The paper deals with the rapid growing twin surpluses and surging foreign exchange reserves in China’s international accounts withessed in recent years.It observes the characteristics of the phenomenon against the st...The paper deals with the rapid growing twin surpluses and surging foreign exchange reserves in China’s international accounts withessed in recent years.It observes the characteristics of the phenomenon against the standard economic theory and empirical experiences.Then it offers explanation factors:the combined effects of processing trade and foreign direct investments,China’s opening development model underpinned by the intra-product specialization of the contemporary globalization era,and the undervalued exchange rate for the Chinese currency.展开更多
After the decoupling of the US dollar from gold in 1971,US Treasuries replaced gold as the value benchmark of the international monetary system and acquired an exorbitant privilege.Subsequently,the total amount of US ...After the decoupling of the US dollar from gold in 1971,US Treasuries replaced gold as the value benchmark of the international monetary system and acquired an exorbitant privilege.Subsequently,the total amount of US debt exhibited an exponential expansion trend,unbound by any substantial constraints.The so-called debt ceiling is a partisan game rather than a rigid fiscal constraint on the United States.As long as there are no fundamental changes in the global monetary system,the international credit of US Treasuries will stay stable,and their trend of infinite expansion will be sustained.Massive quantitative easing policies have failed to significantly shake this stability,and the notion of global investors offloading US Treasuries is more an illusion than a fact.The exorbitant privilege of US Treasuries grants its federal government the“freedom to borrow,”shielding the American financial sector from due penalties during global financial crises and securing excessive returns in global capital cycles.In the old days when running“twin surpluses”on capital and current accounts,China kept the value of Renminbi low to support its export manufacturing sector along the southeast coast.As a result,China accumulated huge foreign exchange reserves,mainly US Treasuries.Nowadays,this practice is no longer necessary,yielding low returns and posing significant security risks.展开更多
This article assesses both the domestic and external reasons for the occurrence of excessive liquidity.To solve the problem of excessive liquidity two different policy options are proposed;firstly the improvement of t...This article assesses both the domestic and external reasons for the occurrence of excessive liquidity.To solve the problem of excessive liquidity two different policy options are proposed;firstly the improvement of the structure of national income assignment and secondly the promotion of the structural diversification of foreign exchange assets.展开更多
Most scholars believe that FDI inflow has a direct impact on China’s foreign exchange reserve,while others hold that FDI is mainly invested in the form of physical capital and technology,and therefore does not direct...Most scholars believe that FDI inflow has a direct impact on China’s foreign exchange reserve,while others hold that FDI is mainly invested in the form of physical capital and technology,and therefore does not directly contribute to China’s foreign exchanges reserve accumulation.This paper points out that both effects,direct and indirect,should be considered when assessing FDI’s contribution to foreign exchange reserves.Result shows that from 1986 to 2007,FDI contributed 50%to foreign exchange reserves and the direct effect dominant before 2003 was surpassed by indirect effect after 2001 as the major source of the contribution.展开更多
In late February 2006, China surpassed Japan to become the world＇s largest holder of foreign exchange reserves. Beijing is now faced with the growing challenge of how to handle these vast reserves effectively. Althou...In late February 2006, China surpassed Japan to become the world＇s largest holder of foreign exchange reserves. Beijing is now faced with the growing challenge of how to handle these vast reserves effectively. Although China＇s soaring foreign exchange reserves indicate that its overall strength has grown, they have created internal and external pressures on the balance of the economy, and introduced risks to the financial system. It is estimated in the present study that foreign exchange reserves of approximately US$ 400bn in 2005 would have been appropriate under circumstances of a managed floating exchange rate regime and capital control. China ＇s actual reserves have far exceeded its normal demand. The objective of China is to maintain an optimal level that maximizes net benefits as a whole, Four main policv options are available for China to achieve its target： spending and investing foreign exchange reserves, gradual liberalization of the capital account, diversification of foreign exchange reserves and a switch in holders of foreign exchange reserves. Spending and investing in foreign exchange reserves can be undertaken in combination with liberalization in the capital account, given careful consideration of the risks involved. Liberalization should be extensive but gradual so that companies and individuals can adjust to changes in financial markets and manage portfolios while avoiding unnecessary risks.展开更多
The subprime mortgage crisis and the resultant inflationary monetary policy in the USA have left the Chinese economy subject to four risks in particular. First, China＇s exports to the USA might continue to decline. S...The subprime mortgage crisis and the resultant inflationary monetary policy in the USA have left the Chinese economy subject to four risks in particular. First, China＇s exports to the USA might continue to decline. Second in the medium term, the higher US inflation rate will lead to a weak dollar, which will negatively affect China＇s exports. Third in the long term, when the US Federal Reserve decreases money supply to control inflation, the US economy might enter another recession, hurting China ＂s exports further. Fourth, China＇s foreign exchange reserve assets might suffer heavy losses when the US inflation rate rises. Conventional foreign exchange investment strategies are insufficient for dealing with these four risks. Investment by China in the major US banks is suggested in the present paper. This strategy would mitigate if not eliminate all four risks. China could gain considerable financial returns on investments with only moderate risk.展开更多
