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The international financial integration of China and India

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Author Info
Lane, Philip R.
Schmukler, Sergio L.

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Abstract

Three main features characterize the international financial integration of China and India. First, while only having a small global share of privately-held external assets and liabilities (with the exception of China's foreign direct investment liabilities), these countries are large holders of official reserves. Second, their international balance sheets are highly asymmetric: both are"short equity, long debt."Third, China and India have improved their net external positions over the past decade although, based on their income level, neoclassical models would predict them to be net borrowers. Domestic financial developments and policies seem essential in understanding these patterns of integration. These include financial liberalization and exchange rate policies, domestic financial sector policies, and the impact of financial reform on savings and investment rates. Changes in these factors will affect the international financial integration of China and India (through shifts in capital flows and asset and liability holdings) and, consequently, the international financial system.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4132.

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Date of creation: 01 Feb 2007
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Handle: RePEc:wbk:wbrwps:4132

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Keywords: Investment and Investment Climate; Economic Theory&Research; Banks&Banking Reform; Capital Flows; Financial Economics;

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  1. Gottschalk, Ricardo & Azevedo Sodre, Cecilia, 2008. "The Liberalization of Capital Outflows in CIBS: What Opportunities for Other Developing Countries?," Working Papers RP2008/68, World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
  2. Céline Rochon & Maral Shamloo & Andrew Feltenstein, 2007. "High Growth and Low Consumption in East Asia: How to Improve Welfare While Avoiding Financial Failures," IMF Working Papers 07/278, International Monetary Fund. [Downloadable!]
  3. Eswar S. Prasad, 2007. "Is the Chinese Growth Miracle Built to Last?," IZA Discussion Papers 2995, Institute for the Study of Labor (IZA). [Downloadable!]
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  4. Maurice Obstfeld, 2007. "The Renminbifs Dollar Peg at the Crossroads," IMES Discussion Paper Series 07-E-11, Institute for Monetary and Economic Studies, Bank of Japan. [Downloadable!]
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  5. Guonan Ma & Zhou Haiwen, 2009. "China’s evolving external wealth and rising creditor position," BIS Working Papers 286, Bank for International Settlements. [Downloadable!]
  6. Matthieu Bussière & Arnaud Mehl, 2008. "China's and India's roles in global trade and finance - twin titans for the new millennium?," Occasional Paper Series 80, European Central Bank. [Downloadable!]
  7. Lane, Philip R., 2006. "The Swedish External Position and the Krona," Working Paper Series 200, Sveriges Riksbank (Central Bank of Sweden). [Downloadable!]
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