Financial reform and financing constraints: Some evidence from listed Chinese firms

This paper examines the impact of recent financial reforms in China on the financing constraints and investment of publicly-listed Chinese firms. Two continuous indices are constructed to measure the evolution and intensity of financial reforms: a financial liberalization index and a capital control index. Dynamic panel GMM method is used to estimate firms' financing constraints in an Euler-equation investment model. Based on panel data of listed firms for 1996–2007, we find that large firms face no credit constraints and smaller firms display significant constraints. However, the sensitivity of large firms' investment to their cash holdings is heightened as more financial reforms take place. It appears that reforms that gradually eliminate preferential treatments to large firms, primarily state-owned enterprises (SOEs) in China, have subjected these firms' investment decisions to stricter market-based discipline and therefore raised their financing constraints. No significant change in the financing constraint is detected for smaller firms in China. This is interpreted as financial reform in China has not been substantial enough for its benefits to reach smaller firms.     

Financial Sector Reforms,Bank Performance and Economic Growth: Evidence from Zambia

Abstract: This paper investigates the effects of market‐based financial sector reforms on the competitiveness and efficiency of commercial banks, and economic growth, in Zambia. The results show that reforms adopted in Phase II (strengthening of regulatory and supervisory, payments and settlements, and financial operations frameworks) and Phase III (implementation of a comprehensive financial sector development plan) had significant positive effects on bank cost efficiency. Macroeconomic variables such as per capita GDP and inflation were insignificant. Further, using an endogenous growth model in which industrial production is a proxy for GDP growth, it was found that bank cost efficiency, financial depth, Phase II and III financial sector reforms, the degree of economic openness, and rate of inflation were significant determinants of economic growth. Phase II policies and the inflation rate have negative effects while the rest of the variables have positive effects on economic growth. Some plausible policy lessons are offered.     

From financial repression to financial crisis? The case of China

This study explores the connections between financial repression policies and the possibility of financial crisis, a relationship that has been overlooked in previous literature. We focus on China, a country with one of the highest levels of financial repression in the world. China's case shows that when financial repression is maintained at a modest level, as the government did before 2008, the possibility of a financial crisis is low; however, when financial repression policies are pushed to an excessive level, as the government did after 2008, the national asset‐liability structure may be damaged to such an extent that a financial crisis becomes likely. The key to understanding the changing role of China's financial repression policies lies in the survival strategy of the Chinese party‐state, which regards finance as a powerful weapon and is eager to use it to address certain economic, political, or social problems that may endanger its rule.     

ASIAN DEVELOPMENT STRATEGIES: CHINA AND INDONESIA COMPARED

China's and Indonesia's development strategies have been compared with others, but rarely with each other. Radically different political contexts have produced both similar and distinctly different development patterns. Each using formal planning, Indonesia spurred radical reforms to promote growth, whereas China opted for incremental reforms to ‘grow out of the Plan’, as a political device and to discover what policies and institutions worked. Both strategies produced environments largely conducive to rapid development. Indonesia relied on a few economic technocrats to oversee development; China used decentralisation and party reforms to create a credible environment for non-state investment. Both shared concern for agricultural reform and food security; both opted to open up for trade—China gradually, Indonesia radically. Both did well in growth and poverty reduction following reform. China's growth performance is in a league of its own, especially since Indonesia's Asian crisis setback, but Indonesia had more equitable growth and survived a difficult political transition with, in hindsight, modest costs.     

New environment for development of NGOS in China

Since 1978, great changes have taken place in the environment for the development of NGOs in China. From a macroscopic perspective, China's transformation process in the economic, political and social systems, has been progressing successively. The transformation process has broken the traditional structure of the Government's monopolization of resources and the strictly controlled private action space. The reforms have restructured the relationship between the Government and the market society, and thus provided an opportunity for the existence and development of all kinds of NGOs in China. In addition, China's entry into the WTO and current trends towards globalization also has promoted the development of NGOs in China.     

