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The People's Bank of China began to discuss the importance of DR007 (the 7-day repurchase rate by deposit-taking institutions at China's interbank market) from 2016. This study compares the performance of the fixed DR007 (FDR007) to that of the other popular policy target rate, the FR007 (the fixed 7-day repurchase rate by both deposit-taking institutions and non-deposit-taking institutions). This is the first known study to make this comparison. Using a variety of methodologies, and based on daily datasets for January 2018 – December 2019, this study concludes that the FDR007 outperforms FR007 with respect to policy target rates. [ABSTRACT FROM AUTHOR]

On 13 September 2020, the Peoples' Bank of China issued The Trial Measure for the Supervision and Administration of Financial Holding Companies (FHCs), stipulating that firms that control two or more different types of financial institutions may need to establish FHCs. This emerging new type of organization has profound implications; however, serious research on Chinese FHCs is almost none. This study fills in this gap by conducting a comprehensive review on Chinese FHCs from three perspectives. First, from the perspective of macroeconomics and financial markets, this study reviews different types of FHCs and analyses the major source of risks on macroeconomic stability and macroprudential regulation. Second, from the perspective of regulation, based on this regulation document and other literature, this study explores Chinese authorities' main regulatory objectives. Third, from the perspective of academics, this study also presents a future research agenda regarding Chinese FHCs. [ABSTRACT FROM AUTHOR]

China's debt issue has attracted extensive attention from investors and China watchers around the world. Previous studies generally concluded that China's credit crisis is looming. Responding to these concerns, the Chinese authorities started to systematically deal with its debt issue from 2016. This study examines the factors that have contributed to the accumulations of debts, and reviews the deleveraging strategies adopted in different sectors such as non-financial corporate, financial corporate, household and public sectors. This study concludes that some positive progress has been achieved, and at the same time challenges remain. [ABSTRACT FROM AUTHOR]

This study provides an updated analysis of Chinese trust funds—a specialized and important type of shadow banking. This study is the first to estimate the contribution of Chinese trust funds to economic growth, and also the first to examine the association between trust funds and the volatility of Chinese stock markets. It makes a novel contribution in showing that Chinese trust loans play a negative role in interest rate passthrough from the policy rate to the lending rates of commercial banks. [ABSTRACT FROM AUTHOR]

In 2013, China's central bank introduced the standing lending facility to manage the volatility of interbank market rates. This study is the first of its kind in the academic literature by examining the effect of this new monetary policy tool. Based on monthly data between December 2015–November 2018, the empirical results show that the standing lending facility operations can significantly reduce the volatility of overnight SHIBOR, an important policy rate in the Chinese financial markets. [ABSTRACT FROM AUTHOR]

The monetary policy has been a main driver of China's economic growth. Strong evidence shows China's monetary policy is designed to support real GDP growth. There are various and complicated monetary transmission channels. This study examines the relation between monetary independence and interest rate pass-through to government bonds in China. The sensitivity coefficients between government bond yields and the People's Bank of China's (PBC) policy rate FR007 are obtained through a series of univariate 200-trading-day rolling regressions between bond yields with different maturities and FR007. The Monetary Independence (MI) is measured as the reciprocal of the correlation of interest rates in China and the United States. 200-trading-day correlations are calculated using daily interest rate data. A simple regressions model is employed to test the relations between sensitivity coefficients and MI. The time period is between January 4, 2013 and November 30, 2016. The empirical results show that China's monetary independence is positively associated with China's interest rate pass-through to government bonds. This relation is also robust to various tests on the presence of outliers and causality. It means that the higher China's monetary independence, the greater China's interest rate pass-through to government bonds. During March 2016 -- November 2016, China had been continuously suffering great capital outflows. China's monetary independence had dropped significantly during this period, and at the same time China's interest rate pass-through to government bonds had totally disappeared. The Impossible Trinity theory may provide the answer. In reality, the Chinese authorities have helped establish multiplier mechanisms that jeopardize both monetary autonomy and exchange-rate stability. The Chinese policy-makers such as finance minister Lou Jiwei also conceded that China's monetary tools were becoming less effective. Based on this study's findings, the PBC is suggested to relax its control of the exchange rate regime in order to increase the independence of the Chinese monetary policy. Accordingly, China's interest rate pass-through to government bonds will be improved, and Chinese economic growth will be more sustainable. [ABSTRACT FROM AUTHOR]

Abstract: The Negotiable Certificate of Deposit (NCD) is a major financial instrument in China; the value of outstanding Chinese NCDs was approximately RMB8 trillion (equivalent to USD1.2 trillion) in mid‐2017. This article reviews the most recent developments in the Chinese NCD, including its effect on interest rate pass‐through and money creation. Empirical results show that the introduction of the NCD in 2014 influenced the relationship between the policy rate and the lending rate of Chinese commercial banks, and the interest rate pass‐through from the policy rate to the lending rate of commercial banks improved subsequently. However, this process has also been accompanied by maturity mismatch, increasing leverage, and decreasing credit ratings for the assets of banks and other financial institutions. Consequently, systemic risk in the Chinese banking system has increased. [ABSTRACT FROM AUTHOR]

On 23 October 2015, the People' s Bank of China ( PBoC) completed the process of interest rate liberalisation. This study examines China' s interest rate pass-through to the lending rate of commercial banks before and after interest rate liberalisation. Based on data from Q3, 2007 to Q2, 2016, the study shows that the interest rate pass-through from policy rate to lending rate, which was effective before October 2015, lost effectiveness thereafter. PBoC interventions, the 'Impossible Trinity' theory and institutional factors may contribute to this ineffectiveness of the policy rate pass-through, which may also be related to the higher premium for risk required by banks and to the worsening of their financial condition. The study also offers policy advice in response to the declining effectiveness of China' s interest rate pass-through. [ABSTRACT FROM AUTHOR]