In the aftermath of the Asian financial crises in the late 1990s and the early 2000s, many Asian emerging market economies started rapidly increasing their international reserve holdings. This column assesses the East Asian economies’ openness to cross-border capital flows and exchange rate arrangements over the past decades. Financial globalisation has made asset prices and interest rates in these economies more vulnerable to global movements of capital, and to US monetary policy. If China succeeds in efforts to internationalise its currency, the dynamics between the US and Asia will most likely change. For now, however, the Asian region’s international finance continues to be dollar-centric.
Joshua Aizenman, Hiro Ito, 23 June 2016
Daniel Bernhofen, Markus Eberhardt, Jianan Li , Stephen Morgan, 22 June 2016
Despite being credited with many of the defining inventions of the early modern era, China failed to develop in line with Western Europe at the start of the 19th century. This column suggests that one reason for this was that China’s economy was more fragmented than that of Europe. Using Chinese monthly grain prices from 1740-1820 and grain price panels from Western Europe, it shows that in terms of market integration, the Great Divergence was well under way decades before the start of the 19th century.
Kaiji Chen, Jue Ren, Tao Zha, 24 March 2016
The rise of shadow banking in China after the Global Crisis helped stabilise output growth. This column looks at entrusted lending, a unique feature of Chinese shadow banking. Banks played a prominent role in the rapid rise of entrusted lending during the period of monetary tightening following the Crisis; the bulk of shadow lending was channelled by non-state banks into risky industries. Such financial distortions will eventually hamper the progress of transforming from investment-led growth to balanced growth, unless proper regulations are put in place.
Christiane Baumeister, Lutz Kilian, 08 February 2016
Expectations play a key role in assessing how oil price fluctuations affect the economy. This column explores how consumers, policymakers, financial market participants, and economists form expectations about the price of crude oil, the differences in these expectations, and why future realisations of the price of oil so often differ substantially from these expectations. Differences in oil price expectations are shown to matter for quantifying oil price shocks and their transmission.
Robert Barro, 04 February 2016
China’s diminished growth prospects are in the news and seem to spell bad news for just about everybody. This column assesses the evidence, arguing that China’s economic growth will be much slower from now on, reducing international trade. Perhaps the biggest challenge for China will be future political tensions in reconciling economic dreams with economic realities.
Wouter den Haan, Martin Ellison, Ethan Ilzetzki, Michael McMahon, Ricardo Reis, 28 January 2016
The beginning of 2016 has seen dramatic developments in key markets, including falls in share prices, low oil prices, and a slowdown in some emerging market economies. This column summarises the views expressed on these issues by leading experts in the monthly Centre for Macroeconomics survey. While all recognise the considerable uncertainty in the world economy, fewer than a third fear that these events will have a significant negative impact on the UK’s economic recovery. The prevailing argument is that any negative effects of lower foreign demand and market instability will be compensated by the benefits of lower oil prices.
Jeffrey Frankel, 27 January 2016
The Shanghai Stock Exchange Composite Index has dropped substantially in the past few months. China’s growth rate has also slowed. This column argues that the slowdown of the Chinese economy has little to do with the stock exchange, and is mostly due to economic forces. The author recommends a package of policies that need to be implemented to smooth the transition to a sustainable growth rate.
Olivier Blanchard, 18 January 2016
The world economy at the start of 2016 is a genuinely confusing place, with stock markets plummeting. This column discusses the mainstream narratives behind this – China and the oil price dip – and finds them wanting. The economic linkages seem too weak to justify the gyrations. Instead, they may be the result of herding or a delayed reaction to the global economy’s lower-for-long growth prospects.
Konstantins Benkovskis, Julia Woerz, 14 January 2016
Global value chains have increased the complexity of good economic analysis no end. This column assess the extent to which global value chains change how we think about the world, and argues that the evolution of global market shares is no longer an adequate indicator of a country’s competitiveness in most cases. ‘Made in China’ has changed almost everything.
Keting Shen, Jing Wang, John Whalley, 05 January 2016
Many argue that China has had a higher total factor productivity growth rate than India and the US since the late 1970s. This column assesses changes in China’s technology gaps between both the US and India from 1979 to 2008 with a constant elasticity of substitution production framework. The calculations suggest that the technology gap between China and the US was significantly larger than that between India and the US for the period before 2008.
