Financial Policies in China since 1978: protection, liberalization and regulation (2009)

Résumé du document

The real start of China's economic expansion was in 1978 under the leadership of Deng Xiaoping. In fact after many years of total socialism with few contacts with the others countries, Deng Xiaoping thought that China could take part in the new growing globalization. Many people know that Deng Xiaoping was the pioneer of Chinese development but few know how his financial program was totally new. It found a balance between protection, liberalization and regulation. We will analyze the most important reforms in two different ways, first at the Chinese scale and then on an international point of view. In a third part we will talk about strategic topics in the current situation. The fact is that for a long time all the interest rates were controlled by the Chinese government in order to control inflation and the development of the credit. As in many other sectors, banks were totally controlled and directed by the government, involving less efficiency and solidity compared to occidental banks. In fact some loans could be given only because they were for a political business. They were less concerned by the capacity of reimbursement of the borrower. For example the state owned companies had many more credits allowed, compared to private companies.

Extraits

[...] So they changed the law in May 2007 and now Chinese investors can buy whatever they want. So in the next future Chinese investors will begin important stake (share)-holders. China has already made huge investment like in the biggest American hedge-fund Blackstone : Chinese government invested 3 billion US$ in 2007. of the capital) III CURRENT SITUATION : SUCCESS AND DOUBTS Efficiency of China's strategy We can distinguish two different strategies in Chinese development. First the theory of “Growing Industry” developed by F. [...]

[...] I would like to give my opinion by two things : First maybe China protect its exportations with a low renminbi, but Europe and The United States protect their agricultures by giving huge subventions to their farmers. So maybe China is not fair-play, but not more than Europe or The United States. Chinese government has sworn an increase of the renminbi value and the fully convertibility in the next future. - We can see with the graphic below that the Yuan apprised for 21% against dollar since 2005, so maybe we have to trust Chinese and just give them more time. [...]

[...] It's not a coincidence if Chinese banks had not suffered from toxic loans. II INTERNATIONAL FINANCE POLICIES Currency and exchange rate We can distinguish three main periods : Until January, 4th of 1994 there were two different currencies: the “renminbi” authorized only for Chinese people and the FEC Foreign Exchange Currency for the foreigners. From January 1994 to the middle of 1995 there was only one currency, the renminbi, indexed on the dollar with a very little volatility allowed: = 8,277 volatility 0,18%. [...]

[...] China has protected its economy in many sectors, but seems to be ready to be more fairplay. As we said before about the renminbi Chinese government kept an undervalued renminbi for a long time but the currency apprised for 21% since 2005. After having protected the currency for a long time they are ready to increase its value and speak about fully-convertibility. The other strategy is a “Chinese way of think” : as in many cases, not only in economy, Chinese people tried always a new reform, new idea on a little part of the market (for economic reform) before to extend to the whole country. [...]

[...] We can see every day that China is become a major player in the international trade. Many people think that the return of the growth will come from China and are waiting for good news stemmed from China. (which seem coming in the last few days) The first thing is that there are no reasons for a decrease of the Chinese financial market in a long term, although there are some banking problems to solve. The second is that the Chinese market is the most attractive in the world so the money will come in China even in case of recession. [...]