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Spillovers from China
Although China’s much-needed transition to a new growth path is proceeding broadly as expected, the transition is still fraught with uncertainty, including regarding the Chinese authorities’ ability to achieve a smooth rebalancing of growth and the extent of the attendant slowdown in activity. Thus, in the short run, the transition process is likely to entail significant spillovers through trade and commodities, and possibly financial channels. This note sheds some light on the size and nature of financial spillovers from China by looking at the impact of developments in China on global financial markets, with a particular emphasis on differentiation across asset classes and markets. The note shows that economic and financial developments in China have a significant impact on global financial markets, but these effects reflect primarily the central role the country plays in goods trade and commodity markets, rather than China’s financial integration in global markets and the direct financial linkages it has with other countries.
China's Economy in Transition
China's current account surplus has declined to around one-quarter the peak reached before the global financial crisis. While this is a major reduction in China's external imbalance, it has not been accompanied by a decisive shift toward consumption-based growth. Instead, the compression in its external surplus has been accomplished through increasing fixed investment so that it is now an even higher share of China's national economy. This increasing reliance on fixed investment as the main driver of China's growth raises questions about the durability of the compression in the external surplus and the sustainability of the current growth model that has had unprecedented success in lifting about 500 million people out of poverty over the last three decades. This volume examines various aspects of the rebalancing process underway in China, highlighting policy lessons for achieving stable, sustainable, and inclusive growth.
Determinants of Corporate Investment in China
This paper analyzes the evolution of investment in China, its main features, and its key determinants. In recent years, manufacturing, real estate, and infrastructure have been the main drivers of investment. Investment remains largely concentrated in coastal areas, but there has been a shift to greater investments inland in recent years. The empirical analysis of the determinants of investment indicates that financial variables, such as interest rates, the exchange rate, and the depth of the domestic capital market are important determinants of corporate investment. The results suggest in particular that financial sector reform, including that which deregulates and raises real interest rates as well as appreciates the real effective exchange rate, would lower investment and help rebalance growth away from exports and investment toward private consumption.
Trade and Financial Spilloveron Hong Kong SAR from a Downturn in Europe and Mainland China
Hong Kong SAR was hit hard by the global financial crisis, which started out in the U.S. and spilled over to the rest of the world. Three years later, vulnerabilities in the euro area's financial system and concerns over a hard landing in Mainland China have started to weigh on Hong Kong's growth prospects. Against this backdrop, this paper aims to quantify the trade and financial spillovers on Hong Kong SAR's economy from a downturn in the euro area and Mainland China. Based on simulations using a version of the Global Integrated Monetary and Fiscal (GIMF) model and a Global VAR (GVAR) that includes both balance sheet and standard macroeconomic indicators, Hong Kong SAR's output growth coul...
Banking on Women Leaders: A Case for More?
Using a new dataset, we measure the large gap between the representation of men and women in leadership positions in banks and bank supervision agencies worldwide. Women occupied less than 2 percent of bank CEOs positions, and less than 20 percent of the board seats in more than 80 percent of the observations across banks over time. Contrary to common perceptions, many low- and middle-income countries have a higher share of women in bank boards and banking supervision agency boards compared to advanced economies. Econometric analysis suggests that, controlling for relevant bank and country-specific factors, the presence of women as well as a higher share of women on bank boards is associated...
China's Footprint in Global Commodity Markets
This note assesses empirically the role Chinese activity plays in global commodities markets, showing that the strength of China’s economic activity has a significant bearing on commodity prices, but that the impact differs across commodity markets, with industrial production shocks having a substantial impact on metals and crude oil prices and less so on food prices. The size of the impact on the prices of specific commodities varies with China’s footprint in the market for those commodities; the empirical estimates indicate that, over a one-year horizon, a 1 percent increase in industrial production leads to a 5–7 percent rise in metals and fuel prices. The surprise component in Chinese industrial production announcements has a bearing on commodity prices that is comparable in magnitude to that of industrial production surprises in the United States, and this impact is much larger when global risk aversion is high.
An End to China’s Imbalances?
Global imbalances have been a central theme of the international economic policy debate for much of the last decade, prompted by large and sustained current account deficits in the U.S. and counterpart surpluses in China, Germany, and among many of the oil producers. This paper focuses on the current state of the external imbalance in China, examining the factors underlying the post-2008 drop in China’s current account surplus and analyzing the prospects for the external surplus going forward. The paper finds that China’s current account surplus should remain modest in the coming years. However, despite the fact that China’s medium-term current account is likely to stay below its pre-crisis range, it is too early to conclude that "rebalancing" has been truly achieved in China. While imbalances do not currently seem to be manifesting themselves as a feature of China’s external accounts, the evidence increasingly points to a rising domestic imbalance as growth becomes increasingly dependent on very high levels of investment.
Rethinking Financial Deepening
The global financial crisis experience shone a spotlight on the dangers of financial systems that have grown too big too fast. This note reexamines financial deepening, focusing on what emerging markets can learn from the advanced economy experience. It finds that gains for growth and stability from financial deepening remain large for most emerging markets, but there are limits on size and speed. When financial deepening outpaces the strength of the supervisory framework, it leads to excessive risk taking and instability. Encouragingly, the set of regulatory reforms that promote financial depth is essentially the same as those that contribute to greater stability. Better regulation—not necessarily more regulation—thus leads to greater possibilities both for development and stability.
Financial Inclusion
Using several recently available global datasets, this Staff Discussion Note examines macroeconomic effects of financial inclusion. It finds significant benefits to economic growth from financial inclusion, but the benefits diminish as financial inclusion and depth become large. Broadening access to credit can compromise economic and bank stability in countries with weak bank supervision. Other forms of financial inclusion—such as access to and use of bank accounts, branches, and ATMs—do not hurt stability, and can be promoted extensively. The note finds that gaps in financial inclusion are associated with economic inequality, but the association appears relatively weak.
South Africa
South Africa’s strong economic recovery from the COVID-19 pandemic is petering out. Growth moderated from 4.9 percent in 2021 to 2.0 percent in 2022 as the country was buffeted by Russia’s war in Ukraine, global monetary policy tightening, severe floods, and an unprecedented domestic energy crisis. Inflation rose above the target band though inflation expectations remained anchored. The current account moved back into a deficit after a temporary commodity-price driven surplus.