China＇s Regional Disparity and Its Policy Responses

The fruits of China＇s rapid economic development over the 3 decades have not been distributed fairly across different regions. Using data from a sample of 815 Chinese listed firrns during 1998-2004, our error-correction investment model showes evidence of different financial constraints on firms＇ investment in different regions. We argue that China＇s regional development policies have contributed greatly to the regional inequalities. To control the rising inequality, China has shifted its focus from the coast to the interior regions. However, it is becoming increasingly difficult for the government to direct the economy, as market mechanisms now have afar greater influence on the economy than the government does. The people-centered approach of the current leadership has meant that substantial attention has been placed on regional development disparities in an attempt to build a ＂harmonious society. ＂ China needs further extensive reforms if all the measures for reducing regional disparity are to be effective.     

Balance sheet expansion and economic growth in China: Crowd in or crowd out?

Balance sheet expansion is crucial to understand the historic path, current slowdown and future trend of economic growth in China. As the financial system transforms national savings into investment, balance sheet expands simultaneously. According to changing impacts of balance sheet expansion on real economy, economic growth in China from 1998 to 2016 can be divided into the crowd-in stage and the crowd-out stage. In the first stage (1998–2007), balance sheet expansion crowded China's real economy in, raised TFP dramatically and accelerated economic growth. In the second stage (2008–2016), balance sheet expansion crowded China's real economy out, with stagnant TFP and decelerated economic growth. Balance sheet expansion has slowed down since 2014, but it continues to exert crowding out effects on China's real economy. We argue that balance sheet expansion is crucial for China's future economic growth. In the long term, structural reforms, especially reforms in the financial system, could increase growth potential significantly. In the short term, financial system reforms should focus on generating sufficient cash flows to boost aggregate demand.     

China in Asia

China's surge to become the world's second largest economy and largest trading nation contributes greatly to Asia becoming the world's largest economic system. China is the nexus of intra-Asian trade and direct investment flows. China's rapid growth in the recent decade relied on a state-directed investment model, akin to the state-run Big Push growth model. As in most big push experiences, intermediate term success leads to economic stresses. China's leaders can no longer ignore obvious signs of rising malinvestment, corporate debts, environmental degradation, and social disparity, all amid an aging population and tightening resource constraints. China's economic slowdown also forces economic adjustment upon its neighbors, rendered more difficult by China's policy ambiguity and volatility. Sill, China can be a positive long term influence in Asia, especially as it carries its market reforms to completion.     

The role of the Chinese economy in the world economy: A U.S. perspective

In this paper I first review the amazing progress that free market economic reforms have brought to the Chinese people after years of central control and suppression of markets. Thanks to greater economic freedom, economic growth increased sharply and hundreds of millions of people have been removed from poverty. By all accounts, however, economic freedom in China has a long way to go. The U.S. perspective should be that these market reforms continue. These further reforms toward economic freedom and economic growth in China will be beneficial to the United States. Such reforms would include a greater transparency about the monetary policy strategies, more openness of the capital accounts and less exchange rate and stock market intervention. Such economic reforms should be welcomed and encouraged by the United States and other countries.     

Financial Development, Economic Growth and Adaptive Efficiency： A Comparison between China and Pakistan

The strong economic growth in China is difficult to reconcile with its inefficient financial system. The puzzle of China＇s financial development and growth can be explained through a dynamic criterion of adaptive efficiency, rather than through allocative efficiency. Using the framework of an autoregressive distributed lag model, the present paper tests the hypothesis that the GDP growth rate is dependent on financial development along with other variables in China and Pakistan. The hypothesis cannot be rejected in both cases. However, the results show that economic growth has a negative relationship with credit to the private sector in China. We conclude that financial development is a source of China＇s high growth rate and that the banking system is still under an evolutionary process, involving the pursuit of social objectives instead of the sole objective of profit maximization. Our results provide some implications for other developing countries like Pakistan.     

Shadow banking activities of non-financial companies and the information content of stock prices

In recent years, corporate investment rate has been declining, and they have been allocating financial capital to the shadow credit market, which lead to accumulation of financial risks. Based on the annual data of non-financial listed companies from 2007 to 2019, this paper explores the impact of non-financial companies’ shadow banking on the information content of stock prices. Results show that shadow banking of non-financial enterprises reduce the information content of stock price, and the above effects are more significant in regions with lower social trust and higher policy uncertainty, private enterprises, and enterprises without political connection. Enterprises engage in shadow banking can impact idiosyncratic information content of stock price through channels of earning management, irrational investor behavior, creditor risk concerns and informed trading; Analysts over-optimism and insider trading can also have an impact on the relationship between shadow banking activities and synchronization of stock price. This paper analyzes economic consequences of non-financial enterprises’ shadow banking activities, thus providing important theoretical support and policy guidance for enhancing signal mechanism of securities market, improving capital market efficiency of resource allocation, deepening financial market-oriented reforms.     

