FinanceTransition

Finance in Transitional and Developing Economies: China and Others: 

Finance in Transitional and Developing Economies: China and Others Topics: Growth and Inequality in a ‘Dualistic’ Economy Property Rights and Distribution Financial Depth vs. Breadth

Surplus Labor in Agriculture: Marginal Product approaches 0: 

Surplus Labor in Agriculture: Marginal Product approaches 0

Slide3: 

Gus Ranis: “Labor Surplus Economies”, http://papers.ssrn.com Consumption Agricultural Production Non-Agricultural Production (transition) investment investment

Surplus Labor, Dualistic Economy Nobel Prize Winning Model: 

Surplus Labor, Dualistic Economy Nobel Prize Winning Model Developed by Arthur Lewis (St. Lucia) Gustav Ranis (Germany) John Fei (Taiwan) Growth with Equity: The Taiwan Case (Oxford University Press, 1979) John C. H. Fei, Gustav Ranis, Shirley W. Y. Kuo

Implications of Two-Sector Model:: 

Implications of Two-Sector Model: Agricultural and Industrial Wages Linked, kept flat by Surplus Labor. Wages can only rise strongly when Labor Surplus is used up. Non-Agricultural Profits grow much faster than Wages.

Tied Wages, Japan: 

Tied Wages, Japan

Tied Wages, Taiwan: 

Tied Wages, Taiwan

Property Rights & Distribution: 

Property Rights & Distribution East Asian Development successes linked with new broadly distributed forms of property rights. (South Korea, Taiwan, China, Vietnam) These property rights land reforms achieve: Better matching of labor with land resources, Incentives for long term investment, More liquidity in the market for agricultural property. Broader Distribution of Financial Assets is more complex, but may have even greater long term benefits for productivity and growth.

Slide10: 

East-Asian: Growth and Equality Inversely Correlated TWO TRANSITIONS on INCOME DISTRIBUTION East-European: No Clear Pattern

Soviet-Sphere Privatizations: 

Soviet-Sphere Privatizations Large Range of Methods: Rapid ‘Voucher’ Privatization, Czech Republic Gradual Privatization, Hungary ‘Oligarch’ Loans-for-Shares, Russia

China’s Financial System:Deep but not Broad: 

China’s Financial System: Deep but not Broad We will see that Financial Assets in China: Have unusual depth, forming an unusually high portion of GDP, but Lack the breadth associated with other Rapidly Developing Economies, since they are narrowly confined to the Banking Sector.

Financial ‘Deepening’ Correlates with Higher GDP per capita: 

Financial ‘Deepening’ Correlates with Higher GDP per capita http://unctad.org/en/docs/dp_142.en.pdf

But China’s M2/GDP ratio is out of proportion to its GDP: 

But China’s M2/GDP ratio is out of proportion to its GDP http://www.allcountries.org/china_statistics/index.html

M2 and Household Savings Very High Proportion of GDP: 

M2 and Household Savings Very High Proportion of GDP

Slide16: 

http://www.allcountries.org/china_statistics/index.html

Volatility of Shanghai Composite Index: 

Volatility of Shanghai Composite Index

If Household Saving is ‘Bottled-up’ in Banks, May Pressure Excess Stock Speculation: 

If Household Saving is ‘Bottled-up’ in Banks, May Pressure Excess Stock Speculation

Bank Dependency may also  Weaken Response to Currency Crisis: 

Bank Dependency may also Weaken Response to Currency Crisis 0% 2% 4% 6% 8% -2% -4% -6% -8% t t+1 t+2 t+3 t-1 t-2 t-3 www.meti.go.jp/english/report/downloadfiles/g99W004e.pdf

Banking is State-Owned in China: 

Banking is State-Owned in China McKinsey Global Institute, China Capital Report, 2006

State Banks Loan Mostlyto State-Connected Enterprises: 

State Banks Loan Mostly to State-Connected Enterprises

Foreign & Private Enterprises More Efficient, Even in Similar Industries: 

Foreign & Private Enterprises More Efficient, Even in Similar Industries

Integration of Reforms: 

Integration of Reforms Observed Problems Closely Inter-linked Cheap Corporate Bank Loans Limited SME Access to Capital Very Small Bond Market Lack of Domestic Institutional Investors Small, Under-performing Equity Market Inefficient Bank Operation Undeveloped Consumer Loan Market

Slide27: 

ROOT CAUSES Cheap Corporate Bank Loans Inefficient Bank Operation Limited SME Access to Capital Lack of Bank Competition Undeveloped Consumer Loan Market Very Small Bond Market Lack of Domestic Institutional Investors Small, Under-performing Equity Market Limited forms of Collateral Poor Credit Assessment

Conclusion:If Problems are Inter-Linked- Reforms must also be well-Integrated: 

Conclusion: If Problems are Inter-Linked - Reforms must also be well-Integrated