People's Bank Of China Research Articles

Doing good in times of need: Green finance policy and strategic corporate social responsibility

This study investigates the effect of a green finance policy on the corporate social responsibility (CSR) activities of firms in heavily polluting industries. Based on the 2017 policy of the People's Bank of China (PBC), which incorporates green finance into its macroprudential assessment system, we employ the difference-in-differences method to show that firms in heavily polluting industries have significantly improved their CSR performance after the implementation of the PBC's green finance policy. In response to the negative effect of the PBC's policy on their financial position, affected firms strategically engage in CSR activities in the hope that appearing socially responsible will help them recover from their adverse position. Furthermore, firms in heavily polluting industries that enhance their CSR performance after the PBC's policy have benefited from reduced bank credit transaction costs and have obtained more bank loans. The improvement in CSR performance is mainly concentrated in firms that are non-state-owned, small in size, highly dependent on external financing, and receiving more media attention. Overall, this study reveals a social consequence of the PBC's green finance policy on the CSR performance.

Is There Gap between Operating Performance of Systemically Important and Non-Systemically Important Banks in China?--Empirical Study based on Public Panel Data after Release of List

On September 22, 2023, the People’s Bank of China (PBOC) and the State Administration for Financial Regulation (SAFS) released the latest list of China Systemically Important Banks (D-SIBs). This study aims to analyze whether there is a gap in operational performance between (D-SIBs) and (D-SIBs) under additional regulation. The research method uses independent sample t-tests in statistics and the AHP_DEA model for financial bank operational performance. The research results indicate that there are differences in the operational performance of systemically important banks and non-systemically important banks in certain indicators. systemically important banks have a larger share in the entire banking system, and systemically important banks face more regulatory constraints than non-systemically important banks. This makes the cost of capital restructuring for systemically important banks higher, thereby reducing the speed of capital restructuring. However, further analysis indicates that there is no significant difference in operational performance and risk control between banks with systemic importance and nonsystemic influence. In view of this, systemically important banks must invest in technology and innovation to improve operational efficiency.

AI and big data in economic regulation: A comparative analysis of China and the United States

This paper examines the application of artificial intelligence (AI) and big data in economic regulation within China and the United States, highlighting the differing approaches and outcomes. In China, the centralized governance structure allows for the swift and uniform implementation of AI-driven strategies, optimizing government strategies, and balancing economic growth with social equity. The National Development and Reform Commission (NDRC) and the People's Bank of China (PBOC) are key players in utilizing AI to forecast economic trends and stabilize the economy. Conversely, the U.S. employs a decentralized approach, with AI applications driven primarily by the private sector and academia. The Federal Reserve leverages AI for policy decisions, while private firms use predictive models to enhance market strategies. Big data analysis supports decision-making in both nations, but differing governance structures lead to unique challenges and benefits. This study compares the centralized and decentralized systems, assessing their impact on economic performance and policy flexibility. The findings provide insights into how AI and big data can be optimized for economic regulation, offering lessons for other countries in adopting these technologies.

Shaping sustainable future: The role of central bank in galvanizing corporate ESG performance

In June 2018, the People's Bank of China (PBOC) adopted a groundbreaking initiative by including green assets as eligible collateral for the Medium-term Lending Facility (MLF). This paper utilizes this policy shift as a quasi-natural experiment to explore its effects on corporate ESG performance. Employing a difference-in-differences approach, our findings reveal a significant enhancement in the ESG scores of affected companies following the implementation of the policy. Further inquiry into the dynamics underlying this improvement suggests that the policy alleviates financing constraints and fosters green innovation and operational efficiency among these companies, thereby boosting their ESG performance.

Currency internationalization with Chinese characteristics: Is capital‐account convertibility required for the renminbi to acquire reserve‐currency status?

AbstractIt is widely assumed that the renminbi (RMB) cannot acquire a meaningful place in central bank reserve portfolios without full liberalization of China's capital account. We argue that the RMB can in fact develop into an international reserve currency in the absence of capital‐account convertibility. Trade and investment links can drive use despite limited access to Chinese financial markets. But this route to currency internationalization requires policy support. China must provide access to RMB through loans and the People's Bank of China (PBoC) currency swaps. It must ensure the convertibility of RMB into US dollars in offshore markets. It must provide RMB services at a stable and predictable price. Currency internationalization without full capital‐account liberalization thus requires the RMB to be backed by dollar reserves, which the PBoC consequently will continue to hold and use. Hence, we do not foresee RMB internationalization as supplanting dollar dominance.

