Economic Research Journal is supervised by Chinese Academy of Social Sciences, and sponsored by Institute of Economics, Chinese Academy of Social Sciences. It aims to conduct researches on the new situation and new problems in China’s reform and opening up, economic development and transformation. Its scope covers all fields of China economics, including economic theory, finance, taxation, enterprise, new rural construction, marketing and accounting, etc. The journal, included in CSSCI, possesses a very high academic position in both domestic and oversea economic and management domain with which you can have a overall understanding about China’s comprehensive economics.
Editor-in-Chief Pei Changhong
Deputy Editor-in-Chief Zhang Ping, Zheng Hongliang, Wang Cheng
The transference of state-owned capital to pension fund affects the labor supply through “occupying public revenue” and “relaxing individual budget constraints.” This paper constructs an overlapping generation (OLG) model containing the transference of state-owned capital, endogenous fertility rate and education input to examine the long-term impact of the transference on labor supply. The results show that, compared with non-transference, the transference will reduce the quantity and improve the quality of labor, but the impact on the total labor supply is uncertain, which depends not only on the relative importance parents attach to the quantity and quality of their children, but also on the choice of pension policy tools after the transference, that is, to reduce the pension insurance premium rate or to improve the pension replacement rate. If we choose to reduce the pension insurance premium rate, when parents pay more attention to the quality of their children, the relationship between the total labor supply after the transference and the transference rate presents an inverted U-shaped pattern; when parents pay more attention to the quantity of children, there is a positive relationship between them. If we choose to increase the pension insurance premium rate, the relationship of the total labor supply and the transference rate will change inversely regardless of the relative importance parents attach to the quantity and quality of their children. From the perspective of promoting labor supply, if the transference is accompanied by a reduction in the pension insurance premium rate and if parents are guided to pay equal attention to the quantity and quality of their children, it is likely to witness the benign interaction between the endowment insurance system and the labor market.
Bank competition in China has increased dramatically over the last few decades. While the Chinese banking industry in the early 1980s comprised only four commercial banks with separate specializations, both the number and scale of banks in China have grown rapidly since then. Banks now also play an increasing role in China’s economy and the government attaches great importance to them. Specifically, the government encourages banks to help alleviate corporate financial difficulties to serve the development of the real economy. However, no studies have yet examined how bank competition affects the financial constraints faced by most firms, and how these effects vary across different firms. Information asymmetry is an important factor leading to corporate financial constraints (Fazzari et al., 1988; Kaplan and Zingales, 1997). In this paper, we hypothesize that increased bank competition lowers information asymmetry between banks and firms, thus alleviating corporate financial constraints. Banks have to compete with each other for qualified borrowers, especially as bank competition grows fiercer (Huang and Xiong, 2005; Ma et al., 2013). However, a bank that wins customers may run into the “winner’s curse” (Shaffer, 1998). In a highly competitive banking industry, banks with insufficient and asymmetrical information on their customers (such as borrowers) may unintentionally win unqualified customers, and thus lose profit (Broecker, 1990; Rajan, 1992). To prevent this and make the right choice, banks make more efforts to gather and uncover corporate information. Moreover, to earn a profit in a highly competitive banking industry with lower profit margins (Petersen and Rajan, 1995), banks need to gather more information on firms to make more appropriate credit decisions. Hence, bank competition creates strong incentives for banks to gather corporate information, thus reducing the information asymmetry between banks and firms and alleviating corporate financial constraints. To examine our hypothesis that bank competition helps alleviate corporate financial constraints, we first construct a theoretical model to analyze our hypothesis and test it empirically. Using a large sample of commercial banks and all Chinese A-share listed firms from 2000 to 2014, we find that bank competition significantly reduces the cash flow sensitivity of corporate investment, which means that bank competition can reduce corporate financial constraints. These results remain consistent after controlling for endogeneity concerns and substituting an alternative measure for financial constraints. Furthermore, results show that bank competition reduces the costs of corporate debt financing, providing supplementary evidence that bank competition reduces corporate financial constraints. We also find that the effect of bank competition on alleviating corporate financial constraints are greater when firms face more severe information asymmetry. In addition, bank competition reduces the transaction costs of bank loans raised by firms. This paper has made two main contributions to the literature. First, while the literature focuses mainly on how bank competition affects the macro-economy (Berger and Hannan, 1989; Carlin and Mayer, 2003), we provide new evidence on how bank competition influences firms. Although some studies have examined the effect of bank competition on corporate access to finance (Bonaccorsi Di Patti and Dell’ Ariccia, 2004; Chong et al., 2013; Love and Peria, 2014), their conclusions are inconsistent on this issue (Zazutskie, 2006; De Guevara and Maudos, 2011) and do not directly address how bank competition affects corporate financial constraints. Second, we contribute to the literature on financial constraints. From the perspective of funding demands, the literature has mainly studied how corporate characteristics and behaviors affect corporate financial constraints (Custódio and Metzger, 2014; Erel et al., 2015; Deng and Zeng, 2011; Yu et al., 2012). Few studies have examined how financial market development and liberalization may alleviate corporate financial constraints (Love, 2003; Shen et al., 2010), and none has investigated how the banking industry structure influences the corporate financial constraints.
