Open Economies Review

, Volume 18, Issue 4, pp 499–520 | Cite as

The Evolving Role of China and India in the Global Financial System

Article
First Online:

Abstract

Three main features characterize the international financial integration of China and India. First, while only having a small global share of privately-held external assets and liabilities, these countries are large holders of official reserves. Second, their international balance sheets are highly asymmetric: both are “short equity, long debt.” Third, China and India have improved their net external positions over the last decade although neoclassical models would predict them to be net borrowers. We argue that domestic financial policies are key to understanding these patterns and the future role of China in the international financial system.

Keywords

Financial integration Capital flows China India World economy 

JEL Classification

F02 F30 F31 F32 F33 F36 
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Notes

Acknowledgement

This paper draws on the longer study contained in Lane and Schmukler (2007). We thank many colleagues at the IMF and the World Bank for interacting with us at the initial stages of this project. For useful comments, we are grateful especially to Bob McCauley and Alan Winters, and also to Richard Cooper, Subir Gokarn, Yasheng Huang, Phil Keefer, Aart Kraay, Louis Kuijs, Jong-Wha Lee, Simon Long, Guonan Ma, and T.N. Srinivasan. We also are grateful to participants at presentations held at the World Bank China Office (Beijing), the World Bank headquarters (Washington, DC), the conference “China and Emerging Asia: Reorganizing the Global Economy” (Seoul), the Indian Council for Research on International Economic Relations—World Bank conference “Increased Integration of China and India in the Global Financial System” (Delhi), the Center for Pacific Basin Studies’ 2006 Pacific Basin conference (Federal Reserve Bank of San Francisco), the National University of Singapore SCAPE-IPS-World Bank workshop (Singapore), and the 2006 IMF–World Bank Annual Meetings (Singapore) for very helpful feedback. Jose Azar, Agustin Benetrix, Francisco Ceballos, Vahagn Galstyan, Niall McInerney, and Maral Shamloo provided excellent research assistance at different stages of the project. We thank the Singapore Institute of Policy Studies, IIIS, the World Bank Irish Trust Fund, and the World Bank Research Department, East Asia Region, and South Asia Region for financial support. The views expressed in this paper are entirely those of the authors and do not necessarily represent the opinions of the World Bank.

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Copyright information

© Springer Science+Business Media, LLC 2007

Authors and Affiliations

  1. 1.IIISTrinity College Dublin and CEPRDublin 2Ireland
  2. 2.World BankWashingtonUSA
  3. 3.Economics DepartmentTrinity College DublinDublin 2Ireland

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