1932

Abstract

The spectacular economic growth in China during the past four decades has inspired a great deal of research to understand China's unconventional growth path. This review focuses on recent developments in China's institutions, financial markets, innovations, and government–business relations in the context of their roles in supporting China's growth. The government's role in finance and the economy has advantages and disadvantages in comparison to developed markets in the West. Alternative financing channels and governance mechanisms, rather than markets and banks, continue to promote growth in the most dynamic sectors of the economy, despite the fact that China has passed the early-development stage. More research is needed to understand the Chinese experience and determine whether similar mechanisms are behind the growth of other economies.

Loading

Article metrics loading...

/content/journals/10.1146/annurev-financial-110118-123027
2019-12-26
2024-04-17
Loading full text...

Full text loading...

/deliver/fulltext/financial/11/1/annurev-financial-110118-123027.html?itemId=/content/journals/10.1146/annurev-financial-110118-123027&mimeType=html&fmt=ahah

Literature Cited

  1. Acharya V, Qian J, Yang Z 2018. In the shadow of banks: wealth management products and issuing banks’ risk in China Work. Pap., Fudan Univ., Shanghai China:
  2. Allen F, Gu X, Qian J 2017. An overview of China's financial system. Annu. Rev. Financ. Econ. 9:191–231
    [Google Scholar]
  3. Allen F, Gu X, Qian J, Qian Y 2018. Implicit guarantees and the rise of shadow banking: the case of trust products in China Work. Pap., Fudan Univ., Shanghai China:
  4. Allen F, Qian J. 2010. Comparing legal and alternative institutions in finance and commerce. Global Perspectives on the Rule of Law J Heckman, R Nelson, L Cabatingan 118–44 New York: Routledge
    [Google Scholar]
  5. Allen F, Qian J, Qian M 2005. Law, finance, and economic growth in China. J. Financ. Econ. 77:57–116
    [Google Scholar]
  6. Allen F, Qian J, Qian M 2008. China's financial system: past, present and future. China's Great Economic Transformation L Brandt, T Rawski 506–68 Cambridge, UK: Cambridge Univ. Press
    [Google Scholar]
  7. Allen F, Qian J, Shan S, Zhu J 2019. Dissecting the long-term performance of the Chinese stock market Work. Pap., Fudan Univ., Shanghai China:
  8. Allen F, Qian J, Shen L 2018. Corruption and competition Work. Pap., Fudan Univ., Shanghai China:
  9. Allen F, Qian M, Xie J 2018a. Understanding informal financing. J. Financ. Intermed. 39:19–33
    [Google Scholar]
  10. Allen F, Qian M, Xie J 2018b. Implicit benefits and financing Work. Pap., Imperial Coll London:
  11. Allen F, Qian Y, Tu G, Yu F 2018. Entrusted loans: a close look at China's shadow banking system. J. Financ. Econ. 133:18–41
    [Google Scholar]
  12. Amstad M, He Z. 2019. Chinese bond market and interbank market. The Handbook of China's Financial System W Xiong, G Sun, M Amstad, ch. 6 Princeton, NJ: Princeton Univ. Press. Forthcoming
    [Google Scholar]
  13. An L, Bian J, Lou D, Shi D 2019. Wealth redistribution in bubbles and crashes Work. Pap., Tsinghua Univ Beijing:
  14. Ang A, Bai J, Zhou H 2018. The funding cost of Chinese local government debt Work. Pap., Columbia Univ New York:
  15. Ang JS, Cheng Y, Wu C 2015. Trust, investment, and business contracting. J. Financ. Quant. Anal. 50:569–95
    [Google Scholar]
  16. Ayyagari M, Demirgüç-Kunt A, Maksimovic V 2010. Formal versus informal finance: evidence from China. Rev. Financ. Stud. 23:3048–97
