chinese financial market

Topics: Bank, Stock market, Investment Pages: 44 (3171 words) Published: December 2, 2013
ECON 346
ECONOMICS OF TRANSITION AND
DEVELOPMENT: CHINA
Fall 2013
Professor Guofu Tan
Department of Economics
University of Southern California

Topic 11: Banks and Financial Markets
2

1. 
2. 

3. 
4. 
5. 

Basics: Saving and Capital Formation
Basics: The Financial System and the Allocation of
Funds to Real Investment
The Financial System in China
Reform the Banking System
Development of Financial Markets

Econ 346: Economics of Transition and Development: China

Guofu Tan

Basics: Saving and Capital Formation
3

 

Why do people save?
  Life-cycle

saving: To meet long-term objectives, such as
retirement, university attendance, or the purchase of a
home

  Precautionary

saving: For protection against
unexpected setbacks, such as the loss of a job

  Bequest

saving: For the purpose of leaving inheritance

Econ 346: Economics of Transition and Development: China

Guofu Tan

Individual Saving
4

  Individual

inter-temporal consumption decision

  Personal

saving rate (personal savings divided by
personal disposable income) varies across countries

  Marginal

Propensity to Consume (MPC) – the amount by
which consumption rises when disposable income rises
by $1

Econ 346: Economics of Transition and Development: China

Guofu Tan

China’s household savings
(in billion 1978 RMB)
5

Econ 346: Economics of Transition and Development: China

Guofu Tan

Modigliani-Cao savings rate and Mees-Ahmed savings
rate (%)
6

Source: Modigliani and Cao (2004), China Compendium
of Statistics 1949-2008, Statistical Yearbook 2010

Econ 346: Economics of Transition and Development: China

Guofu Tan

Bank Deposits, 2010 (as a ratio to GDP)
7

Source: Prasad and Ye(2012)

Econ 346: Economics of Transition and Development: China

Guofu Tan

Economy-wide Saving and Investment
8

  Gross

saving – the sum of household, corporate,
government, and non-resident saving;

  Gross

investment – the sum of private-sector and
government investment;

  Gross

saving provides the funds needed for gross
investment

Econ 346: Economics of Transition and Development: China

Guofu Tan

Basics: The Financial System and the Allocation
of Funds to Real Investment
9

A financial system consists both of financial institutions,
like banks, and financial markets, such as bond
markets and stock markets.
 

Provides a means of channeling funds from savers
or financial investors to borrowers with profitable
investment opportunities.
Econ 346: Economics of Transition and Development: China

Guofu Tan

Basics: The Financial System and the Allocation
of Funds to Real Investment
10

 

 

Provides information to financial investors about
which of the many possible uses of their funds are
likely to be profitable, and hence pay the highest
return.
Help financial investors share the risk of lending by
permitting them to diversify their financial
investments.
Econ 346: Economics of Transition and Development: China

Guofu Tan

The Financial System in China
11

 

In the centrally planned economy:
  There

was only one bank – the People's Bank of China
(PBC, “mono-bank”), no financial markets.

  Most

long-term investment financing was channeled to
enterprises through the state budget (with budgetary
grants), not through the banking system.

Econ 346: Economics of Transition and Development: China

Guofu Tan

The Financial System in China
12

  The

state bank was only responsible for providing
working capital to enterprises.

  Household

savings were small relative to government
savings – total household bank deposits < 6% of GNP
in 1978.

Econ 346: Economics of Transition and Development: China

Guofu Tan

Reform during the 1980s
13

 

In 1983, the state council granted the PBC the
authority of a central bank and the PBC subsequently...
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