Genfu Feng

WTO challenges and efficiency of Chinese banks

After joining the World Trade Organisation (WTO) in December 2001, China was given 5 years to completely open up its banking market for international competition. Chinese banks have been renowned for their mounting nonperforming loans and low efficiency. Despite gradual reforms, the banking system is still dominated by state ownership and encapsulated monopolistic control. How to raise efficiency is a key to the survival and success of domestic banks, especially the state-owned commercial banks. Two important factors may be responsible for raising efficiency: ownership reform and hard budget constraints. This article uses a panel data of 22 banks over the period 1995 to 2001, and employs a stochastic frontier production function to investigate the effects of ownership structure and hard budget constraint on efficiency. Empirical results suggest that nonstate banks were 8–18% more efficient than state banks, and that banks facing a harder budget tend to perform better than those heavily capitalized by the state or regional governments. The results shed important light on banking sector reform in China to face the tough challenges after WTO accession.

Ownership Reform, Foreign Competition, and Efficiency of Chinese Commercial Banks: A Non-Parametric Approach

Since China joined the WTO in 2001, the pressure for bank reforms has mounted as China ought to fully open up its financial market to foreign competition by 2006. Efficiency is key for domestic banks to survive in a liberalised environment, but it appears that the last hope for raising bank efficiency is through ownership reform. Whether ownership reform and foreign competition can solve China’s banking problem remains to be tested. This paper aims to answer this question through using a non-parametric approach to analyse the efficiency changes of 15 large commercial banks during 1998-2005. We find that ownership reform and foreign competition have forced the Chinese commercial banks to improve performance, as their total factor productivity rose by 5.6 per cent per annum. This coincides with the recent bullish Chinese stock markets led by three listed state-owned commercial banks. Despite such encouraging results, we remain cautious about the future of the Chinese banks, as the good results may have been artificially created with massive government support and the fundamentals of the banks may be still weak.

The role of regional institutional environment in the relationship between political participation and effective tax rates: evidence from Chinese listed private firms before the financial crisis*

Abstract Using a sample of Chinese listed private firms selected from the period of 1999–2007 before the financial crisis, we investigate that the role of regional institutional environment (RIE) in the relationship between political participation (POLP) and effective tax rates (ETR). We find that the correlation between POLP and ETR depends on RIE, which can be characterized in two ways: marketization and corruption levels; and in particular, a statistically significant positive relation is shown to exist between POLP and ETR among firms located in regions with low corruption levels, and so does a statistically significant negative correlation among firms located in regions with high corruption levels. Correlations of opposite nature exist if the marketization level is concerned, but the relations are not as strong as in the case of corruption level.

How does market learning affect radical innovation? The moderation roles of horizontal ties and vertical ties

Purpose This paper aims to investigate the curvilinear effects of firms’ market learning on radical innovation and the moderation effects of the focal firms’ horizontal ties and vertical ties. Design/methodology/approach This study uses regression analysis with the survey data from 303 Chinese firms. Findings Explorative/exploitative market learning has an inverted U-shaped/U-shaped effect on radical innovation. The effects of explorative market learning on radical innovation increase when firms have strong horizontal ties, but decrease when firms have strong vertical ties. The opposite is true for the effects of exploitative market learning. Research limitations/implications This study uses unilateral data to examine the moderation effects of the focal firms’ vertical and horizontal ties on the market learning-radical innovation links. Future research that conducted in the dyadic-paradigm would be preferable to test the generalizability of this research and address the potential changes. Originality/value The value of the current study centers on its integrated framework that incorporates organizational learning theory and the social network perspective to account for radical innovation. The integrative view helps us to interpret the curvilinear effects of market learning on radical innovation and outlines the moderation mechanisms of horizontal ties and vertical ties.

Does higher government debt link to higher social expenditure? New method, new evidence

ABSTRACT Scholars believe that higher social expenditures are usually linked with higher government debts, whereas higher debts reduce social expenditures. However, it is reasonable to speculate that higher government debt may contribute to higher social spending, while fiscal deficits occur during a recession, which commonly creates greater demand for social expenditure. For a deeper investigation, this paper revisits the dynamic relationship between social spending and public debts in the time-frequency domain, using the novel wavelet-coherency analysis as well as the phase-difference technique to derive the co-moved and causal relationships between social spending and public debts in 13 OECD countries. The evidence identifies a dynamic relationship between variables. While higher social expenditures increase government debts, the shocks from government debts to social expenditures are conversely uncertain. We discover that higher government debt does reduce social expenditures, but it may be linked to higher social spending. The robustness of partial coherency and phase-difference discovers the role of a political party in the decision over social welfare programmes in the sample countries.

The impacts of environmental governance on political turnover of municipal party secretary in China

Political incentive is one of the most efficient methods to promote local officials to push for both economic growth and environmental progress in the context of China. Since previous scholars have never investigated the relationships between political turnover and environmental governance at the municipal level, in this work, we proxy pollution by SO2, COD, SOOT, and NHx and examine whether environmental performance affects the political turnover of the municipal party secretary by exploiting a panel conditional logit with a fixed-effect model for the period 2002–2013. The results indicate that environmental performance does not significantly impact the turnover of municipal party secretaries, offering evidence that an increase of SO2 is associated with the likelihood of promotion under the panel multinomial logit approach. However, a higher GDP growth rate plays the determinant factor affecting the promotion of China’s municipal party secretaries. Specific policy recommendations are proposed in accordance with our empirical findings.

Stock liquidity and enterprise innovation: new evidence from China

ABSTRACT We employ data of 6194 firm-year observations for 1058 listed companies in the period 2006–2013 to investigate the interaction between stock liquidity and enterprise innovation in China and confirm that an increase in stock liquidity raises the number of patents granted, R&D investment, and the innovation efficiency of state-owned enterprises, while it decreases innovation significantly in private firms. These findings are also supported by quasi-natural experiments under the split-share structure policy reform and the adjustment of the stamp duty rate using propensity score matching and difference-in-difference methods. We then identify two possible mechanisms through which liquidity increases innovation: the entry of long-term and strategic institutional investors and the gradual privatization of SOEs. Several policy implications are provided in accordance with our findings.