Kaiji Chen and Tao Zha
Working Paper 2018-12
November 2018

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The Chinese economy has undergone three major phases: the 1978–97 period marked as the SOE-led economy, the 1998–2015 phase as the investment-driven economy, and the new normal economy since 2016. All three economies have been shaped by the government financial policies, defined as a set of credit policy, monetary policy, and regulatory policy. We analyze the macroeconomic effects of these financial policies throughout the three phases and provide the stylized facts to substantiate our analysis. The stylized facts differ qualitatively across different phases or economies. We argue that the impacts of China's financial policies work through transmission channels different from those in developed economies and that a regime switch from one economy to another was driven mainly by regime changes in financial policies.

JEL classification: G1, G28, E5, O2

Key words: marketized tools, regime change, growth, investment, capital intensity, local governments, regulations, shadow banking, debts, real estate, preferential credits, industrialization, SOEs, POEs, heavy and light sectors, monetary stimulus, trends and cycles


Zha acknowledges the research support from Shanghai Advanced Institute of Finance at Shanghai Jong Tong University. The research is supported in part by the National Science Foundation Grant SES 1558486 through the National Bureau of Economic Research and by the National Natural Science Foundation of China Project Numbers 71473168, 71473169, and 71633003. The authors are grateful to Marlene Amstad, Pat Higgins, Tom Sargent, Guofeng Sun, and Wei Xiong for comments and suggestions and to Yiqing Xiao for excellent research assistance. The views expressed here are those of the authors and not necessarily those of the Federal Reserve Bank of Atlanta, the Federal Reserve System, or the National Bureau of Economic Research. Any remaining errors are the authors' responsibility.
Please address questions regarding content to Kaiji Chen, Emory University, 1602 Fishburne Drive, Atlanta, GA 30322-2240 and the Federal Reserve Bank of Atlanta, kaiji.chen@emory.edu, or Tao Zha, Federal Reserve Bank of Atlanta, 1000 Peachtree Street NE, Atlanta, GA 30309, and Emory University, zmail@tzha.net.
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