Money, Banking, and Financial Markets in China (review)

582 China Review International: Vol. 3, No. 2, Fall 1996 J. Lawrence Witzleben is an associateprofessor ofmusic, specializing in traditional Chinese instrumental music. WORKS CITED De Woskin, Kenneth. 1982. ? Songfor One or Two: Music and the Concept ofArt in Early China. Ann Arbor: University of Michigan Center for Chinese Studies. Miao Tianrui $$-kj&, Ji Liankang £F??,, and Guo Nai'an JP 7} F, eds. 1948. Zhongguo yinyue cidian 4* g-g-^lf'Jfk (Chinese music dictionary). Beijing: Renmin Yinyue Chubanshe ?. Sadie, Stanley, ed. 1984. The New Grove Dictionary ofMusical Instruments. 3 vols. London: Macmillan. SSE Gang Yi. Money, Banking, and Financial Markets in China. Boulder, San Francisco, and Oxford: Westview Press, 1994. xvi, 312 pp. Hardcover $49.95, isbn 0-8133-8441-9. Given the speed at which the reform of China's economic system is moving ahead (or perhaps, rather, the speed at which one reform measure is superseded by another ), it is always a pleasure to find that there are academicians who take the time to write a book parts ofwhich they know have to be rewritten even before it has gone to the publisher. Perhaps it helps that reform in the financial system before 1994 moved ahead at only a snail's pace and that the dust of financial reform activity in 1994 and 1995 (the establishment of development banks, the passing of central bank and commercial banking laws, the upgrading of financial market regulations, and changes in financial market practices) has not yet settled. As of the end of1995, Money, Banking, and Financial Markets in China is still up-to-date. The book is divided into five parts and, besides references, includes an author and a subject index. The first part gives an overview of China's banking system: "The Money and Banking System before the Reform" (chapter 2) and "Reforming the Banking System" (chapter 3). The second and third parts, with four chapters each, cover money supply and then money demand: "What is Money?" (chapter 4), "The Money Supply Process" (chapter 5), "Monetary Policies" (chapter 6), "Interest Rates" (chapter 7), "The Velocity ofMoney" (chapter 8), "Evidence of© 1996 by University die Monetization Process" (chapter 9), "Inflation Expectations and Price InstabilofHawai 'i Pressity" (chapter 10), and "The Demand for Money" (chapter 11). The fourth part focuses on inflation: "Price Reforms and Inflation" (chapter 12), "Models of Inflation in China" (chapter 13), and "Money and Economic Activity" (chapter 14). Reviews 583 The last part introduces the actors in the nonbank financial markets in "Nonbank Financial Institutions" (chapter 15) and then the relevant markets in "Stock and Bond Markets" (chapter 16). The stated aim ofthe book is "to provide updated information on the financial sector in China, rather than to draw conclusions" (p. 7). Chapters 2-7, 12, and 15-16 are, in fact, apart from some end-of-chapter abstraction, purely descriptive. Chapters 8 and 9, however, go further in that they attempt to build an argument for 'monetization', defined as "the process, by which the proportion ofeconomic activities conducted by money (using money for measurement ofvalue and as the medium of exchange) has increased" (pp. 105-106). Chapters 10, 11, and 14 present econometric exercises with correspondingly narrow results: "higher rates ofinflation are associated with higher price instability" (p. 144); money demand can be modeled as a function of real income (proxied by real retail sales), the expected rate ofinflation (proxied by the inflation rate ofthe previous period), and the degree ofmonetization (proxied by the urban percentage of the population) (pp. 196-172); and M2 did not Granger-cause national income during the period 19531978 but possibly during the reform period (on which the author remains very vague and does not report econometric results) (pp. 233-234). Chapter 13 is in part a critical literature review of some models ofinflation in China. With seven chapters having previouslybeen published in journals, it appears that the book has been written around these seven chapters; the order ofthe chapters does not matter (exceptions are chapters 4 and 5, and chapters 8 and 9). How should the purely descriptive chapters be judged? I proceed by asking four questions : is the description (a) complete, (b) precise, (c) correct, and (d) verifiable? The book...