The Chinese Macroeconomy and Financial System: A U.S. Perspective

Description

This new textbook on the Chinese economy clearly presents all that the world's second largest economy has accomplished, as well as what work remains to be done. As economic development in China for the last 30 years has been mostly "top down," this text focuses on the macroeconomic and monetary sides of the economy. Utilising case studies throughout, the book uses not only the traditional macroeconomics tools in explaining the Chinese economy, but also takes a novel approach by assessing China as a company. Through employment of models from finance, such as cash flows and valuations, the text is able to dig deeper into understanding the fundamental characteristics of the Chinese economy. The book also presents extremely useful analysis of the comparisons and contrasts between Chinese economic activity and that of the U.S. economy. eResources including chapter questions with solutions and lecture slides will be available on this webpage. Cover Half Title Title Copyright Dedication Contents Preface and Acknowledgments 1. Introduction Four Key Drivers for the Chinese Economy A Large Population A Very High Savings Rate The Government’s Role Labor: The Great Economic Shock Absorber Macroeconomics Review and Overview The Macroeconomic Tradition Case Study 1.1: Confucius, Adam Smith, and Family Values Back to Supply and Demand Key Analytic Distinctions in Macroeconomics Business Cycles vs. Growth Cycles Nominal and Real Variables Flow Variables vs. Stock Variables Exogenous vs. Endogenous Variables Ten Basic Macro Facts Most Economists Could Agree On: A Chance to Review Challenging Questions for China (and the Student): Chapter 1 Notes Reference 2. Measuring and Accounting for the Output of a Nation: GDP Different Approaches to Measuring GDP Case Study 2.1: China’s Basic Numbering System Value of Final Goods and Sales Approach Macro Finance Insight 2.1: One Firm’s Contribution to GDP Expenditure Approach Value-Added Approach Case Study 2.2: Goldilocks Data—Who Inflated and Shrunk China’s GDP? Macro Finance Insight 2.2: GDP Smoothing and Earnings Management Income Approach China’s Presentation of GDP Data Issues in Measuring GDP Does GDP Correspond to Well-Being? Case Study 2.3: The Environment and Trade with the United States Quality of Growth Macro Finance Insight 2.3: Quantity of GDP vs. Quality of GDP Prices and GDP Measurement Price Distortions Converting Nominal GDP into Real GDP: The Use of Price Indexes China’s Price Indexes Consumer Price Index (CPI) The GDP Deflator Other Price Indexes Price Index Issues Case Study 2.4: China’s Unemployment Rate Alternative Measures of GDP Unaccounted Output Macro Finance Insight 2.4: Stakeholders in the Macro-economy Purchasing Power Parity GDP Command GDP Challenging Questions for China (and the Student): Chapter 2 Notes References 3. China and the United States and the Balance of Payments Case Study 3.1: China’s Cautious (Wise) and Staged Liberalization of the Capital Account Balance of Payments Case Study 3.2: How Did China Accumulate Over US$3 Trillion in Foreign Exchange Reserves? Macro Finance Insight 3.1: The Role of the International Monetary Fund Macro Finance Insight 3.2: China’s External Balance Sheet and Capital Structure Macro Finance Insight 3.3: The Pecking Order Theory Current Account Balance from Four Angles Approach #1: Current Account Balance by Definition Approach #2: Current Account Balance and Absorption Case Study 3.3: China and the United States—Two Sides of the Same Coin Approach #3: Current Account Balance and the Gap Between Savings and Investment Approach #4: Current Account Balance and External Debt Macro Finance Insight 3.4: What is the Cash Flow for an Entire Economy? Challenging Questions for China (and the Student): Chapter 3 Notes References 4. Long-Run Economic Growth Part I: Economic Basis for Long-Run Growth The Accounting Framework Case Study 4.1: China’s Growth Since the 1978 Economic Reforms Accounting for Growth in Labor Productivity From Solow Accounting to Solow Theory Case Study 4.2: China’s Population Controls Case Study 4.3: Solow Theory and Why China Is Growing Far Faster Than the United States and Europe Case Study 4.4: Are China’s Provinces Converging? Further Insights into Long-Run Growth Case Study 4.5: Increasing and Decreasing Returns-to-Scale Macro Finance Insight 4.1: Sustainable Growth I—National Returns on Capital Case Study 4.6: Cautionary Tale of Two Cities—Singapore vs. Hong Kong Part II: Financial Basis for Long-Run Quality Growth Using ROIC and WACC to Evaluate the Quality of Growth Measuring ROIC and the Cost of Capital à la Wicksell Measuring Returns on Capital The Solow Approach and ROIC Macro Finance Insight 4.2: Return to Capital—ROIC and ICOR Actual Profits and ROIC A Broader Measure of ROIC: The Dupont Model and Macro Aggregates Macro Finance Insight 4.3: Sustainable Growth II—The Dupont Model Measuring the Cost of Capital Summary of China, the United States, and the Cost of Capital Macro Finance Insight 4.4: Growth and Competitive Advantage Summary of the Returns and Cost of Capital Challenging Questions for China (and the Student): Chapter 4 Notes References 5. Consumption and Savings in China and the United States China’s Current Savings Rate Theories of Savings Disposable Income, Consumption, and the Interest Rate Life Cycle, Permanent Income, and Wealth Effects Case Study 5.1: Is Consumption（消费）a Bad Word? Liquidity/Borrowing Constraints Precautionary Motive for Savings Specific Savings Motives Why Has China’s Savings Rate Risen So High? China’s Precautionary Motive Case Study 5.2: Recent Chinese History