This paper incorporates the explicit financial assets, shadow banking assets, and operational assets held by nonfinancial firms into the portfolio selection process, constructs a portfolio selection model containing these three different asset types, and deduces the layering driving mechanisms of the financialization of nonfinancial firms. The theoretical model shows that the proportion of firms' explicit financial investments depends on three factors: the adjustment return gap between explicit financial assets and operating assets, the adjustment return gap between explicit financial assets and shadow banking assets, and the relative risk of shadow banking assets and operating assets. These two adjusted return gaps essentially portray the profit potential from investing in financial assets compared with the other two asset types. The larger the gap, the greater the proportion of firms investing in explicit financial assets. That is, nonfinancial firms' traditional financial investment behavior is driven by their profit-seeking motive. The relative risk depicts the relative amount of the alternative assets of financial assets to the total risk of the portfolio. The higher the relative risk of alternative assets, the higher the proportion of financial assets is for the purpose of avoiding the investment risk of alternative assets. Therefore, risk aversion also drives nonfinancial firms' financial investments. The driving factors underlying the shadow banking investments by nonfinancial firms are similar to those of explicit financial investments. Compared with the literature, after the introduction of the third type of assets into the portfolio model, the denominators of the two adjusted gaps contain not only the investment risk corresponding to the two returns in their respective numerators, but also the investment risk of the remaining third asset type, indicating that with an increase in asset classes invested, the investment risks of various assets no longer appear separately in the investment decisions.
This paper further collects and collates the shadow banking investment data for China's A-share listed nonfinancial firms from 2007 to 2018, calculates the asset scale of real firms' shadow banking activities, and then uses the data for empirical analysis together with the explicit financial assets and operational asset data to test the layering driving mechanism underlying the financialization of real Chinese firms.
The baseline results show that real Chinese firms' explicit financial and shadow banking investments feature inertia and are both significantly driven by relative risks. However, the driving factors underlying these two assets are starkly different when considering gaps in adjusted returns. That is, explicit financial investments are mainly driven by the adjustment gap with shadow banking assets, while shadow banking investments are driven by the adjustment gap with operating assets. These results reveal a very rich amount of information. First, the financialization of firms at different levels is clearly significantly affected by the relative risk of alternative assets. The higher the risk of alternative assets, the more motivated firms are to conduct their financialization activities. Second, there are subtle differences in the considered interest rate target when firms conduct different financialization activities. The key is that firms do not directly consider the rate of return for operating assets when making explicit financial investments, but they do consider this factor when conducting shadow banking activities. This finding is consistent with this paper's theoretical model. Hence, these results also highlight the need to include shadow banking investments in financialization activities to achieve a more comprehensive understanding of the driving mechanism underlying the financialization of real firms.
Incorporating monetary factors into the baseline model reveals that the year-on-year growth rate in the money supply also has different impacts on the two levels of financialization behavior by real Chinese firms. Increases in the money supply significantly inhibit real firms' explicit financial investments, but they have no significant influence on their shadow banking investments. These results indicate that monetary expansion is far from responsible for the financialization trend in China's real sector. In contrast, increasing money supply may ease real firms' liquidity constraints, reduce the “risk aversion” characteristic of explicit financial investments, and eventually curb these firms' traditional financial investments. Monetary factors have no significant impact on shadow banking investments, which echoes the baseline model results. If monetary factors cannot effectively improve the return rates from operational investments, it may be challenging to guide real firms to “return to their main business.”
In summary, real Chinese firms show explicit and implicit levels of financialization. In addition, the common feature of the layering driving mechanism is that it is significantly driven by relative risks. The relative rate of return with operating assets drives only shadow banking investments without affecting explicit financial investments. From the perspective of policy implications, decision-makers should consider improving the operating environment of real firms, reducing the risks of real investments, and enhancing the resilience of the real economy to major exogenous shocks in guiding the real economy to “return to their main business.”

Development is the eternal theme of human beings. Supporting the high-quality development of the economy is the mission of the modern financial industry, and a frontier topic in financial research. In recent years, the “transfer of financial profit to the real economy” has become an important means of promoting financial support for the development of the real economy. From the perspective of national policies and public opinion, the profit transfer policy is widely supported. However, in the field of theoretical research, there is little rigorous analysis or empirical evidence. From the perspective of the needs of the state and society, the purpose of “financial profit transfer” is to serve economic development; therefore, this paper proposes that the questions of “whether financial profit should be transferred” and “how to transfer profit” should be answered by examining the relationship between financial profits and economic development.
