Finance In China Research Articles

Is China financialised? The significance of two historic transformations of Chinese finance

ABSTRACT This article tackles the question of whether financialisation is present in the Chinese economy by analysing two key transformations of the country’s financial system. The first was a state-led reform process through which the Chinese financial system introduced market practices, similarly to the rest of the economy. The second was a market-led process, reflected in the emergence and rise of shadow banking, which originates from within financial markets with the aim of bypassing loan restrictions. The article shows that despite the two transformations and the enormous growth of finance during the past four decades, the underlying character of the Chinese financial system exhibits remarkable continuity. Namely, it remains bank based – albeit partially liberalised – with a predominant role for bank credit and a strong presence for the state. The relational and government-controlled structures of Chinese finance have not been replaced by arm’s length and private mechanisms. On these grounds, it is premature to consider the Chinese economy to be financialised.

How to Improve the Work Enthusiasm of Chinese Local Public Officials under the Background of Salary Reduction -- A Case Study of Guangzhou

The impact of COVID-19 on China's social and economic development is unprecedented, and China's finance is tight. In order to deal with this situation, China has adopted the method of strengthening fiscal savings. Many regional governments have responded to the call and started to reduce employees' salaries. At present, people do not know the reason for the pay reduction by local governments, the working conditions of local government officials, the factors affecting their enthusiasm for work, whether it is caused by the pay reduction or other factors, and what logical relationship exists within it. Firstly, through literature analysis, this paper abstracts the influencing factors of local government pay reduction; Secondly, interview public officials; Finally, through the analysis of the interview results, can understand the current situation of public officials' work after the salary reduction, and extract the factors that affect the enthusiasm of public officials. In order to further provide a reference for the Guangzhou government, effectively improve the enthusiasm of local government officials and help the full development of government departments. In addition, this study attempts to provide some reference for the interaction between government departments and public officials.

Measurement and contagion modelling of systemic risk in China's financial sectors: Evidence for functional data analysis and complex network

We use the daily data of 45 listed financial institutions between January 1, 2008 and January 31, 2022 to conduct a functional data analysis (FDA) to measure the systemic risk of China's financial system and construct a complex network to analyze the contagion mechanism of systemic risk within and between sectors. We find that the constructed systemic risk indexes identify the influential events in the sample period and that the securities sector has a higher systemic risk than banking and insurance sectors do. The systemic risk contagion complex networks provide evidence of significant causal relationships between different sectors. Banking sector contributes a higher systemic risk and acts as a systemic risk transmitter in normal times, whereas securities and insurance sectors are more vulnerable during extreme events and may become sources of systemic risk during such events.

Exploration of Marketing Strategies of Rural Financial Institutions in the Context of Internet Finance--Bank A as an Example

As an essential component of China's financial institution system, the development and operation of rural financial institutions are of great significance to the economic development of capital financing, the improvement of the "Issues concerning agriculture, rural areas, and farmers," and the promotion of financial inclusion in rural areas and urban-rural areas of China. On this premise, based on the impact of Internet finance on rural commercial banks and the comparison between rural commercial banks and other commercial banks, this paper briefly discusses the improvement direction of marketing strategies of rural commercial banks using the traditional 4P theory as an example. In terms of products, we can learn relevant technologies from large commercial banks and actively develop products that meet customers' needs; the pricing strategies of commercial banks or financial institutions in different rural areas should be focused, and product prices can be dynamically adjusted according to the background of the general environment rather than fixed; at the same time, we should deepen offline sales channels and actively open online channels, combining online and offline media; finally, agricultural commercial banks should adhere to the principles of innovation. Finally, agribusiness banks should comply with the principles of invention, stability, and compliance and pay attention to adopting technology for risk control.

Study on the China's real interest rate after including housing price factor into CPI.

The Chinese economy has undergone a long-term transition reform, but there is still a planned economy characteristic in the financial sector, which is financial repression. Due to the existence of financial repression, China's actual interest rate level should be lower than the Consumer Price Index (CPI). However, based on official China's interest rates and CPI, over half of the years China's actual interest rate remained higher than CPI by our calculation from 1999 to 2022. This is inconsistent with the financial repression that exists in China, and the main reason is the calculation methods of China's CPI. China's CPI measurement system originated from the planned economy era, which did not fully consider the rise in housing purchase prices, so the current CPI measurement system can be more realistically presented by taking the rise in housing prices into consider. The core idea of this study is to mining relevant official statistical data and calculate the proportion of Chinese residents' expenditure on purchasing houses to their total expenditure. By taking the proportion of house purchases as the weight of house price factor, and taking the proportion of other consumption as the weight of official CPI, the Generalized CPI (GCPI) is formulated. The GCPI is then compared with market interest rates to determine the actual interest rate situation in China over the past 20 years. This study has found that if GCPI is used as a measure, China's real interest rates have been negative for most years since 1999. Chinese residents have suffered the negative effects of financial repression over the past 20 years, and their property income cannot keep up with the actual losses caused by inflation. Therefore, it is believed that China's CPI calculation method should be adjusted to take into account the rise in housing prices, so China's actual inflation level could be more accurately reflected. In view of the above, deepening interest rate marketization reform and expand channels for financial investment are the future development goals of China's financial system.