    [Google Scholar]
  17. Bailey W, Huang W, Yang Z 2011. Bank loans with Chinese characteristics: some evidence on inside debt in a state-controlled banking system. J. Financ. Quant. Anal. 46:1795–830
    [Google Scholar]
  18. Berkman H, Cole RA, Fu LJ 2010. Political connections and minority-shareholder protection: evidence from securities market regulation. J. Financ. Quant. Anal. 45:1391–417
    [Google Scholar]
  19. Berkowitz D, Lin C, Ma Y 2015. Do property rights matter? Evidence from a property law enactment. J. Financ. Econ. 116:583–93
    [Google Scholar]
  20. Bessen J, Meurer MJ. 2009. Patent Failure: How Judges, Bureaucrats, and Lawyers Put Innovators at Risk Princeton, NJ: Princeton Univ. Press
  21. Bian J, Da Z, Lou D, Zhou H 2018. Leverage networks and market contagion Work. Pap., Tsinghua Univ Beijing:
  22. Bian J, He Z, Shue K, Zhou H 2018. Leverage-induced fire sales and stock market crashes Work. Pap., Univ. Chicago Chicago, IL:
  23. Brunnermeier MK, Sockin M, Xiong W 2017. China's gradualistic economic approach and financial markets. Am. Econ. Rev. Pap. Proc. 107:608–13
    [Google Scholar]
  24. Brunnermeier MK, Sockin M, Xiong W 2018. China's model of managing the financial system Work. Pap., Princeton University Princeton, NJ:
  25. Cai H, Henderson V, Zhang Q 2013. China's land market auctions: evidence of corruption?. RAND J. Econ. 44:481–521
    [Google Scholar]
  26. Calomiris CW, Fisman R, Wang Y 2010. Profiting from government stakes in a command economy: evidence from Chinese asset sales. J. Financ. Econ. 96:399–412
    [Google Scholar]
  27. Campello M Ribas RP Wang AY 2014. Is the stock market just a side show? Evidence from a structural reform. Rev. Corp. Financ. Stud. 3:1–38
    [Google Scholar]
  28. Cao C, Li X, Liu G 2017. Political uncertainty and cross-border acquisitions. Rev. Finance 1:32
    [Google Scholar]
  29. Cao J, Lemmon M, Pan X, Qian M, Tian G 2018. Political promotion, CEO incentives, and the relationship between pay and performance. Manag. Sci. 65:2947–65
    [Google Scholar]
  30. Cao J, Pan X, Qian M, Tian G 2017. Political capital and CEO entrenchment: evidence from CEO turnover in Chinese non-SOEs. J. Corp. Finance 42:1–14
    [Google Scholar]
  31. Carpenter J, Lu F, Whitelaw R 2019. The real value of China's stock market Work. Pap., NYU New York:
  32. Chen H, Chen Z, He Z, Liu J, Xie R 2018. Pledgeability and asset prices: evidence from the Chinese corporate bond markets Work. Pap., MIT Cambridge, MA:
  33. Chen J, Pan X, Qian M, Wu Y 2018. Does property rights protection affect firm innovation? Evidence from the Chinese Property Rights Law enactment Work. Pap., Aust. Natl. Univ Canberra:
  34. Chen K, Ren J, Zha T 2018. The nexus of monetary policy and shadow banking in China. Am. Econ. Rev. 108:3891–963
    [Google Scholar]
  35. Chen K, Wen Y. 2017. The great Chinese housing boom. Am. Econ. J. Macroecon. 9:73–114
    [Google Scholar]
  36. Chen L. 2016. From FinTech to FinLife: the case of FinTech development in China. China Econ. J. 9:225–39
    [Google Scholar]
  37. Chen Q, Chen X, Schipper K, Xu Y, Xue J 2012. The sensitivity of corporate cash holdings to corporate governance. Rev. Financ. Stud. 25:3610–44
    [Google Scholar]
  38. Chen T, Gao Z, He J, Jiang W, Xiong W 2019. Daily price limits and destructive market behavior. J. Econom. 208:249–64
    [Google Scholar]
  39. Chen T, Liu L, Xiong W, Zhou L 2017. Real estate boom and capital misallocation in China Work. Pap., Peking Univ Beijing:
