Assignment questions

Unless otherwise noted, assignments are due the following Monday at 14:00.

You can be very brief in your answers. If you don't know how to answer a question, skip it.
 

Assignment 12 (due 13 May)

Because a table created in Word doesn't translate into html format, click here for Assignment 12 in pdf format (which includes the table).

Monetary theory

1. General

In the following table, enter the effect of monetary policy and fiscal policy on equilibrium real income.

We may have covered some cases in class already, so you only need to copy the conclusion. Other cases you may still have to do on your own. Because the price effect in the Keynesian case lead to second-round effects which compared to the extreme Keynesian case reduce (but not cancel) the overall impact of the policy, you may just copy the results of the extreme Keynesian case, and make a note that the results are in the same direction as in the extreme Keynesian case, but not as strong.

The table does not copy from MS Word, not even in html format...
So make it yourself:
You need two rows, one for fixed exchange rate, and one for flexible exchange rate.
You need three columns, one for the neoclassical labor market, one for the Keynesian labor market, and one for the extreme Keynesian labor market.
Do this table twice, once for monetary policy, and once for fiscal policy.
 

2. China

Apply the four market model to the case of China. What are the effects of expansionary monetary policy (increase in money supply) and expansionary fiscal policy (these are two different cases) on equilibrium real income, nominal interest rate, exchange rate, and the price level? Answer this question (or, rather, two questions) for each of a, b, and c below separately. Where relevant, make two cases to play through both the neoclassical and extreme Keynesian labor markets.

a. Assume a fixed exchange rate. (The RMB is de facto pegged to the USD.)
b. In addition, assume no capital mobility, i.e., the BP curve does not depend on R, which means it is vertical. (There indeed is only extremely limited capital mobility as capital account transactions have not yet been liberalized.)
c. In addition, assume that the PBC fixes the domestic interest rate at a particular level. (Interest rates in China are government-determined.)
 

The following questions cover only a small part of the relevant assignment material. Feel free to not read all other pages.

One article listed in the course outline as part of Assignment 10:
“Xie Duo. Open market operations…” (Xie Duo. Gongkai shichang…)
1. According to the 1995 PBC Law, what is the (final) monetary policy objective?
2. What is the intermediate monetary policy objective (in English also “target variable”) since 1996?
3. What are the ten monetary policy tools available to the PBC? (Some are similar, combine.)
4. When did the PBC begin open market operations?
5. What share of the annual increase in the monetary base (jichu huobi) in 1996, 1997, 1998, and 1999 was achieved through open market operations? (Table 2 with text above it.) Make sure that you know what the table means.
6. What are the first two reasons listed at the bottom of p. 35 as to why the PBC cannot solely rely on open market operations to conduct monetary policy?
7. How many financial institutions may trade bonds in open market operations with the PBC “today” (presumably early 2000)?
8. What are the two trading methods used in the PBC’s open market operations?
9. At what level is the interest rate set in the PBC’s open market operations?

One article listed in the course outline under Assignment 11:
“Xia Bin, Liao Qiang. Money supply…” (Xia Bin, Liao Qiang. Huobi gongyingliang…)
1. In what year did the PBC adopt money supply measures as monetary policy intermediate objectives? Which money supply measure? (p. 35 after table)
2. Compare the targets for the increase in the money supply to the actual data (Table 1). Is there a close match? Do targets tend to be overshot, or not reached?
3. Take a look at the money multiplier (T1, for M1) in Table 3. Is it perfectly stable? What are the implications?
4. Why may the PBC not be able to control the monetary base for monetary policy purposes? (p. 36 bottom)
5. Take a look at the (cash) leakage rate in Table 4. Why do the authors think that it is falling over time (bottom p. 38)?
6. The authors suggest not to use money supply as a target variable. What do they propose instead? Why? (p. 42 middle)

Reading of 27 Feb. titled “SAFE…” (Guojia waihui guanli ju 2000 nian nianbao)
All data are readily available in tables or charts, no need for calculations. Feel free to interpret what your answer means.
1. What/ who are the three major sources of external (foreign) debts at end-2000? (p. 61f)
2. Who is the major recipient of external funds at end-2000? (p. 61f)
3. What share of total external debts in 2000 was long- or medium-term, and what share was short-term? How has this changed over the years?
4. What is the ratio of outstanding external debts to GDP in 2000? The ratio of outstanding external debts to foreign exchange income?
 

