Table of Content

16 October 2020, Volume 40 Issue 10

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HETEROGENEITY ANALYSIS OF THE IMPACT OF FINANCIAL CYCLE ON MACROECONOMIC STABILITY

WANG Sanchuan, FAN Conglai

2020, 40(10):  4-20. 

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Macroeconomic stability has long been an important goal of China's macroeconomic regulation, and it has been more widely concerned during the “New Normal” period. As a necessary condition for macroeconomic stability, financial stability is predicated on the understanding of the financial cycle. This requires careful study of the impact of financial cycle variables on macroeconomic operation in order to support policy precision. This paper uses the relevant quarterly data of financial cycle and macroeconomic variables, applies the filtering method to find the fluctuant and stationary period of macroeconomy, utilizes the machine learning algorithm to verify the matching degree between the selected input variables and output variables and derives the importance of the fluctuation of each input variable to the fluctuation of the output variables. This paper finds that although the macroeconomic performances in the period of stability and volatility are different, the sum of the importance of the asset price index and the credit level on each of macroeconomic variables is more than 50%, regardless of the period of stability or volatility, while the importance of other financial cycle variables such as leverage and risk exposures of financial institutions are limited, which indicates that it is necessary to shoot the arrow at the target. Compared with releasing liquidity with a big scale, it can focus on maintaining asset price stability and optimizing credit policy rationing to achieve optimal results and escort macroeconomic stability.

COUNTERCYCLICAL FACTOR OF RMB EXCHANGE RATE:TIMING, DRIVING FACTORS AND IMPLEMENTATION EFFECT

ZHANG Ming, CHEN Yinmo

2020, 40(10):  21-36. 

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This paper calculates the countercyclical factor used in the RMB exchange rate pricing from May 2017 to September 2019. In this paper, a nonrestrictive VAR model is built to analyze the driving factors and implementation effects of the People's Bank of China (PBC)'s two uses of countercyclical factor. The study finds that: First, compared with the time of official announcement, the two countercyclical factor adjustments started earlier and ended later, and the adjustment ranges gradually narrowed; second, the adjustment range of the second countercyclic factor adjustment was larger than that of the first adjustment; third, the RMB exchange rate volatility was the main driving factor for the first countercyclical adjustment, while the gap between offshore and onshore exchange rates and the uncertainty of exchange rate policies were the main driving factors for the second adjustment; fourth, the two countercyclical factor adjustments both restrained RMB exchange rate volatility, but intensified the expectation of RMB depreciation on offshore market.

LOCAL ECONOMIC GROWTH TARGETS AND FACTOR MARKET DISTORTIONS

ZHAO Xinyu, ZHENG Guoqiang

2020, 40(10):  37-49. 

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This paper empirically examines the impact of local economic growth targets on factor market distortions using the economic growth target data in the report on the work of the provincial government in China from 2005 to 2017. The study shows as follows: (1) Local economic growth targets have a significant distortion effect on the factor markets. Distorting the factor markets by intervening in the allocation of credit resources, expanding land transfers, and lowering labor wages are the ways that local governments use to achieve economic growth targets. (2) There is regional heterogeneity in the impact of local economic growth targets on factor market distortions. The distortion effect of economic growth targets on factor markets is more pronounced in the central and western regions and regions with greater growth pressure. (3) The impact of local economic growth targets on factor market distortions has a threshold effect based on the institutional environment. With the improvement of the financial system, legal system and property rights system, the distortion effect of economic growth targets on factor markets will weaken. This paper provides a new perspective for the study of government target management and factor market distortions, and provides an important realistic basis for the formulation of relevant policies.

HOW DOES PPP AFFECT LOCAL FISCAL RISKS——Evidence from Bond Market Responses

JIANG Di, TANG Yugang

2020, 40(10):  50-64. 

