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Capital Regulations, Bank Risk-Taking, and Monetary Policy in China

Xiaoming Li, Zheng Liu, Yuchao Peng, Zhiwei Xu, Nov 18, 2020

China implemented Basel III in 2013 and tightened bank capital regulations. Empirical evidence shows that the new regulations significantly reduced bank risk-taking following monetary policy easing. To meet the tightened capital requirements, banks respond to a balance-sheet expansion by raising the share of lending to state-owned enterprises (SOEs) that are perceived as low-risk borrowers under government...

Competitive Effects of China’s Listing Suspensions

Frank Packer, Mark M. Spiegel, Oct 28, 2020

China’s suspensions of initial public offerings (IPOs) provide a unique opportunity to evaluate the competitive effects of IPO activity on listed firms, as existing studies are challenged by the influence of market conditions on IPO timing. We evaluate the stock returns of listed firms on the Shanghai and Shenzhen exchanges over the three most recent suspensions. We confirm adverse effects on listed firms from IPOs, both from direct competition and from the creation of close asset substitutes. We also find that weaker firms are more exposed to the adverse effects of IPO listings.

Impacts of Monetary-Fiscal Policy Interaction

Kaiji Chen, Haoyu Gao, Patrick Higgins, Daniel F. Waggoner, Tao Zha, Dec 02, 2020

China’s 2009 stimulus presents an ideal case for exploring the impacts of monetary-fiscal interaction on credit allocation and investment. During this stimulus period, monetary stimulus itself did not favor SOEs over non-SOEs in credit access. Fiscal expansion, however, enhanced the monetary transmission to bank credit that was allocated to local government financing vehicles (LGFVs) for infrastructure and at the same time weakened the impacts of monetary stimulus on bank credit to non-SOEs in other sectors.