Assignment 11 (due 6 May)
Some of the easier, purely factual questions we may skip when discussing this assignment in class. Note that for two questions we split the class into two groups, each group answers one of the two questions only.

Reading titled “Asset management company regulation” (Jinrong zichan …)
1. Which institution decides on the establishment of asset management companies (AMCs)?
2. What is the objective of an AMC?
3. What is the registered capital of each AMC and who provides it?
4. What does an AMC do (what are its seven possible activities)?
5. When an AMC buys a bad loan from a bank, how is the purchasing price determined?
6. How does an AMC obtain its funds?
7. What are the guidelines for organizing a debt-equity swap (zhaiquan zhuan guquan)? (According to which criteria is the AMC to choose which bad loans to borrowing enterprises are to be turned into equity holdings of the AMC in the enterprise?) [Art. 17]
8. Who actually chooses the enterprises whose bad loans are to enter a debt-equity swap?
9. What can the AMC do with any debt it has turned into equity?
10. Who “organizes, guides, and coordinates” the debt-equity swap work?
11. Do you think an AMC is well suited to achieve its stated objective?

Reading titled “Inner Mongolia ‘debt-equity swap’ situation…” (Neimenggu zizhiqu…)
1. What are the three principles for debt-equity swaps issued by the SETC?
2. How many enterprises in Inner Mongolia are undergoing a debt-equity swap, what’s the total value, and what is the effect on the liability-asset ratio and profit/ losses? Do you think the debt-equity swap truly leads to an improvement in the financial situation of the enterprises?
3. What are some of the problems of the debt-equity swap?

Reading titled “Lower-level state banks’ bad loans…” (Jiceng guoyou yinghang…)
1. What locality does the article cover?
2. Compare the total assets taken out of the four state commercial banks to the total loans in the four state commercial banks BEFORE some assets were taken out. (This requires some calculations. Use the sum of the “total” items in the table, and use 1:8 to translate USD into RMB.) Of the loans remaining in the banks, what percentage is bad?
3. What is good about taking some bad loans out of the banks?
4. What are some of the negative effects associated with taking the bad loans out of the banks? ONLY answer this question if your student ID ends with an odd number (the last digit of your student ID is either 1, or 3, or 5, or 7, or 9).

Reading titled “From the point of view of the AMC…” (Cong zichan guanli gongsi …)
1. What locality does the article cover?
2. From Table 1, what’s the total number of borrowers and loans affected by the AMC’s purchase of bad loans from the four state commercial banks in Hunan province?
3. Of the 10.504b yuan of doubtful loans purchased by the Changsha office of the Changcheng AMC, what percentage was in fact not doubtful but already clearly a loss?
4. As of mid-2000, what percentage of the total bad loans transferred from the state commercial banks to the AMCs is already being handled, and what percentage has been “very finally handled?” (meaning?) Of the value that has been “recovered,” what is the major channel through which the value is recovered?
5. What are the seven methods used by the AMCs to recover the assets?
6. What are some of the problems in handling bad loans? ONLY answer this question if your student ID ends with zero or an even (the last digit of your student ID is either 0, or 2, or 4, or 8, or 10).
 

Assignment 10 (due 29 April)

Be prepared to present your answers to the following questions on the board in class.

1. Two-sector model.
a. Assume aggregate expenditures do not depend on the interest rate, in other words, the IS curve is vertical. Draw the IS-LM diagram. Show the effects of an increase in government expenditures and, separately, the effects of an increase in the money supply. Is the assumption that aggregate expenditures do not depend on the interest rate realistic?
b. Assume money demand is infinitely interest-elastic, in other words, the LM curve is almost horizontal (slope very close to zero). Draw the IS-LM diagram. Show the effects of an increase in government expenditures and, separately, the effects of an increase in the money supply. Is the assumption that money demand is infinitely interest-elastic realistic?