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Proponents of the PublicPrivate Partnerships (PPP) argue that PPP can decrease financial pressures, diversify investment risks, and improve resource allocation efficiency for local governments. In contrast, opponents argue that a large number of government guarantees and subsidies are often embedded in PPP, encouraging corruption and rentseeking. The reduction of fiscal pressure within the budget is only a financial illusion, which invariably accumulates systemic risks. This paper uses the bond issuance data of China during 20152020 and the information of PPP projects in various places to test whether or not the interest rates of local public bonds respond to the large scale implementation of PPP, with local public bonds as the treated and national debt and financial corporates' bonds as the control under a Difference in Differences setup. The empirical results show that the sharp increase in PPP projects around 20162017 raises the interest rates of local government bonds, indicating interest penalties from the financial market. Specifically, the risk premium is 6.729.7 basis points for local bonds with a 5year maturity, while the risk premium is 2141 basis points for 10year bonds, and the effects are heterogeneous across regions with more and fewer PPP projects. The results are robust to a battery of tests, including changing the control group, postponing PPP projects actual time to take effect on local public finance, and certain placebo tests. Finally, possible explanations to the empirical findings are discussed, and some feasible measures are proposed to promote the sound development of PPP.

CONSUMERS' AWARENESS OF THE RULE OF LAW: PROMOTING OR CONSTRAINING FINTECH INNOVATION IN CHINA——Evidence from P2P Network Loan

ZHANG Hongwei, CHEN Xiaohui, LIU Chunmei, WEN Jia

2020, 40(10):  65-82. 

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 Is consumers' awareness of the rule of law promoting or constraining China's FinTech innovation? Under the background that the United States, the United Kingdom and other countries have promoted their own FinTech innovations, this issue is not only a theoretical issue, but also a practical issue related to the global rise of China's finance. Therefore, based on the two major psychological theories of challengethreat and coldhot system, and using the unbalanced panel data of 31 provinces and cities in China from 2009 to 2017, this paper studies this issue with differential GMM model. The results show that the level of consumers' awareness of the rule of law shows an invertedU shape nonlinear relationship with the quantity or the quality of FinTech innovations; too weak or too strong consumers' awareness of the rule of law is not conducive to the improvement of the quantity and quality of FinTech innovation. Therefore, we should follow the principle of moderation when protecting consumers. Further analysis shows that consumers' awareness of the rule of law also indirectly affects the quantity of FinTech innovations through the construction of industry self regulatory organizations and research institutions, and the credit gap. Finally, some suggestions are put forward to promote fintech innovation in China.

DECOMPOSING THE INNOVATION EFFECT OF CHINA'S OUTBOUND FDI——Perspectives from Speed, Time and Experience

GU Kejian, LI Xiaojing, XIANG Pengfei

2020, 40(10):  83-98. 

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Using the panel dataset of China's Ashare listed companies from 2003 to 2016, this paper attempts to investigate the OFDI strategies of listed companies from the 3 complementary perspectives consisting of speed, time and experience and examines how OFDI influences innovation and the intrinsic mechanism. The study finds that: (1) OFDI speed has an invertedU shape effect on innovation, but it is still in the range of innovation improvement. OFDI experience has a significant effect of stimulus on innovation, while time term shows a significant effect of repression. (2) Compared with lowquality strategic innovation, highquality innovation has greater stimulus and repression effects and these effects vary with ownership, industry and investment motive. (3) OFDI strategies can not only affects R&D intensity, but also improve R&D efficiency, promoting innovation through income effect, economies of scale effect and productivity effect. Further analysis also finds that richer international experience accumulated by companies help them reduce innovation risk, especially highquality innovation risk. This paper provides policy implications for companies to achieve transformation and upgrading by addressing OFDI strategic issues and for China to become an innovative country.

SHORTTERM AND LONGTERM EFFECTS OF RETIREMENT ON COGNITIVE ABILITY——The Health Dividend of Delayed Retirement

LIU Yafei, LUO Lianfa

2020, 40(10):  99-112. 

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In this paper, three waves of Chinese Health and Retirement Longitudinal Study (CHARLS) were used to investigate the relationship between retirement and cognitive decline and to explore the impact of delayed retirement on cognitive ability. The results suggest that retirement can inhibit cognitive decline in the short term, but has a negative effect on cognition in the long term. Specifically, retirement inhibit cognitive decline within 3 years after retirement, and the positive effects of retirement on cognition gradually turn negative about 3 to 4 years after retirement. The heterogeneity analysis by gender shows that the negative longterm effects of retirement on cognitive ability are more pronounced for men. The study reveals differences in the shortterm and longterm effects of retirement on cognitive ability. From the perspective of policy, appropriate postponement of the statutory retirement age can shorten the duration of retirement and have a positive effect on the inhibition of cognitive decline, that is, delaying retirement can bring cognitive “health dividend”.