The Journal of World Economy 2023, No.9
InProductive Debt: China’ s Overseas Lending to Sovereign Debtors and Economic Growth in Developing Countries
Xiong Wanting; Zhang Jiacheng; Sun Liangying
Abstract：While China’s overseas lending to sovereign debtors in other developing countries embarks heated debates, corresponding empirical evidence on its effectiveness are scare. To fill this gap, this paper uses the International Debt Statistics database to study the effect of China’s lending on the economic growth of debtor countries. We find that, on average, China has a statistically significant positive effect on economic growth in debtor countries. In comparison, lending granted by traditional official lenders including the U. S. and the Word Bank Group cannot achieve similar growth effect. Mechanism analyses show that China’s lending can relieve financial constraints faced by debtor countries and foster investments that leads to higher productivity, more capital formation, and faster industrial growth. Meanwhile, there is no evidence that China’s lending has caused unaffordable repayment burden. These results show that China’s lending is not a threat but a catalyzer for the global development.
Key words：China’s overseas lending, debt sustainability, Belt and Road Initiative
Global Crises, Trade Networks and the Chinese Economy
Fan Haichao; Zhang Zhiqiang; Wang Huanhuan
Abstract：Global crises, including the COVID-19 pandemic, pose unprecedented challenges to the development of countries and all humanity. In order to raise awareness of how overseas public health crises affect the Chinese economy through trade ties, this paper uses satellite nighttime light data, establishes monthly economic data at county-district and grid levels and, based on overseas COVID-19 and vaccine data, constructs a series of overseas pandemic impact indicators targeting counties and districts. The findings of the study indicate that the pandemic impact abroad on the luminosity growth of nightlights in counties and districts is significantly negative. Further analysis reveals significant temporal and product-by-product differences in the pandemic impact abroad. On the other hand, the negative impact on the economy turns out to have been most significant in the initial stages of the COVID-19 outbreak. Unlike other counties and districts, counties and districts that specialise in the production of medical supplies and “residential economy” products have a higher economic growth rate during the pandemic. Finally, changes in the growth rate of local nighttime light brightness are accompanied by an increase in the impact of overseas pandemic crisis on surrounding areas, indicating significant spillover effects.
Key words：global crises, trade networks, economic growth, spillover effects
Port Congestion, Endogenous Trade Cost and China’s Gains from International Trade
Wang Yongjin; Yang Lu
Abstract：In recent years, port congestion and soaring ocean freight rates have been severely hampering Chinese firms’ participation in international trade. For this reason, the 2022 “Government Work Report” clearly set out the task of “strengthening the construction of rail, road, air, maritime transport and port infrastructure networks, and ensuring the safety of the different transportation systems”. However, the existing literature still treats the cost of international trade as contributing exogenously. This paper instead incorporates cross-border transport bottlenecks into the framework of Eaton, Kortum and Kramarz (2011) (EKK) and re-evaluates China’s gains from international trade. Estimating the model using the simulated method of moments (SMM), it examines how the counterfactual decrease in trade barriers affects Chinese firms with endogenously and exogenously determined transportation costs. The results indicate that the endogenous cost of transportation acts as a “buffer” effect against the exogenous shock of trade; the increase in demand for export transportation, which leads to an increase in export costs and an improvement in the quality of exported products, offsets some of the gains from trade liberalisation. A fall of 10% in trade barriers also endogenously causes a direct loss of USD 156 billion due to an increase in ocean freight rates, accounting for 1.7% of total exports.
Key words：port congestion, cross-border transport bottlenecks, endogenous trade cost, firm exports
From Narrowband to Broadband: Information Frictions and Initial Distribution
Yu Li; Bai Peiwen; Wang Haiyun; Lyu Zhuoyang
Abstract：This study underlines the importance of the labour share of income in enhancing the structure of income distribution and promoting balanced development tools. It also proposes a novel perspective on changes in manufacturing labour share of income driven by reduced labour market information frictions facilitated by the IT revolution. Using the arrival of broadband internet in China as a quasi-natural experiment and the geographic characteristics of the city as instrumental variable, the correlation between changes in information frictions and the intra-firm labour share of income is analysed. The results show a significant increase in the intra-firm labour share of income with the arrival of broadband internet, especially in cities with much more developed information-sharing networks. Interestingly, the increase in labour share of income is not attributed to the channels of sales or productivity growth, but to the improvement of labour market information conditions and the reduction of firms’ labour shortages. The findings provide valuable information for reforming the system mechanism of independent and orderly flow of production factors and increasing the share of labour remuneration in the initial distribution.
