Subject Index

ABC. See Agricultural Bank of China

ACU. See Asian Currency Unit

ADBC. See Agricultural Development Bank of China

Agricultural Bank of China (ABC), 137,

150,158-159

Agricultural Development Bank of China (ADBC), 137

Allianz, 157-158

AMC.

Apple Index, 28

Asian Currency Unit (ACU), 224-225

Asian Development Bank, 155, 157, 225 Asian financial crisis, 2, 20, 65-72, 73, 197-198

Asset Management Companies (AMC)

China Cinda, 140

ChinaGreatWall, 146, 147

ChinaHuarong, 146, 148-149

China Orient, 146

default risk of, 146-149

foreign investors and, 148-149

NPLs and, 148-149, 160

operations, 146-149

asset markets, People's Republic of China, 165-166, 187. Seealso bond market development; equity markets

Ba Shusong, 76

BankofChina (BOC), 137 BankofCommunications, 138, 157 BankofShanghai, 155

Bankof Taiwan, 4-5, 120, 122 Bernanke, Ben, 4, 33, 43-44 Big Mac Index, 27-29 Blackstone Group, 46, 221 BOC. See Bank of China bond market development, People's

Republic of China, 167-170 public/corporate bond issuance, 169-170 trading volumes, 168-169

BritishVirgin Islands, 194-195

CBRC. See China Banking Regulatory

Commission

CCB. See China Construction Bank Chen Yun, 57

Chiang Ching-kuo, 190 Chiang Kai-shek, 12, 96, 120, 122 China Banking Regulatory Commission

(CBRC), 80, 140 ChinaCindaAMC, 140, 145, 146, 147-148 China Construction Bank (CCB), 137, 157 China Development Bank, 222 China Export-Import Bank, 222 China Foreign Exchange Trading System, 17 China Great Wall AMC, 146, 147 ChinaHuarongAMC, 146, 148-149 ChinaInvestment Corporation, Ltd. (CIC),

46

ChinaOrientAMC, 146

China, People's Republic of. See also Taiwan, People's Republic of China and AMCs in, 140, 146, 148-149, 160 asset markets in, 165-166, 187 balance of payments, errors/ommissions, 25

banking

overview, 137-144

remaining problems/future prospects, 137-144

bond market development in, 167-170 central bank bills sales by, 4 consumer prices in, 42

credit allocation in, 5 current account surplus of, 40-41 debt-to-GDP ratio of, 68

East Asian economies and, 34-35 economic globalization of, 189-190 equity markets in, 170-174 exchange rate, 2, 4, 11, 12-17, 220 export growth of, 2, 70

FDI in, 12, 36, 41, 155, 176, 193-195 foreign competition/public listing/WTO entry and, 144, 154-159

foreign exchange market of, 22, 23 foreign exchange reserves of, 42 foreign/domestic bank competition in, 141

import/export performance of, 53 imports/exports/silver flows, 1926-1936, 97-99, 104

inflation in, 2, 20, 55 informal finance methods in, 153-154 monetary control by, 1-2, 3 money/prices/output/velocity, 1950-1957, 59-60

NPLsand, 138-139

private sector in, 5, 169 producer/consumer prices, annualized growth rates 1997-2007, 69

real effective exchange rate of, 19-21, 30 real estate industry in, 176

savings rates in, 70 secondary markets in, 5-6 silver outflows, 96, 103, 106 silver standard and, 103-109

SOCBs in, 137-144

SOEs in, 142-143

State Administration of Foreign Exchange, 26

State Reserve Bureau, 67

state-owned bank behavior, post 1998, 150-154

surpluses with US of, 219, 221 swap market trading volumes, 16 textile sales, 39

trade with non-communist countries, 14

unemployment and, 53

US imports from, 35-36

world trade of, 14

WTO and, 1, 36, 84, 136-137, 144, 154-155, 157-159

Chinese Academy of Social Sciences, Research Group of Price Reform, 66

Chongqing, inflation in, 65

CIC.