Assessing systemic risk spillovers from FinTech to China’s financial system

Today, the potential of FinTech in China is immense. After a prolonged period of dormancy, a blazing trail in finance surges. This study estimates the extent to which risk is transmitted from FinTech to various sub-industries within the Chinese financial sector, employing the GARCH copula quantile regression model. Our empirical findings indicate that FinTech exerts significant risk spillover effects on these financial sub-industries. Notably, at lower risk levels of 0.1 and 0.05, the securities and state-owned commercial banks sub-industries demonstrate the most substantial and least significant risk spillovers, respectively. Conversely, at the highest risk level of 0.01, the joint-stock commercial banks and securities exhibit the largest and smallest risk spillovers, respectively. Additionally, our analysis reveals that the dynamic risk spillovers for each financial sub-industry differ and reflect the influences of the stock market crash that occurred during 2015–2016. The implications of our study extend to portfolio managers and financial authorities, highlighting the importance of enhancing supervision and regulation of FinTech companies to uphold financial stability.

Does China Overseas Economic and Trade cooperation Zone affect CO2 emissions in host countries? Evidence from a quasi-natural experimental of countries along the "Belt and Road".

China Overseas Economic and Trade Cooperation Zone (COCZs) which as a platform for China's foreign investment and trade has a potential impact on CO2 emissions, while strengthening bilateral investment and trade between China and the host countries. Since most of the COCZs are located in countries along the "Belt and Road," the purpose of this paper is to investigate the impact of COCZs on CO2 emissions of the countries along the "Belt and Road" and the mechanism of this impact. We constructed a panel data of 63 countries along the "Belt and Road" from 2000 to 2020, and conducted an empirical study using the difference-in-difference (DID) model. Our research result show that COCZs can significantly increase the CO2 emissions of the countries along the "Belt and Road." Then, we conduct a series of robustness tests and endogeneity test on the estimation results of the baseline model, and the results of the tests all support the conclusion reached by the baseline model. Our heterogeneity analysis reveals that the effect of COCZs on CO2 emissions is more significant in Asian countries with lower national income or industrialization and higher country risk. Finally, we analyzed industrial value added and energy depletion as possible impact mechanisms, the results of mechanism model shows that COCZs can increase the industrial value added and then significantly increase CO2 emissions, but energy depletion was not an efficient mechanism. Our paper provides a new insight into the impact of bilateral economic and trade cooperation zones on CO2 emissions in host countries.

Analysis of Evolving Hazard Overflows and Construction of an Alert System in the Chinese Finance Industry Using Statistical Learning Methods

With the global economic situation still uncertain and various businesses interconnected within the finance system, financial hazards exhibit characteristics such as rapid propagation and wide scope. Therefore, it is of great significance to analyze evolving changes and patterns of hazard overflow in the finance industry and construct a financial hazard alert system. We adopt the time-varying parameter vector auto-regressive model to examine the degree and evolving characteristics of financial hazard alerts from an industry perspective and construct financial hazard measurement indicators. To effectively prevent financial hazards and consider the non-linear causal relationship between financial hazards and macroeconomic variables, we utilize the long/short-term memory network model, which can capture temporal features, to construct a financial hazard alert system. Furthermore, we explore whether the inclusion of an online sentiment indicator can enhance the accuracy of financial hazard alerts, aiming to provide policy recommendations on strengthening financial market stability and establishing a hazard alert mechanism under macro-prudential supervision.

A monetary policy–based explanation of swap spreads in China

AbstractThe dynamics of swap spreads in China cannot be explained by commonly recognized factors documented in the literature. A unique feature of China's financial system is that commercial banks are not only long‐term loan providers but also dominant bond investors. Thus, the loan prime rate (LPR) is an opportunity cost for commercial banks' bond holdings. However, the LPR is largely determined by the central bank and often deviates significantly from equilibrium. In contrast, the swap rate is largely determined by the market. Our illustrative model and empirical evidence show that the LPR and funding availability affect bond yields more than swap rates, while volatility in the money market interest rate affects swap rates more than bond yields. Therefore, the swap spread is largely driven by the monetary policy. We also show that swap spreads can be a predictor of excess returns on bonds but not swaps.

