Group Chinese Financial System

8/10/2019 Group Chinese Financial System

1/45

Chinas economy

Autori: Andrea Agostini,

Valentina Merani,

Charles Turay, Caterina Schimizzi

Course: International fnancialinstitutions and markets

Proessor: ederica Ielasi


2/45

The our !ork is a"out to descri"e the

economy o China# $e di%ide the te&t in three 'arts:

irst 'art is an introduction: !e(ll talk a"outthe 'osition o China in the !orld economy,

!hat(s ha''ened in the economic reorm othe eighties and ho! is structured theeconomy today#

In the second 'art !e e&amined the "anking

system# In the third 'art !e descri"e the fnancial

market#

In the last art !e(ll see !hat(s ha enin


3/45

The Chinese

developmentSince 20 years the Chinese economy has a

very important role in the international scene,and also continues to be subject ofcontrasting reviews.The surface of China is 9,671,018 km2,making it the largest state in East sia andthe population is appro!imately 20" of theworld# China is the most populous countryin the world.

$he importance of China in the %%&century isreflected in its role as second largesteconomy to !" after #nited $tates%


4/45

China is also mem"er o the many im'ortant instututions:

United Nations, !ho has as one o his goals theachie%ement o international coo'eration in economic

de%elo'ment# WTO, !hich aim to o%ersee a num"er o trade

agreements "et!een mem"er states, they re'resentinga''ro&imately )*+ o !orld trade in goods and ser%ices#

APEC Asia-Pacifc .conomic Coo'eration/: !hich aims to

oster coo'eration, economic gro!th, ree trade andin%estment in the Asia-Pacifc#

ASEANAssociation o South-.ast Asian 0ations/:!hichthe main 'ur'ose is to 'romote coo'eration and mutualassistance "et!een mem"er states to accelerate

economic 'rogress and increased sta"ility in the region oSouth-.ast Asia

G20:that enclosing the most industrialized countries toencourage international economic de%elo'ment "y


5/45

T1. .C202MIC 3.23M $ith the introduction o economic

reorm "ased on ca'italism, in !"#China $ecame the co%nt&y 'ith the(astest economic development in

the 'o&ld: is the second largeste&'orter and third largest im'orter ogoods#

there !as a slo! 'rocess o

transormation in the Chineseeconomy, its institutions, structure andregulations relating to the


6/45


7/45

An inc&edi$le )&o'th 2%er the last 45 years China has got an e&tremely hi)h

savin)s &ate, ave&a)in) a&o%nd 0 -,Chineseeconomy has en.oyed one o( the hi)hest )&o'th&ates in the 'o&ld/

At the "eginning o the nineties there !as an incredi"leinc&ease in GP, (&om - in !!0 to 2/"- in !!#

In the ranking o 67P, in 455* China sur'assed 6ermanyand in 4585 9a'an#

2 course the ga' !hit the nited State is still %ery large#

In 4585, China is e&'ected to score a gross domestic'roduct amounted to ;555 "illion dollars, !hile the #S# isat an altitude o 8; thousand#

In the last years the country has "een a"le to ra'idly "uildu' its ca'ital stock and shit a massi%e 'ool ounderutilized la"or rom the su"sistence-agriculture sectorinto higher-'roducti%ity acti%ities that use ca'ital#


8/45


9/45


10/45

C1A06.S I0 .C202M=


11/45

A63IC>T3.

China is one o( the 'o&ld1s la&)est p&od%ce&s andcons%me&s o( a)&ic%lt%&al p&od%cts/

Today A)&ic%lt%&e cont&i$%tes (o& a&o%nd 0- o(China1s GP/

In the nineties !e assist to a crises in the rural !orld#

The 'rofta"ility o the grain culti%ation decrease "ecausethe 'rices, state-controlled, increase less than the'roduction costs#

Many armers lea%e the grain culti%ation or other acti%ityand "et!een 8)*) and 4555 the so!ned surace decrease

o 84+# To fnance the social ser%ice and the inrastructure the

go%ernment multi'ly the ta&es, and the cam'aigns su?erinsu@cient in%estment: the 'oor regions miss the


12/45

nd%st&y

Industry and construction account or B#D+ o ChinaEs67P# Around + o the total manuacturing out'ut in the!orld comes rom China itsel# China ranks third !orld!idein industrial out'ut#

China is the la&)est p&od%ce& o( steel in the 'o&ld/

Since the ounding o the Peo'leEs 3e'u"lic, industrialde%elo'ment has "een gi%en considera"le attention#Among the %arious industrial "ranches the machine3$%ildin) and metall%&)ical ind%st&ies have &eceivedthe hi)hest p&io&ity/These t!o areas alone no!

account or a"out 45FG5 'ercent o the total gross %alueo industrial out'ut
http://en.wikipedia.org/wiki/Economy_of_the_People's_Republic_of_China#cite_note-87http://en.wikipedia.org/wiki/Economy_of_the_People's_Republic_of_China#cite_note-87


13/45

An impo&tant event in the Chinese ind%st&y is thedevelopment o( the p&ivati4ation/