  40. Chen Y, Liu M, Su J 2013. Greasing the wheels of bank lending: evidence from private firms in China. J. Bank. Finance 37:2533–45
    [Google Scholar]
  41. Chen Z, He Z, Liu C 2019. The financing of local government in China: stimulus loan wanes and shadow banking waxes. J. Financ. Econ Forthcoming
    [Google Scholar]
  42. Cheung YL, Rau PR, Stouraitis A 2009. Helping hand or grabbing hand? Central versus local government shareholders in Chinese listed firms. Rev. Finance 14:669–94
    [Google Scholar]
  43. Choi JJ, Jin L, Yan H 2012. What does stock ownership breadth measure. Rev. Finance 17:1239–78
    [Google Scholar]
  44. Cong LW, Gao H, Ponticelli J, Yang X 2019. Credit allocation under economic stimulus: evidence from China. Rev. Financ. Stud. 32:3412–60
    [Google Scholar]
  45. Cong LW, Howell S. 2019. IPO intervention and innovation: evidence from China Work. Pap., Univ. Chicago Chicago, IL:
  46. Cong LW, Lee CMC, Qu Y, Shen T 2019. Financing entrepreneurship and innovation in China: a public policy perspective. Found. Trends Entrep. Forthcoming
    [Google Scholar]
  47. Dang TV, Wang H, Yao A 2014. Chinese shadow banking: bank-centric misperceptions Work. Pap., Columbia Univ New York:
  48. Deng Y, Morck R, Wu J, Yeung B 2014. China's pseudo-monetary policy. Rev. Finance 19:55–93
    [Google Scholar]
  49. Djankov S, Murrell P. 2002. Enterprise restructuring in transition: a quantitative survey. J. Econ. Lit. 40:739–92
    [Google Scholar]
  50. Fan JPH, Huang J, Zhu N 2013. Institutions, ownership structures, and distress resolution in China. J. Corp. Finance 23:71–87
    [Google Scholar]
  51. Fan JPH, Wong TJ, Zhang T 2014. Politically connected CEOs, corporate governance, and post-IPO performance of China's newly partially privatized firms. J. Appl. Corp. Finance 26:85–95
    [Google Scholar]
  52. Fang H, Gu Q, Xiong W, Zhou L 2016. Demystifying the Chinese housing boom. NBER Macroecon. Annu. 30:105–66
    [Google Scholar]
  53. Fang LH, Lerner J, Wu C 2017. Intellectual property rights protection, ownership, and innovation: evidence from China. Rev. Financ. Stud. 30:2446–77
    [Google Scholar]
  54. Firth M, Lin C, Zou H 2010. Friend or foe? The role of state and mutual fund ownership in the split share structure reform in China. J. Financ. Quant. Anal. 45:685–706
    [Google Scholar]
  55. Firth M, Wang K, Wong SM 2014. Corporate transparency and the impact of investor sentiment on stock prices. Manag. Sci. 61:1630–47
    [Google Scholar]
  56. Fisman R, Hamao Y, Wang Y 2014. Nationalism and economic exchange: evidence from shocks to Sino-Japanese relations. Rev. Financ. Stud. 27:2626–60
    [Google Scholar]
  57. Gan J, Guo Y, Xu C 2017. Decentralized privatization and change of control rights in China. Rev. Financ. Stud. 31:3854–94
    [Google Scholar]
  58. Gao H, Hsu P, Li K 2018. Innovation strategy of private firms. J. Financ. Quant. Anal. 53:1–32
    [Google Scholar]
  59. Gao H, Shi D, Zhao B 2018. Does good luck make people overconfident? Evidence from a natural experiment in China Work. Pap., Fudan Univ., Shanghai China:
  60. Giannetti M, Liao G, Yu X 2015. The brain gain of corporate boards: evidence from China. J. Finance 70:1629–82
    [Google Scholar]
  61. Glaeser ED, Huang W, Ma R, Shleifer A 2017. A real estate boom with Chinese characteristics. J. Econ. Perspect. 31:93–116
    [Google Scholar]
  62. Gong B, Pan D, Shi D 2016. New investors and bubbles: an analysis of the Baosteel call warrant bubble. Manag. Sci. 63:2493–508
