Haitian Lu

Population and employment

This chapter first highlights the dynamics in China’s demographic pattern since the reform period and the implications for the country’s social and economic development. Being the most populous country in the world, China’s current age structure is still considered ‘young’ and conducive to the country’s ‘golden age’ of rapid growth. However, it is argued that the effects of the One Child Policy, together with the socio-economic changes that have occurred and continue to occur, will cause a serious aging problem for the country in the coming decades, hence the saying that the Chinese population is very likely to be ‘growing old before growing rich’. Closely connected to the population issue is the utilization of the country’s abundant labor supply, and this chapter goes on to analyze the employment (and unemployment) issues faced by China’s urban and rural areas as a result of the distinctive institutional development in the two regions since reform. It is argued that the Hukou system is the primary reason for the segregation of the rural and urban economies, the extreme immobility of labor, and the disincentives embedded in the income distribution system. Reasons for this, and policy prescriptions towards a unified and flexible national labor market, are discussed.

The Effect of Venture Capital Investment — Evidence from China's Small and Medium‐Sized Enterprises Board

In this paper, we use a matched sample to empirically test the effect of venture capital investment on the companies listed on the mall and edium‐ized nterprises oard in hina. We find that hinese venture capitalists neither add value to their invested firms in the initial public offering (IPO) process nor improve operating performance. Rather, compared with their non‐venture‐backed counterparts, venture‐backed firms are associated with a greater level of IPO underpricing and inferior operating performance both before and after IPO. Our findings in hina support neither the certification/monitoring hypothesis nor the grandstanding hypothesis, but partly support the adverse selection hypothesis.

State Capitalism vs. Private Enterprise

We study the efficiency of capital allocations at state-controlled and privately owned business groups in China. Using highly granular data on within-group capital transfers, we document stark differences: while private groups allocate more capital to units with better investment opportunities, state groups do the opposite, especially when part of the “national team.�? Minority shareholders in state owned enterprises suffer as a result. External monitoring by outside investors helps discipline state groups’ tendency to ignore investment opportunities. We trace capital allocation decisions to the objectives of the Chinese Communist Party, which incentivizes managers to maintain social stability. Consistent with the party’s policy preferences, capital allocations are used to prop up struggling employers in high-unemployment areas and when many young men enter the local labor market, but the interests of the party and of managers may be misaligned.

Corruption in contemporary China – an old dilemma with new features

China’s corruption problems have attracted as much international attention as its rapid economic growth. The economic reforms have created new opportunities, and higher incentives, for illicit connections between wealth and power. The pervasive and institutional corruption in China is undermining the socio-economic fabric of Chinese society and has proved not only costly to economic growth, but is also threatening the political survival of the ruling party. This chapter illustrates the causes, characteristics, and evolution of corruption problems in China since the reforms, and analyzes why corruption problems cannot be eradicated in China within the existing political system. Our conclusion is that political reform and grassroots supervision should be the priority for future anti-corruption efforts.

Corporate Reputation in Bond Market: Evidence from Lawsuits

This paper documents how debt holders respond to possible loss of reputational capital of firms involved in corporate lawsuits revealing a significant tightening impact on issuers’ public debt properties. All else equal, investment grade bonds of litigated issuers have 4.9% higher yield spread, 11-month shorter maturity, and

Educational developments and challenges

14.7 million less issuance volume than propensity score matched bonds of non-litigated issuers. The effect is more pronounced in bank-loan related cases, when issuers were defendants, or lost the case. Issuers’ political connections moderate bond price sensitivity to litigations. Results suggest a causal link between litigation and cost of debt and are robust to alternative tests. Additionally, the paper reports a negative and significant abnormal bond return and excess trading volume around public announcements of lawsuits.

Enterprises, foreign trade, and the financial sector

While international attention has been focused on China’s economic success, less is known about the development and challenges of China’s education sector since reform. Although China has made great progress in achieving the goal of making nine years of compulsory education available to all children and higher education accessible to the masses, a number of socioeconomic problems related to education reforms still exist. These include gender imbalances in educational opportunities, ethnic minority and migrant children’s education, an overall decline in education quality and ethics, and graduate unemployment. Collectively, these problems impose enormous pressure on the success of Chinese educational reform. This chapter discusses the changes that have taken place within China’s primary, secondary, and higher education systems and suggests directions for future reforms.

Political reform, civil society, media, and international relations

This chapter reviews China’s economic reforms in the last three decades in the areas of state-owned enterprises, foreign trade and investment, and the financial sector (banking and stock markets). We show that beneath the healthy growth figures and winners in every sector of reform, there are massive hidden costs and ‘unfortunate’ victims. In other words, China’s transition from a centrally-planned to a market-based economy has had unintended consequences in the distribution of national wealth. We briefly discuss the primary reforms in each area and critically evaluate their achievements.

Rural land, peasants, and agriculture

There is no doubt that China’s reform in the political arena lags far behind its economic reforms. Despite this, dynamic economic and societal transformations in China since 1979 have left their mark on the political sphere and have driven revolutionary changes in the country’s ideology, Party structure, and governing style. This chapter first reviews the major political reforms that have taken place during the Deng (Xiaoping), Jiang (Zemin), and Hu (Jintao) regimes respectively. It goes on to discuss the development of civil societies, with an emphasis on Chinese intellectuals and the emerging middle class, and the media in China and its role in balancing the power of the state. Finally, we discuss the implications of China’s rise for international economic and political order.

Anti-poverty campaign – the struggle between equality and efficiency

The economic and social problems arising from China’s rural land, peasants, and agriculture, referred to as the ‘Three Nong,’ have become the most difficult obstacles to China’s reform. Despite the country’s rise in power, China’s peasants are the most marginalized population, the rural areas are the most disadvantaged region, and the agricultural sector is the most endangered sector. This chapter depicts the plight of the rural population in China and analyzes the evolution of and interconnections among the Three Nong problems. Government efforts so far to correct these imbalances are assessed and their implications evaluated. Although the chapter concludes that a complete reform of rural land ownership is needed, a number of complex problems need to be resolved before such a reform can bring real benefits to rural development and the livelihood of the rural population.