By using data on 137 counties in north China, we find that the density of financial institutions (Qianzhuang and Diandang) in the late Qing period has a significant positive effect on the number and total assets of small loan companies, a dominant institution of informal finance today. The persistent effect of historical financial institutions can be explained by Confucian culture, which instills integrity, lineage solidarity and acquaintance networks.
Shadow banking in China includes an important role for Banks’ Shadow in the credit money creation process, which poses challenges to monetary policy regulation and financial risk management. I urge regulators to closely track the evolution of various shadow banking channels both on- and off-balance sheet. To strengthen supervision, separate macro-prudential regulation tools, such as asset reserves and risk reserves, are needed for Banks’ Shadow and Traditional Shadow Banking, respectively.
China’s remarkable economic rise over the past three decades has yielded many benefits to its own citizens and to people all around the globe. But the export-led growth model that underpinned China’s success and its increased role in the global economy has also led over time to the development of some serious imbalances in its economy. How China deals with these imbalances will have important implications for the rest of the world going forward—in particular, the quantitative analysis reported here suggests that were China to experience a financial crisis, the hit to the rest of the world would be substantial.
In Shanghai, housing entitlements with enrollment access to a good public primary school is associated with a 0.1-0.35 percentage point lower annual rental yield. This rental yield gap is the opportunity cost of securing such housing, which is within the affordability range of most middle-income families in Shanghai. This implies that, should there be no credit constraint for homeownership, children from middle-income families should have a higher likelihood of accessing better public education. We find, however, that the enrollment rights between homeowners and renters, together with the credit constraint to own a home, actually lowers the chance of children from middle-income families of attending better public schools relative to those children from families with high initial wealth. This resulting reduced intergeneration mobility exacerbates the social inequality in China.
Despite reforms to the hukou household registration system and the very large rural-urban migration experienced in China, rural households are still experiencing a risk of losing their land allocation if they migrate. We argue that this risk leads to an inefficient rental market with low rents and is an impediment to migration, with consequent over-employment in agriculture and low productivity.