    [Google Scholar]
  63. Greif A, Tabellini G. 2010. Cultural and institutional bifurcation: China and Europe compared. Am. Econ. Rev. 100:135–40
    [Google Scholar]
  64. Griffin JM, Liu C, Shu T 2018. Is the Chinese corporate anti-corruption campaign authentic? Work. Pap., Tsinghua Univ Beijing:
  65. Gul FA, Kim JB, Qiu AA 2010. Ownership concentration, foreign shareholding, audit quality, and stock price synchronicity: evidence from China. J. Financ. Econ. 95:425–42
    [Google Scholar]
  66. Hachem K, Song Z. 2015. The rise of China's shadow banking system Work. Pap., Chinese Univ. Hong Kong Hong Kong:
  67. Hau H, Huang Y, Shan H, Sheng Z 2018. FinTech credit, financial inclusion and entrepreneurial growth Work. Pap., Grad. Inst. Geneva, Geneva Switz.:
  68. Hayek FA 1945. The use of knowledge in society. Am. Econ. Rev. 35:4519–30
    [Google Scholar]
  69. He Q, Xue C, Zhu C 2016. Financial development and patterns of industrial specialization: evidence from China. Rev. Finance 21:1593–638
    [Google Scholar]
  70. Hirshleifer D, Jian M, Zhang H 2016. Superstition and financial decision making. Manag. Sci. 64:235–52
    [Google Scholar]
  71. Hong H, Jiang W, Wang N, Zhao B 2014. Trading for status. Rev. Financ. Stud. 27:3171–212
    [Google Scholar]
  72. Huang Y, Lin C, Sheng Z, Wei L 2018. FinTech credit and service quality Work. Pap., Grad. Inst. Geneva, Geneva Switz.:
  73. Huang Y, Miao J, Wang P 2019. Saving China's stock market. Int. Monet. Fund Econ. Rev. 67:349–94
    [Google Scholar]
  74. Huang Z, Li L, Ma G, Qian J 2018. Limits to autocracy: evidence from China's re-nationalization Work. Pap., Fudan Univ., Shanghai China:
  75. Huang Z, Li L, Ma G, Xu LC 2017. Hayek, local information, and commanding heights: decentralizing state-owned enterprises in China. Am. Econ. Rev. 107:2455–78
    [Google Scholar]
  76. Huang J, Huang Z, Shao X 2018. The risk of implicit guarantees: evidence from the shadow interbank market in China. Work. Pap., Natl. Univ Singapore, Singapore:
    [Google Scholar]
  77. Jia C, Wang Y, Xiong W 2017. Market segmentation and differential reactions of local and foreign investors to analyst recommendations. Rev. Financ. Stud. 30:2972–3008
    [Google Scholar]
  78. Jia N, Shi J, Wang Y 2013. Coinsurance within business groups: evidence from related party transactions in an emerging market. Manag. Sci. 59:2295–313
    [Google Scholar]
  79. Jiang G, Lee CM, Yue H 2010. Tunnelling through intercorporate loans: the China experience. J. Financ. Econ. 98:1–20
    [Google Scholar]
  80. Jin L, Myers S. 2006. R-squared around the world: new theory and new tests. J. Financ. Econ. 79:257–92
    [Google Scholar]
  81. Jin S, Wang W, Zhang Z 2018. The value and real effects of implicit guarantees Work. Pap., HKUST Hong Kong:
  82. John K, Xu Y, Xue J, Zhuang Z 2018. Liquidity and large shareholder monitoring Work. Pap., NYU New York:
  83. King G, Pan J, Roberts ME 2017. How the Chinese government fabricates social media posts for strategic distraction, not engaged argument. Am. Political Sci. Rev. 111:484–501
    [Google Scholar]
  84. Krug B, Hendrischke H. 2002. Entrepreneurship in China: institutions, organisational identity and survival: empirical results from two provinces Rep. ERS-2002-14-ORG, Erasmus Inst. Manag., Rotterdam Neth.:
  85. Lee K. 2018. What China can teach the US about artificial intelligence. New York Times Sept. 22. https://www.nytimes.com/2018/09/22/opinion/sunday/ai-china-united-states.html
    [Google Scholar]
