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Ike Mathur and Soumen De
The Dim Sum bond market in Hong Kong, which allows China to regulate the amount of offshore yuans that flow back into the mainland, has grown steadily since its inception in 2007…
Abstract
The Dim Sum bond market in Hong Kong, which allows China to regulate the amount of offshore yuans that flow back into the mainland, has grown steadily since its inception in 2007 and is expected to surpass in 2013 the threshold level that would attract insurers and long-term issuers to the market. Yet, the market has not matured sufficiently relative to the yuan deposit market in Hong Kong that has grown at a much faster pace on account of trade liberalization and the use of yuans in China’s international trade settlements. Even though Hong Kong has fulfilled its role as an offshore currency center for the yuan, it is being challenged by Taiwan, Singapore, and London in terms of being the premier location for the issuance of yuan-denominated bonds outside of Mainland China.
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Zsuzsa R. Huszár, Ruth S. K. Tan and Weina Zhang
This study seeks to explore the presence and the relative strength of market efficiency in the onshore and offshore Renminbi (RMB) forward markets.
Abstract
Purpose
This study seeks to explore the presence and the relative strength of market efficiency in the onshore and offshore Renminbi (RMB) forward markets.
Methodology/approach
In the onshore and offshore foreign exchange markets, the RMB forward contracts are designed in similar ways. However, the underlying economic forces and regulatory frameworks are very different in these two markets. We first analyze the functioning of each market, by examining the covered interest rate parity (CIRP) conditions. Second, we explore the CIRP deviations in the two markets and quantify the role of market frictions and government interventions.
Findings
We find that the CIRP condition does not hold in either the onshore or the offshore RMB forward markets. We also find that the offshore market is more efficient than the onshore market in conveying private information about investors’ expectation.
Originality/value
Our results reveal that the onshore RMB forward market provides an imperfect platform for investors to manage their currency exposures. We suggest that by opening the offshore market to domestic participants and the onshore market to more foreigners, the forward rates may become more informative with a greater investor mix. These liberalization efforts are important steps in the right directions to improve market efficiency in the Chinese FOREX market.
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This paper aims to critically examine China's exchange rate policy debate and discuss Chinese financial and capital control reform of recent years. Furthermore, using the…
Abstract
Purpose
This paper aims to critically examine China's exchange rate policy debate and discuss Chinese financial and capital control reform of recent years. Furthermore, using the empirical results based on a regional general equilibrium model, alternative methods are suggested of addressing American concerns about China's role in contributing towards global financial stability and American trade deficits with China.
Design/methodology/approach
Regional general equilibrium input‐output model.
Findings
Sino‐American debate on exchange rate policy is a matter of difference of opinion in sequencing of policies China has adopted to reduce capital account control and make her exchange rate regime more flexible. Using the final demand elasticity of exports it is observed that Chinese expansionary fiscal stimuli do have powerful effects in inducing additional exports for the United States and other Chinese trading partners.
Research limitations/implications
The model does not include rest‐of‐the‐world economies.
Practical implications:
The results imply viable alternatives to renminbi/dollar appreciation policy in dealing with US‐China persistent trade deficit.
Originality/value
The paper suggests a new, empirical‐based policy recommendation in dealing with the US trade deficit with China.
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The return of Chinese tourists after a hiatus of almost three years has the potential to boost airline and tourism revenues around the globe significantly.
Shijiao Chen, Malcolm J. Wright, Hongzhi Gao, Huan Liu and Damien Mather
Industry-wide crises involving consumer products place consumers at risk. Consumers rely on institutions that constrain corporate practice and control product quality to reduce…
Abstract
Purpose
Industry-wide crises involving consumer products place consumers at risk. Consumers rely on institutions that constrain corporate practice and control product quality to reduce risk. As institutions vary by country, country-of-origin (COO) acts as a salient cue for consumers to identify institutional quality and thus evaluate risk when making purchase decisions. However, in the era of globalisation, identification of institutional quality becomes complex as global value chains involve different countries such as brand origin (BO) and country-of-manufacture (COM). Therefore, this research investigates how BO and COM individually and jointly affect consumers' institutional perceptions and subsequent purchase decision-making in the presence of systemic risk.
Design/methodology/approach
This research includes three studies (n = 764) employing surveys and choice modelling experiments with samples from China and the USA.
Findings
The results show that BO and COM relate to different institutional perceptions. BO evokes perceptions of legitimacy and the regulatory environment, while COM evokes perceptions of the normative and the regulatory environment. The combination of BO and COM determines how institutional quality is communicated and further affects consumers' legitimacy perceptions, preferences and willingness to pay a price premium.
Originality/value
This research contributes to understanding the effect of BO and COM in the context of complex value chains from an institutional perspective. It also provides implications for leveraging complex COO cues with BO and COM information to improve consumers' institutional perceptions.
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Purpose – Investigate the causes and consequences of foreign financial institutions' divestments in China's banking sector which is an example of cross-border transactions by…
Abstract
Purpose – Investigate the causes and consequences of foreign financial institutions' divestments in China's banking sector which is an example of cross-border transactions by institutional investors.
Methodology – Use a sample of 26 foreign financial institutions' strategic investments in Chinese banks. Ten of those investments are divested after the global financial crisis. We investigate determinants of the divestment, business cooperation after the divestment, and Chinese banks' stock price reactions to the divestment announcement.
Findings – The poor performance of foreign financial institutions, which is attributable to the global financial crisis, and the institutions' regulated low equity ownership are important causes of divestment (or whole divestment). In contrast, Chinese banks' poor performance does not cause foreign divestments. Foreign financial institutions that fully divest their equity stakes usually terminate their cooperative business, which was required by the strategic investment agreement. The Bank of China and the China Construction Bank, which experienced large H-share divestments, experienced large economic declines in A-share values.
Social implications – Foreign financial institutions' strategic investments created substantial shareholder value before the divestment. Banking sector developments that rely on foreign investments are vulnerable to economic downturns in developed countries.
Originality/value of paper – To the best of our knowledge, this is the first trial to analyze the impact of divestments on divested bank performance.
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