Political institutions,entrenchments, and the sustainability of economic development – A lesson from rural finance

This paper provides insights on the sustainability of economic development from a historical and political economy perspective. We demonstrate that China's rural financial policy in the 1980s was quite liberal in employing market mechanisms, supporting entrepreneurship, and encouraging competition. These policies were abandoned in the early 1990s and replaced by ubiquitous government interferences that shifted resource and policy priorities to benefit political incumbents. A large panel of survey data confirms that rural household access to finance decreased dramatically in the 1990s and that the statistical significance of economic entrepreneurial factors in determining credit allocation also fell. Further empirical analyses show that market economic conditions are not sufficient to explain these changes and the evidence is consistent with a political entrenchment motive during the political regime after the turmoil in the year 1989. Given the connection between entrenchment and underdevelopment, our findings raise the concern that China's political institutions' insufficient limits on the government could be a challenge for China to sustain its economic success.     

江苏省金融发展与经济增长和谐状况的实证研究

文章以人均实际GDP和金融相关率分别作为衡量经济增长与金融发展的指标,对江苏地区经济增长与金融发展的关系进行实证分析,发现二者存在协整关系,且互为格兰杰因果关系,从而为发展金融推动经济增长的观点提供了实证支持,在此基础上,提出金融发展与经济增长和谐发展的有关金融变革的思路。     

Impact of the Global Financial Crisis on China： Empirical Evidence and Policy Implications

This paper applies a structural vector autoregression analysis to quantify the impact of the global financial crisis on China. It is found that the impact is indeed sizeable： a 1-percent decline in economic growth in the USA, the EU and Japan is likely to lead to a0. 73-percent decline in growth in China. The article discusses whether the current measures of fiscal stimulus are adequate to offset the sharp decline in external demand Although there is little doubt that the massive fiscal stimulus will largely offset the significant shortfalls in external demand, the current growth pattern in China will be increasingly unsustainable in the long term. China ＂s reform cycles suggest that external shocks are often opportunities for structural reforms. Therefore, the crisis could also be a catulyst for rebalancing China ＇s economic structure so as to return the economy to a sustainable path.     

Financial Development,Market Deregulation and Growth: Evidence from China

In this paper, the relationship between finance and growth is analysed in the context of an endogenous growth model with government regulation and intervention. Our theoretical model suggests that financial intermediaries can affect the process of economic growth in several ways. Using the recent Generalized Method of Moments (GMM) techniques, we test our model in a panel data set covering 29 Chinese provinces over the period of 1990–2001. Empirical results show that financial development and government deregulation in the financial sector significantly promote China's economic growth.     

How will China shape the world economy?

We will provide an outlook for China's role in the world economy over the coming decades, an exercise which would not be possible without an analysis of the prospects for China's continued economic growth. Based on international and historical comparisons, we argue that today's China meets all three key conditions for continued economic growth, including a stable government that is supportive of a market economy; high and increasing quality of human capital, and openness to developed economies. Dependent on China's continued growth, we explore how China will impact many other economies through trade and investment, creating winners and losers in the world economy. Moreover, we argue that China will become a more active player in changing global economic governance not only through participating in reforms of existing institutions but also by leading efforts to establish new ones.     

Survey of recent developments

Recent political developments are slowing reforms. The Corruption Eradication Commission (KPK) and the finance ministry find themselves entrapped in legal inquiries and political wrangling that seem intended to weaken their reforming zeal. KPK's effectiveness has been undermined by legislative changes and the arrests of three of its commissioners. Meanwhile, the costly bail-out of a small bank has provided an opportunity for attacks on leading reformers – Vice President Boediono and the Minister of Finance, Sri Mulyani Indrawati. The president's diffident stance in both instances has played into the hands of the opposition and, although key reformers are likely to remain in office, the political imbroglio has nonetheless eroded confidence in the government.

