One Country, Two Systems: Monetary Policy in Mainland China and Hong Kong

Yishuang Hu

Master's thesis

Abstract:

ince the return of Hong Kong to China has been almost 20 years, and the second-generation paramount leader of China Deng Xiaoping proposed the “one country, two systems” policy has been implemented till now. Hong Kong has a very different monetary system from mainland China. The main aim of the thesis was to monetary policy systems in mainland China and Hong Kong, based on the data from 2006 to 2015. We compared the central bank, objectives of monetary policy, instruments of monetary policy and exchange rate regime. we introduced the theory of monetary policy system, for each participates in monetary policy and exchange rate regime. The general economy situation was described. The background of Hong Kong’s return and „one country, two systems“ policy has been introduced. And we compared the GDP growth rate, inflation rate, imports and exports between Mainland China. We also compared the Hong Kong’s international trade between Mainland China and others. We compared the monetary policy system in Mainland China and Hong Kong. The central bank in Mainland China is the People’s Bank of China. There is no central bank in Hong Kong, but it is a group by different banks and institutions to share the central bank’s operation. As for the objectives of monetary policy, we think both Mainland China and Hong Kong has the similar objectives, which are maintaining monetary stability and promoting economic growth. However, there are lots of differences in other parts. For example, in instruments of monetary policy, Mainland China and Hong Kong has different choices; the formulation and implementation of monetary policy are not the same; the interest rate management system is different and the exchange rate regime in Mainland China and Hong Kong are totally different. It is “managed floating exchange rate regime in Mainland China, in essence, it is floating exchange rate regime; in Hong Kong, it is linked exchange rate regime, it is the mixture between fixed exchange rate system and floating exchange rate system. The choice of exchange rate regime in both Mainland China and Hong Kong is good; they all conform to the real current economic and political situation. Moreover, we tried to analyze the possibility of future monetary integration of RMB and HKD, we believe there is a trend of monetary integration, and however there are still some problems to solve. In a whole, the monetary system of Mainland China and Hong Kong has its own characteristics.

Abstract:

Since the return of Hong Kong to China has been almost 20 years, and the second-generation paramount leader of China Deng Xiaoping proposed the “one country, two systems” policy has been implemented till now. Hong Kong has a very different monetary system from mainland China. The main aim of the thesis was to monetary policy systems in mainland China and Hong Kong, based on the data from 2006 to 2015. We compared the central bank, objectives of monetary policy, instruments of monetary policy and exchange rate regime. we introduced the theory of monetary policy system, for each participates in monetary policy and exchange rate regime. The general economy situation was described. The background of Hong Kong’s return and „one country, two systems“ policy has been introduced. And we compared the GDP growth rate, inflation rate, imports and exports between Mainland China. We also compared the Hong Kong’s international trade between Mainland China and others. We compared the monetary policy system in Mainland China and Hong Kong. The central bank in Mainland China is the People’s Bank of China. There is no central bank in Hong Kong, but it is a group by different banks and institutions to share the central bank’s operation. As for the objectives of monetary policy, we think both Mainland China and Hong Kong has the similar objectives, which are maintaining monetary stability and promoting economic growth. However, there are lots of differences in other parts. For example, in instruments of monetary policy, Mainland China and Hong Kong has different choices; the formulation and implementation of monetary policy are not the same; the interest rate management system is different and the exchange rate regime in Mainland China and Hong Kong are totally different. It is “managed floating exchange rate regime in Mainland China, in essence, it is floating exchange rate regime; in Hong Kong, it is linked exchange rate regime, it is the mixture between fixed exchange rate system and floating exchange rate system. The choice of exchange rate regime in both Mainland China and Hong Kong is good; they all conform to the real current economic and political situation. Moreover, we tried to analyze the possibility of future monetary integration of RMB and HKD, we believe there is a trend of monetary integration, and however there are still some problems to solve. In a whole, the monetary system of Mainland China and Hong Kong has its own characteristics.

Keywords

Monetary policy, exchange rates, Mainland China, Hong Kong

Keywords

Monetary policy, exchange rates, Mainland China, Hong Kong

Language used: English

Date on which the thesis was submitted / produced: 22. 4. 2016

Thesis defence

• Date of defence: 23. 5. 2016
• Supervisor: Zuzana Kučerová
• Reader: Josef Novotný

VŠB - Technical University of Ostrava

Ekonomická fakulta

Master programme / field:
Hospodářská politika a správa / Finance