FinanceTransition

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Published on October 16, 2007

Author: Arkwright26

Source: authorstream.com

Finance in Transitional and Developing Economies: China and Others:  Finance in Transitional and Developing Economies: China and Others Topics: Growth and Inequality in a ‘Dualistic’ Economy Property Rights and Distribution Financial Depth vs. Breadth Surplus Labor in Agriculture: Marginal Product approaches 0:  Surplus Labor in Agriculture: Marginal Product approaches 0 Slide3:  Gus Ranis: “Labor Surplus Economies”, http://papers.ssrn.com Consumption Agricultural Production Non-Agricultural Production (transition) investment investment Surplus Labor, Dualistic Economy Nobel Prize Winning Model:  Surplus Labor, Dualistic Economy Nobel Prize Winning Model Developed by Arthur Lewis (St. Lucia) Gustav Ranis (Germany) John Fei (Taiwan) Growth with Equity: The Taiwan Case (Oxford University Press, 1979) John C. H. Fei, Gustav Ranis, Shirley W. Y. Kuo Implications of Two-Sector Model::  Implications of Two-Sector Model: Agricultural and Industrial Wages Linked, kept flat by Surplus Labor. Wages can only rise strongly when Labor Surplus is used up. Non-Agricultural Profits grow much faster than Wages. Tied Wages, Japan:  Tied Wages, Japan Tied Wages, Taiwan:  Tied Wages, Taiwan Property Rights & Distribution:  Property Rights & Distribution East Asian Development successes linked with new broadly distributed forms of property rights. (South Korea, Taiwan, China, Vietnam) These property rights land reforms achieve: Better matching of labor with land resources, Incentives for long term investment, More liquidity in the market for agricultural property. Broader Distribution of Financial Assets is more complex, but may have even greater long term benefits for productivity and growth. Slide10:  East-Asian: Growth and Equality Inversely Correlated TWO TRANSITIONS on INCOME DISTRIBUTION East-European: No Clear Pattern Soviet-Sphere Privatizations:  Soviet-Sphere Privatizations Large Range of Methods: Rapid ‘Voucher’ Privatization, Czech Republic Gradual Privatization, Hungary ‘Oligarch’ Loans-for-Shares, Russia China’s Financial System: Deep but not Broad:  China’s Financial System: Deep but not Broad We will see that Financial Assets in China: Have unusual depth, forming an unusually high portion of GDP, but Lack the breadth associated with other Rapidly Developing Economies, since they are narrowly confined to the Banking Sector. Financial ‘Deepening’ Correlates with Higher GDP per capita:  Financial ‘Deepening’ Correlates with Higher GDP per capita http://unctad.org/en/docs/dp_142.en.pdf But China’s M2/GDP ratio is out of proportion to its GDP:  But China’s M2/GDP ratio is out of proportion to its GDP http://www.allcountries.org/china_statistics/index.html M2 and Household Savings Very High Proportion of GDP:  M2 and Household Savings Very High Proportion of GDP Slide16:  http://www.allcountries.org/china_statistics/index.html Volatility of Shanghai Composite Index:  Volatility of Shanghai Composite Index If Household Saving is ‘Bottled-up’ in Banks, May Pressure Excess Stock Speculation:  If Household Saving is ‘Bottled-up’ in Banks, May Pressure Excess Stock Speculation Bank Dependency may also Weaken Response to Currency Crisis:  Bank Dependency may also Weaken Response to Currency Crisis 0% 2% 4% 6% 8% -2% -4% -6% -8% t t+1 t+2 t+3 t-1 t-2 t-3 www.meti.go.jp/english/report/downloadfiles/g99W004e.pdf Banking is State-Owned in China:  Banking is State-Owned in China McKinsey Global Institute, China Capital Report, 2006 State Banks Loan Mostly to State-Connected Enterprises:  State Banks Loan Mostly to State-Connected Enterprises Foreign & Private Enterprises More Efficient, Even in Similar Industries:  Foreign & Private Enterprises More Efficient, Even in Similar Industries Integration of Reforms:  Integration of Reforms Observed Problems Closely Inter-linked Cheap Corporate Bank Loans Limited SME Access to Capital Very Small Bond Market Lack of Domestic Institutional Investors Small, Under-performing Equity Market Inefficient Bank Operation Undeveloped Consumer Loan Market Slide27:  ROOT CAUSES Cheap Corporate Bank Loans Inefficient Bank Operation Limited SME Access to Capital Lack of Bank Competition Undeveloped Consumer Loan Market Very Small Bond Market Lack of Domestic Institutional Investors Small, Under-performing Equity Market Limited forms of Collateral Poor Credit Assessment Conclusion: If Problems are Inter-Linked - Reforms must also be well-Integrated:  Conclusion: If Problems are Inter-Linked - Reforms must also be well-Integrated

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