People's Republic of China : Selected Issues

January 2021

IMF Country Report No. 21/12

PEOPLE'S REPUBLIC OF CHINA

SELECTED ISSUES

This paper on the People's Republic of China was prepared by a staff team of the International Monetary Fund. It is based on the information available at the time it was completed on December 2, 2020.

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			PEOPLE'S REPUBLIC OF CHINA
			SELECTED ISSUES
	December 2, 2020
			Approved By
Prepared by a team led by Helge Berger, with individual
			Asia and Pacific	chapters authored by Fei Han, Emilia Jurzyk, Sarwat Jahan,
			Department	Cian Ruane, Caroline Zhou (All APD), Sonali Das (RES), Henry
				Hoyle (MCM), Grace Li (FAD), Phakawa Jeasakul (Resident
				Representative in Hong Kong SAR), Wenting Song (APD
				Summer Intern), and Wei Guo (SPR).

CONTENTS

FURTHER STEPS TO IMPROVE MONETARY POLICY EFFECTIVENESS AND CREDIT

ALLOCATION _________________________________________________________________________ 3

A. The Role of Interest Rate Guidance Policies __________________________________________3

B. Interest Rate Guidance Policies and Credit Allocation ________________________________4

C. Interest Rate Guidance Policies and Monetary Policy Transmission __________________6

D. Advantages of Interest Rate Guidance Policy Reform ________________________________7

CHINESE STATE-OWNED ENTERPRISES, RESOURCE (MIS)ALLOCATION, AND

PRODUCTIVITY _______________________________________________________________________ 9

A. A Brief Overview of SOEs in China ___________________________________________________9

B. Productivity Gaps Between Listed SOEs and POEs__________________________________ 10

C. The Role of Credit Misallocation ___________________________________________________ 13

D. Policies to Reform Chinese SOEs___________________________________________________ 14

References____________________________________________________________________________ 16

CONVENTIONAL MONETARY POLICY TRANSMISSION AND POLICY

COORDINATION IN CHINA _________________________________________________________ 18

A. An Evolving Policy Framework _____________________________________________________ 18

B. Monetary Policy Shocks ____________________________________________________________ 19

C. Monetary-Fiscal Coordination _____________________________________________________ 20

D. Empirical Specification and Results ________________________________________________ 21

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PEOPLE'S REPUBLIC OF CHINA

E. Policy Implications _________________________________________________________________________ 24

References____________________________________________________________________________________ 25

INTERGOVERNMENTAL COORDINATION IN CHINA: HOW MUCH FISCAL RISK SHARING IS THERE AND CAN IT BE IMPROVED? _____________________________________________________ 26

A. Introduction: Local Government Financing Amid COVID-19 _______________________________ 26

B. Empirical Strategy and Results _____________________________________________________________ 27

C. Considerations for Reform _________________________________________________________________ 31

References____________________________________________________________________________________ 33

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