nep-cna New Economics Papers
on China
Issue of 2019‒02‒25
eight papers chosen by
Zheng Fang
Ohio State University

  1. Chinese Bond Market and Interbank Market By Marlene Amstad; Zhiguo He
  2. Beyond the ownership question: who will till the land? The new debate on China’s agricultural production By Hayward, Jane
  3. The Underpricing of Venture Capital Backed IPOs in China By Wang, Luxia; Chong, Terence Tai Leung; He, Yiyao; Liu, Yuchen
  4. Credit, financial conditions and the business cycle in China By Lodge, David; Soudan, Michel
  5. The effects of a mixed approach toward management earnings forecasts: evidence from China By Huang, Xiaobei; Li, Xi; Tse, Senyo; Tucker, Jennifer Wu
  6. Public Interest or Regulatory Capture: Theory and Evidence from China’s Airfare Deregulation By Kai Li; Cheryl Long; Wei Wan
  7. Punish One, Teach A Hundred: The Sobering Effect of Punishment on the Unpunished By Francesco D'Acunto; Michael Weber; Jin Xie
  8. China’s Energy Policy & Investments and their Impact on the Sub-Saharan African Region By Valentin Grimoux

  1. By: Marlene Amstad; Zhiguo He
    Abstract: Over the past twenty years, especially the past decade, China has taken enormous strides to develop its bond market as an integral step of financial reform. This paper aims to provide the most up-to-date overview of Chinese bond markets, by highlighting two distinct and largely segmented markets: Over-the-Counter based interbank market, and centralized exchange market. We explain various bond instruments traded in these two markets, highlighting their inherent connection with the banking system, and many multi-layer regulatory bodies who are interacting with each other in an intricate way. We also covers the credit ratings and rating agencies in Chinese market, and offer an account of ever-rising default incidents in China starting 2014. Finally, we discuss the recent regulatory tightening of shadow banking since late 2017 and its impact on bond investors, and the forces behind the internalization of Chinese bond markets in the near future.
    JEL: F4 G2 O16 O2 O53
    Date: 2019–02
  2. By: Hayward, Jane
    Abstract: A high-profile debate is taking place in China concerning the organization of agricultural land and production, with profound implications for China’s countryside. This debate is between those advocating for agricultural production to be taken over by large-scale agribusinesses, and those against this. Proponents regard agribusinesses as embodying modernity and progress, while those against forewarn of the channeling of profits out of peasant hands, the loss of peasants’ autonomy over labor and land, and the destruction of rural life. Recent English language publications on China’s agrarian change highlight the growing power of agribusiness and related processes of depeasantization, implying the Chinese debate on “who will till the land?” is futile. But this view obscures efforts by Chinese scholars and policymakers to promote forms of agricultural organization conducive to maintaining peasant livelihoods. By examining the Chinese debates on agribusinesses, family farms, and cooperatives, this article highlights points of contestation among policymakers and alternative possibilities, which may yet shape the course of China’s agrarian change. This article contributes to scholarship on China’s agrarian change, broader questions concerning depeasantization, and developmental possibilities under collective ownership.
    Keywords: China; peasants; land reform; agrarian change; privatization
    JEL: Q15
    Date: 2017–08–16
  3. By: Wang, Luxia; Chong, Terence Tai Leung; He, Yiyao; Liu, Yuchen
    Abstract: This paper measures the influence of venture capital (VC) on IPO valuations in China. It is found that the authentication effect is dominated by the grandstanding effect, suggesting that VC firms in China greatly value their reputations. It is also shown that the market-specific characteristics of non-VC-backed firms are more closely related to their initial returns, compared to those of VC-backed firms. In addition, corporate fundamentals play a more important role in the valuation for VC-backed firms than for non-VC-backed firms.
    Keywords: Venture Capital, IPO, Price Volatility.
    JEL: G24
    Date: 2018–02–12
  4. By: Lodge, David; Soudan, Michel
    Abstract: This paper presents empirical evidence of the role of financial conditions in China’s business cycle. We estimate a Bayesian-VAR for the Chinese economy, incorporating a financial conditions index for China that captures movements across a range of financial variables, including interest rates and interbank spreads, bond returns, and credit and equity flows. We impose sign restrictions on the impulse response functions to identify shocks to financial conditions and shocks to monetary policy. The model suggests that monetary policy, credit and financial conditions have played an important role in shaping China’s business cycle. Using conditional scenarios, we examine the role of credit in shaping economic outcomes in China over the past decade. Those scenarios underscore the important role of credit growth in supporting activity during the past decade, particularly the surge in credit following the global financial crisis in 2008. The financial tightening since the end of 2016 has contributed to a modest slowing of credit growth and activity. JEL Classification: E32, E44, E51, E17
