Thursday, May 01, 2003

A note to my economist colleague about how efficient the financial system is:

Inefficiency in the official channels might not translate to the same
level of inefficiency for the overall situation. Private firms who have
to borrow from underground banks or large SOEs (who set up finance
companies to gain the arbitrage) have to be really careful about where
they invest their money because of the high interest rate charged by these
lenders. Sure, some of borrowers will run off with the money, but
underground banks have ways of enforcing contracts that are not altogether
pleasant. So by all accounts, underground banks, which are quite large in
some cases, are operating fairly efficiently along the coast.

One interesting question is to estimate what portion of money invested in
the state sector in fact "leaks" out to the private sector. I have never
seen any mention of that figure in Chinese publications.

Comments: Post a Comment

This page is powered by Blogger. Isn't yours?