In the nineties !e assist to a decrease o the 'roducti%ity o the'u"lic industry#

They are %ery 'enalized rom the ta&es, rom the costs o thesocial 'rotection o their em'loyees and "ecause antiHuatedtechniHues o 'roduction#

In the 8))G the go%ernment decide the China must "ecame amodern countryJ, so the p%$lic companies m%st $ecome

p&ivate company# irst ste' !as o'ening to other su"Kects the 'artici'ation to the

"usiness ca'ital#

n !## p&ivate companies )et a &eal le)al stat%s: theycan "e !hit single o!nerL !hit more o!ners or limited lia"ilitycom'anies#

Companies 'hit (o&ei)n capital a&e an impo&tant pa&t o(the p&ivate secto&: they can "e com'any !hit mi& ca'ital,!here in%estor get the 4;+ o ca'italL they can "e coo'erati%es!here the di%ision o the 'rofts are defned "y contract or they


14/45

mpo&t3e7po&t

The %ast maKority o China1s impo&ts consists oindustrial su''lies and ca'ital goods, nota"ly machine&yand hi)h3technolo)y e8%ipment, the maKority o !hichcomes rom the de%elo'ed countries, 'rimarily 9a'an andthe nited States#

3egionally, almost hal o ChinaEs im'orts come rom .ast

and Southeast Asia, and a"out one-ourth o ChinaEse&'orts go to the same destinations#

A"out 5 'ercent o China1s e7po&ts consist omanuactured goods, most o !hich are te&tiles andelect&onic e8%ipment, 'ith a)&ic%lt%&al p&od%cts

and chemicals constit%tin) the &emainde&/ O%t o( the 9ve $%siest po&ts in the 'o&ld, th&ee a&e

in China/


15/45

.&'orts o goods and ser%ices

+ o 67P/ 2:,"#6- in 200! .&'orts o goods and ser%ices re'resent the

%alue o all goods and other market ser%ices'ro%ided to the rest o the !orld# They include

the %alue o merchandise, reight, insurance,trans'ort, tra%el, royalties, license ees, andother ser%ices, such as communication,construction, fnancial, inormation, "usiness,'ersonal, and go%ernment ser%ices# They

e&clude com'ensation o em'loyees andin%estment income ormerly called actorser%ices/ and transer 'ayments#


16/45

Im'orts o goods and ser%ices

+ o 67P/ 20,!2;2#- in 200! Im'orts o goods and ser%ices re'resent the

%alue o all goods and other market ser%icesrecei%ed rom the rest o the !orld# They include

the %alue o merchandise, reight, insurance,trans'ort, tra%el, royalties, license ees, andother ser%ices, such as communication,construction, fnancial, inormation, "usiness,'ersonal, and go%ernment ser%ices# They

e&clude com'ensation o em'loyees andin%estment income ormerly called actorser%ices/ and transer 'ayments#


17/45

5inancial system

the enti&e 9nancial system has a hi)h p&opo&tion o(savin)s and investments o( the pop%lation/

The total %alue o de'osits at the end o 455;, it hasa''roached to 8B5+ o 67P !hile the share o thesede'osits used "y "anks to e&tend credit in the economy o

the country !as greater than 855+ o 67P# This indicates the dominant &ole o( $an+s in the

Chinese 9nancial system/China1s economy is mainly 9nanced $y $an+ loans:loans granted "y "anks in the frst Huarter 455B !ere

#"- o( the total (%nds &aised $y domestic non39nancial sectoMoreo%er, the 'resence o not yet %ery de%elo'ed "ondmarket does not allo! com'anies to di%ersiy theirsources o research unding#


18/45

Indeed the fnancial de%elo'ment o Chinaremains in the early stages#

The co%nt&ys le)al system is 'ea+ so that9nancial cont&act a&e di


19/45

As China )ets &iche&, ho'eve& thisst&ate)y is %nli+ely to contin%e to 'o&+/

To mo%e into ne&t stage o de%elo'ment,China !ill need to allocate its ca'ital moree@ciently, !hich reHuires that it mustim'ro%e its fnancial system#

The Chinese leadershi' is !ell a!are o thischallenge#

The go%erned has announced that state-o!ned "anks are "eing 'ut on the 'ath to'ri%atization#

In addition, the go%ernment is engaged inlegal reorm to make fnancial contracts moreenorcea"le#


20/45

The Banking Sector

The history of the banking system in China can besubdivided into two main periods

The Mao Era(1949-197!

The Post-Mao Era orDeng Era(197

onwards!


21/45

The Mao Era

"n 1949 the #eop$e%s &ank 'f China took over

functions of central bank(regu$ation and

monetary po$icy!

functions of commercial bank(contro$ on a$$banking business!


22/45

The Mao Era

PBOC

s central bankthe #&'C as theob)ective of promotingeconomic growth and pricestability*

"t focus on monetary policyissues and financia$ system

$i+uidity*

CBRC

The China Banking RegulatoryCommition (C&,C! managesthe functions of superision* "tfocus on the strenght of the

financia$institutions and the restructuring

o! the banking sector*

#&'C remains sti$$ very inf$uentia$ it has considerab$e regu$atorypower*Common over$apping of functions*


23/45

The Post-Mao Era

"n 19. the contro$ on bankingbusiness has been took over by

the /Big "our#name$y

Bank o! China(&'C!