The Impact of the Continued U.S. Interest Rate Increase and China's Response— An Analysis Based on the Case of Typical Developing Countries

The Fed's announcement of an increase in the federal funds rate has caused a global trend of interest rate hikes, resulting in the return of the U.S. dollar and global currency depreciation, making it the most important economic phenomenon in 2022. The subject of this paper is to analyze the economic impact of the Fed's interest rate hikes on developing countries, and this paper uses data from government portals in several developing countries to further study the response of each country and to identify possible solutions for developing countries to deal with the problem of interest rate hikes. The study finds that the Fed's interest rate hike has caused capital outflows, exchange rate depreciation, and increased financial risks, which are limited in scale, and the status of international settlement of RMB's currencies still needs to be improved. In order to support the stability and healthy development of China's financial system and currency in light of the current complex international situation, it is important to increase the implementation of prudent monetary policy, maintain independence and autonomy, strengthen macro-prudential regulation, stabilize the RMB exchange rate, and implement proactive fiscal policy.

China's Foreign Investment Legal Regime: Progress and Limitations by Yuwen LI and Cheng BIAN. Oxford, United Kingdom/New York, United States: Routledge, 2022. xiv + 207 pp. Hardcover: £130.00; eBook: £27.29. doi: 10.4324/9781003168805

China's Foreign Investment Legal Regime: Progress and Limitations by Yuwen LI and Cheng BIAN. Oxford, United Kingdom/New York, United States: Routledge, 2022. xiv + 207 pp. Hardcover: £130.00; eBook: £27.29. doi: 10.4324/9781003168805

Beyond the spatial fix: towards a finance-sensitive reading of the Belt and Road in Serbia

ABSTRACT The Belt and Road Initiative (BRI) has been theorised as a spatial fix to China’s overaccumulation problem, and as such, an implicitly productivist endeavour. This article opens up conceptual space to consider how historically and geographically mediated forms of financialisation have tempered the unfolding of the BRI in peripheral economies. Drawing on the Serbian post-socialist transition context, financialisation has been characterised by underinvestment and a persistent dependency on foreign, market-based capital inflows which have (1) precipitated state transformations to mobilise Chinese financing for BRI projects, strengthening the role of the state in industrial rejuvenation; and (2) created an institutional palimpsest conducive to non-productive forms of surplus value appropriation that demonstrates the hybridity of accumulation imperatives underlying the BRI.

China's Financial System and Economy: A Review

China's financial system has been integral to its spectacular economic growth over the past 40 years. We review the recent literature on China's financial system and its connections to the Chinese economy based on the categories of Aggregate Financing to the Real Economy (AFRE), a broad measure of the nation's yearly flow of liquidity accounting for unique features of China's financial system. While early work on China's financial system emphasizes the state-owned enterprise reform, the recent literature explores other more market-based financing channels—including shadow banking—that grew rapidly after 2010 and have become important components of AFRE. These new financing channels not only are intertwined with each other, but also, and more importantly, are often ultimately tied back to the dominant banking sector in China. Understanding the mechanisms behind these channels and their intrinsic connections is crucial to alleviate capital allocation distortion and mitigate potential systemic financial risk in China.

Risk Management Analysis of Commercial Banks in China under COVID-19 Pandemic

Since the G20 financial reforms were implemented in the wake of the 2008 financial crisis, the COVID-19 pandemic is the first significant test of the global financial system. In contrast to the 2008 financial crisis, the shock had an external origin. Indirect funding dominates China's financial system. For China's economy to grow and for many industries to recover, the banking system's capacity to efficiently handle the effects of the epidemic is essential. Each commercial bank is impacted by the epidemic in a different way due to its unique asset magnitude, debt structure, percentage of intermediate business income, and management style. This paper extracts the degree of commercial banks affected by different risks, and advances relevant suggestions for strengthening commercial banks' internal control and accelerating digital transformation, in order to cope with the adverse impact of the epidemic and to promote a rapid recovery of our economy.

Analysis of the Impact of Interest Rate Derivatives on the Market Risk of Commercial Banks in China

With the development of China's financial derivatives market, China needs to pay more attention to the management of interest rate risk, and commercial banks should avoid interest rate risk typically through the role of derivatives. China's financial markets have been opened up to the rest of the world, and many international factors are influencing the changes in our financial markets. This paper focuses on the function of interest rate derivatives and their impact on commercial banks in China. This is an important step for commercial banks in China to take in order to reform and improve themselves. Using interest rate derivatives to enable banks to reduce their operational risks and to ensure the safety of China's financial system is the goal of this paper. According to the findings of the research, the adoption of interest rate derivatives can help commercial banks decrease their exposure to market risk, credit risk, and liquidity risk.

