Tuesday 13 February 2007

IMF research papers on China: Growth and FDI into the Banking Sector

Here are two new papers from the IMF on China (1) The rise of FDI into China's banks and the other (2) looking at growth theory in a Chinese context.

"The Rise of Foreign Investment in China's Banks: Taking Stock"
IMF Working Paper No. 06/292

International Monetary Fund (IMF), CERGE-EI, Center
For Econ Research & Grad Education, and Econ
Institute, Prague
Email: rpodpiera@imf.org
Auth-Page: http://ssrn.com/author=243992

International Monetary Fund (IMF)
Email: lleigh@imf.org
Auth-Page: http://ssrn.com/author=583247

Full Text: http://ssrn.com/abstract=956756

ABSTRACT: The recent wave of foreign investment in China's banks and the prospects of further opening of the banking sector under the WTO agreement suggest that foreign banks are likely to play an increasingly important role in China. This paper takes stock of the involvement of foreign banks in the Chinese banking sector in the perspective of international experience. While in most other countries foreign bank entry took the form of direct takeover or majority shareholding, foreign investments in China's banks have been minority shareholdings with very limited management involvement. The paper concludes that China appears to be well positioned to benefit from further opening of the banking sector to foreign investors. International experience suggests that greater competition from and participation of foreign banks can in general bring important benefits if appropriate incentives and sufficient opportunities are created.

"Rebalancing China's Economy: What Does Growth Theory Tell Us?"
IMF Working Paper No. 06/291

International Monetary Fund (IMF) - Asia and
Pacific Department
Email: jaziz@imf.org
Auth-Page: http://ssrn.com/author=100768

Full Text: http://ssrn.com/abstract=956755

ABSTRACT: This paper uses the standard one-sector neoclassical growth model to investigate why China's consumption has been low and investment high. It finds that the low cost of capital has been quantitatively an important factor. Theory predicts that the price of capital may have been significantly distorted in the 1990s and 2000s. The distortion could have been caused by nonperforming loans, borrowing constraints, and uncertainty over changes in government guidance in bank lending. If China is to rebalance growth towards relying more on consumption and less on exports and investment, banking sector reforms and financial market development could, therefore, turn out to be key.

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