Exhibits for J. Frankel, "Misinterpreting Chinese Intervention in Financial Markets," China-US Focus, Sept. 10, 2015.Misinterpreting Chinese Intervention in Financial Markets

Three claims Contrary to what one reads in the press: during the Chinese stock market bubble of January-June 2015, the regulatory authority (China Securities Regulatory Commission) did not work to exacerbate the bubble, but rather applied macroprudential regulations in the direction of dampening the run-up in prices: – limits on margin buying – and allowing short-selling. Contrary to what American politicians still say: to the extent that the PBoC has intervened in the foreign exchange market since June 2014, it has not been to depreciate the RMB, but to support it. More generally: Asian EM countries appear to have used macro-prudential policy counter-cyclically on average, something that the US fails to do. – Vegh-Vuletin (2014) on reserve requirements. – Kuttner-Shim (2015) on DSTI ratio.

You would never guess it from recent commentary, but: China’s stock market regulator tightened margin requirements during the 2015 bubble, in January & April and on June 12.

Chinese foreign exchange reserves have been falling since June American politicians never got the memo, but: Through August 2015 DATA SOURCE: PEOPLE’S BANK OF CHINA, via TRADINGECONOMICS.COM

China’s foreign exchange reserves peaked at $3.99 trillion in June 2014, and had declined to $3.56 by August 2015.

Federico, Végh & Vuletin (2004) find that developing countries use reserve requirements countercyclically far more than advanced countries do. Pablo Federico, Carlos Végh, and Guillermo Vuletin, "Reserve Requirement Policy over the Business Cycle," NBER Working Paper No , October 2014, and "Effects and Role of Macroprudential Policy: Evidence from Reserve Requirements Based on a Narrative Approach," presented at 2014 Central Bank of the Republic of Turkey-NBER Conference on Monetary Policy and Financial Stability in Emerging Economies

Kuttner & Shim (2015): Ceilings on ratio of Debt Service to Income significantly affect housing credit. Interest rate and credit policies in ChinaInterest rate and credit policies in Korea Kenneth Kuttner & Ilhyock Shim, “Can non-interest rate policies stabilize housing markets? Evidence from a panel of 57 economies,” NBER WP 19723, Revised, 2015.

Use of macroprudential policies has varied over time -- Kuttner & Shim (2015) Kenneth Kuttner & Ilhyock Shim, “Can non-interest rate policies stabilize housing markets? Evidence from a panel of 57 economies,” NBER WP 19723, 2013.

Asian & other EM countries take macro-prudential actions more often than advanced countries do -- Kuttner & Shim (2013) Kenneth Kuttner & Ilhyock Shim, “Can non-interest rate policies stabilize housing markets? Evidence from a panel of 57 economies,” NBER WP 19723, 2013.