Small, young private firms in China have long been struggling to obtain formal bank loans. To bypass financial constraints, these firms have resorted to alternative, less formal financing sources. In this context, Chinese authorities are aiming to develop a more formal, market-based, and better regulated credit sector. In a Staff Working Paper, I argue that carefully designed credit sector reforms are crucial to avoid throwing out the baby with the bath water. Despite the interest rate liberalisation progressively implemented by Chinese authorities, a general crackdown on alternative finance would remain detrimental to the dynamism of small enterprises. Selectively tightening the limits around informal financing could better balance financial stability on the one hand, and welfare and efficiency on the other.
Continue reading “Financing private investment in China: the role of alternative finance and banking reforms”
Capital investment is one of the fundamental building blocks of future productivity growth and anticipating future developments in global investment is a major concern for policymakers. This note makes two observations: 1) Despite weak investment in advanced economies, investment is not weak globally – as a share of world GDP, capital investment is currently at the highest level since 1990; 2) Emerging market economies, particularly China and commodity exporters, disproportionally contributed to the recent strength in global investment, but that contribution is now at risk.
Continue reading “Global Investment – The Role of Emerging Markets”
It’s easy to get lost in the extraordinarily large numbers used to describe complex, modern economies. Economic analysis is strewn with the words millions, billions and trillions, which sound deceptively similar and are all too easy to jumble up in a slip of the tongue or a slip of the pen. But size matters. In the 12 months from June 2014, the value of the Chinese stock market increased by more than the annual output of Japan, but over the next month fell by an amount equal to UK GDP.
Continue reading “How China lost UK GDP in 22 working days”