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Chinese Economy

Paper Session

Friday, Jan. 5, 2024 10:15 AM - 12:15 PM (CST)

Convention Center, 222
Hosted By: Chinese Economists Society
  • Chair: Justin Yifu Lin, Peking University

Learn, in Order to Practise: The Effect of Political Rotation on Local Comparative Advantage in China

Justin Yifu Lin
,
Peking University
Songrui Liu
,
Peking University
Jimmy Mingzhi Xu
,
Peking University
Haochen Zhang
,
Peking University

Abstract

Using detailed data on city leaders’ resumes and biographical profiles, measures of
industrial policy based on a textual analysis of annual government work reports, and
measures of industry-specific export performance of Chinese prefectures for 1997-2013,
we study how political rotation affects interregional knowledge diffusion. We find robust
evidence that the coming-in of a new city party secretary, the leader of the local
Chinese Communist Party (CCP) organization, is associated with a significant increase
in the revealed comparative advantage (RCA) in industries where her/his previous position
location has a better performance. The results appear stronger for industries relying
more on contract enforcement and officials with higher educational attainment. We further
demonstrate that the industries’ productivity response is likely to be driven by the
practice of industrial policies in favor of them. Together, we interpret these findings as
the first evidence of knowledge diffusion triggered by political rotation in China.

Shadow Banking, Financial Frictions and Firm Productivity

Zhiguo Xiao
,
Fudan University

Abstract

This paper investigates how Chinese firms' productivity is affected by financial frictions and firm-specific characteristics within an investment framework. We establish an equilibrium relationship that underscores the influence of firm type on the interplay between productivity and financial friction. Utilizing an unbalanced panel of data from the National Tax Statistics Database spanning 2005-2012, we test the predictions of our model. Our primary financial friction index is determined by the prevalence of shadow bank credit flows, calculated on a province-year basis through iterated least squares. To mitigate omitted variable bias, we include components of standard firm-level financial friction indexes, such as the Kaplan-Zingales index. Findings indicate that financial frictions intensify the productivity-finance sensitivity of firms, and this relationship weakens as the state's ownership share in the firm increases.

From Wall Street to Hong Kong: The Value of Dual Listing for China Concept Stocks

Zhuo Chen
,
Tsinghua University
Grace Xing Hu
,
Tsinghua University
Ziqiong Xi
,
Tsinghua University
Xiaoquan Zhu
,
University of International Business and Economics

Abstract

The U.S. stock market has long been the most popular venue for both foreign companies and global investors. The recent cross-border regulation tensions between the U.S. and China, however, have exposed many U.S.-listed China Concepts Stocks (CCS) to substantial de-listing risks, forcing them to pursue dual listings on the Hong Kong Stock Exchange (HKEX). In this paper, we quantify the economic value of dual-listing, using the SEC’s adoption of the final amendments implementing mandates of the Holding Foreign Companies Accountable Act (HFCAA) on December 2, 2021 as a natural experiment. We estimate that CCS with pre-shock dual-listing status on average have 14.88% higher returns, or USD 8 billion in market capitalization, than their peers listed only on the U.S. exchanges during a three-month period after the shock. Our findings survive a set of robustness checks, including parallel trends test, alternative treatment and control groups based on the qualified but not yet dual-listed CCS, and various sub-sample and placebo analyses. In addition to stock returns, dual-listed CCS are also less adversely affected in trading volume, volatility, and liquidity. Our findings highlight the large economic impact of the escalating political U.S.-China tensions on the global financial markets.

“Growing Pains” in China’s Social Security System

Hanming Fang
,
University of Pennsylvania
Xincheng Qiu
,
Arizona State University
Yi Zhang
,
Shanghai University of Finance and Economics

Abstract

This paper investigates the puzzles in China’s social security system. First, given the relatively low benefit rate and still relatively young demographic structure, the statutory contribution rate is surprisingly high and the social security fund is already in deficit. Second, despite the low statutory retirement ages (50 for women and 60 for men), early retirement is prevalent. We develop and calibrate an overlapping generations model of optimal social security featuring wage compression relative to workers’ productivity, which we micro-found by older workers’ fairness concerns. The theory provides a novel and unified explanation for these facts, focusing on the labor demand side forces: firms are not willing to hire older workers who have lower productivity relative to the younger cohorts but demand wages that rise with those of the younger cohorts. We find that, paradoxically, the rapid inter-cohort productivity growth is at the root of these puzzles, leading to “growing pains” in China’s social security system. Our quantitative analysis reveals that surprisingly, the “growing pains” in China’s social security system will be “cured” when the inter-cohort productivity growth slows down to the levels in more developed economies.

Discussant(s)
Noam Yuchtman
,
London School of Economics
Kaiji Chen
,
Emory University
Kai Li
,
University of British Columbia
Hengjie Ai
,
University of Wisconsin
Fang Yang
,
Federal Reserve Bank of Dallas
JEL Classifications
  • O0 - General
  • G0 - General