and the Precautionary Motive for Savings. The Life-Cycle Hypothesis and the Dependency Ratio Demographic Factors in the Coming Years Case Study 5.3: Keeping Up with the Wangs (Joneses): Unbalanced Income Distribution Borrowing/Lending Constraints and Consumer Credit in China Peer-to-Peer Lending Home Mortgages Student Loans Case Study 5.4: Credit Reforms as an Example of a Program Rollout Progress in Consumer Credit Markets Other Factors Impacting China’s Savings Rate Policies Promoting Investment and Exports Implicit Insurance of Savings Deposits Case Study 5.5: Love and Marriage—Unbalanced Sex Ratios Summary of China’s Personal Consumption and Savings Corporate Savings and Investment Sources of Profitability Dividend Policy Macro Finance Insight 5.1: When Dividends Are a Problem Theories of Dividend Policy Alternate Views Challenging Questions for China (and the Student): Chapter 5 Notes References 6. China’s Path of Investment China’s Investment: Uses and Sources Uses China Case Study 6.1: Is There a Housing Bubble? Sources Investment Demand Theories Models of Investment Behavior Macro Finance Insight 6.1: Optimal Investment, Neoclassical Model, and Project Evaluation Is China’s Investment Too High? Financial Repression A Growing Periphery China Case Study 6.2: China’s Development Bank: A Fannie Mae Freddie Mac Redux? Summary Challenging Questions for China (and the Student): Chapter 6 Notes References 7. Monetary Policy and Institutions in China and the United States Defining Money (Conceptually) Case Study 7.1: The Invention of Paper Money Defining Money (Institutionally) Case Study 7.2: RMB Notes by the Carload Macro Finance Insight 7.1: Walras’s Law and How China and the United States Hold Wealth Defining the Velocity of Money Case Study 7.3: Did the Chinese Invent Velocity, Too? The Money Supply Process Monetary Policy Tools Open Market Operations Discount Window Lending Macro Finance Insight 7.2: Seasonality and an Elastic Currency Window Guidance Reserve Requirements Macro Finance Insight 7.3: Return on Equity (ROE) and the Money Multiplier Interest Rate Ceilings and Floors Directed Credit Case Study 7.4: Developments in China’s Financial Markets Regulatory Fiat Government Deposit Management Price-Based vs. Quantity-Based; Market-Based vs. Non-Market-Based Summary of Differences Case Study 7.5: China’s ‘Big Four’ Banks Case Study 7.6: Financial Innovation or Financial Disintermediation in China Macro Finance Insight 7.4: Demand for Money as an Option: the Precautionary Motive Challenging Questions for China (and the Student): Chapter 7 Notes References 8. Monetary Policy in Action Broad Goals of Monetary Policy The Chinese Dilemma and the Policy Trilemma The Basic Conflict Macro Finance Insight 8.1: Current Account Surpluses and the Policy Trilemma Capital Mobility and the Policy Trilemma Sterilization and the Monetary Authority’s Balance Sheet Case Study 8.1: Walras’s Law, the Flow of Funds, and Missing Assets and Wealth Case Study 8.2: Are China’s Holdings of U.S. Dollars Profitable? Recent Monetary Policy Developments Case Study 8.3: China’s Capital Structure Summary Challenging Questions for China (and the Student): Chapter 8 Notes References 9. The Keynesian Model: Extensions to China and Beyond Traditional Keynesian Framework: Investment, Savings, Liquidity Preference, and Money Supply IS/LM: A Review Equilibrium in the Market for Goods and Services (the Market for GDP or the IS Curve) Equilibrium in the Money Market (the LM Curve) Equilibrium in Both Markets Case Study 9.1: China and the Keynesian Framework Aggregate Demand and Supply Keynesian Model Extensions Goods Market Equilibrium and Interest Rate Overshooting Overshooting in Currency Markets Macro Finance Insight 9.1: Is a Nation’s Exchange Rate Its “Stock Price?” Macro Finance Insight 9.2: Sticky Capital Stock: Overshooting in Equity Markets Challenges to Fiscal Policy for Economic Management Crowding Out: The Case Against More Government Spending Case Study 9.2: Crowding Out in China Ricardian Equivalence: Linking Government Spending to Future Taxation Flexible Wages, Prices, and Efficient Labor Markets Case Study 9.3: The Chinese Citizen as a Great Economic Shock Absorber Macro Finance Insight 9.3: Adjusted Tobin’s Q as a Measure of Economic Performance National Budget Constraint in International Financial Markets Intertemporal Budget Constraint (ITBC) Challenging Questions for China (and the Student): Chapter 9 Notes References 10. Public Finances and Fiscal Policy in Action Case Study 10.1: Administrative Levels in China Case Study 10.2: China’s Five-Year Plans Key Goals of Fiscal Policy Overall Budgets Macro Finance Insight 10.1: The Odd Accounting for Budget Deficits Tax Revenues Case Study 10.3: Revenue Sharing Macro Finance Insight 10.2: Risk Pooling, Tax Sharing, and Conglomerates Revenues in the United States Summary on Revenues Government Expenditures in the United States vs. China Summary on Public Finance Case Study 10.4: Global, Multinational, or Transnational Structure Case Study 10.5: China’s Fapiao 发票 Fiscal and Monetary Policy in Action Macro Finance Insight 10.3: Growth Cycles vs. Business Cycles Policy Responses Similarities and Differences in the Policy Response to the Global Financial Crisis Challenging Questions for China (and the Student): Chapter 10 Notes References Appendix A Gross Domestic Product for China in Nominal RMB Appendix B Gross Domestic Product at Constant Prices for China Appendix C Gross Domestic Product by Expenditure Approach for China Appendix D Fixed-Base Price Indices for China Appendix E Useful Web sites Related to China’s Economy and Financial Sector Index About the Author