Citibank, 160

Citigroup, 155

Clinton, Bill, 67

Commercial Banking Law of 1995, 147 currency vulnerabilities, 97-103 current account surpluses, emerging economies, 39-40, 43-44

Dai Genyou, 79

debt-for-equity swaps, 146, 147 debt-to-GDP ratio, 68

DengXiaoping, 14 depreciation/appreciation pressures,

RMB/$US exchange rate, 17-22 Ding Zhongchi, 148

The Economist, 27-28

emerging economies, trade surpluses among, 3

equity markets, People's Republic of China, 170-174

A/B shares, 171-174

capital controls and, 180-181 commercial banks and, 169 government administrative measures and, 171-174

growth of, 170-171

Hong Kong discount determinants and, 181-187

market capitalization, 175-176

market valuations, 178 non-tradable share reform and, 174 Shanghai vs. HongKong, 178-181 share price gains in, 177-178 speculative pressure in, 174-178

EverbrightBank, 155

Fan Gang, 42 fapi, 96, 107, 109

FDI. See foreign direct investment financial markets, mainland China, 5-6 FixedAssetInvestmentProgram, 145 foreign direct investment (FDI), 12, 155, 176

GeneralizedMethodofMoments (GMM), actual vs. fitted M2 growth rates and, 89

global economic imbalances, 3

GMM. See Generalized Method of

Moments

GoldmanSachs, 157-158

Graham, Lindsey, 37 Granger-causality tests

of China's price/exchange rate series, 109-110

of China/Taiwan causal relationships, 208-213

Great China Database, 86

Greenspan, Alan, 175

Guo Shuqing, 26

Hainan Development Bank, 139

Hang Seng stock index, 174, 179

Hong Chi-chang, 195

Hong Kong

deflation in, 71-72

RMB usage in, 224, 225

vs. Shanghai equity market, 166, 178-181 silver export embargo by, 107

silver standard and, 103-109

stock market, 6 transshipping role of, 40-41

US silver purchase program and, 117

Hongkong and Shanghai Banking Corporation (HSBC), 155, 219-220 silver holdings, 99-100 stock price, 1927-1937 period, 111-116

Hong Kong Monetary Authority, 72 HSBC.

H-share discount, 181-187

ICBC. See Industrial and Commercial Bank of China

IMF. See International Monetary Fund Import-Export Bank of China, 137 indexed government bond issues, inflation/deflation and, 65-66

Industrial and Commercial Bank of China (ICBC), 137-144, 157-158 inflation rate vs. M2 growth rate, 70 inflationary/deflationary cycles, 3 administrative price increases and, 65 Asian financial crisis and, 65-72, 73 control measures, old/new, 56-59, 65-69 history of, 55 indexed government bond issues and, 65-66

inflationary pressures, post 2002, 73-75 during 1980s, 1990s, 59-60, 61 repressed inflation, pre-reform period and after, 59-60, 61

SIR and, 65-66 inflation/money/budget deficits/output, post-reform era, 1979-2006, 61-64 informal finance methods, 153-154 International Comparison Program World Bank, 28, 29

International Financial Statistics, 86 International Monetary Fund (IMF), 19, 44, 86

Multilateral Consultation on Global Imbalances, 44

Japanese and Chinese Export and Current Account Performance, 48, 49

Jiang Zemin, 53

Korea, 35

Kung, H. H., 106

Law of the People's Bank of China, 77

Lipsky, John, 44

M2∕output ratio, 61-64

Manchukuo Central Bank, 104

Mao Tse-tung, 12, 120

McCallum rule, 84-86

Merrill Lynch, 157 money/prices/output/velocity, 1950-1957, 59-60

Morgan Stanley, 148

Multilateral Consultation on Global

Imbalances, 44

National Development and Reform Commission (NDRC), 170

Nationalist Government Finances, 1936-1949, 120, 123

NDRC. See National Development and

Reform Commission

1994 Budget Law, 68, 77

Nixon, Richard, 190 nonperforming loans (NPLs), 138-139, 148-149, 155-156, 159-160

NPLs. See non-performing loans

People's Bank of China, 3, 136 central bank bills of, 78-82 empirical modeling, 77 foreign exchange reserves and, 81

GMM procedure and, 89

GMM-based actual vs. fitted monetary base growth rates, 91

interventions by, 2, 21, 22

M1/M2 targets and, 80-82

McCallum rule and, 84-86 monetary policy tools evolution of, 77-82 money supply reactions, McCallum rule estimates, 89

nominal output 1990-2006, actual vs.