A Study on Influencing Factors of Willingness to Use E-CNY Based on Logistic Model

The development of mobile technology has facilitated the widespread adoption of digital currency worldwide. An important application of mobile technology is digital currency, which has gained global popularity due to its blockchain and peer-to-peer mobile payment mechanisms. The emergence of private digital currencies, such as Bitcoin, poses a challenge to the monetary policy of governments. To address this threat, many central banks are developing their own central bank digital currencies (CBDCs) with legal support. China’s CBDC, e-CNY (electronic China Yuan), is one of the most advanced examples of this innovation. However, the adoption and usage of e-CNY by residents is still limited and requires improvement. This paper aims to identify and analyze the factors that influence residents’ willingness to use e-CNY, based on a literature review and a logistic regression model. The results indicate that residents’ awareness, convenience, cost, promotional activities, and the involvement of relevant parties (merchants, commercial banks, payment institutions, and the People’s Bank of China (PBC)) significantly influence their willingness to use e-CNY. This paper presents implications and suggestions for promoting and implementing e-CNY in China.

The Asset Pricing Implications of Ambiguous Central Bank Communication: Evidence from China

ABSTRACT This paper investigates the premium of ambiguous central bank communication with diversified policy stances on the cross-sectional asset prices. Distinguishing different inclinations (dovish, neutral and hawkish) in the communications of the People’s Bank of China (PBC) governors through a field-specific lexicon approach, we construct the ambiguous communication index (ACI) based on the textual methodology. We find that ambiguous communication makes it difficult to predict policy stance and increases policy uncertainty, thus the ACI earns a significant negative premium in the cross-section of asset pricing. This paper contributes to the literature on policy uncertainty by proposing a new supplementary perspective, a feasible measure and empirical evidence of ambiguous communication. Furthermore, this contribution extends to the literature on policy communication by distinguishing the statistically and economically significant premium linked to ambiguous communication.

Does Green Finance Policy Contribute to ESG Disclosure of Listed Companies? A Quasi-Natural Experiment from China

In 2016, the People’s Bank of China (PBC) together with multiple departments issued the Guidance on Building a Green Financial System (the Guidance), which marked a great breakthrough in China’s green finance policy. Aiming to clarify the actual impact and underlying mechanisms of green finance policy on Chinese listed companies’ ESG disclosure quality, this study employs the difference-in-differences (DID) model and examines the impact of the Guidance on ESG disclosure practices of A-share listed companies on the Shanghai Stock Exchange (SSE) and the Shenzhen Stock Exchange (SZSE) during the period 2006 to 2022. This study reveals a positive correlation between the Guidance and listed companies’ ESG disclosure. Upon further examination, it becomes evident that the Guidance has a more noticeable positive impact on the quality of ESG disclosure among listed companies that operate in industries with high levels of pollution, state-owned enterprises, and regions that exhibit greater levels of economic development. This paper provides essential insights to policymakers, facilitating a deeper understanding and more thorough assessment of the economic implications of green finance policies. Additionally, it acts as a strategic resource for listed companies, guiding the enhancement of corporate ESG disclosures and the implementation of ESG strategies influenced by green finance policies.

How can Chinese A-shared listed bank’s ESG activities affect their risk-taking?

The sustainable development of society has gradually been the world’s attention at all levels. At the 75th session of the UN General Assembly, the Chinese government said it would aim to peak carbon dioxide emissions by 2030 and achieve carbon neutrality by 2060. All levels of government in China are also responding to the call, and how to promote green and sustainable development has become China’s top priority to achieve high-quality double reduction goals. As a banking-led prosperous economy, how to implement the Environmental, Social, and Corporate Governance (ESG) concept in the banking industry has become the most important to achieve the double reduction goal of quality and quantity in China. In recent years, the CBRC and the People’s Bank of China (PBC) have issued much guidance on transforming the banking industry through ESG. Considering that the number of A-share listed bank companies in China, especially the number of local banks (urban commercial banks and rural commercial banks), has increased in recent years, it is also considered that the existing research focuses on the relationship between ESG management and bank performance, and there is little analysis on bank risk. Based on the annual data of China’s A-share listed banks from 2018 to 2022, this paper uses regression analysis to explore the relationship between the implementation of ESG and bank risk-taking.

Does digital financial inclusion lead to regional differences in trade credit financing?: A quasi-natural experiment

The People's Bank of China (PBOC) drafted the G20 High-Level Principles for Digital Financial Inclusion in 2016. Employing these principles in a quasi-natural experiment, we use the difference-in-difference (DID) method to estimate changes in enterprises’ trade credit financing (TCF). The findings are as follows: First, digital financial inclusion (DFI) significantly increases enterprises’ TCF in China's central and western regions, and the policy effect is transmitted through bank credit and the level of digital finance development. Second, DFI's effects on enterprises are heterogeneous with different ownership structures and sizes and in different industries; the promotive effect on TCF is stronger for non-state-owned enterprises (non-SOEs) and nonmanufacturing enterprises, while the policy prohibits the TCF of small and medium enterprises. Third, provincial factors have positive moderating effects on DFI.