  86. Lee S, Persson P. 2016. Financing from family and friends. Rev. Financ. Stud. 29:2341–86
    [Google Scholar]
  87. Lerner J. 2002. 150 years of patent protection. Am. Econ. Rev. Pap. Proc. 92:221–25
    [Google Scholar]
  88. Lerner J. 2005. 150 years of patent office practice. Am. Law Econ. Rev. 7:112–43
    [Google Scholar]
  89. Li H, Meng L, Wang Q, Zhou L 2008. Political connections, financing, and firm performance: evidence from private Chinese firms. J. Dev. Econ. 87:283–99
    [Google Scholar]
  90. Li H, Zhou L. 2005. Political turnover and economic performance: the incentive of personnel control in China. J. Public Econ. 89:1743–62
    [Google Scholar]
  91. Li K, Wang T, Cheung YL, Jiang P 2011. Privatization and risk sharing: evidence from the split share structure reform in China. Rev. Financ. Stud. 24:2499–525
    [Google Scholar]
  92. Li S, Brockman P, Zurbruegg R 2015. Cross-listing, firm-specific information, and corporate governance: evidence from Chinese A shares and H shares. J. Corp. Finance 32:347–62
    [Google Scholar]
  93. Liao L, Liu B, Wang H 2014. China's secondary privatization: perspectives from the split-share structure reform. J. Financ. Econ. 113:500–18
    [Google Scholar]
  94. Lin C, Lin P, Song F 2010. Property rights protection and corporate R&D: evidence from China. J. Dev. Econ. 93:49–62
    [Google Scholar]
  95. Lin C, Lin P, Zou H 2012. Does property rights protection affect corporate risk management strategy? Intra- and cross-country evidence. J. Corp. Finance 18:311–30
    [Google Scholar]
  96. Lin C, Morck R, Yeung B, Zhao X 2016. Anti-corruption reforms and shareholder valuations: event study evidence from China NBER Work. Pap 22001
  97. Lin S, Ye H. 2017. Foreign direct investment, trade credit, and transmission of global liquidity shocks: evidence from Chinese manufacturing firms. Rev. Financ. Stud. 31:206–38
    [Google Scholar]
  98. Liu C, Wang S, Wei K, Zhong N 2015. One bond, two prices: the demand effect of yield-chasing retail investors. J. Empir. Finance 50:57–77
    [Google Scholar]
  99. Liu LX, Lyu Y, Yu F 2017. Implicit government guarantee and the pricing of Chinese LGFV debt Work. Pap., Peking University Beijing:
  100. Liu LX, Shu H, Wei KCJ 2017. The impacts of political uncertainty on asset prices: evidence from the Bo scandal in China. J. Financ. Econ. 125:286–310
    [Google Scholar]
  101. Liu YJ, Zhang Z, Zhao L 2014. Speculation spillovers. Manag. Sci. 61:649–64
    [Google Scholar]
  102. Megginson WL. 2017. Privatization, State Capitalism, and State Ownership of Business in the 21st Century. Hanover, MA: now Publ.
    [Google Scholar]
  103. Morck R, Yeung B, Yu W 2000. The information content of stock markets: Why do emerging markets have synchronous stock price movements. J. Financ. Econ. 58:215–60
    [Google Scholar]
  104. Natl. Bureau Stat. China 2014. China statistical yearbook, 2014. National Bureau of Statistics of China http://www.stats.gov.cn/english/Statisticaldata/AnnualData/
    [Google Scholar]
  105. Özer Ö Zheng Y, Ren Y 2014. Trust, trustworthiness, and information sharing in supply chains bridging China and the United States. Manag. Sci. 60:2435–60
    [Google Scholar]
  106. Pan L, Tang Y, Xu J 2015. Speculative trading and stock returns. Rev. Finance 20:1835–65
    [Google Scholar]
  107. Piotroski JD, Zhang T. 2014. Politicians and the IPO decision: the impact of impending political promotions on IPO activity in China. J. Financ. Econ. 111:111–36
    [Google Scholar]
