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Managed exchange rates, dual listing and foreign exchange exposure: the experience of Chinese banks around the financial crisis

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  • Min Ye
  • Elaine Hutson

Abstract

Using daily equity price data, we find that most of the 14 Chinese listed banks are highly exposed to the RMB/USD exchange rate. By breaking our data period into two subperiods around the financial crisis, we find that Chinese banks were even more exposed in the post-crisis period, despite the fact that the renminbi reverted to a de facto peg against the dollar in September 2008. This cannot be explained by direct foreign exchange exposure, and we argue that China's banks are subject to substantial indirect exposure as a result of concerns about their loan books in the face of anticipated further appreciation of the RMB. We also find that the exchange rate sensitivities of the twin shares of dual-listed Chinese banks (those listed in China and Hong Kong) are very different – not only in magnitude but also in sign. We discuss two possible explanations for this: investor sentiment and ‘hot money’ inflows into China.

Suggested Citation

  • Min Ye & Elaine Hutson, 2011. "Managed exchange rates, dual listing and foreign exchange exposure: the experience of Chinese banks around the financial crisis," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 16(3), pages 393-421.
    • Handle: RePEc:taf:rjapxx:v:16:y:2011:i:3:p:393-421
    DOI: 10.1080/13547860.2011.589629
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    References listed on IDEAS

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    1. Barry Eichengreen & Ricardo Hausmann, 1999. "Exchange rates and financial fragility," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 329-368.
    2. Zhijun Zhao & Yue Ma & Yuhui Liu, 2005. "Equity Valuation in Mainland China and Hong Kong: The Chinese A-H Share Premium," Working Papers 142005, Hong Kong Institute for Monetary Research.
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    Cited by:

    1. Yidi Sun & Bruce Morley, 2021. "The Dynamics of Foreign Exchange Derivative Use in China," JRFM, MDPI, vol. 14(7), pages 1-18, June.
    2. Fung, Joseph K.W. & Girardin, Eric & Hua, Jian, 2022. "How does the exchange-rate regime affect dual-listed share price parity? Evidence from China’s A- and H-share markets," Journal of International Money and Finance, Elsevier, vol. 129(C).
    3. Nurul Anisak & Azhar Mohamad, 2020. "Foreign Exchange Exposure of Indonesian Listed Firms," Global Business Review, International Management Institute, vol. 21(4), pages 918-936, August.
    4. Kearney, Colm, 2012. "Emerging markets research: Trends, issues and future directions," Emerging Markets Review, Elsevier, vol. 13(2), pages 159-183.

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