Issues and Suggestions on RMB Internationalization

Renminbi (RMB) is the official currency of China, issued and controlled by the People's Bank of China (PBOC). This study analyzes the current problems of RMB internationalization and puts forward suggestions through the status statement of RMB internationalization. This study finds that RMB internationalization has issues of a low level of internationalization, an underdeveloped financial system, and a need for supporting policies for RMB internationalization. In response to the above problems, the research suggests improving China's financial market and increasing openness, increasing policy support to promote RMB internationalization, and developing RMB internationalization cooperation projects.

China's trilemma: Exchange rate marketization, RMB internationalization, and exchange rate pricing power

We employ a threshold vector error correction model approach to investigate the impact of China's exchange rate marketization reform in August 2015 on the linkage between renminbi (RMB) onshore (CNY) and offshore (CNH) exchange rates and the impact of post-reform policy interventions by the People's Bank of China (PBoC) on CNY–CNH linkage. We find that, after the reform, price power over the RMB exchange rate changed from the onshore to the offshore market, in which the CNH significantly leads the CNY, and the CNY ceased to lead the CNH. Since the reform, the PBoC has faced a trilemma of exchange rate marketization, RMB internationalization, and maintenance of the onshore market's pricing power over the RMB exchange rate. The PBoC regained its RMB pricing power by reinforcing control over the onshore exchange rate and tightening offshore RMB liquidity, at the expense of setbacks in both exchange rate marketization and RMB internationalization.

Estimation of green bond premiums On the Chinese secondary market

Green bonds have gained prominence on China's capital market as tools that help to fuel the transition to a climate-resilient economy. Although the issuance volume on the Chinese green bond market has been growing rapidly in recent years, the impact of the green label on bond pricing has not been studied adequately. Therefore, this paper investigates whether this newly developed financial instrument offers investors in China an attractive yield compared to other equivalent conventional bonds. By matching green bonds with their conventional counterparts and subsequently applying a fixed-effects estimation, our empirical results reveal a significant green bond yield premium of 1.8 basis points (bps) on average on the Chinese secondary market. As compared to Climate Bond Initiative (CBI) certified green bonds, we find that investors are more willing to accept lower yields (pay higher prices) to include People's Bank of China (PBOC) certified green bonds into their portfolio management. Thus, we argue that Chinese green investors prefer PBOC certified green bond over CBI certified green bonds on the Chinese market. Driven by pro- environmental preference, investors are also found to be willing to pay a higher price for green bonds issued by environmental, social and governance (ESG) performance-rated issuers. Our results point to some practical implications for investors and policymakers.

Blockchain application for central bank digital currencies (CBDC).

Central Bank Digital Currency (CBDC) is a digital version of domestic currency with a unit of account equivalent to its domestic currency. Blockchain or Distributed Ledger technology (DLT) can be used to implement CBDC to execute and settle peer-to-peer transactions. With the emergence of private money, such as cryptocurrencies and stablecoins, and the growing use of digital payments to lessen the global pandemic spread, CBDC is an active research area among central banks worldwide. Many central banks started their CBDC projects by building DLT proofs of concept (PoCs) to replicate wholesale payment systems and expand their investigation into other use cases, such as delivery versus Payment (DvP) and cross-border remittance. Many large economies like the United States have projects exploring CBDC. The People's Bank of China (PBoC), China Central Bank, has already started a pilot testing of their digital retail currency. This paper discusses the application of blockchain for CBDC by presenting CBDC projects by central banks. Moreover, this paper analyses issues, identify challenges and discusses future works in this rapidly evolving field.

Is the People's Bank of China consistent in words and deeds?

The People's Bank of China (PBC) now frequently uses communication as a policy tool. Whether its words are consistent with its deeds is important for the public to understand the PBC's complex behavior. In this paper, we employ a supervised learning model to construct monetary policy (MP) and economic outlook (EC) communication indices based on the outlook section of quarterly China Monetary Policy Reports (MPRs). We find that the PBC not only adjusts its interventions according to the corresponding economic situation, but also takes into account the information released in the previous outlook section, which indicates its consistency in words and deeds. Using a time-varying parameter model, we further find that the PBC's consistency of words and deeds has made progress over time. The PBC tends to be more consistent in words and deeds under higher uncertainty, and the improvement of such consistency can significantly decrease disagreement about inflation expectations. An additional analysis shows that the full text of MPRs can help predict future monetary policies on a longer time horizon.