Key words：broadband internet, information frictions, labour market completeness
Leverage, Debt Repayment Pressure and Employment: Evidence from China
Qian Xuesong; Shi Xin
Abstract：This paper uses a difference-in-differences (DID) approach to examine how debt repayment pressure resulting from deleveraging affects employment in firms. The empirical results reveal that after the implementation of the deleveraging policy, labour employment is significantly lower in over-indebted firms than in less indebted firms, and this effect is relatively stronger in firms with higher levels of short-term debt and long-term use, lower growth, those co-owned by the state and with greater dependence on external financing. Analysis of the mechanism shows that an increase in debt repayment pressure resulting from the deleveraging policy dampens corporate employment by exacerbating liquidity constraints and debt default risks. The deleveraging policy also mainly discourages firms from hiring low-skilled labour and helps to reduce the mismatch level of corporate labour resources, thereby improving efficiency in labour allocation. Overall, this study identifies the causal relationship between debt repayment pressure and corporate employment and clarifies its mechanism, which has important implications for further optimising the corporate financing environment to achieve a dynamic balance of risk prevention and employment stabilisation.
Key words：deleveraging policy, debt repayment pressure, corporate employment, efficiency in labour allocation
Real Estate Investment and Education, Income Gap: Irrational Results of a Rational Choice
Pang Xiaodong; Sun Wenkai; Pang Xiaopeng; Wang Huan
Abstract：Based on the China General Social Survey (CGSS), the China City Statistical Yearbook and the characteristics of urban officials, this paper uses the easing of the real estate regulation policy in 2008 as an exogenous shock and applies the birth cohort difference-in-difference model and the instrumental variables method to analyze the impact of the real estate investment expansion on educational decision-making, educational gap and income gap. The study finds that the expansion of real estate investment induces myopic educational choice behavior that induces dropouts in secondary schools. This effect significantly widened the educational gap within rural youth and between urban and rural youth. During the real estate investment contraction period, the income gap brought about by the educational gap becomes even more prominent. This study provides new and complementary evidence to understand the impact of real estate investment on education and common prosperity.
Key words：real estate investment, educational decision-making, income disparity
Tightening the Belt or Loosening the Purse Strings: Housing Purchase Restriction Policy and Urban Household Consumption in China
Shen Yang; Chen Zhao
Abstract：The implementation of the housing purchase restriction (HPR) policy has increased the cost associated with buying a second house, raising important questions about household consumption in China. This study uses data from Urban Household Survey (UHS) and a difference-in-differences empirical strategy to show that one-unit households in restricted cities significantly reduce their consumption following the HPR policy implementation. Families seeking school district homes and those with lower incomes further decrease their consumption. Although the HPR policy prohibits two- unit households from buying another house, it is found that families with adult children can circumvent its impact. The findings of this paper emphasise the spillover effects of the HPR policy on household consumption, particularly in families willing to make further home purchases and low-income families.
Key words：housing purchase restriction (HPR) policy, second house, consumption
The Bailout Effects of the SME Promotion Law: Evidence from Corporate Product Market Performance
Chen Shenglan; Wang Pengcheng; Ma Hui; Liu Xiaoling
Abstract：Solving the overdue accounts of small and medium-sized enterprises (SMEs) is an important guarantee to support enterprises to be bailed out from financial difficulties and to promote the smooth circulation of the national economy. This paper exploits the implementation of the SME Promotion Law as a quasi-natural experiment, investigating how it affects product market performance at the enterprise level and what its mechanism of action is. The study constructs a new dataset using annual reports of enterprises listed on the New Third Board and the “Qcc.com” platform. Based on this new dataset, the difference-in-differences test reveals that the treated enterprises increase their corporate sales growth rate by 9.31% compared to the control enterprises following the implementation of the SME Promotion Law. The decrease in the trade credit supply caused by the strengthening of the rights and interests protection of SMEs constitutes a fundamental mechanism for the enactment of the SME Promotion Law aimed at improving the corporate products market performance. When the financing capacity of enterprises is weak and the financial strength of their competitors is strong, the effect of the enactment of the SME Promotion Law on improving corporate product market performance turns out to be stronger. This paper reveals the bailout effect of the SME Promotion Law on promoting product market competition by alleviating SMEs liquidity constraints, which is of enlightening significance in improving the SMEs market competitiveness and promoting high-quality economic development.
Key words：SME Promotion Law, product market performance, trade credit supply, quasi-natural experiment
The Spillover Effects of Green Bond Issuance on Underwriters
Yang Bowen; Wu Wenfeng; Yang Jibin
Abstract：Improving the green financial system can help to promote green, low-carbon, and high- quality development, and financial intermediaries are an important part of the green financial system. From the perspective of bond underwriters, a financial intermediary, this paper investigates the spillover effects of green bond issuance on underwriters using a sample of green bonds issued in China between 2016 and 2021. The result indicates that green bond issuance significantly improves underwriters’ future bond underwriting performance in the provinces and industries of green bond issuers. Mechanism analysis shows that the issuance of green bonds generates spillover effects by signaling underwriters’ business capabilities and green image. Furthermore, green bond issuance can enable underwriters to obtain a more positive stock market reaction and can significantly improve the regulatory ratings of underwriters. This paper reveals the positive spillover effects and economic outcomes of green bond issuance for underwriters and presents implications for achieving the “dual carbon” goal from the perspective of improving bond underwriters’ incentives.
Key words：green bonds, underwriters, spillover effects, ESG, green finance