Developing countries's Central Bank Responses in the Global Financial Crisis

        Last blog I talked about the central bank response to the global financial crisis from developed countries. In fact, not only in the developed countries, developing countries also suffer from the global financial crisis and take measures after global financial crisis like China.

         Although in recent years Chinese economy had a booming increased and became the become the world's second largest economy behind U.S. But we can easily see from the graph of Chinese GDP growth change percent. It has a sharply jump from the financial crisis happened. 

                                                                Graph 1: China GDP growth (annual %)

           Chinese central bank hold few subprime bonds and  foreign exchange reserves held in the form of U.S. Treasury bonds, so the financial effect to China is not strong like other countries. But exports are the one of most important part to Chinese economy, when the global financial crisis happened, the exports of China suffer serious damage. 

                                                                     Graph 2: China Exports

                   

             For Chinese central bank, there are not so many financial derivatives production to supervise, and the People's bank of China has strong power to control the commercial banks and economy. In one hand, Chinese central bank raised the reserve ratio 15 consecutive times from 9% to 17.5% between 5.1.2007 to 7.6.2008. It is for increasing balance sheet of reserves of banks and decreasing the inflation. After that, central bank decrease the reserve ratio through political regulation to increase the money supply. On the other hand, government through central bank issues the four trillion yuan investment project. The methods combine open market operation and political regulation I think it is good for economy. For the developing countries which market level not high as developed countries is a good choice to meet the financial crisis.

                Next blog I will give the conclusion and some further thinking about central bank.

                Data:

                The graph collected from http://www.quandl.com

                 

                Conference:

          People's Daily Online. (8.10.2008) China's central bank cuts reserve requirement ratio, interest rate to stimulate economy.