China’s Experience with Indexed Government Bonds, 1988–1996: How Credible Was the People’s Republic’s Anti‐Inflationary Policy?

Richard Burdekin and Xiaojin Hu

Review of Development Economics, 1999, vol. 3, issue 1, 66-85

Abstract: The People’s Republic of China introduced indexed government bonds in the face of the inflation panic of 1988–89 and reintroduced them when inflation surged upward again in 1993. Measures of inflation expectations—as derived from the trading prices of these indexed bonds—suggest that the government gained credibility from its ability to contain inflation in 1989. But the government’s failure to quickly halt the 1993–95 inflation led, by late 1994, to soaring inflation expectations and, ultimately, a heavy financial penalty for the government as the 1992 and 1993 bond issues matured while inflation was still high.

Date: 1999
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