Compared with Western financial theories, the theories of Marx pay more attention to the analysis of profit sources. Although there are many types of modern financial products and services, the ultimate source of profits remains the real industry. However, with the development of the financial industry, financial institutions have changed from service providers of enterprises to strong market players, which can restrict the development of the real sector. The problem of profit sharing is the natural link between finance and industry. High financial profits mean high financing costs for enterprises, which may result in damage to economic growth. Marxist political economy realizes the importance of the source of profits in the financial sector and puts forward the view that high profits in the financial industry may damage economic development, but provides little detailed theoretical analysis based on economic growth. Conversely, in Western economic research, there are many discussions of the “too much finance” hypothesis, but few analyses of financial profits.
Starting from the literature and economic phenomena, this paper organically combines Marxist economic growth theory with the Western neoclassical framework, seeks common ground between them while reserving differences in mathematical form, and integrates Marx's famous view that “interest comes from profit” into modern economic growth theory to build an economic growth model that considers the distribution of profits between the real sector and the financial sector. The model explains the impact mechanism of excessive profits in the financial industry on economic growth: the ultimate driving force for economic growth comes from the real industry, and the essence of financial profits is to share the value created by the real sector. Although finance can help real industries improve their efficiency, excessive financial profits will affect capital accumulation in the real sector, and this will damage economic growth. Based on the theoretical model, this paper uses cross-country panel data on 187 countries for the period from 1996 to 2017 to test the relationship between financial industry profits and economic growth. It verifies the negative impact of excessive financial profits on economic development, and supports the inferences of the theory. Thus, this paper scientifically answers the question of whether the financial industry should transfer profits to the real sector, provides a rigorous economic explanation for China's actual problems, and points out directions for establishing a reasonable mechanism for distributing profits.
The contributions of this paper to the literature are as follows. (1) First, it connects Marx's classic discourse on financial profits with modern Western economic research, and proposes an innovative approach to study financial profits. Using this framework, we provide theoretical support for the practical problem of “whether the financial sector should transfer profit to the real sector.” (2) In terms of its theoretical model, this paper compares the modeling methods of Marxist and modern Western economic growth theories. Incorporating Marx's famous point that “interest comes from profit” into the theoretical model of economic growth, this paper innovatively endogenizes the financial sector's bargaining power and supervision costs and considers the profit distribution between the financial sector and the real sector in the framework of economic growth. The model developed is based on the empirical literature and economic phenomena, and describes well the dynamics of financial development and “over-financialization.” (3) This paper provides empirical evidence of a nonlinear relationship between financial profits and economic growth. Empirical evidence of over-financialization attributes a nonlinear relationship to financial development and economic growth, but there is much debate about the internal mechanism of this relationship. Our empirical work, together with the model, provide a new interpretation of the over-financialization phenomenon.

Since 2014, Chinese commercial banks have been increasingly active in issuing bonds (including interbank certificates of deposit) for financing, which is reflected, first, in a considerable increase in the proportion of bank bond liabilities to total liabilities and, second, in the considerable share of bank bonds and interbank certificates of deposit in China's asset market.
In this context, we focus on two important issues. First, we examine why there are large-scale commercial bank bond financing transactions in China, examining the structural characteristics of the Chinese financial market and the financing motivations of financial institutions underlying these transactions. Second, we analyze the impact that improving banks' bond financing capabilities has on policy effectiveness, especially the effects of monetary policy (encompassing both scale and structural effects), which are closely related to the banking system. The literature mainly explores the active financing behavior of banks from the perspective of credit asset securitization, and does not accurately depict the characteristics of bond financing. Furthermore, it does not provide a detailed description of China's financial market and regulatory policy characteristics, and is thus unable to provide complete answers to the above issues.
The research in this article begins with the structure of China's financial market, financial regulatory policies, and the characteristics of bond liabilities, analyzing the motivation of bond financing transactions of Chinese commercial banks, and the impact of bank bond financing capacity on the transmission effect of monetary policy. Specifically, the core setting of the theoretical model in this article reflects the following characteristics of and facts regarding China. First, the setting reflects the heterogeneity of financial institutions in China. China's small and medium-sized banks have higher deposit costs and require more high-quality collateral assets to obtain reserves than large banks, whereas the fund sector can use both sovereign bonds and bank bonds to meet collateral needs. The second characteristic is the constraints imposed by macro prudential regulation on bank credit. The banking system is required to reserve a certain proportion of sovereign bonds as liquid assets for deposit liabilities to meet liquidity regulatory needs. Small and medium-sized banks often face capital constraints and are unable to allocate more credit lines to mortgage loans, which have lower risk weights than other loans. The third characteristic is that bond liabilities have a higher degree of marketization pricing than deposit liabilities, and differ from deposit liabilities in terms of debt stability and underlying assets. Therefore, bond liabilities have the advantage that banks do not need to pay reserves and liquidity management costs. Furthermore, some bank bonds have the attribute of subordinated bonds and can be used as capital to absorb risk losses under certain conditions. The literature on the Chinese financial sector, the main theoretical source of this article, comprehensively confirms the above-mentioned heterogeneity of financial institutions and the characteristics of regulatory policies.
