CHINA

David Michael
Kevin Gerald
Muhammad Bahuri
China’s Currency
1 Chinese Yuan = 0.16 US Dollar
 Interest Rate
• Last recorded at 4.35%
Actual Previous Highest Lowest Dates
4.35 4.35 10.98 4.35 1996-2018

(Last updated on May 2018)

• China Interest Rate Data

2013 2014 2015 2016 2017
Policy 6.00 5.60 4.35 4.35 4.35
Interest
Rate
 China Stock Exchange
Shanghai Stock Exchange:
• 3rd largest stock market in the world.
• Market capitalization: US$5.5 trillion in 2015.
• Include 3 main categories: stocks, bonds, and
funds
• Listed companies: 861
 SSE’s Top 10 Largest Stocks
1. PetroChina (1,750.3 billion)
2. Industrial and Commercial Bank of China (1,289.1 billion)
3. Agricultural Bank of China (1,090.9 billion)
4. Bank of China (813.0 billion)
5. China Life (711.1 billion)
6. China Petroleum & Chemical (592.4 billion)
7. Ping An Insurance (357.5 billion)
8. China Merchants Bank (342.2 billion)
9. China Shenhua Energy Company (334.6 billion)
10. Citic Securities (333.5 billion)
• Shenzhen Stock Exchange:
• 8th largest stock exchange in the world
• Market capitalization: US$2.285 trillion in
2015
• Listed companies: 1700
 Market Overview
• GDP (2018): US$14,092 trillion
• GDP growth (2017): 6.9%
• GDP per capita (2018): US$10,087
• GDP per sector:
– Services: 51.6 %
– Industry: 39.8%
– Agriculture: 8.6%
• Unemployment (2017): 3.97%
• Export (2017): US$2.26 trillion
• Export goods:
Manufacturers: 94.3%
Agricultural: 3.2%
Fuels and mining: 2.4%
Others: 0.1%
• Import (2017): US$1.84 trillion
• Import goods:
Manufacturers: 64.4%
Fuel and mining: 21.3%
Agricultural: 9.5%
Others: 4.8%
 Monetary Base
• Monetary base = money supply / money base
• The monetary base refers to that part of the
money supply which is highly liquid (i.e. easy
to use). The monetary base includes
– Notes and coins
– Commercial bank deposits with the Central Bank
• The monetary policy of Quantitative Easing
(QE)
Monetary Base
M0
Monetary Base
M1
Monetary Base
M2
 Money supply Process
• The economic reform in the 1980s caused
profound changes in the structure of the
banking system
• How The Chinese central bank PBOC control
the situation?
 Money supply Process
• Controlling Forex Rates:
– Absorb the large inflows of foreign
capital from China’s trade surplus
– Purchasing foreign currency of exporters, and
issuing them in the local yuan currency.
– Ensures that forex rates remain fixed, or in
tight range.
 Money supply Process
• Sterilization Process:
However, the PBOC's actions may result in some adverse
consequences. The bank increases the supply of local
currency in domestic markets, which increases the chance
of high inflation. To cut back on excess money supply, the
PBOC sells the required amount of domestic currency
bonds, which takes away the excess cash from open
markets. It also buys domestic currency bonds to infuse
cash in the markets, when needed.
 Money supply Process
• Printing Currency:
Printing domestic currency is another measure
applied by China. The PBOC can print yuan as needed,
though  this can lead to high inflation. However, China
has tight state-dominated controls on its economy,
which enables it to control inflation differently than in
other countries. Changes are made to subsidies and
other price-control measures to check inflation in
China.
 Money supply Process
• Reserve Ratio Changes:
Commercial banks are required to keep a
percentage of their total deposit amount with the
central bank of the country, which is known as
the reserve ratio. If the central banks reduce the
reserve ratio, commercial banks need to keep less
money as reserve, and have more money available
leading to increase the money supply (and vice versa).
 Money supply Process
• Discount Rate Changes:
If commercial banks loan additional money from
central banks, they pay interest on it, per the
applicable discount rate. Central banks can change the
discount rate to increase or decrease the cost of such
borrowings, which eventually impacts availability of
money in open markets. Changes in discount rates are
widely followed across the globe to control money
supply.
 5 Countries with The Biggest Transaction

• Export:
1. USA (US$385 Billion)
2. Hongkong (US$287 Billion)
3. Japan (US$129 Billion)
4. South Korea (US$93.7 Billion)
5. Germany (US$65.2 Billion)
• Import
1. Hongkong (US$285 Billion)
2. South Korea (US$124 Billion)
3. USA (US$115 Billion)
4. Japan (US$113 Billion)
5. Germany (US$85.4 Billion)
 Central Bank Functions
1. Money Supply Process
2. Regulating Financial Markets
3. Managing Payment and Settlement System
THANK YOU