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The Chinese Economies in Global Context: The Integration Process and Its Determinants

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  • Cheung, Yin-Wong
  • Chinn, Menzie
  • Fujii, Eiji

Abstract

The linkages between the People’s Republic of China and the other Chinese economies of Hong Kong and Taiwan are assessed, and compared against those with Japan and the US. We first characterize the time series behavior of three criteria of integration, namely real interest parity, uncovered interest parity, and relative purchasing power parity. There is evidence that these parity conditions tend to hold over longer periods between the People’s Republic of China and all other economies, although they do not hold instantaneously. Overall, the magnitude of deviations from the parity conditions is shrinking over time. Amongst all, however, Hong Kong exhibits indications of a more advanced level of integration with the mainland. We also find that evidence is surprisingly positive for integration with the US. We then turn to examining the determinants of the degree of integration. Regression results suggest that the degrees of financial and integration depend upon the extent of capital controls, foreign direct investment linkages as well as exchange rate volatility.

Suggested Citation

  • Cheung, Yin-Wong & Chinn, Menzie & Fujii, Eiji, 2003. "The Chinese Economies in Global Context: The Integration Process and Its Determinants," Santa Cruz Department of Economics, Working Paper Series qt89s3z523, Department of Economics, UC Santa Cruz.
    • Handle: RePEc:cdl:ucscec:qt89s3z523
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    Cited by:

    1. Meixing Dai, 2006. "Inflation-targeting under a Managed Exchange Rate: the Case of the Chinese Central Bank," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 4(3), pages 199-219.
    2. James Galbraith & Sara Hsu & Wenjie Zhang, 2009. "Beijing Bubble, Beijing Bust: Inequality, Trade, and Capital Inflow into China," Journal of Current Chinese Affairs - China aktuell, Institute of Asian Studies, GIGA German Institute of Global and Area Studies, Hamburg, vol. 38(2), pages 3-26.
    3. Vincent Bouvatier, 2010. "Hot money inflows and monetary stability in China: how the People's Bank of China took up the challenge," Applied Economics, Taylor & Francis Journals, vol. 42(12), pages 1533-1548.
    4. Pasricha, Gurnain, 2007. "Financial Integration in Emerging Market Economies," MPRA Paper 5278, University Library of Munich, Germany.
    5. Vincent Bouvatier, 2006. "Hot Money Inflows in China: How the People's Bank of China Took up the Challenge," Post-Print halshs-00111153, HAL.
    6. Jorge Selaive & Beatriz Velásquez & José Miguel Villena, 2008. "Extended Measures of Capital Transactions," Working Papers Central Bank of Chile 461, Central Bank of Chile.
    7. Guonan Ma & Robert N McCauley, 2008. "Efficacy Of China'S Capital Controls: Evidence From Price And Flow Data," Pacific Economic Review, Wiley Blackwell, vol. 13(1), pages 104-123, February.
    8. Renu Kohli, 2011. "Managing Capital Flows In Intermediate Regimes: The Case Of India," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 2(02), pages 351-371.
    9. Paul S. L. Yip, 2007. "China'S Exchange Rate System Reform," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 52(03), pages 363-402.
    10. repec:ind:icrier:257 is not listed on IDEAS
    11. Agnès Bénassy-Quéré & Amina Lahrèche-Révil & Valérie Mignon, 2004. "Le yuan et le G20," Revue d'Économie Financière, Programme National Persée, vol. 77(4), pages 127-146.
    12. Guonan Ma & Robert N. McCauley, 2007. "Do China's capital controls still bind? Implications for monetary autonomy and capital liberalisation," BIS Working Papers 233, Bank for International Settlements.

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    More about this item

    Keywords

    uncovered interest parity; real interest parity; purchasing power parity; exchange rates; capital mobility; market integration;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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