2. Central bank money creation.
Show the effects of the actions below on the central bank balance sheet and a commercial bank balance sheet. Conclude on any impact on the monetary base and the money supply.
a. The central bank buys paper clips for its own use, and pays for them using bank notes it newly printed.
b. The volume of checks in the process of collection (float) increases dramatically.
c. The public is afraid of a bank crash and withdraws much of its deposits at the commercial banks in cash.
d. The central bank buys foreign exchange on the foreign exchange market.
e. Member banks of the Fed increase their equity holdings in their local Federal Reserve Banks (in each of the 12; view the central bank balance sheet as the consolidated balance sheet of all 12 member banks).
-> If these items appear difficult, try answering them by going back to the examples we had in class.

3. Three-market model, with lots of help.
a. Draw the IS/LM diagram and, directly underneath, the AD/AS diagram. In the AD/AS diagram, draw a vertical AS curve (and a regular, downward sloped AD curve). Make sure that the equilibrium y-level is the same in both diagrams to start out with.
    (i) Policy: increase the money supply. (1) Adjust the IS/LM diagram accordingly. (2) Adjust     the AD curve accordingly. What are the new y and P level in the AD/AS diagram? (3) Show the impact of any change in equilibrium(!) P in AD/AS on the curves in the IS/LM diagram. What are the final y and R levels in the IS/LM diagram?
    (ii) Policy: increase government expenditures. (1)… same as above.
b. Draw the IS/LM diagram and, directly underneath, the AD/AS diagram. In the AD/AS diagram, draw an upward sloping AS curve (and a regular, downward sloped AD curve). Make sure that the equilibrium y-level is the same in both diagrams to start out with.
    (i) Same as above…
    (ii) Same as above…
-> Note: If you shift a curve in the IS/LM diagram by one centimeter to the right, and if the AD curve should also be shifted to the right, then it is helpful to shift the AD curve by also exactly one centimeter.
 

Assignment 9 (due 22 April)

Be prepared to present your answers to the following questions on the board in class.

1. Suppose real income is larger than real aggregate expenditures. Graphically show the adjustment process to equilibrium in a diagram.

2. Suppose the value of the exchange rate falls. Graphically derive the shift in the IS curve from the changes on the commodity market.

3. Suppose aggregate expenditures did not depend on the nominal interest rate R but on the real interest rate r = R - pe (pe is the expected inflation rate). Suppose some real world event today makes people believe the inflation rate for the coming period will be higher. Graphically show the impact of this change in expectations on the location of the IS curve. (In the short run, R will stay unchanged.)

4. Suppose aggregate prices rise. Graphically derive the shift in the LM curve from the changes in the money market.

5. Draw both the IS and the LM curve in one diagram. Graphically show the impact of expansionary government fiscal policies on equilibrium real income and nominal interest rate (commodity market plus money market must both be in equilibrium at the same time). Do the same for an increase in money supply.
 

Assignment 8 (due 15 April)

Reading by X.L. Ding, titled “Systemic Irregularity and Spontaneous Property Transformation in the Chinese Financial System” [listed in course outline as part of assignment 10]