    Keywords: Bayesian VAR, credit conditions, financial conditions index, monetary policy
    Date: 2019–02
  5. By: Huang, Xiaobei; Li, Xi; Tse, Senyo; Tucker, Jennifer Wu
    Abstract: Chinese regulators mandate management earnings forecasts when managers’ earnings expectations meet bright-line thresholds and allow voluntary forecasts in other circumstances. We examine the effects of this mixed approach. We find that Chinese mandatory forecasts have significant information content. Moreover, we observe a learning effect: mandatory forecasts appear to stimulate voluntary forecasts in subsequent periods as managers become familiar with the forecasting and disclosing procedures through forced experience. We find one negative consequence of the mixed approach, however: managers appear to manipulate earnings to avoid the forecast threshold of large earnings decreases. Overall, we document the pros and cons of a mixed approach toward management earnings forecasts in a major emerging market.
    Keywords: China; forecast mandate; management earnings forecast; voluntary disclosure
    JEL: F3 G3
    Date: 2018–03–01
  6. By: Kai Li; Cheryl Long; Wei Wan
    Abstract: The study is motivated by two seemingly contradictory patterns observed in China’s airline industry with prevalent airfare caps. On the one hand, airfares tend to be higher and thus airfare caps are more likely to be binding in routes operated by fewer airlines; but on the other hand, it is in these same routes where airfare caps are more likely to be deregulated. To explain this apparent paradox, we build a simple theoretical model, which derives distinctive predictions from the public interest theory versus the capture theory of regulation. When empirically testing the model, we find more support for the public interest theory. In particular, Chinese regulators seem to genuinely care about public interests when making deregulation decisions, and their concern with market exit and the consequent failure to serve certain markets is the main reason for removing airfare caps in routes served by fewer airlines. In contrast to most studies that investigate consequences of deregulation in the airline industry, we explore the motivation for deregulation. We also contribute to the literature by emphasizing the role of universal service obligations in understanding regulatory reforms in developing countries.
    Keywords: Regulatory Capture; Public Interest; Airfare Cap; Airline Deregulation
    JEL: D7 L5 L9
    Date: 2019–02–19
  7. By: Francesco D'Acunto; Michael Weber; Jin Xie
    Abstract: Direct experience of a peer’s punishment might make non-punished peers reassess the probability and consequences of facing punishment and hence induce a change in their behavior. We test this mechanism in a setting, China, in which we observe the reactions to the same peer’s punishment by listed firms with different incentives to react - state-owned enterprises (SOEs) and non-SOEs. After observing peers punished for wrongdoing in loan guarantees to related parties, SOEs - which are less disciplined by traditional governance mechanisms than non-SOEs - cut their loan guarantees. SOEs whose CEOs have stronger career concerns react more than other SOEs to the same punishment events, a result that systematic differences between SOEs and non-SOEs cannot drive. SOEs react more to events with higher press coverage even if information about all events is publicly available. After peers' punishments, SOEs also increase their board independence, reduce inefficient investment, increase total factor productivity, and experience positive cumulative abnormal returns. The bank debt and investment of related parties that benefited from tunneling drop after listed peers’ punishments. Strategic punishments could be a cost-effective governance mechanism when other forms of governance are ineffective.
    Keywords: corporate governance, cultural finance, reputational sanctions, related party transactions, minority shareholders, emerging markets, corporate fraud, government ownership
    JEL: D91 D72 G32 K42
    Date: 2019
  8. By: Valentin Grimoux (Johns Hopkins University)
    Abstract: This research provides a grasp of China’s energy needs and their implications for SSA countries in order to give a balanced and better understanding of its role on the continent. More specifically, the aim is to understand why and how China is involved in the SSA energy sector and what are the benefits and the costs of its engagement. On the one hand, a clearer knowledge of how the Chinese investment system works will help to assess the scope of the Chinese strategy and the role of the government for the set of actors that are committed in Africa. On the other hand, by digging deeper into Chinese energy projects in Africa, one will be able to appreciate to what extent this relationship can be considered a win-win, whereby each party is equally benefitting from cooperation by ensuring the smooth development of the African and Chinese economies.
    Keywords: Economic Development, Energy Security, International Cooperation, Investments
    JEL: O13 Q4
    Date: 2018–08

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