CBDC-A New Tool in 'Financial Inclusion' Tool Kit

The Central Bank Digital Currencies (CBDC), if appropriately designed, can help to improve the Financial Inclusion in the Country.The Effective implementation needs a balanced, risk-based approach and the support to the complementary policies. The Central Banks in the World are actively considering, how the Retail Central Bank Digital Currencies (CBDCs) may fit with the Policy Goals around Total Financial Inclusion in the Country. They are:~ Central Bank of The Bahamas.~ Bank of Canada.~ Peoples Bank of China.~ Eastern Caribbean Central Bank.~ Bank of Ghana.~ Central Bank of Malaysia.~ Bangko Sentral ng Pilipinas.~ National Bank of Ukraine and~ Central Bank of Uruguay.While a Central Bank Digital Currency, like other forms of the Money, has different functions (e.g., Means of Payment, Store of Value, Unit of Account, Settlement Assets), its link to Financial Inclusion in the Country in context of its payment properties.Abbreviations: CBDC= Central Bank Digital Currency.e-KYC= Electronic Know Your Customer.EMDEs=Emerging Markets and Developing Economies.AEs=Advanced Economies.PSPs=Payment Service Providers.ACHs=Automated Clearing Houses.

Research on the Influence of Discount on Consumers’ Purchase Attractiveness and Coping Strategies -- Taking Consumers Aged 26-35 as an Example

Promotions are the driving force of consumption for E-commerce platforms, such as the “Double Eleven” shopping carnival in China, in which major e-commerce platforms participate, which has been setting new records for its volume over the past decade. Statistics from the People’s Bank of China (PBOC) show that online payment services exceeded ¥1.4 trillion in the shopping frenzy in 2019 (PBOC, 2019). The same is true in other parts of the world. For example, “Prime Day” in the United States is equivalently attractive for American shoppers. In addition to policy support and market dividends, discounting is an important stimulus for shopping campaigns to achieve such brilliant results. In order to make the discounts more attractive to consumers, merchants continue to push the boundaries of the traditional discounts, adding “direct discount”, “quantity discount”, “bundle discount”, “coupon discount”, and other diversified means of discounts. In recent years, the discount method of stacking multiple discounts together is becoming increasingly popular, and merchants often choose more than one discount at the same time, forming a multiple discount scheme. This paper studies how exactly multiple discounts affect consumers’ purchasing decisions. In particular, this paper explores the impact of multiple discount schemes on consumers’ purchase intentions through ordinary least-squared (OLS) linear regression and difference-in-difference (DID) techniques. The conclusion reached shows that the most effective discount strategies are quantity discounts and coupon discounts, giving an insight to online platform merchants on a potential way of boosting sales.

Real‐time macroeconomic projection using narrative central bank communication

SummaryUnlike the central banks of most developed economies, the People's Bank of China (PBC) does not release its macroeconomic forecasts to the public but instead carries out narrative communication. We apply a hurdle distributed multinomial regression to PBC communication texts in real time, addressing the ultrahigh dimensionality, sparsity, and look‐ahead biases. In addition, we embed text‐based indices into mixed‐data sampling (MIDAS)‐type models and conduct forecast combinations for prediction. Our results argue that the predictive information from communication texts improves the real‐time out‐of‐sample prediction performance. We connect textual analysis and real‐time macroeconomic projection, providing new insights into the value of central bank communication.

Research on the Legal Status of the People's Bank of China From the Perspective of Independence

The issue of the legal status and independence of central banks has been a hot and controversial topic in the three centuries of their development. The development of the legal status of the central bank has shown a tendency to be constantly integrated with the state power, while at the same time exhibiting a process of pursuing the strengthening of independence. The legal status of China's central bank, the People's Bank of China (PBC), has not been clearly defined either at the legal level or in academic circles. However, it remains to be examined and studied whether enhancing the independence of the PBC is conducive to the sustainable development of China's economy, the stability of the financial environment, and the effective implementation of monetary policy. Therefore, this paper will start from the current situation of the independence of the PBC, point out the shortcomings of the legal status of the central banks in China and put forward some feasible suggestions for the development of independence.

Research on the Legal Status of the People's Bank of China From the Perspective of Independence

The issue of the legal status and independence of central banks has been a hot and controversial topic in the three centuries of their development. The development of the legal status of the central bank has shown a tendency to be constantly integrated with the state power, while at the same time exhibiting a process of pursuing the strengthening of independence. The legal status of China's central bank, the People's Bank of China (PBC), has not been clearly defined either at the legal level or in academic circles. However, it remains to be examined and studied whether enhancing the independence of the PBC is conducive to the sustainable development of China's economy, the stability of the financial environment, and the effective implementation of monetary policy. Therefore, this paper will start from the current situation of the independence of the PBC, point out the shortcomings of the legal status of the central banks in China and put forward some feasible suggestions for the development of independence.