1. What is the article about? (Also define the two key concepts/ terminological distinctions.)
2. Table 2: (i) What kinds of irregularities does the table cover? (ii) Who compiled the data? (iii) What distinguishes state financial institutions from other institutions?
3. Temporary misappropriation could be “forgivable” vs. “punishable.” Give an example for each.
4. What are the advantages and disadvantages of organizing temporary misappropriation in a “syndicate” way rather than one individual organizing it him/herself?
5. What are the principal investment spheres for temporarily misappropriated funds? Why?
6. Are the total amounts of embezzlement and temporary misappropriation large or small?
7. Suppose a state commercial bank has 1m yuan of funds. It has two options as to what it can do with these funds. (i) It can lend the funds to a state-owned enterprise as a regular loan; it may earn interest of 5% and there is a chance that the loan is repaid (but there is also a chance that the loan is not repaid). (ii) It can lend the money to a finance company that the bank’s management has set up, and the finance company then speculates on the stock market. The expected return and then also actual return on the stock market investment is 25%. The bank management keeps 2/5 of the 25% return, pays 2/5 of the 25% return into the banks employee welfare funds, and pays 1/5 of the 25% return to the bank (i.e., the bank earns a 5% return and gets its money back). If you were the manager, which option would you choose? Why? From a macroeconomic point of view, which option is preferable?
8. Since the mid-1980s, the Chinese government has given the state banks more autonomy in managing their financial assets. What has the Chinese government “forgotten” to do? What should it do?

+++ Take a look at and around the PBC website http://www.pbc.gov.cn/
If you find something interesting, summarize it in one or two sentences.
 

Assignment 7 (due 8 April)

Reading titled  “State Council General Office passing on the PBC circular on evading liabilities …” (Guowuyuan…)
1. When was the circular issued? By who?
2. Why was this circular issued? (first paragraph of main text)
3. How many enterprises (by end-2000) had accounts at the four state commercial banks or the Bank of Communications and had undergone (or were undergoing) gaizhi [meaning: property rights reform]? What was the amount of loans and interest due involved? How many of these enterprises, in terms of absolute numbers and the volume of loans, were evading (or “dodging”) their liabilities? What’s the share of state-owned enterprises among them?
4. Which provinces account for the largest number of liability-evading enterprises, and for the largest amount of liabilities evaded? Why?
5. What are the three major ways to evade liabilities? (Be brief but understand each point.)
6. What is the role of local government leaders or departments in enterprises evading liabilities (p. 13 right column top-middle)? Why?
7. What did the Shengda company do after the court ruled against it? (p. 14 left column bottom)

Reading titled “Economic analysis of enterprises evading financial liabilities” (Qiye taofei…)
1. Who wrote the article? When? About which locality?
2. By 31 May 2001, how many enterprises had evaded their liabilities, and what is the share of evaded liabilities in total loans? Is this much?
3. What is striking about the information in Table 1?
4. What is striking about the information in Table 2?
5. Which two sectors of the economy account for most of the volume in evaded liabilities?
6. Compare the rate of loans evaded in Table 4 to the overall figure (see Question 2). Conclude.
7. Evasion of loans falls into eight categories. (Table 5) What are they, and for what share of all liabilities does each category account? How do the numbers compare to the nationwide numbers in the previous assignment article (the PBC circular)? Going through the eight categories, how do you think the problems associated with each of the eight categories can be resolved?
8. Table 7, Table 8, and Table 9 claim that the rate of evading loans is highly correlated with the rate of bad loans as well as with the rate at which the total volume of loans increases. Calculate the correlation coefficients. Are these correlation coefficients statistically significant?
9. Are you convinced by the arguments related to Table 1, 2, 3, 7, 8, 9? (Does the information provided logically prove the point made? The point is listed above the table for Table 1, 2, 3, at the top of the first paragraph of section 2.1. for Table 7, 8, and just above Table 9 for Table 9.)
10. According to the authors, what is the motivation to evade liabilities? (Try to capture in one or two sentences.)
11. What are the conditions which lead enterprises to evade liabilities? (Try to capture in about three sentences.)
12. Why do enterprises dare to evade their liabilities? (Try to capture in about three sentences.)
Section 4 is a game theory diversion. Enjoy on your own if you like. Note that the “bu shouxin” for player B should always be below the horizontal line.
13. What are the recommendations of the authors? (Be brief but understand the points you identify.)
 

