Xiuping Hua

What determines China's inflation?

We examine determinants of inflation in China. Analyses of both year-on-year and month-on-month growth data confirm that excess liquidity, output gap, housing prices, and stock prices positively affect inflation. Impulse response analyses indicate that most effects occur during the initial five months and disappear after ten months. Effects of real interest rates and exchange rates on inflation are relatively weak. Our results suggest that the output gap is as important as excess liquidity in explaining the inflation trajectory. The central bank should closely monitor asset prices given their spillovers to inflation. Currently liquidity measures are still central for controlling inflation, but further liberalization of interest rates and exchange rates are crucial.

Are Chinese stock and property markets integrated or segmented

This paper explores the empirical question of whether Chinese stock and property markets are integrated or segmented. We find that, at the national level, investment returns in property and the A-share markets were co-integrated in the long run. In the short run, property price Granger caused A-share prices, but not vice versa. However, the B-share prices were negatively correlated with property prices. Furthermore, the linkage between city-level property prices and stock prices showed significant variations across the country. These findings reveal that property and stock markets were integrated at the national level but the property markets were reasonably segmented among cities. They suggest that investment portfolios pursuing risk diversification should include both A and B shares and properties from different cities.

Contrarian strategy and herding behaviour in the Chinese stock market

ABSTRACT This paper investigates the profitability of several types of zero-cost price momentum and contrarian strategies in the Chinese stock market for the 1994–2013 period. Several distinct features of Chinese market are documented. We find that contrarian strategies that use Jegadeesh and Titmans (1993) method with weekly frequency are profitable. However, investment strategies based on the ‘nearness’ to of 52-week high or the recency of the 52-week high are not profitable. Our analysis also shows that contrarian profits are higher during the crisis period of 2008–2012. In addition, the return reversal of the winner and loser portfolios suggests that contrarian profits can be attributed to overreaction. Finally, we also find evidence of herding behaviour in the Chinese market; and the degree of herding behaviour is positively correlated with the profits of contrarian trading strategies.

Institutional Logics and Financing Mechanisms : A Comparative Study of Ningbo and Wenzhou Entrepreneurs

Over the past decades, financial research has been moving outward to engage with other social science disciplines, such as sociology, entre preneurship, and so on. In particular, over the past few years, institutionalists have employed institutional analyses to reveal how the social organization and practices of the financial industries in some countries interact with the evolution of logics, which generally refers tobroad cultural beliefs and rules that structure cognition and fundamentally shape decision making and action (Thornton, 2002, 2004;Marquis and Lounsbury, 2007). Lounsbury (2002) examines the relationship between transformation of logic in the field of finance in the United States and the status mobility projects of financial occupations. Marquis and Lounsbury (2007) investigate how competing logics, namely community and national logics, facilitate resistance to institutional change by focusing on banking professionals’ resistance to large, national banks’ acquisitions of smaller, local banks. Kent and Dacin (2013) examine the interaction between influences of commercial banking and poverty alleviation shaped by the evolution of modern microfinance. They observe that commercial banking logic increasingly displaced microfinance field’s foundational poverty alleviation and development principles over time.

Trade Openness, Financial Liberalization, Economic Growth, and Environment Effects in the North-South: New Static and Dynamic Panel Data Evidence

Abstract Purpose This chapter investigates the long-run relationship between trade, financial openness, economic growth, and carbon dioxide emissions across 167 countries over the period 1970–2007. Methodology/approach We employ both standard panel least squares and dynamic Generalized Method of Moments approaches to overcome problems of mis-specification inherent in the prior literature. Findings We find a strong link between economic growth, trade, financial openness, and environment. For the entire sample and industrial countries, our results support the environmental Kuznets curve (EKC). Our results also suggest that while economic growth, trade financial, and openness reduce CO2 emissions for all countries, the countries from the North appear to benefit more from trade and financial openness than the countries from the South in terms of reduction in CO2 emissions. Research implications The results imply that policy makers should not seek to limit efforts to link trade openness and financial liberalization to environmental quality but to set trade policy-making, economic growth, and financial liberalization in a broader context to take into account environmental concerns as these issues are inextricably linked. Originality/value This chapter extends the existing literature by comparing the extent to which trade openness and financial liberalization influence the carbon emissions in the North and South.

