Two essays on Chinese economy

Abstract

This dissertation consists of two studies on the Chinese economy. The first chapter examines how the political connection could have an impact on industrial land transfer in China. The second chapter documents the informal financing crisis in academic literature and examines how commercial banks respond to the crisis. In the first chapter, I utilize the geographic randomness of the assignments of provincial Party secretaries as exogenous shocks, to see how the political turnover could affect the industrial land transfer. I find that when a person is assigned to a province as its new secretary of the provincial Party Committee, the enterprises from his previously-served province follow him and buy significantly more land in his newly-served province. The regression model controls for the time fixed effects, province-province dyadic fixed effects, and several time-varying economic variables. Moreover, I identify two channels through which the assignments of provincial leaders can have the observed effects: corruption interests, career concerns. I utilize corruption index and market transparency index, both of which vary across different provinces, and the different ways of industrial land transfer to show that the corruption channel does exist. As for the career concern channel, I utilize two cutoff ages for the promotion of provincial leaders and find that the provincial Party secretaries with more promotion potential have larger impacts on the industrial land transfer. In the second chapter, I use three unique datasets to analyze commercial banks’ responses to an underground lending scandal in Anyang, a city in China. I document that banks increase interest rates and collateral requirements, and shorten the maturities of loans for firms in industries with a higher (constructed) scandal index. The negative spillover effects are mitigated for stronger banks, larger firms and the closer geographic distance between lender and borrower. The informal lending crisis lasts for five quarters and thereafter loans characteristics revert to the pre-scandal level. This study contributes to the academic literature on the relationship between formal and informal finance. This study recommends that the Chinese financial regulatory authorities recognize the importance of the informal finance in maintaining financial stability in China, as well as the economy as a whole.