Assignment 6 (due 25 March)

Reading titled “PBC on <RCC…” (Zhongguo renmin yinhang guanyu yinfa <Nongcun…)
1. When was the regulation issued? By who?
2. What does the regulation say about lending of small amounts of money by Rural Credit Cooperatives to farmers? (how much money, what types of guarantees)
3. How are Rural Credit Cooperatives to evaluate the credit-worthiness of farmers?
4. What are the guidelines to the Rural Credit Cooperatives on the aggregate amount of lending to farmers?
5. Evaluate this regulation from the point of view of bank independence and feasibility.

Reading titled “On Sichuan province…” (Guanyu Sichuan sheng …)
1. Who wrote the article? What locality does the article cover?
2. How important were the non-state economy in industry, commerce, and construction in the year 2000?
3. How do financial institutions support the non-state economy (six characteristics)? Give one or two details for each characteristic, if possible.
4. What are the major obstacles to lending to the non-state economy?
5. How does this report/ article compare to the articles on Ningbo/ rural/ informal finance that we had before?

Reading titled “China’s small and medium-sized enterprises…” (Wo guo zhongxiao qiye …)
(You don’t need to read the whole article. Only answer the questions.)
1. Who wrote the article? What locality does the article cover (summarize)?
2. What are the five trends in the financing of small and medium-sized enterprises? (Keep very short)
3. Why do financial institutions think that lending to small and medium-sized enterprises is “difficult?” Also try to evaluate the arguments.
4. The expansion of what other channels of small- and medium-sized enterprise financing do the authors suggest (p. 11)?

Newspaper article titled “Can banks be forced to make loans” (Qi neng qiangling…) --- handed out in class (Keep your answers short)
1. What problem did the county government on 16 Dec. 1996 want to solve? How?
2. Did the rural joint (credit) cooperative have spare funds that it was allowed to lend out? Why yes, or why no?
3. What threats did the deputy county head issue on 30 Dec. 1996?
4. How did the events unfold on 30 and 31 Dec. 1996?
5. Who rectified the government interference in banking matters?
6. What does this story suggest about bank independence in China? What does the journalist criticize?
7. Where was the article published? Implications?
 

Assignment 5 (due 18 March)

As you go through these readings and find something that looks important but is unclear to you, ask in class.

Reading titled “Hunan bank lending…” (Dui Hunan yinhang xindai…)
1. When was the article published? What locality does it cover?
2. In what three respects have bank loans become ‘concentrated’ (jizhong) in recent years?
3. Which of the three arguments do you find convincing or not convincing? Why?
4. In the first half of 2001, to how many enterprises did the financial institutions(?) extend loans? Is this number large or small?
5. What share of loans (by all financial institutions?) went to state-owned enterprises in 1999, 2000, and the first half of 2001?
6. What are the reasons for the loan concentration? Are these sound reasons?
7. Loans worth how much were either not yet repaid or will never be repaid as of end-2000? Is this figure large or small (try to figure out how to make a sound argument)? How many enterprises are involved?
8. What are the implication of the loan concentration?

Reading titled “Bank loan concentration…” (Yinhang xindai jizhong…)
1. Who wrote the article? When?
2. What new elements of “concentration” are mentioned in this article (but not in the previous article)?
3. In 1998 and 1999, what share of cumulatively extended capital construction loans by the commercial banks in Jinan municipality went to state key projects? (4th page of the reading, top)
4. According to this article, what are the reasons for the loan concentration?
5. Does the local government have any impact on bank lending decisions? (p. 8, bottom)
6. In what respect is the current loan concentration good or bad?
7. What can the central bank do to ameliorate the loan concentration?
8. In what respect should the regulations regarding the writing off of non-performing loans and unpaid interest be changed? (bottom p.13, top p. 14)
9. Do the two readings sound similar? If so, what does this mean?
 

Assignment 4 (due 11 March)

Reading titled “PBC… ratio administration…” (Zhongguo renmin yinhang guanyu dui shangye yinhang…)
1. When was the regulation issued? By whom?
2. What does item 4 say about loans for investment in fixed assets in 1994? (Meaning?)
3. In the list of 9 ratios (or “couples” of ratios), note/ copy the first, second, fifth, and ninth in English.

