysis and Relations Department
Reuven Glick Federal Reserve Bank of San FranciscoCenter for Pacific Basin Monetary & Economic Studies
In recent years China has faced an increasing trilemma - how to pursue an independent domestic monetary policy and limit exchange rate flexibility, while at the same time facing large and growing international capital flows. This paper analyzes the impact of the trilemma on China's monetary policy as the country liberalizes its goods and financial markets and integrates with the world economy. It shows how China has sought to insulate its reserve money from the effects of balance of payments inflows by sterilizing through the issuance of central bank liabilities. However, we report empirical results indicating that sterilization dropped precipitously in 2006 in the face of the ongoing massive buildup of international reserves, leading to a surge in reserve money growth. We estimate a vector error correction model linking the surge in China's reserve money to broad money, real GDP, and the price level. We use this model to explore the inflationary implications of different policy scenarios. Under a scenario of continued rapid reserve money growth (consistent with limited sterilization of foreign exchange reserve accumulation) and strong economic growth, the model predicts a rapid increase in inflation. A model simulation using an extension of the framework that incorporates recent increases in bank reserve requirements also implies a rapid rise in inflation. By contrast, model simulations incorporating a sharp slowdown in economic growth lead to less inflation pressure even with a substantial buildup in international reserves.
Jianjun Sun Hainan UniversitySchool of Economics
In China, regional disparities are important. We examine the difference in the sensitivity of investment to cash flow between firms in inland regions and those in coastal regions. By using the financial data of Chinese listed firms, we found that firms in inland regions rely more on their internal funds in terms of their investment activities than those in coastal regions and that the sensitivity gap between inland and coastal firms widened in the recent contractionary monetary policy period. This suggests that firms in inland regions are harder to obtain outside funds due to unfavorable social and economic environments for inland firms. Our findings suggest that capital markets in China respond rationally to the potential impact of regional disparities on a firm’s performance.
Wantao Yu Nottingham UniversityBusiness School
The impacts of business environmental factors on operations strategy choices in a manufacturing context have been heavily researched. However, how managers of service firms in developing countries such as China develop operations strategy has yet to receive any significant attention among researchers. Drawing on the manufacturing literature, we examine, in the Chinese context, the relationships between business environmental factors (such as business cost, competitive hostility, labour availability, and environmental dynamism) and operations strategy choices (such as low cost, quality, flexibility and delivery performance). Employing a path analytic framework, we have identified strong linkages between business environment (viz.: business cost, competitive hostility and environmental dynamism) and operations strategy choices. We have found that environmental dynamism (such as changes in retail technology and innovations in new service development) had the strongest influence on the degree of emphasis placed on operations strategy choices. However, environmental concerns about labour availability do not appear to have any direct effect on the operations strategy selections among retail firms in China.
Daniela Marconi Bank of ItalyInternational Economic Analysis and Relations Department
he paper assesses the vulnerability of China to external shocks via the indirect negative effect of a slow-down in exports on domestic demand for investment. In the last decade China has increased its dependence on external demand, particularly from the advanced countries; at the same time it has become a primary destination market for goods produced in the rest of emerging Asia. Since 2001 investment expenditures have represented a key driver of Chinese GDP growth; as a very large share of activity in the manufacturing sector is export oriented, we expect fixed capital investment in this sector to be highly related to exports. Overcoming serious shortcomings in available data, we estimate an investment equation for the period 1993-2006 and find an elasticity of investment to exports in the manufacturing sector in the range between 0.9 and 1. Taking into account the dominant contribution of capital accumulation to Chinese GDP growth, we conclude that the growth effects of an external demand shock could become significant when taking into account the domestic investment channel.
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