The results of the model developed for this study indicate that the basic trading structure and motivation for using bank bonds are as follows. First, the deposit interest rates and collateral costs of large banks are lower than those of small and medium-sized banks; thus, large banks are naturally willing to allocate more low-cost capital to them by purchasing small and medium-sized bank bonds. Second, to improve their credit rating and expand their bond issuance quotas, small and medium-sized banks facing capital constraints may supplement their capital by issuing subordinated bonds, or even purchasing the ordinary bonds of large banks, but at the cost of experiencing financial losses. Third, the fund sector is willing to purchase two types of bank bonds to meet collateral needs. Under this transaction structure, we find that improving banks' bond financing capacity directly reduces the capital cost and the reserve borrowing and lending collateral costs of small and medium-sized banks. It can also reduce the liquidity supervision cost by saving treasury bonds (reducing the premium on treasury bonds) and the quasi out statement effect; that is, the transactions involving banks selling bank bonds to the fund sector can directly reduce the liquidity supervision demands of the banking system. In addition, more collateral is provided to the fund sector. These effects greatly alleviate the “liquidity, funding, and interest rate constraints” of monetary policy transmission that the People's Bank of China raises as issues of concern, ultimately enhancing the ability of monetary policy to affect the credit scale of financial institutions, especially small and medium-sized banks and fund departments. Indeed, small and medium-sized financial institutions are constrained by capital and collateral costs as a result of improving the financing capacity of bank bonds.
The main conclusion and policy implications of this article are that improving the financing capacity of bank bonds can improve the transmission effect of monetary policy in terms of both the scale and comprehensiveness of credit provision, which is valuable in the context of promoting China's stable growth and structural adjustment policies. However, simultaneously, it increase banks' preferences for low-risk mortgage loans to serve as underlying assets for the bonds, leading to new credit structure distortion effects. It may also weaken the financial system's resilience to shocks by enhancing debt interconnectivity between banks.

As the lubricant of economic and social transactions, social credit significantly affects the level of economic and social development in a region. At present, the extent of social dishonesty problems in China not only damage the business environment but also disrupt the normal economic order, reduce total factor productivity, and then negatively affect long-term economic growth. In June 2019, China's Supreme People's Court published a list of 14.43 million persons, or 1.03% of its total population, who were subject to enforcement for trust-breaking. The problem of social trust-breaking is extremely serious in China. Social dishonesty increases transaction costs and reduces the efficiency of economic transactions. Accelerating the construction of the social credit system is a basic project in developing China's market economy because it directly promotes standardization of the market order, reduces transaction costs, stimulates market vitality and innovation, enhances the predictability of economic and social activities, increases total factor productivity, and is highly important in realizing the decisive role of the market in resource allocation.
Using data on persons subject to enforcement for trust-breaking published by the Supreme People's Court from 2004 to 2016, this paper measures the social trust-breaking situation at the city level, and then examines the impact of social trust-breaking on transaction costs and total factor productivity, and the relevant influencing mechanism. The data on persons subject to enforcement for trust-breaking are sourced from the Supreme Law Enforcement Information Disclosure Network, and are captured through the full list of enterprises. To address potential endogeneity issues, this paper adopts the instrumental variable method, selecting the number of Buddhist temples per million people as the basis for constructing a social dishonesty instrumental variable. In addition, a series of robustness tests and mechanism tests are conducted to confirm the results of this paper. Furthermore, the paper constructs a spatial econometric model to investigate the spatial spillover effect or the “spatial contagion” of social dishonesty on the total factor productivity growth rate. The innovative features of this paper are reflected in the following two aspects. First, in terms of research data, in contrast with studies that adopt questionnaire data, this paper builds a social trust-breaking index based on the large sample of persons subject to enforcement for trust-breaking published by the Supreme Court of China. Second, studies often fail to pay attention to the “infectious” spatial characteristics of social credit or trust. By including these spatial factors in the empirical analysis, this paper provides a more complete and accurate assessment of the efficiency losses caused by social trust failure than has been presented to date.