By January 2009, China held almost US$2tn in foreign reserves. The present paper estimates the marginal effect of China changing its holdings offoreign reserves on the value of the US dollar in Europe and dsia. Becau...By January 2009, China held almost US$2tn in foreign reserves. The present paper estimates the marginal effect of China changing its holdings offoreign reserves on the value of the US dollar in Europe and dsia. Because using traditional techniques to find this estimate would be inappropriate due to severe problems resulting from omitted variables, the present paper uses a new approach, bidirectional-reiterative trucated projected least squares, that has been proven to minimize problems associated with omitted variables. It is found that if China would sell 1 percent of its foreign reserves, then the value of the US dollar would fall by 0.44 percent. With such a large effect, China has an incentive to either not sell arty of its US dollar reserves or sell all of its US dollar reserves.展开更多
The purpose of this paper is to investigate China′s state foreign exchange reserves growth using monthly data in the period January 1994 to December 1998. An economic model is constructed, with a view from its format...The purpose of this paper is to investigate China′s state foreign exchange reserves growth using monthly data in the period January 1994 to December 1998. An economic model is constructed, with a view from its formation mechanism. Time series techniques are used to examine the long run relationship between foreign exchange reserves and the variables included in the model. Our empirical investigation revealed existence of a systematic long run relationship among foreign exchange reserves, exports, imports, and foreign direct investment. In the short run, the Asian financial crises have not significant effect on China′s foreign exchange reserves. Moreover, the recursive tests results indicated that the error correction model was structurally stable over the sample period, implying that the reserve holdings play a significant role in the balance payments adjustment process and separating China economy from the Asian financial crises.展开更多
Outwardforeign direct investment(OFDI)has increasingly become an important method for China to integrate into the world economy.This paper comprehensively reviews and analyzes policy development and the changing patte...Outwardforeign direct investment(OFDI)has increasingly become an important method for China to integrate into the world economy.This paper comprehensively reviews and analyzes policy development and the changing pattern of China's OFDI over the past 40 years.We divide the development into"restricted”(1978-1999),"relaxed"(2000-2016)and"regulated",(2017 onwards)stages.This paper also reviews literature on the impact of Chinese OFDI on China and host countries.Despite its generally positive effects,large-scale and unbalanced OFDI activities have alarmed Chinese policymakers.Both developing and developed host countries have expressed their concern over national security and the misbehavior of some Chinese overseas enterprises.Therefore,greater supervision and adjustment from quantity to quality growth is necessary for the future development of China's OFDI.展开更多
The sustained surpluses in the current and capital accounts of balance of payments are the main reason for the continuing rapid expanse of China＇s foreign exchange reserves in recent years. However, flaws in the form...The sustained surpluses in the current and capital accounts of balance of payments are the main reason for the continuing rapid expanse of China＇s foreign exchange reserves in recent years. However, flaws in the formation of the renminbi exchange rate regime are the institutional root cause of the sustained high growth in foreign exchange reserves. Various theoretical misconceptions about the scale of foreign exchange reserves have swayed policies and contributed to its sustained fast growth. Sustained high growth of China＇s foreign exchange reserves, and its extraordinary large scale, carry tremendous risks. Because the security of foreign exchange reserves affects a country＇s financial safety, China urgently needs to adjust its foreign exchange reserve policies.展开更多
文摘The paper deals with the rapid growing twin surpluses and surging foreign exchange reserves in China’s international accounts withessed in recent years.It observes the characteristics of the phenomenon against the standard economic theory and empirical experiences.Then it offers explanation factors:the combined effects of processing trade and foreign direct investments,China’s opening development model underpinned by the intra-product specialization of the contemporary globalization era,and the undervalued exchange rate for the Chinese currency.
文摘After the decoupling of the US dollar from gold in 1971,US Treasuries replaced gold as the value benchmark of the international monetary system and acquired an exorbitant privilege.Subsequently,the total amount of US debt exhibited an exponential expansion trend,unbound by any substantial constraints.The so-called debt ceiling is a partisan game rather than a rigid fiscal constraint on the United States.As long as there are no fundamental changes in the global monetary system,the international credit of US Treasuries will stay stable,and their trend of infinite expansion will be sustained.Massive quantitative easing policies have failed to significantly shake this stability,and the notion of global investors offloading US Treasuries is more an illusion than a fact.The exorbitant privilege of US Treasuries grants its federal government the“freedom to borrow,”shielding the American financial sector from due penalties during global financial crises and securing excessive returns in global capital cycles.In the old days when running“twin surpluses”on capital and current accounts,China kept the value of Renminbi low to support its export manufacturing sector along the southeast coast.As a result,China accumulated huge foreign exchange reserves,mainly US Treasuries.Nowadays,this practice is no longer necessary,yielding low returns and posing significant security risks.
文摘This article assesses both the domestic and external reasons for the occurrence of excessive liquidity.To solve the problem of excessive liquidity two different policy options are proposed;firstly the improvement of the structure of national income assignment and secondly the promotion of the structural diversification of foreign exchange assets.
