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The Great Chinese Inequality Turnaround

Ravi Kanbur, Yue Wang, Xiaobo Zhang, Jul 26, 2017

This paper argues that after a quarter century of sharp and sustained increase, Chinese inequality is now plateauing and even turning using various data sources and inequality perspectives. The evolution of inequality is further examined through decomposition by income sources and subgroups. Some preliminary explanations are provided for these trends in terms of shifts in policy and the structural transformation of the Chinese economy.

How Does the Interaction between China’s Monetary and Regulatory Policies Impact Shadow Banking and Total Bank Credit?

Kaiji Chen, Jue Ren, Tao Zha, Jul 12, 2017

Following the four Trillion RMB fiscal stimulus in 2009, People's Bank of China tightened up its M2 supply. Kaiji Chen, Jue Ren and Zha Tao from Emory University and Federal Reserve Bank of Atlanta explored how the banks reacted to the tightening of M2 supply by expanding shadow banking activities, and how the rapid growth of shadow banking in turn hampers the effectiveness of monetary policy.

The Two-Pillar Policy for the RMB from December 2015 to May 2017

Urban J. Jermann, Bin Wei, Vivian Zhanwei Yue, Aug 16, 2017

We document that since December 2015 the People’s Bank of China (PBC) has followed a “two-pillar” exchange rate policy that aims to achieve both stability and flexibility. Based on a no-arbitrage model and options price data we estimate the credibility of the policy as well as its impact on the RMB/USD exchange rate. The model was able to correctly forecast the end of the two-pillar policy in May 2017.

The “Trusted-assistant” Loan in Nineteenth Century China

Meng Miao, Guanjie Niu, Thomas Noe, Nov 08, 2017

In this paper, we analyze “trusted-assistant loans,” which were loans issued (typically) by Shanxi Banks during the Qing period to finance newly appointed scholar-officials. Even though creditors lacked legal rights and, in fact, lacked every repayment enforcement mechanism advanced by economic contract theory, repayment rates on these loans were relatively high and they constituted a large and profitable portion of many banks’ loan portfolios. This paper develops a theory of “resource-based” debt contract enforcement that rationalizes repayment and tests the hypothesis of this theory using data from scholar-officials’ diaries and nineteenth century Chinese bank records.

Rebalancing in China: Progress and Prospects

Longmei Zhang, Aug 02, 2017

This paper develops a framework for China’s rebalancing, reviews past progress, and discusses medium-term prospects. China has advanced well in reducing its excessive external surplus and moving towards consumption and services, while still lagging behind in reducing credit reliance, environmental pollution, and income inequality. Going forward, the economy will continue rebalancing in many dimensions, while credit will remain China’s Achilles heel unless decisive corporate restructuring and SOE reforms are implemented.