The findings of the paper are as follows. (1) The loss of social trust reduces the total factor productivity of enterprises and society as a whole, and the more (less) developed the economy, the more (less) significant the impact of credit loss on total factor productivity. (2) Social dishonesty not only hinders the improvement of local total factor productivity but also inhibits the improvement of the surrounding area's total factor productivity through the spatial “contagion” effect. (3) A mechanism analysis shows that social dishonesty inhibits the improvement of total factor productivity mainly through the mechanism of increasing social and enterprise transaction costs and resource mismatches.
This paper provides a new perspective that increases understanding of the relationship between social credit and economic efficiency, and provides theoretical and empirical support for the government to strengthen the construction of the social credit system to promote high-quality economic development. All regions should increase their focus on social credit, establish relatively complete screening and punishment mechanisms for dishonesty, along with a corresponding social credit index and credit standards to quantify the credit of local enterprises and individuals, and promote the construction of the social credit system and social governance. By increasing the “cost of breaking faith” and improving the transparency of market information, the phenomena of “adverse selection” and “moral hazard” in society can be reduced. In addition, social dishonesty is heterogeneous and “spatially contagious.” In the process of regional economic development, less developed areas should not ignore the governance of local social credit in their eagerness for development. Serious social credit failure will have a negative impact on surrounding areas, increase the cost of interregional cooperation and transactions, and lead to a situation of “isolation and no assistance” for regional development, further aggravating the backwardness of the less developed regions.

With the official implementation of the new Budget Law in 2015, which clearly stipulates that local governments must raise debt in a “self-issuing and self-repaying” manner, the reform of local government debt management entered a new era. The comprehensive “self-repayment” reform of local debt has changed the way local governments raise debt for finance, with the “open front door” policy allowing them to issue government bonds within limits, and the “block back door” policy curbing their implicit debt, such as interest-bearing liabilities of local financing platforms. Intuitively, the policy shock by local governments' autonomous debt issuance resulting from the reform will facilitate local governments' efforts to raise funds autonomously according to the economic development needs of their region, while simultaneously imposing hard budgetary and market constraints on local government debt raising and improving local governments' performance in the use of debt funds. Especially in the context of China's economy entering a stage of high-quality development, an analysis of the economic effects of the reform is of great practical importance as it can assist in enhancing the promotion of high-quality development of regional economies by ensuring a standardized, safe, and efficient government debt financing mechanism.
Using the comprehensive “self-repayment” reform of local government debt as a quasi-natural experiment, we empirically analyze the effect of the reform on the quality of regional economic development. The main findings are as follows. (1) The results of the baseline regression indicate that both the “open front door” and “block back door” policy shocks that form part of the reform of local government autonomous debt issuance have a significant and positive impact on the quality of regional economic development. (2) The results of the mechanism test show that the “open front door” policy shock by local government autonomous debt issuance has a scale effect by increasing the use of debt, the effective supply of livelihood public goods, and effective investment in public infrastructure, which is conducive to the realization of regional economies of scale. In terms of structural effects, the “block back door” policy shock can alleviate the crowding-out effect of debt and reduce dependence on land finance, which is conducive to the improvement of resource allocation efficiency and factor input efficiency. (3) A further heterogeneity analysis shows that the above positive effects are weakened in areas with high levels of implicit debt financing before the reform.
This paper contributes to the literature in three aspects. (1) In terms of policy contributions, we conduct a policy evaluation of the comprehensive “self-repayment” reform of local debt to determine how to further improve and optimize the unified system of “borrowing, using, managing, and repaying” local debt and thus to enhance the promotion of high-quality regional economic development; we also provide empirical support for increasing control over local government debt risks and achieving the sustainable development of local government debt. (2) In terms of our research methodology, we use the “self-repayment” reform of local debt as a quasi-natural experiment and select the intensity difference-in-differences method as the main empirical model to test the effects of the “open front door” and “block back door” policy shocks on the quality of regional economic development caused by the reform of local government autonomous debt issuance, and to capture the important debt system factors affecting the quality of regional economic development. (3) In terms of research ideas, based on the perspective of the whole process of “borrowing-using-repaying” government debt, we systematically analyze the impact mechanism of local governments' autonomous debt issuance policy on the quality of regional economic development at two levels, namely the scale effect and the structural effect, reveal the inner mechanism of the change in local governments' debt financing behavior on the quality of regional economic development, and provide evidence that deepens understanding of the correlation between local governments' debt financing behavior and changes in the quality of regional economic development.