Research on the Problems and Countermeasures of Chinese Enterprises’ Outward Foreign Direct Investment in the Context of Global Economic Uncertainty

Outward foreign direct investment (OFDI) is an important way to promote China’s economic transformation and achieve high-quality economic development, and it plays an important role in building a new development pattern that focuses on the domestic systemic circulation as the main body, with domestic and international double circulations promoting each other. In the context of the uncertainty of the current global economic environment, investment protectionism is arising in various countries, and there is an obvious trend of anti-globalization. The sudden outbreak of COVID-19, the Russian Ukrainian war, and other conflicts have severely damaged the global economy and investment, significantly increased the risk of overseas investment, and reduced the confidence in outward foreign direct investment. Chinese enterprises face serious challenges and problems in OFDI. This article starts from explaining the current situation of Chinese enterprises’ OFDI and continues with an analysis on the existing problems and puts forward suggestions to increase foreign investment in China.

The impact of vertical fiscal asymmetry on carbon emissions in China.

Facing the double pressure of promoting economic growth and achieving the goal of "emission peak" by 2030, China must cut down the carbon emission intensity. Focusing on the typical characteristics of China's financial system arrangement, we theoretically analyze the mechanism of vertical fiscal asymmetry affecting carbon emission intensity and use a panel data from 30 Chinese provinces to conduct an empirical examination. The results show that (1) vertical fiscal asymmetry significantly increases the local carbon emission intensity. After a series of robust tests, such as replacement variables and sample data, the conclusion is still valid. (2) The analysis of regional heterogeneity shows that the influence of vertical fiscal asymmetry in carbon emission intensity is the largest in the central area of China, followed by the eastern provinces, and not evident in the western area. The rise in carbon emission intensity brought on by vertical fiscal asymmetry can be successfully reduced by the central transfer payment. The impact of vertical fiscal asymmetry on carbon emission intensity will be greatly lessened when the central transfer payment surpasses the threshold. (3) The mechanism test shows that vertical fiscal asymmetry increases the carbon emissions intensity by three paths: reducing the intensity of environmental regulation, strengthening local governments' dependence on land finance, and local government competition. The above analysis further enriches the relevant research on how China's vertical fiscal asymmetry system affects carbon emission intensity through land finance and local government competition while pointing out the role of transfer payment, and it can help to provide new ideas and empirical evidence for further improving the financial system and promoting the green development of the economy.

A corpus-based comparison study of first-person pronoun we in English-language abstracts

This paper offers a corpus-based study of how the first-person plural pronoun we is used in English-language RA abstracts published in Chinese-language journals in comparison to corresponding RA abstracts published in English-language journals in the fields of Finance and Accounting. Using a range of corpus-based methods of investigation, this study finds that abstracts written by the two groups of writers display characteristic differences in the usage of this first-person pronoun, such as its phraseological patterns. In general, the study demonstrates that the uses of we in RA abstracts written by Chinese Finance and Accounting academic writers diverge in a substantial number of important ways from those written by their international peers. The study also discusses some reasons for such differences. This paper identifies a number of points of difference that could be devoted to the teaching of RA abstract writing skills in English for Academic Purposes course.

The impact of foreign direct investment on innovation at domestic firms: Evidence from the deregulation of foreign investment in China

AbstractThis paper studies the impact of foreign direct investment (FDI) on innovation by domestic firms in China. A difference‐in‐difference estimation strategy yields causal evidence by exploiting China's deregulation of FDI in 2002. Analysis of a matched firm–patent data set from 1998 to 2007 shows that both the quantity and quality of innovation by domestic firms benefited from the presence of FDI. Emphasizing the importance of knowledge spillover from FDI in similar technology domains, the authors examine the role of horizontal FDI and FDI in technologically close industries—those sharing similar technology domains. Findings show that the latter generates much more substantial positive spillover than the former. The paper also shows that knowledge spillover from FDI in similar technology domains is not driven by input–output linkages. In addition, the spillover effect is stronger in cities with higher human capital stock and firms with higher absorptive capacity.

Risk assessment of China's foreign direct investment in "One Belt, One Road": Taking the green finance as a research perspective

With the active promotion of the "the Belt and Road" initiative, overseas investment has shown a market prospect of explosive growth in various countries and has received continuous attention from scholars at home and abroad. With the proposal of the goal of carbon neutrality in countries and regions along the Belt and Road, green investment has become a new driving force for foreign investment. Based on the theory of quality function deployment (QFD) and the G1 entropy method in fuzzy mathematics, this paper constructs 10 risk indicators of China's foreign investment from the perspective of green from the four levels of economic risk, environmental risk, social and cultural risk and political risk, and studies 61 countries along the line. The results show that the four types of risks have an important impact on China's foreign investment. Therefore, Chinese government and enterprises should strengthen the comprehensive evaluation of the overall situation of the host country when investing. Our research has not only achieved theoretical improvement and practical innovation, but also put forward targeted suggestions for China to strengthen risk prevention and control of investment in countries along the "Belt and Road" from the perspective of green finance.