Center for Pacific Basin Studies
The Center for Pacific Basin Studies promotes cooperation among central banks in the Pacific Basin and provide insight into and analysis of economic policy issues affecting the region.
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Pacific Basin Notes
Occasional series of the FRBSF Economic Letter
China has recently considered reforming its regulation of initial public offerings in equity markets. Current policy allows more IPOs in rising markets but restricts new issues in falling markets, possibly to avoid pushing down values of existing stocks. However, recent research finds China’s IPO activity has no effect on stock price changes, perhaps because of the low volume relative to the overall market. As such, cyclical restrictions on IPOs do not appear to have stabilized Chinese markets, so policy reforms may improve market efficiency without increasing volatility.
China’s demand for imports helps support the global economic recovery, so China’s recent economic slowdown has caused international concern. China’s slowdown is concentrated in the industrial sector, while its emerging service sector has shown much new strength. However, China’s service sector is relatively closed and relies only modestly on imports. Accordingly, service sector growth is unlikely to offset the adverse implications of a slowing China for global trade.
The recent slowdown in China’s growth has caused concern about its long-term growth prospects. Evidence suggests that, before 2008, China’s growth miracle was driven primarily by productivity improvement following economic policy reforms. Since 2008, however, growth has become more dependent on investment and overall growth has slowed. If the recent reform plans can successfully address the country’s structural imbalances, China could maintain a solid growth rate that might help smooth its transition to high-income status.
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FRBSF Working Paper 2013-12
This paper presents empirical evidence on how asset market linkages between China and Asia shifted during and after the global financial crisis of 2008-2009. We find only weak cross-country linkages in longer-term interest rates, but much stronger linkages in equity markets. We also find that the strength of the correlation of equity price changes between China and other Asian countries increased markedly and has remained high in recent years.
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Policymakers in advanced and emerging economies face challenges as they continue to recover from the recent global financial crisis. The conference discussed monetary policy spillovers from advanced to emerging markets, costs and benefits of foreign reserve accumulation, and desirability of interventions, restrictions on cross-border capital flows, and financial regulatory reforms to prevent future crises.
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