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ID:
052818
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| Publication |
Jul-Aug 2004.
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| 2 |
ID:
144850
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| Summary/Abstract |
Since the global financial crisis broke out in 2008, China's nonfinancial corporate debt has been rising steadily and rapidly, posing serious threat to China's financial stability. China's rising corporate debt is mainly attributable to three factors: worsening capital efficiency, worsening corporate profitability and high funding costs. Based on a dynamic recursive model developed in the paper, we simulate the trajectories of China's corporate debt-to-GDP ratio, and find that if China fails to reverse the current trends in capital efficiency, corporate profitability and financing costs, China's nonfinancial corporate debt-to-GDP ratio will continue to rise without converging to a limit. Against most economists' intuition, given the current trends of changes in parameters, higher economic growth will not help China to escape the corporate debt trap. On the contrary, it will make China's corporate debt problem even worse. To avert a corporate debt crisis, China needs to speed up the structural reform and change the growth paradigm so as to enhance capital efficiency and firms' profitability, while reducing firms' financing costs.
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| 3 |
ID:
152509
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| Summary/Abstract |
Persistent renminbi (RMB) devaluation expectations are one of the greatest threats to China's macroeconomic stability. Market interventions backed by huge foreign exchange reserves and capital controls are not sufficient to eliminate the expectations of devaluation. Creating a market-based and flexible RMB exchange rate regime holds the key to the elimination of devaluation expectations. The present paper compares the pros and cons of several policy options, and proposes to introduce, as a transition to free floating, a new exchange rate regime pegged to a currency basket with a wide band. The new regime should be able to give the RMB exchange rate enough flexibility to eliminate devaluation expectations as well as prevent excessive overshooting. To ensure a smooth transition, the new regime needs to be supported by controlling cross-border capital flows.
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| 4 |
ID:
161578
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| Summary/Abstract |
The Trump Administration has presented three major reasons to justify the initiation of a China–US trade war: China's large trade surplus against the US, China's failure to comply with World Trade Organization (WTO) commitments and China's unreasonable acquisition of US technology and theft of intellectual property rights. The fundamental cause of the US trade deficit is its persistent saving deficiency. China has complied with WTO commitments, although there remains significant room for improvement. The case against China for the so‐called unfair acquisition of foreign technologies and cyber‐enabled intellectual property rights theft is weak at best, although China needs to redouble its effort in protecting intellectual property rights. President Trump's trade war will not drive China to abandon its resolve to catch up to the advanced economies. China is ready to fight a war of attrition. Unfortunately, both sides – as well as the rest of the world – will incur heavy losses in the process.
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