open market operations of, 78-79 policymaking modeling, estimation results, 86-91

reserve requirement ratios and, 80-82 sterilization measures of, 81, 89-90, 91-92

target nominal GDP growth rate and, 86-88

Taylor rule and, 84

People's Republic's Committee on Financial and Economic Affairs, 57 petrodollars, 45

Plaza Agreement, 49 post-2005 developments/future prospects,

RMB/$US exchange rate and, 30-32, 220

price/exchange rate series, Granger-causality tests, 109-110 private property, 152, 154 private sector, 169

SOCBs and, 153-154 purchasing power parity, 27

real effective exchange rate, 19-21 real estate markets, 176

speculative pressures in, 174-178 renminbi (RMB), x

convertibility of, 224

foreign exchange value of, 12-14 forward market for, 22 future prospects for, 219-226

Hong Kong penetration of, 224, 225 internationalization of, 6-7, 221-223 note issue/prices, 1948-1950, 56-57 Renminbi Pressure Indicator, 24 undervaluation of, 2-3, 27-30 renminbi (RMB)/$US exchange rate depreciation/appreciation pressures, 17-22

exchange rate policy evolution and, 12-17 expected change in, 22-23 post-2005 developments/future prospects, 30-32, 220

RMB undervaluation and, 27-30 reserve buildup/global imbalances

current situation, 53-54

Japan/Taiwan and, 47-53

RMB appreciation, US trade balance and, 38-42

US Federal Reserve and, 33-34

$US international role, 38-42

US vs. China, 34-38

Resolution Trust Corporation, US, 140

RMB. See renminbi

Royal Bank of Scotland, 157

savings rates, 70

Schumer, Charles, 37

Shanghai

bank failures in, 102

business failures in, 100

vs. Hong Kong equity market, 166, 178-181

price controls, 125

real estate transactions in, 101-102 wholesale prices in, 100, 125

Shanghai Native Bankers Guild, 101, 102

Shanghai Pudong Development Bank, 155

Shanghai StockExchange, 1,6, 167-168, 219 end-of-year value-weighted indices, 1927-1937, 102

exchange components, 1934, 103

Shenyang Trust and Investment Company, 167

Shenzhen Development Bank, 137

Shenzhen Stock Exchange, 167-168, 219 silver

British imports of, 106

China's price/exchange rate series and, 109

Hong Kong and, 103-109

New York prices, January 1927-December 1937, 97

outflows/ wholesale prices, 105-106, 107-109

shocks, stock price movement, 110-116 smuggling of, 103-104

stock positions, Shanghai 1931-1935, 99-100

SIR.

Snow, John, 37

SOE Bankruptcy Law of 1997, 144

Solomon Smith Barney, 157 sovereign wealth funds, 46

Special Economic Zones, 15, 16 speculative pressures, equity/real estate markets, 174-178

SPR. See US Strategic Petroleum Reserve

Standard Chartered Bank, 160

State Development Bank of China, 137 state trading companies, 57-58 state-owned commercial banks (SOCBs)

ABC, 137, 150

AMC default risk and, 147-148 average share total industry assets and, 138

BOC, 137, 150

CCB, 137, 150

corruption scandals and, 158 foreign ownership and, 156-158

ICBC, 137-144, 150

loan distributions of, 138

loan issuance by, 138

loan-to-deposit ratios of, 149, 150-152

NPLsand, 155-156, 159-160 private sector and, 153-154, 169 public listings of, 159-160

SOCB NPL ratios of, 140-141 state-owned enterprises (SOEs), 142-143 stock exchanges, mainland China and Hong

Kong, 6, 219

subsidy interest rate (SIR), 65-66 swap market trading volumes, 16

taipi, 122

Taiwan, 6, 35, 47-53

domestic investment rates, 198

exchange rate, 4

export growth of, 50-52 mainland China FDI by, 188-189 money growth in, 119, 126, 130-131 net capital flow, January 1947-April 1949, 124-125

taipi, 122

Taiwan, People's Republic of China and, 6, 118-134

Asian financial crisis and, 197-198 causal relationships testing, 208-213 currency reserves, 198-199 exchange rates, market pressure and, 129 FDIand, 176, 193-195

goods transshipment and, 192-193 imported inflation, currency reform and, 122-126

industrial production of, 199 inflation, empirical studies, 120-122, 126-127

Taiwan (cont.)