Reading titled “PBC… credit license…” (Zhongguo renmin yinhang guanyu yinfa <xindaizheng …)
1. Beginning when was this regulation to be implemented, and where?
2. What is this thing called “credit license?”
3. Regarding the content of the credit license, what does it include (Art. 6, focus on items 2, 3, 4, 7, and 8)?
4. Is acquiring a credit license voluntary or obligatory for enterprises in the locations where this regulation is implemented?
5. What happens to the credit license when an enterprise takes out a loan, or repays a loan?
6. Why do you think this regulation has been issued? How successful do you think it has been implemented? (What are some of the problems, if any?)

Reading titled “PBC … main bank system…” (Zhongguo renmin yinhang guanyu yinfa <zhuban …)
1. Beginning when was this regulation to be implemented, and where?
2. What is the meaning of a “main bank?”
3. Is participation voluntary or obligatory?
4. Reading through the second section of the regulation, summarize briefly how the main bank system is supposed to work.
5. Do you think the main bank system is a good idea? (Why, or why not?) Do you think it worked in practice?

Class handout on PBC/Fed balance sheets
Compare the PBC and Fed balance sheet data item by item for late 2001/ early 2002. What are the major(!) differences between the balance sheets of the two institutions?

Class handout newspaper article “State commercial banks…” (Guoyou shangye yinhang…)
1. On what event does the article report?
2. What are the major decisions announced at this event?
3. What are the state commercial banks to do now?
4. What reforms are announced for the RCCs?
5. Short article on left: What is the position the seven persons listed have in common? Why do you think they participated in this conference?
6. Short article on left: Look at the “main topics” (zhuti) and what has been “pointed out.” Why do the Hong Kong Monetary Authority or the Fed in the U.S. not talk about these things? What do they talk about?
 

Assignment 3 (due 25 February)

Reading titled “State key…” (Guoyou zhongdian jigou…)
Some questions cover material at different locations of the reading simultaneously.
1. Who issued the regulation? When?
2. What is a “state key financial institution?”
3. What are the tasks of the supervisory committee?
4. How often per year does the supervisory committee examine the financial institution? What does it do with the findings?
5. What is the relationship between the supervisory committee and the bank-internal auditing and supervisory institutions?
6. What is the relationship between the supervisory committee and other bank-external supervisory institutions?
7. What is the composition of the supervisory committee? Who appoints the members? What are their qualifications?
8. Is the supervisory committee independent of the financial institutions it supervises? Is it independent of other supervisory institutions? Do you think the supervisory committee can effectively supervise financial institutions? (Explain)

Reading titled “China finance supervision…” (Zhongguo jinrong ye jianguan…)
1. Who wrote the article? What is the research approach of this article? Is the article interesting?
2. What are the four major problems of financial supervision in China? (Try to be concrete in your answer.)
3. What is the author’s suggestion regarding external audits? Any thoughts on what this means/ implies?
4. The author has many suggestions on how to improve supervision. What is one suggestion s/he does NOT have but that comes to your mind?

Class handout on stock market (pp. 6-19 of 2001 nian zhongguo zhengquan qihuo tongji nianjian)
Feel free to answer these questions on the handout itself.
1. What percentage of all shares is “negotiable” (in terms of total market capitalization in 2000)?
2. “Investors” account for roughly what share of the population in 2000?
3. How many more government bonds (T-bonds) were issued in 2000 than enterprise bonds? Why?
4. How does the amount of mutual funds in 2000 compare to market capitalization?
5. What’s the ratio of market capitalization (negotiable shares) to GDP in 2000? Is this ratio high or low?
6. How does the amount of funds issued domestically through the stock market compare to the increase in bank loans in 2000?
7. What share of total foreign investment in China occurred through the stock market in 2000? (Which stock markets?)
8. Total funds raised by Chinese firms through stock markets were equivalent to what percentage of investment in fixed assets in China in 2000?
 

