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Financial Markets with an Emphasis on China

Paper Session

Friday, Jan. 3, 2020 8:00 AM - 10:00 AM (PST)

Marriott Marquis, La Costa
Hosted By: Econometric Society
  • Chair: Matteo Benetton, University of California-Berkeley

Shadow Banking: China's Dual-Track Interest Rate Liberalization

Hao Zhou
,
Tsinghua University

Abstract

We provide a novel interpretation of shadow banking in China from the perspective of dual-track interest rate liberalization. Shadow banking leads to Kaldor-Hicks improvement, if the gains from reducing the capital idleness and financing the more productive private enterprise (PE) outweigh the expected PE default loss. Pareto improvement is achieved, as the less productive state-owned enterprise (SOE) participates and gains in shadow banking by transferring bank loan to the PE. In the presence of credit misallocation favoring the SOE, full interest rate liberalization does not guarantee Pareto improvement.

CryptoMining: Energy Use and Local Impact

Matteo Benetton
,
University of California-Berkeley
Giovanni Compiani
,
University of California-Berkeley
Adair Morse
,
University of California-Berkeley

Abstract

Cryptomining gives rise to negative externalities through consumption of scarce electricity. Thus why do local governments pursue cryptominers and what are the broader effects of cryptomining on the local economy? Our testimonial evidence supports cryptomining as a source of tax revenues and purported local economy spillovers. Using a novel panel dataset for counties in China and NY State we confirm that cryptomining increases electricity consumption and pollution (in coal regions). Yet governements respond to financial incentives: cities engaging in cryptomining experience higher tax revenues. However, cryptomining in coal-heavy cities is associated with lower levels of fixed investments and GDP per capita. Welfare analysis of cryptomining must balance global pollution externalities and local crowding out against oligopolistic cryptomining profits and local government revenue gains.

Internal Capital Markets in Business Groups and the Propagation of Credit Supply Shocks

Yu Shi
,
International Monetary Fund
Robert Townsend
,
Massachusetts Institute of Technology
Wu Zhu
,
University of Pennsylvania

Abstract

Using business registry data from China, we show that internal capital markets in business groups can propagate corporate shareholders’ credit supply shocks to their subsidiaries. An average of 16.7% local bank credit growth where corporate shareholders are located would increase subsidiaries investment by 1% of their tangible fixed asset value, which accounts for 71% (7%) of the median (average) investment rate among these firms. We argue that equity exchanges is one channel through which corporate shareholders transmit bank credit supply shocks to the subsidiaries and provide empirical evidence to support the channel.

Delay the Pension Age or Reduce the Pension Benefit? Implications for labor force participation and individual welfare

Yuanyuan Deng
,
University of New South Wales
Hanming Fang
,
University of Pennsylvania
Katja Hanewald
,
University of New South Wales

Abstract

The Chinese government has announced plans to gradually increase the retirement age from between 50 to 60 to age 65. In this paper we develop a life cycle model of labor supply to quantify the predicted implications of this reform for labor force participation and individual welfare. The agents in our model are heterogeneous in skill and have different earnings profile, health dynamics and out-of-pocket healthcare expenditures. We calibrate the model using data from the China Health and Retirement Longitudinal Study (CHARLS) and the Chinese Longitudinal Healthy Longevity Survey (CLHLS). Using the calibrated model, we perform policy simulations to investigate the influence of the policy change on labor force participation and consumption decisions, and assess welfare implications for the two heterogeneous groups. Our results will inform the design of public pension policies.

China's Housing Bubble, Infrastructure Investment, and Economic Growth

Shenzhe Jiang
,
Peking University
Jianjun Miao
,
Boston University
Yuzhe Zhang
,
Texas A&M University

Abstract

China's housing prices have been growing rapidly over the past few decades,
despite low growth in rents. We study the impact of housing bubbles on
China's economy, based on the understanding that local governments use
land-sale revenue to fuel infrastructure investment. We calibrate our model
to the Chinese data over the period 2003-2013 and find that our calibrated
model can match the declining capital return and GDP growth, the average
housing price growth, and the rising infrastructure to GDP ratio in the
data. We conduct two counterfactual experiments to estimate the impact of a
bubble collapse and a property tax.
JEL Classifications
  • G1 - General Financial Markets