Impact of exchange rate regime reform on asset returns in China

Employing monthly data over the period 1999–2010, this paper examines the impact of Chinas exchange rate regime reform in July 2005 on three major asset markets: house, land, and stocks. We test whether the reform, which switches from a fixed exchange rate regime to a managed floating one, has brought forward structural changes to asset return dynamics. The results suggest that the exchange rate regime switch exerted the most significant impact on house and land returns at the national level, in terms of both returns and their volatilities. In contrast, its impact on Chinas stock market was moderate, with no structural change being detected in its returns and only weak structural change being found in the dynamics of its volatility. We also find that in comparison with other popular explanatory variables, broad money supply and inflation have the largest explanatory power on housing and land returns in China after the policy reform.

National and regional financial openness in China

Abstract While China’s economy has been subject to a wide range of economic reforms since 1978, its capital account is still restricted. The issue of capital account convertibility is widely debated both in China and by foreign observers. This study contributes to the understanding of China’s capital account by constructing new indices for China’s financial openness. First, we construct alternative indices, both of which suggest that China has experienced significant increases in its financial openness, albeit beginning at very low levels in the late 1970s. Then, we construct an index for financial openness at the provincial level from 2000. As expected, the eastern provinces exhibit much higher levels of financial openness than the provinces located in the central and western parts of the country. Taken together, these indices enable a clear overview of national and regional financial openness across time and are well suited for future studies on determinants and effects of financial openness in China.

The innovation and performance impacts of venture capital investment on China’s small- and medium-sized enterprises

ABSTRACT This study examines the impacts of venture capital (VC) on performance and innovation of China’s small- and medium-sized enterprises (SME). Using unbalanced panel data of 2699 VC-backed and non-VC backed firms in China’s pilot over-the-counter equities market, namely the National Equity Exchange and Quotation (NEEQ) market, during 2005–2014, we find that venture capital financing not only spurs innovation in the Chinese market, but also exhibits significantly positive impact on financial performance. Empirical evidence reveals that syndication of venture capital investment as well as the reputation of venture capitalists helps to create value for VC-backed firms. However, no evidence is found that foreign VC-backed firms perform better than domestic VC-backed ones. The results are robust to a variety of specifications. Our findings imply that the VC financing is an effective channel to promote the development of SMEs at China’s multi-layer capital market and syndicated VC investments and venture capitalists with high reputation shall be encouraged to play a bigger role in nurturing innovation and entrepreneurship in the future.

Derivative activities and Chinese banks'exposures to exchange rate and interest rate movements

This study investigates the impact of Chinese banks’ derivative activities on their exposure to exchange rate and interest rate changes. The standard Jorion [1990. “The Exchange-Rate Exposure of U.S. Multinationals.” Journal of Business 63 (3): 331–345] model provides weak evidence of Chinese banks’ exposure to these risks. However, the exposure increases substantially when time-varying exposure regressions with orthogonalised market returns are used. We also show that Chinese banks exhibit linear and nonlinear exposures to the exchange rate and interest rate fluctuations. Further analysis indicates that the use of derivatives reduces banks’ foreign exchange risk, but does not affect their interest rate exposure. Derivative products are more likely to be used as an integrated part of the Chinese banks’ risk management systems, which could thus help to stabilise the banking system.

Asset Pricing under Financial Repression: Evidence from the Chinese Real Estate Boom during 1999–2010

China is well known for having adopted financial repression policies to achieve faster economic growth (Huang, 2010; Lin, Cai and Li, 1995). The term “financial repression” refers to government policies which regulated interest rates, set high reserve requirements on bank deposits and mandatorily allocated financial resources (MaKinnon, 1973). Such policies are common in developing countries. Despite more than 30 years of economic reform, the Chinese economy still exhibits characteristics typical of financial repression: heavily regulated interest rates, state-influenced credit allocation, frequently adjusted reserve requirements and tightly controlled capital account (Huang and Wang, 2011).