$n%ustrial & Commercial

Bank o! China ("C&C!

China Construction Bank

(CC&!

'gricultural Bank o! China

(&C!


24/45

The Structure o! the Banking Sector


25/45

The Big "our


26/45

Re!orming the Banking Sector

The chinese banking sector used to be debt-$aden because of itsstatus of 0fake$y independent from the government* 2#3 ratio

of the &ig our was above 56 in 566.*

8tages of the restructuring

,ecapita$i:e and restructure the &ig our into )oint-

stock banks (strenghtening the ba$ance sheets!

"nvite strategic investors


27/45

"oreign Banks

566; < removing of a$$geographic and (most!business restrictions for foreignbanks* 2everthe$ess rather

sma$$ ro$e*

'ften geographica$$y focused ("*=*8hangai! as they cannotcompete with Chinese banks in

term of the number ofbranches


28/45

The "inancial Markets

>a)or function of the financia$markets

?ow inancia$ >arkets have

improved Chinese economy


29/45

The Stock Market

?ow chinese stock market was in thepast

na$ytica$ comparison of China stockand @8 stock (at present!*

#ress coverage and specu$ation*?A 8tock =Bchange

rowth potentia$ of the stock marketThe chinese stock market crash


30/45

The Stock Market

Taiwan stock market

#o$itica$ direction pursued by the

taiwanian $eader =nactment of new $aws 2ew po$icies adopted Taiwan 8tock =Bchange


31/45

$nestment Risk in the ChineseStock Market

Do$ati$ity

#recautions


32/45

The Bon% Market

The deve$oping stage

The reformation of the bond markets

,u$es and regu$ations in the bondmarket


33/45

(hy "inancial Markets are among the mostheaily regulate% sector in the economy)

symmetric information

dverse se$ection and mora$ ha:ard

>itigating the prob$em


34/45

(hy inestors shoul% consi%erinesting in China)

Capita$ reserves

=Bit strategy

,eady to serve (service sector!

>ore to China than eBports


35/45

Recommen%ation an%Conclusion

"ncrease information to investors>onitoring and contro$ of credit rating

institutions

Eiversification of $oan portfo$io=ncourage sma$$ banks to raise capita$>inimi:ation of the financia$ panic

*ow soun% an% sa!e is the China+s !inancialsystem)


36/45

,n%eraluation o! China+s Currency

The currency of China is

,enminbi and its unit is Fuan

"ssued in 194

iBed to the rate of 5*G;

,>& per @8E

,>& gradua$$y

depreciated to enhance

the competitivity of

Chinese eBports

1994 < $owest va$ue *;5 ,>& per @8E


37/45

"luctuation o! the echange rate o! RMB


38/45

PPP .Purchasing Power Parity/

>ethod based on the /$aw of one priceH* "*=* &ig >ac "ndeB

3imitations it doesn%t consider purchasing patternsI

difference in +ua$ity of goods in different countriesI inf$ation

ccoriding to the "nternationa$ >onetary und in

566; 1 @8E J 5*6;5 Fuan


39/45

"EER ."un%amental e0uilibriumechange rate/

Eetermines the interna$ ba$ance E#I

Eetermines a target current account that conforms to the

sustainab$e capita$ account f$owsI

Ca$cu$ates the e+ui$ibrium of the ,==,*

3imitations uncertainty of estimating interna$ and eBterna$ba$ance*


40/45

BEER . Behaioral e0uilibriumechange rate/

'vercomes the ==, mode$%shortcoming by on$y mode$ingthe economic fundamenta$s

=Bp$ains the historic performance of the ,==,

3imitations assumes the economy was in e+ui$ibrium during

the historica$ period


41/45

RMB un%eralue% by

ccording to the different mode$ the ,>&is underva$ued by different


42/45

'merican Tra%e De!icit

China contributes with 5G of @8 trade deficitI

ppreciation of ,>& wi$$ affect the deficitI

The impact is proportiona$ to the overa$$ tradeI

China contributes with 11 of @8 trade*

=B 56 appreciation wou$d resu$t in a 5 decrease in the

merican trade deficit*


43/45


44/45

The Chinese authorities c$aim that the abandonment of fiBedeBchange rate wou$d eBpose the country to activity of financia$specu$ation wou$d destabi$i:e the economy and hurt growth*

2everthe$ess in Kune 5616 the Chinese government hasdec$ared as its currency wi$$ gradua$$y appreciated and wi$$ besub)ected to an osci$$ation of 6*G

'%antages an% Disa%antages o!un%eraluation


45/45

Fuan underva$uation is source of increasing tension in wor$deconomyI

s stated by the #resident of the "nternationa$ >onetary undEomini+ue 8trauss-Aahn in an interview

'' If we want to avoid creating the conditions for a new crisis,China should accelerate the process of revaluation; the economicpolicies implemented by China to manage the crisis are going inthe right direction''

Conclusions

Group Chinese Financial System

Documents

Transcript of Group Chinese Financial System