Vinh Q.T. Dang

Effects of Financial Liberalisation and Political Connection on Listed Chinese Firms’ Financing Constraints

This study examines the impact of recent financial liberalisation in China on the financing constraints of publicly listed Chinese firms with and without politically connected CEO/Chairman. Two continuous indices are used to measure the evolution and intensity of financial reforms: a financial liberalisation index and a capital control index. The results indicate that while firms without politically connected CEO/Chairman face significant financing constraints and politically connected firms do not, financial liberalisation has reduced the constraints for the former. Similarly, lower capital control in China’s equity market lessens credit constraints for non‐connected firms. No statistically significant impact of financial liberalisation is detected with regard to firms that have CEO/Chairman with powerful political background.

On China's Domestic Capital Mobility and the Role of the Government: Empirical Evidence Over 1970–2006

This article investigates capital mobility across 29 provinces in China for the period of 1970–2006 using the Feldstein–Horioka (FH) approach and Campbell and Mankiw’s consumption‐smoothing (CS) framework. It also examines the role of the governments in driving provincial capital mobility. If the provincial government investment is not properly separated out from the private investment, the FH framework applied to the overall saving and investment (private plus public) is found to underestimate the private saving–investment correlation and hence overstates the degree of private capital mobility compared with the CS framework that focuses on the private consumption and output. Both frameworks indicate strong correlation between private saving–investment and private consumption–output, implying strong barriers in the provincial private capital flows. However, there is ample evidence that capital mobility has been rising over time, particularly after the mid 1990s. It also appears that the government facilitates capital flows through inter‐governmental transfers during the sample period. The extent of provincial capital mobility sheds light on the ability of different provinces in diversifying idiosyncratic provincial risks. The earlier findings are robust to alternative measurements of variables and model specifications.

Assessing Market Integration in ASEAN with Retail Price Data

We assess the extent of market integration the Association of Southeast Asian Nations (ASEAN) using a comprehensive data set that contains actual local retail prices for 131 goods and services in ASEAN countries (except Laos and Myanmar) over the period of 1990–2013. We conduct two different, but complementary, approaches: analyzing price dispersion and testing for convergence to the law of one price via panel unit root tests. The 1997 Asian crisis and, to a lesser extent, the 2008 global crisis appear to have caused a considerable disruption in the process of market integration. Despite significant tariff reduction under the ASEAN Free Trade Area commitments in the past two decades, the level of price dispersion across ASEAN is higher in 2013 than in 1990. Panel unit root tests accounting for cross-section dependence show that convergence to the law of one price holds for only a minority of retail prices, including those of traded goods, in the ASEAN markets. We also consider a nonlinear exponential smooth transition autoregressive approach and a structural break as alternative adjustment dynamics in the panel unit root tests. Overall, our results suggest that there is much to be done in ASEAN to achieve a meaningful ASEAN economic community.

China's Capital and ‘Hot’ Money Flows: An Empirical Investigation: China's Capital and ‘Hot’ Money Flows

We examine time-series characteristics of Chinas capital flows during 1998-2014. More specifically, we employ Kalman filtering state-space models to gauge relative importance of permanent and transitory components in Chinas overall FDI, equity, bond, other investment, and bank credit flows. Our results show that only in the case of FDI are both gross inflow and net flow dominated by a permanent stochastic level, suggesting that this source of capital is largely permanent. Incorporating covariates into the state-space models, we find that larger difference between RMB onshore and offshore interest rates encourages capital inflows that are dominated by a transitory component. Greater global risk perception, proxied by S&P 500s volatility index, on the other hand, discourages them. These covariates imply that capital control may not be effective in stemming volatile and speculative flows. Our results on bilateral capital flows between China and US also suggest that these flows are less persistent and more volatile during 1998-2014 than previously found based on 1988-1997 data. Our results bear important policy implications as China engages in further reforms in its domestic financial system and greater integration with the world financial system.

China's Capital and 'Hot' Money Flows: An Empirical Investigation

We examine time-series characteristics of China’s capital flows during 1998-2014. More specifically, we employ Kalman filtering state-space models to gauge relative importance of permanent and transitory components in China’s overall FDI, equity, bond, other investment, and bank credit flows. Our results show that only in the case of FDI are both gross inflow and net flow dominated by a permanent stochastic level, suggesting that this source of capital is largely permanent. Incorporating covariates into the state-space models, we find that larger difference between RMB onshore and offshore interest rates encourages capital inflows that are dominated by a transitory component. Greater global risk perception, proxied by S&P 500’s volatility index, on the other hand, discourages them. These covariates imply that capital control may not be effective in stemming volatile and speculative flows. Our results on bilateral capital flows between China and US also suggest that these flows are less persistent and more volatile during 1998-2014 than previously found based on 1988-1997 data. Our results bear important policy implications as China engages in further reforms in its domestic financial system and greater integration with the world financial system.

The 1997 Asian Currency Crisis, Financial Linkages, and the Monetary Policy of Japan

The evidence is examined that excessively liberal monetary policy by the Bank of Japan, before and after the financial collapse of Japan in 1992, may have led other East Asian economies into “over‐borrowing” and speculative investments, prior to the currency crisis in 1997–98. The authors test for cointegration and Granger causality between Japanese money supply M1 and the domestic investment of eight East Asian economies and Australia. US and German money supplies are also used as a benchmark. There is strong evidence that there are long‐ and short‐run causal relationships between the Japanese money supply and the domestic investment of the Asian crisis‐inflicted economies prior to 1997.