  108. Qian J, Strahan PE, Yang Z 2015. The impact of incentives and communication costs on information production and use: evidence from bank lending. J. Finance 70:1457–93
    [Google Scholar]
  109. Qian M. 2019. Liquidity and dividend payouts Work. Pap., Aust. Natl. Univ Canberra:
  110. Qian M, Huang Y. 2016. Political institutions, entrenchments, and the sustainability of economic development—a lesson from rural finance. China Econ. Rev. 40:152–78
    [Google Scholar]
  111. Qian M, Yeung B. 2015. Bank financing and corporate governance. J. Corp. Finance 32:258–70
    [Google Scholar]
  112. Ru H. 2018. Government credit, a double-edged sword: evidence from the China Development Bank. J. Finance 73:275–316
    [Google Scholar]
  113. Shi Y, Townsend R, Zhu W 2018. Cross-holding networks and the propagation of credit shocks Work. Pap., Int. Monet. Fund Washington, DC:
  114. Song Z, Storesletten K, Zilibotti F 2011. Growing like China. Am. Econ. Rev. 101:196–233
    [Google Scholar]
  115. Titman S, Wei C, Zhao B 2018. Corporate actions and the manipulation of retail investors in China Work. Pap., Univ. Tex Austin:
  116. Wang H, Wang H, Wang L, Zhou H 2015. Shadow banking: China's dual-track interest rate liberalization Work. Pap., Tsinghua Univ. Beijing:
  117. Wang J, Shen Y, Huang Y 2016. Evaluating the regulatory scheme for internet finance in China: the case of peer-to-peer lending. China Econ. J. 9:272–87
    [Google Scholar]
  118. Wang J, Shen Y, Huang Y 2018. How does news sentiment affect the peer-to-peer lending market in China? Work. Pap., Peking Univ Beijing:
  119. Wang Y, Xu H. 2018. [Bond pledgeability and bond issuance yield: evidence from financial market.] Work. Pap. (In Chinese)
    [Google Scholar]
  120. Wei S-J, Xie Z, Zhang X 2017. From “made in China” to “innovated in China”: necessity, prospect, and challenges. J. Econ. Perspect. 31:49–70
    [Google Scholar]
  121. Wu J, Gyourko J, Deng Y 2015. Real estate collateral value and investment: the case of China. J. Urban Econ. 86:43–53
    [Google Scholar]
  122. Wu J, Gyourko J, Deng Y 2016. Evaluating the risk of Chinese housing markets: what we know and what we need to know. China Econ. J. 39:96–114
    [Google Scholar]
  123. Xiong W. 2018. The Mandarin model of growth Work. Pap., Princeton Univ Princeton, NJ:
  124. Xiong W, Yu J. 2011. The Chinese warrants bubble. Am. Econ. Rev. 101:2723–53
    [Google Scholar]
  125. Xu C. 2011. The fundamental institutions of China's reforms and development. J. Econ. Lit. 49:1076–151
    [Google Scholar]
  126. You J, Zhang B, Zhang L 2017. Who captures the power of the pen. Rev. Financ. Stud. 31:43–96
    [Google Scholar]
  127. Zhang M. 2008. From public to private: the newly enacted Chinese property law and the protection of property rights in China. Berkeley Bus. Law J. 5:317–63
    [Google Scholar]
  128. Zheng G, Wang S, Xu Y 2018. Monetary stimulation, bank relationship and innovation: evidence from China. J. Bank. Finance 89:237–48
    [Google Scholar]
  129. Zhu X. 2018. The varying shadow of China's banking system Work. Pap., Univ. Toronto Toronto, Can.:
/content/journals/10.1146/annurev-financial-110118-123027
Loading
/content/journals/10.1146/annurev-financial-110118-123027
Loading

Data & Media loading...

  • Article Type: Review Article
This is a required field
Please enter a valid email address
Approval was a Success
Invalid data
An Error Occurred
Approval was partially successful, following selected items could not be processed due to error