Assignment 2 (due 18 February)

Reading titled “Developing informal finance…” (Fazhan minjian…)
1. Who wrote the article? What institutions does the article talk about? In what locality?
2. What was the ratio of assets of official financial intermediaries to GDP in this locality in 1999? Is this ratio high or low?
3. The rural credit cooperative in this locality in 1999 approved what percentage of all loan applications? Is this percentage high or low? Why do you think it is so high/low?
4. What was the ratio of loans to agricultural households relative to deposits by agricultural households in this locality in 1999? Meaning…?
5. What are taihui, biaohui, and yaohui (line 2, 3 on p. 7)?
6. The authors of the article surveyed 15 agricultural households. These 15 households had a total investment of altogether 1.8m yuan. Where did the money come from (in %)?
7. In one township of this locality, what is the size of informal finance relative to loans by official financial institutions? (p. 8 top paragraph)
8. What is the interest rates on loans in the informal financial sector?
9. Under what circumstances can loans be obtained from the official financial institutions? Why?

Reading titled “Ningbo Municipality…” (Ningbo shi…)
1. Who wrote the article? What institutions does the article talk about? In what locality?
2. What are the five types of informal finance in this locality?
3. Roughly what share of the funding of small and medium-sized enterprises comes from the informal financial sector?
4. What is the recent change in who organizes informal finance?
5. What is the approximate interest rate on loans in the informal financial sector?
6. What are the key problems associated with informal finance?
7. Of 10,000 enterprises in Fenghua Municipality, how many were able to obtain bank loans?

Recommended but not required for the assignment (as far as we covered in class)
Chapter 6, Questions 2-5, 7
Chapter 7, Questions 1-7, 9
 

Assignment 1 (due 11 February)
If you don't have the two readings necessary to do this assignment: both are available as part of the SOSC 359 package on library reserve.

Reading titled “Influencing…” (Yingxiang…)
1. Who wrote the article? What institutions does the article talk about?
2. What are the two types of financial reforms the authors refer to, and which one do they think is more important for China today?
3. What are the good news for the year 2000? Be brief and concise, state the main issues each in one meaningful(!) word or sentence. (pp. 2-5)
4. What share of total loans was transferred outside the banks (bank was “divested off” [boli])? (calculate yourself based on pp. 3 and 4)
5. What are the four major problems still remaining? Be very brief and concise, state the main issues each in one word or sentence. (pp. 5-10)
6. What was the year 2000 target for the rate of bad loans (= bad loans / all loans) in the four state commercial banks? Was it achieved? Which banks are faring worst in terms of the rate of bad loans?
7. In the year 2000, have banks tended to lend to an increasingly large number of customers, or have banks focused their lending on only a very few borrowers? (Why? [Think]) Usually, which branch of a bank has decision-making authority? (Why? [Think])
8. The authors on p. 8 refer to the “bubble economy.” What do they mean?
9. What is the meaning of “running away from bank debt” (taofei yinhang zhaiwu)? (p. 8, second line up from bottom) How much money is involved?

Reading titled “Local…” (Quyuxing…)
1. Who wrote the article? What institutions does the article talk about?
2. What is the (1998) slogan describing the character of the RCCs?
3. What is the bad loan rate for the urban areas, and what is it for the rural areas?
4. What share of all deposits are in the countryside, what share of all loans go to the countryside?
5. Outline the administrative structure of the organization.
6. Who administers [guan] the institution? (Who is in charge of it?) Now vs. the past. (p. 4 top)
7. How was an increase in share ownership achieved? (p. 4 middle)
8. What are the approval limits for loans? Why could this be an issue?
9. What does the author say about the effectiveness of the Board of Directors and the Supervisory Board?
10. What is the value of the equity of the institution? What does this mean?
11. Do you think the slogan describing this institution (question 2 above) is accurately describing reality? Explain why, or why not.

Recommended but not required for the assignment:
Questions at the end of textbook Chapter 1 and 2. If you wish to discuss any of the answers to these questions in class, please send me a short e-mail before class on Monday. (The model answers were handed out in class.) -> socholz@ust.hk