In the 40 years of reform and opening up, the Chinese economy has achieved great transformation and created a growth miracle. At the same time, it has accumulated many institutional and structural problems which are gradually turning into various types of risks. The debt overhang is an embodiment of these risks. This paper investigates China’s debt formation mechanism and argues that institutional factors are the root causes of the debt overhang. These institutional factors are the typical features of the developmental state, which can be summarized as the “structural advantage” of state-owned enterprises (SOEs), the development responsibility and soft budget constraints of local governments, the institutional preferences of financial institutions, and the “last resort” of the central government. On the one hand, this is the know-how for China’s growth catch-up; and on the other hand, it has negative impacts, especially the current debt overhang and risk accumulation. Based on a BGG model (Bernanke et al., 1999), we change the subject of selecting the optimal debt contract to maximize the profit from enterprise to bank, and introduce fiscal subsidies to state-owned enterprises to describe the institutional distortion. The model reveals the phenomenon as follows. When fiscal subsidies are introduced, optimal bank behavior is to allocate more credit to SOEs, increase the leverage ratio of SOEs and reduce the leverage ratio of private enterprises (PEs) at the steady state. Further simulation results show that: (1) the positive impact of fiscal subsidies (for example, increased subsidies to SOEs) increases the SOE leverage ratio, reduces the POE leverage ratio, and raises the total leverage ratio; (2) the banks’ subsidy delusions result in a higher SOE leverage ratio and total leverage ratio; and (3) the deleveraging policy can reduce the total leverage ratio, but more so for POEs than SOEs, thus exacerbating the credit misallocation. By integrating the newly published IMF Global Debt Database (Mbaye et al., 2018), World Bank Open Data, , the International Financial Statistics of the International Monetary Fund (IMF-IFS), credit to the non-financial sector dataset of the Bank for International Settlements (BIS) and other data, we construct a cross-border panel data of overall non-financial sector debt, namely, the debt of the government, private sector and SOE sector, and add other economic indicators such as growth and total factor productivity (TFP). The econometric results can be seen as follows. (1) Although many factors contribute to the macro leverage ratio in the economy, institutional factors measured by the proportion of government debt in total debt are more fundamental. (2) Cumulative debt generally has a negative effect on growth and TFP, and SOE debt has a more significantly negative effect on efficiency. (3) At the low-income stage, public sector debt, especially the government debt, has a relatively small negative impact on growth, yet at the high-income stage, there is a significant increase in the negative impact of public sector debt represented by the government and SOE leverage ratios. This indicates that it benefits the economy to allocate more credit resources to the private sector at the high-income stage. This fresh perspective indicates that as China enters the high-income stage, the developmental state featuring government intervention to facilitate growth catch-up requires urgent transformation. In the context of this paper, this transformation should be promoted as follows. (1) We should steadily push forward bankruptcy and restructuring, especially the exit mechanism of zombie enterprises, allow the market clearing mechanism play a decisive and mandatory role. (2) We should break the government bailout, harden budget constraints on SOEs and local governments, build a normative behavior pattern and incentive-constraint mechanism under a modern enterprise system and modern governance framework, and weaken the impulse to expand or catch-up. (3) We should establish the competitive neutrality rule in credit allocation to eliminate institutional discrimination of financial institutions. In short, we must move beyond the developmental state to establish a restricted and service-oriented government.