investment zones and, 190

linkage importance, 189-196 macroeconomic interdependence of, 188-189,217-218

money growth rates of, 199-203

price indices, 121, 199

relationship evidence, macro variables, 203-214

time series analysis, 126-134

total trade estimate, 190-191

Taiwan Stock Index, 51

Tall Latte index, 28

Tang, Henry, 222

Taylor rule, 84

Temasek Holdings, 157

Total Commodity Retail Index, 65

trade surplus, mainland China, 32

United States (US)

China's surpluses with, 219, 221 current account deficits, 3 imports/exports, 35-36

trade balance, 37, 39-40

US dollar ($US), 2, 38-42, 44-46.

US Dollar Trade-Weighted Exchange Rate Index, 17

US Silver Purchase Act, 97-100, 115, 117

US silver purchase program, 4, 95, 96, 97-100

causal effects, 109-110

China's real GDP and, 110-111 deflationary effects of, 116-117

Hong Kong and, 117

US Strategic Petroleum Reserve (SPR), 67

WangXuebing, 158

Wen Jiabao, 47, 158

World Bank, International Comparison Program, 28, 29

World Trade Organization (WTO), 1, 36, 84, 136-137, 144, 154-159

WTO. See World Trade Organization

Wuhan Securities Exchange Center, 167

yuan renminbi. See renminbi

yuan vs. $US, Jan. 1927-Dec. 1937, 97-100, 107

Zhou Xianchuan, 169

in the effective degree of capital mobility evident from the latter part of 2004.¹²

Meanwhile, Prasad and Wei (2007) show that the reserve buildup during 2001-2003 had been accompanied by a shift in the nature of capital inflows and a movement away from the dominant role previously played by FDI in favor of more volatile “hot money” flows reflected in growing levels of portfolio inflows as well as the aforementioned rise in errors and omissions. By late February 2004, Guo Shuqing, head of the State Administration of Foreign Exchange, was voicing the government’s concern that the billions of investment dollars flowing into China could generate an asset bubble and inflation (see Goodman, 2004). Initial empirical support for this assertion seemed lacking, given that property prices actually began declining in 2004, the stock market remained in a downtrend, and consumer price inflation

¹² Ouyang, Rajan, and Willett (2007) find that an increasing fraction of domestic monetary base movements started to be offset by international capital flows during 2004, with the estimated “offset” coefficient rising from approximately 0.1 to 0.2 in 2003 to as much as 0.71 in the third quarter of 2005.

the coefficients attached to these other currencies are generally insignificant. Table 1.4 reports correlation coefficients between these currencies calculated over an extended period of approximately 18 months before and after the reform.¹⁷ The correlation between the renminbi and the US dollar is seen to drop only marginally from unity to 0.97. There are only slight changes in the correlations with the Japanese yen and the Korean won - whereas a negative correlation with the euro over the post-July 2005 period appears to belie any focus on stabilizing that particular cross rate.

Although the apparent continued dominant role for the US dollar seems to support Goldstein and Lardy’s (2006, p. 422) conclusion that “the July 2005 reforms have had little visible effect,” the pace of appreciation actu­ally increased to 3% during 2006 - with the RMB/$US rate appreciating from 8.08 in December 2005 to 7.82 in December 2006. The cumulative appreciation through the first quarter of 2007 reached 7.01% against the US dollar, 11.47% against the Japanese yen, and 2.84% against the euro (People’s Bank of China, 2007, p. 14). The People’s Bank of China subse­quently announced an increase in the daily fluctuation band with the US

¹⁷ Following Frankel and Wei (1994) and Ogawa and Sakane (2006), these correlations are calculated with each currency expressed in terms of the Swiss franc, which serves as the necessary numeraire.

⁷ Taiwan also has been the fourth largest contributor of intraregional FDI in the East Asian and South-East Asian regions as a whole in recent years (United Nations Conference on Trade and Development, 2006, pp. 54-57).