***this seminar has been cancelled, apologies inconvenience this may cause***
The China Policy Institute is pleased to announce that a CPI Stakeholder Dialogue by Dr Rongrong Sun, from the School of Economics, University of Nottingham Ningbo, China will take place on 21 June 2017.
The title of her talk is Requiem for Interest-Rate Control in China: Is There Decoupling?
24 October 2015 marked the phase-out of the direct control on retail interest rates in China, with the lifting of the interest-rate ceiling on deposits. The deregulation was gradual, lasting 12 years. We show that the recent surge in the shadow banking of wealth management products, which depositors take as substitutes for bank deposits, has eroded bank profits and endangered financial stability. These two concerns led to the acceleration of the PBC’s deregulation process in 2015. In the meantime, the PBC's operating procedure has been in transition: central bank lending has been slowly replaced with overnight funding through the inter-bank money market; the PBC is trying to target the money market interest rate through open market operations. Under the new operating regime, the effectiveness of the interest-rate transmission channel in China is in question.
This paper examines this question, and assesses the linkage between changes in monetary policy and various market interest rates. We do not find evidence in support for decoupling between monetary policy and prices of financial assets. Rather, the market listens and responds to announcements of policy changes. The market interest-rate response to a policy rate increase and a reserve requirement hike is positive and significant at all maturities, but smaller at the long end of the yield curve. It suggests that the current operating procedure functions well in transmitting changes in monetary policy to financial markets, regardless of interest-rate deregulation.
Rongrong SUN joined the School of Economics, University of Nottingham Ningbo China, as an Assistant Professor in September 2013 after she obtained her PhD in economics at the University of Wuppertal that May. She has also worked as a visiting researcher at the Hong Kong Institute for Monetary Research and the Bank of Finland Institute for Economies in Transition. Her research interests include macroeconomics, monetary economics and China's economic studies. She has published papers in Journal of International Money and Finance, China Economic Review, Oxford Review of Economic Policy and International Economics and Economic Policy.