How Effective are Macroprudential Policies in China?

March 27, 2013

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Format: Chicago

Bin Wang, and Tao Sun. How Effective are Macroprudential Policies in China?, (USA: International Monetary Fund, 2013) accessed March 31, 2025

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper investigates macroprudential policies and their role in containing systemic risk in China. It shows that China faces systemic risk in both the time (procyclicality) and cross-sectional (contagion) dimensions. The former is reflected as credit and asset price risks, while the latter is reflected as the links between the banking sector and informal financing and local government financing platforms. Empirical analysis based on 171 banks shows that some macroprudential policy tools (e.g., the reserve requirement ratio and house-related policies) are useful, but they cannot guarantee protection against systemic risk in the current economic and financial environment. Nevertheless, better-targeted macroprudential policies have greater potential to contain systemic risk pertaining to the different sizes of the banks and their location in regions with different levels of economic development. Complementing macroprudential policies with further reforms, including further commercialization of large banks, would help improve the effectiveness of those policies in containing systemic risk in China.

Subject: Banking, Financial sector policy and analysis, Financial sector stability, Housing prices, Macroprudential policy, Macroprudential policy instruments, Prices, Systemic risk

Keywords: Capital account, Central bank, Effectiveness, Exchange rate, Financial sector stability, Financial system, Fiscal policy, Global, House price, Housing prices, Loan growth, Macroprudential policies, Macroprudential policy, Macroprudential policy instruments, Systemic risk, WP

Publication Details

Pages:

59
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2013/075
Stock No:

WPIEA2013075
ISBN:

9781484355886
ISSN:

1018-5941

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