文摘Most scholars believe that FDI inflow has a direct impact on China’s foreign exchange reserve,while others hold that FDI is mainly invested in the form of physical capital and technology,and therefore does not directly contribute to China’s foreign exchanges reserve accumulation.This paper points out that both effects,direct and indirect,should be considered when assessing FDI’s contribution to foreign exchange reserves.Result shows that from 1986 to 2007,FDI contributed 50%to foreign exchange reserves and the direct effect dominant before 2003 was surpassed by indirect effect after 2001 as the major source of the contribution.
文摘In late February 2006, China surpassed Japan to become the world＇s largest holder of foreign exchange reserves. Beijing is now faced with the growing challenge of how to handle these vast reserves effectively. Although China＇s soaring foreign exchange reserves indicate that its overall strength has grown, they have created internal and external pressures on the balance of the economy, and introduced risks to the financial system. It is estimated in the present study that foreign exchange reserves of approximately US$ 400bn in 2005 would have been appropriate under circumstances of a managed floating exchange rate regime and capital control. China ＇s actual reserves have far exceeded its normal demand. The objective of China is to maintain an optimal level that maximizes net benefits as a whole, Four main policv options are available for China to achieve its target： spending and investing foreign exchange reserves, gradual liberalization of the capital account, diversification of foreign exchange reserves and a switch in holders of foreign exchange reserves. Spending and investing in foreign exchange reserves can be undertaken in combination with liberalization in the capital account, given careful consideration of the risks involved. Liberalization should be extensive but gradual so that companies and individuals can adjust to changes in financial markets and manage portfolios while avoiding unnecessary risks.
文摘The subprime mortgage crisis and the resultant inflationary monetary policy in the USA have left the Chinese economy subject to four risks in particular. First, China＇s exports to the USA might continue to decline. Second in the medium term, the higher US inflation rate will lead to a weak dollar, which will negatively affect China＇s exports. Third in the long term, when the US Federal Reserve decreases money supply to control inflation, the US economy might enter another recession, hurting China ＂s exports further. Fourth, China＇s foreign exchange reserve assets might suffer heavy losses when the US inflation rate rises. Conventional foreign exchange investment strategies are insufficient for dealing with these four risks. Investment by China in the major US banks is suggested in the present paper. This strategy would mitigate if not eliminate all four risks. China could gain considerable financial returns on investments with only moderate risk.
文摘By January 2009, China held almost US$2tn in foreign reserves. The present paper estimates the marginal effect of China changing its holdings offoreign reserves on the value of the US dollar in Europe and dsia. Because using traditional techniques to find this estimate would be inappropriate due to severe problems resulting from omitted variables, the present paper uses a new approach, bidirectional-reiterative trucated projected least squares, that has been proven to minimize problems associated with omitted variables. It is found that if China would sell 1 percent of its foreign reserves, then the value of the US dollar would fall by 0.44 percent. With such a large effect, China has an incentive to either not sell arty of its US dollar reserves or sell all of its US dollar reserves.
文摘The purpose of this paper is to investigate China′s state foreign exchange reserves growth using monthly data in the period January 1994 to December 1998. An economic model is constructed, with a view from its formation mechanism. Time series techniques are used to examine the long run relationship between foreign exchange reserves and the variables included in the model. Our empirical investigation revealed existence of a systematic long run relationship among foreign exchange reserves, exports, imports, and foreign direct investment. In the short run, the Asian financial crises have not significant effect on China′s foreign exchange reserves. Moreover, the recursive tests results indicated that the error correction model was structurally stable over the sample period, implying that the reserve holdings play a significant role in the balance payments adjustment process and separating China economy from the Asian financial crises.
文摘Outwardforeign direct investment(OFDI)has increasingly become an important method for China to integrate into the world economy.This paper comprehensively reviews and analyzes policy development and the changing pattern of China's OFDI over the past 40 years.We divide the development into"restricted”(1978-1999),"relaxed"(2000-2016)and"regulated",(2017 onwards)stages.This paper also reviews literature on the impact of Chinese OFDI on China and host countries.Despite its generally positive effects,large-scale and unbalanced OFDI activities have alarmed Chinese policymakers.Both developing and developed host countries have expressed their concern over national security and the misbehavior of some Chinese overseas enterprises.Therefore,greater supervision and adjustment from quantity to quality growth is necessary for the future development of China's OFDI.
文摘The sustained surpluses in the current and capital accounts of balance of payments are the main reason for the continuing rapid expanse of China＇s foreign exchange reserves in recent years. However, flaws in the formation of the renminbi exchange rate regime are the institutional root cause of the sustained high growth in foreign exchange reserves. Various theoretical misconceptions about the scale of foreign exchange reserves have swayed policies and contributed to its sustained fast growth. Sustained high growth of China＇s foreign exchange reserves, and its extraordinary large scale, carry tremendous risks. Because the security of foreign exchange reserves affects a country＇s financial safety, China urgently needs to adjust its foreign exchange reserve policies.
