The Effect of the China Connect Chang Ma, John Rogers, Sili Zhou, Nov 13, 2019
The Effect of the China Connect Chang Ma, John Rogers, Sili Zhou, Nov 13, 2019 We study the effect on Chinese firms of the Shanghai (Shenzhen)–Hong Kong Stock Connect. The Connect, introduced in the mid-2010s by the government, provided important capital account liberalization. It created a channel for cross-border equity investments into a select set of Chinese stocks while the overall capital controls policy remained in place. Using a difference-in-difference approach, we find that mainland Chinese firm-level investment is negatively affected by contractionary US monetary policy shocks and that firms in the Connect are more adversely affected than those that remained outside of it. These effects are economically large, robust, and stronger for firms with higher leverage, higher dependence on equity financing, a higher share of foreign sales, and those operating in the non-tradable sector, which is all consistent with a financial channel or balance sheet effect. Because firms would try to stay out of the Connect if increased sensitivity to external shocks were the only effect, we broaden our analysis. We find that firms in the Connect hold more cash, enjoy lower financing costs, and earn higher profits than unconnected firms. The implications of our results contribute to the debate on capital controls.
Can Investment Incentives Crowd Out Innovation? Evidence from China Shaowei Ke, Yao Lu, Xinzheng Shi, Yeqing Zhang, Nov 06, 2019 The Chinese government has been using strong fiscal stimuli to encourage investment. While these fiscal policies, such as investment tax credits, often encourage firm investment, we find that investment tax incentives may generate an unintended reduction of firms’ innovation. Moreover, the crowding-out effect is non-monotonic in the level of financial constraints.
How Do Earthquakes Shape Economic Behavior? Kevin Chen, Mateusz Filipski, Xiaobo Zhang, Oct 30, 2019 Research shows how a disaster can impact an economy beyond the simple rebuilding process. The Sichuan earthquake induced a lifestyle shift in households toward greater spending and a structural shift of the economy away from industrial production.
The Impact of the China Tire Safeguard Sunghoon Chung, Joonhyung Lee, Oct 23, 2019 This column evaluates the impact of the China tire safeguard on the US tire industry. Contrary to claims made by the US government, we find that total employment and average wages in the tire industry were unaffected by the safeguard. This result is not surprising as we find that Chinese tires have been completely diverted to other exporting countries due to the strong presence of multinational corporations in the world tire market. On the other hand, US domestic tire prices increased by up to 10% during the safeguard period...