Year-on-year GDP growth recovered strongly to 5.4% in the fourth quarter of 2009. Government spending has been the key driver, while household spending slowed and investment remained low. Both exports and imports have returned to modest growth. Although 2009 ended with low inflation, Bank Indonesia (BI) has set its target inflation rate for 2010 at double the rate it achieved in November. BI is likely to bow to populist demands to lower nominal interest rates rather than raising them somewhat to prevent inflation accelerating, even though its real policy rate has been consistent with significant acceleration of GDP growth. The 2009 budget outcomes confirm that the fiscal stimulus in response to the global financial crisis has been less than hoped for. As for 2010, high world oil prices will imply huge subsidies, given that the government is unwilling to increase domestic fuel and electricity prices commensurately.

The president announced that virtually all the government's ‘first 100 days’ program targets have been met. However, half of the ‘action plans’ amounted to nothing more than issuing or announcing new regulations, plans, blueprints, guidelines, recommendations or policies, or simply preparing drafts of these. No real progress has been made in relation to the most urgent reforms, particularly on energy subsidies and labour market regulation. Realising that the whole population would benefit in net terms, the previous government signed the ASEAN–China Free Trade Agreement (ACFTA) in November 2004. But just when the agreement was to take effect, strong resistance from business and parliamentarians emerged, leading to the government's decision to re-negotiate many tariffs with China. This is disappointing: failing to uphold its commitments under this long-standing agreement makes Indonesia appear unreliable as an economic partner.     

Prospect for China-Korea Economic Relations

This paper briefly reviews the economic performance of China's economic reform starting in 1978, and which it presents personal views on the experiences of Korea's economic development and lessons for China's economic reform. The paper reviews the China‐Korea economic relationship, and explores both the opportunities of China's economic development for Korea and the prospects for Bilateral Economic cooperation. It is estimated that the Chinese economy will maintain dynamic growth for the coming decade. The 2008 Olympic Games and the 2010 World Expo in China will provide further impetuses for Chinese economic development. China's huge market and its rapid economic growth can help the further recovery and development of the Korean economy. At the same time, the further development of the Chinese economy can benefit from financial, technical and managerial support from Korea. The complementarities between the industrial structures of China and Korea will surely push their future economic cooperation into a broader and deeper stage. Bilateral trade will enhance the competitiveness of both nations in the global market and help them achieve mutual prosperity and development. (Edited by Xinyu Fan)     

Innovation or Rent-seeking： The Entrepreneurial Behavior during China＇s Economic Transformation

Although achieving impressive economic growth during the economic reform period, China has been plagued by rampant corruption and a widening income gap. How can the coexistence of these two phenomena be explained？ In this paper, we argue that before 1994, the coexistence was induced by a series of expediential institutional arrangements to stimulate entrepreneurial activities and after 1994, it was entrenched because of the slow progress in the overall reform toward becoming a market economy and because of inappropriate government actions and the lack of government action in institutional building. To solve these problems, economic and political reforms need to be accelerated to improve market institutions and to establish the rule of law.     

The visible hand: the role of government in China’s long-awaited industrial revolution

China is undergoing its long-awaited industrial revolution. There is no shortage of commentary and opinion on this dramatic period, but few have attempted to provide a coherent, in-depth, political-economic framework that explains the fundamental mechanisms behind China’s rapid industrialization. This article reviews the Embryonic Economic Development theory put forth by Wen (2016a). This article reviews the Embryonic Economic Development theory put forth by Wen . It illuminates the critical sequence of developmental stages since the reforms enacted by Deng Xiaoping in 1978: namely, small-scale commercialized agricultural production, proto-industrialization in the countryside, a formal industrial revolution based on mass production of labor-intensive light consumer goods, a sustainable ‘industrial trinity’ boom in energy/motive power/infrastructure, and a second industrial revolution involving the mass production of heavy industrial goods. This developmental sequence follows essentially the same pattern as Great Britain’s Industrial Revolution, despite sharp differences in political and institutional conditions. One of the key conclusions exemplified by China’s economic rise is that the extent of industrialization is limited by the extent of the market. One of the key strategies behind the creation and nurturing of a continually growing market in China is based on this premise: The free market is a public good that is very costly for nations to create and support. Market creation requires a powerful ‘mercantilist’ state and the correct sequence of developmental stages; China has been successfully accomplishing its industrialization through these stages, backed by measured, targeted reforms and direct participation from its central and local governments.