Hiau Looi Kee, Heiwai Tang, 09 December 2015
While domestic content in exports has been declining globally, the opposite trend has been observed in China. This column argues that this is mainly due to the structural transformation and FDI liberalisation in the country since 2000. As a result, individual processing exporters have substituted domestic for imported materials, both in terms of volume and varieties. These results indicate that China has become more competitive, particularly in the intermediate input sectors, which supports its ascent along the global value chains.
Yana Jin, Mu Quan, Chiara Ravetti, Zhang Shiqiu, Timothy Swanson, 02 December 2015
Many cities in China have notoriously high levels of air pollution. Given its tight control over the media, the Chinese government has a high degree of control over public information about air quality. This column explores the government’s incentive to downplay the seriousness of pollution spikes. Households that rely exclusively on public media are found to engage in less self-protective behaviours. This could lead to substantial public health costs in the long run that might otherwise have been avoided.
Jiangtao Fu, Daichi Shimamoto, Yasuyuki Todo, 01 December 2015
It has been widely argued that firms obtain loans with relaxed terms if they are politically connected. This column presents evidence from Indonesia that firms whose owners or directors have a personal relationship with a politician are more likely to have their loans approved by state-owned banks, and are more likely to receive the full amount applied for. However, the labour productivity of such firms is on average lower. This suggests that in some cases, politically connected lending may distort the efficiency of resource allocation and be detrimental to economic development.
Angus Armstrong, Francesco Caselli, Jagjit Chadha, Wouter den Haan, 27 November 2015
Economists often disagree on China’s prospects. This column provides the results from a survey of top UK-based macroeconomists by the Centre for Macroeconomics (CFM). It turns out that three quarters of the experts believe that China’s annual growth rate will be less than 6% over the next ten years or so. But the panel is divided on whether the slowdown will have a significant impact on the UK economy.
Meredith Crowley, Huasheng Song, 22 October 2015
Europe has a trade policy for solar panels that is designed to level the playing field between Europe and countries like China. This column assesses the EU’s stance. Antidumping policy is supposed to promote a fair competitive environment between domestic import-competing and foreign exporting firms. However, evidence suggests that publicly listed Chinese private sector firms experienced large losses under Europe's import restrictions, while state-owned enterprises experienced little or no adverse impact. Rather than fostering fair competition in green energy products, Europeans have unintentionally tilted the playing field against the Chinese private sector in favour of the state.
Maurice Obstfeld, 17 October 2015
In this column, the IMF's new Economic Counsellor and Director of Research presents the latest World Economic Outlook, which shows how the world economy is at the intersection of at least three powerful forces. First is China’s economic transformation away from export- and investment-led growth and manufacturing, in favour of a greater focus on consumption and services; second is the fall in commodity prices; and third is the impending normalisation of monetary policy in the US.
Anton Cheremukhin, Mikhail Golosov, Sergei Guriev, Aleh Tsyvinski, 02 September 2015
Economists tend to focus on reforms that came after 1979 when explaining China’s soaring economic growth. This column argues that they shouldn’t. Mao’s policies also had a huge effect and should not be ignored. Economists and policymakers would do well to look further back in history. A long-term perspective might also help them bust a few myths along the way.
Chun Chang, Kaiji Chen, Daniel Waggoner, Tao Zha, 01 August 2015
China’s spectacular growth over the 2000s has slowed since 2013. The driving force behind the country’s growth was investment, so the key to understanding the slowdown lies in understanding what sustained investment in the past. This column shows how a preferential credit policy promoting heavy industrialisation explains the trends and cycles in China’s macroeconomy over the past two decades. This policy was not without negative consequences, particularly in terms of the distortions it introduced for business finance. Going forward, China needs to focus on creating the right incentives for banks to make loans to small productive businesses.
John Gibson, Chao Li, 23 July 2015
The size of cities in China – and the effects of city size on productivity – are important topics for urban economists. This column argues that the data used in many previous studies of Chinese cities do not stand up to scrutiny because they do not take nearly enough workers into account. More comprehensive data on city employment from China’s 2010 census suggest that there are lots of inefficiently small cities.
Sourafel Girma, Yundan Gong, Holger Görg, Sandra Lancheros, Christiane Krieger-Boden, 24 July 2015
In the run-up to WTO accession in 2001, China considerably liberalised its policy towards FDI. This column argues that foreign acquisitions contributed significantly to raising export activities and R&D activities, though rather through joint ventures than whole acquisitions.