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China's macroeconomic policies and spillover effects

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  • Niemeläinen, Julia

Abstract

This paper provides a brief overview of China's capital controls, external asset holdings and the real interest rate, and analyzes the quantitative effects of China's macroeconomic policies between 2000 and 2015, including capital controls, interest rate policy, exchange rate policy and fiscal policy, on the dynamics of China's trade balance vis-a-vis the United States and the world real interest rate. In my analysis, I take into account the demographic differences between the countries, which affect the external imbalances directly and indirectly by affecting the transmission of the macroeconomic policies. Capital controls in China remain stringent even though they have somewhat eased in 2010s, and its gross external asset holdings differ from its peer countries both in terms of the largest functional categories and by type of investment. The average interest rate spread with the US has narrowed down. According to my analysis, the macroeconomic policies overall, and mainly the undervaluation of the real exchange rate, have had a positive impact on China's trade balance. The impact of the macroeconomic policies on the real interest rate has been positive, countering the negative trend induced by demographic factors.

Suggested Citation

  • Niemeläinen, Julia, 2023. "China's macroeconomic policies and spillover effects," BOFIT Discussion Papers 5/2023, Bank of Finland Institute for Emerging Economies (BOFIT).
    • Handle: RePEc:zbw:bofitp:52023
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    References listed on IDEAS

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    1. Dong He & Lillian Cheung & Wenlang Zhang & Tommy Wu, 2012. "How would Capital Account Liberalization Affect China's Capital Flows and the Renminbi Real Exchange Rates?," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 20(6), pages 29-54, November.
    2. Fujiwara, Ippei & Teranishi, Yuki, 2008. "A dynamic new Keynesian life-cycle model: Societal aging, demographics, and monetary policy," Journal of Economic Dynamics and Control, Elsevier, vol. 32(8), pages 2398-2427, August.
    3. Chen, Jinzhao & Qian, Xingwang, 2016. "Measuring on-going changes in China's capital controls: A de jure and a hybrid index data set," China Economic Review, Elsevier, vol. 38(C), pages 167-182.
    4. Mr. Tamim Bayoumi & Ms. Franziska L Ohnsorge, 2013. "Do Inflows or Outflows Dominate? Global Implications of Capital Account Liberalization in China," IMF Working Papers 2013/189, International Monetary Fund.
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    More about this item

    Keywords

    capital controls; capital flows; China;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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