Based on the findings, we propose the following policy recommendations to improve the local government debt management system. First, China must further its formation of a transparent and standardized debt raising system oriented toward high-quality development and promote the construction of a market-oriented system for local government bonds. Second, it is necessary to further optimize the investment and use of local government bond funds and strengthen the performance governance of debt projects. Finally, we recommend further accelerating the reform of the local government investment and financing system, and strictly controlling the scale of expansion of local governments' implicit debt.

Although China's economic development achievements are world-renowned, it is undeniable that its formal institutional systems remain imperfect, which hinders high-quality economic development. Therefore, in recent years, the Chinese government has launched a series of institutional reforms, of which the construction of the social credit system is an important component. Undoubtedly, the construction of the social credit system is a key focus for the government, as it will have a comprehensive and far-reaching influence on the micro behaviors of enterprises (Cao et al., 2022). However, the literature pays insufficient attention to the microeconomic effects of constructing the social credit system. Therefore, this study examines the microeconomic effects of constructing the social credit system from the perspective of corporate fraud. In theory, the construction of the social credit system will improve the social credit and market environments through modern technologies, such as the Internet and big data, which will reduce corporate fraud. Overall, the construction of the social credit system results in three profound changes for enterprises: first, it reduces agency costs, second, it eases financing constraints, and third, it improves information transparency. Therefore, this study expects that the construction of the social credit system will mainly affect corporate fraud through the following three mechanisms.
Taking China's social credit system as a natural experiment, this study uses data from A-share listed companies in Shanghai and Shenzhen from 2010 to 2020 to examine empirically whether and how the social credit environment can suppress corporate fraud. The results regarding the effects of improving the social credit environment are as follows. First, this improvement significantly inhibits corporate fraud, a result that continues to hold after a series of robustness tests. Second, it considerably reduces the tendency of fraud and the possibility of being audited. At the same time, the improvement of the social credit environment significantly reduces information disclosure fraud, business fraud, and leadership fraud. Third, the inhibitory effects on fraud are more pronounced for enterprises that are non-state-owned, have poor governance, have poor internal control quality, and those in areas with poor business environments than in other enterprises. Fourth, the mechanisms of reducing corporate agency costs, easing corporate financing constraints, and improving corporate information transparency drive our findings. Finally, the improvement of the social credit environment effectively reduces the operational and bankruptcy risks of enterprises. This study provides considerable support for the government's continued focus on further improving the construction of the social credit system.
This study makes three key contributions to the literature. First, it supplements the relevant literature on the impact of social credit on micro-enterprise behavior, which is of great theoretical importance. In particular, this study directly examines the impact of the policy on corporate fraud, thus elucidating the microeconomic effects of constructing the social credit system. Second, this study complements the literature on the factors affecting corporate fraud. The literature discusses the influencing factors of corporate fraud from both internal and external aspects. This study demonstrates that improving the social credit environment inhibits enterprise violations by reducing agency costs, alleviating financing constraints, and improving information transparency. Thus, it not only reveals the internal mechanism through which the social credit system affects corporate fraud but also expands research on the external factors influencing corporate fraud. Third, this study has clear policy implications in support of upholding and improving the construction of the social credit system to curb corporate fraud. It reinforces the benefits of the “credit cities” policy, showing that they create a good social credit environment, and supporting expansion of the credit cities pilot projects to further reduce corporate fraud.

Promoting smooth and orderly talent mobility and activating talent resources has become an important national development strategy in China. Relevant studies in the literature widely consider that talent mobility is a key means of optimizing human capital allocation, which is of practical importance for enhancing social vitality and achieving high-quality economic development.
Housing prices are an important measure of the costs and benefits of city living. Whether buying or renting, individuals will be influenced by housing prices when making mobility decisions. What impact do high housing prices have on the mobility of high-skilled talent in enterprises？ The answer to this question directly influences the optimization of national human capital allocation and the improvement of economic efficiency, and has important practical and economic value. On the one hand, based on prospect theory, high housing prices raise living costs, reduce individual benefits, and raise the prospect of a certain loss, which encourages high-skilled talents to leave their current enterprises in pursuit of higher career benefits, demonstrating the “escape effect.” On the other hand, based on the threat-rigidity hypothesis, the threat of high housing prices places strong psychological and economic pressure on high-skilled talents, such that they tend to avoid risks and remain with their current enterprises, leading to a “lock-in effect.” However, as research is limited by the difficulty of acquiring data on individual mobility between enterprises, there are currently no relevant studies on the relationship between city housing prices and the mobility of high-skilled talent in enterprises to help resolve the conflicting theories.
Using online resume big data from a large domestic professional social networking site, this paper tracks and restores the mobility information of high-skilled talent in enterprises on a large scale and explores the relationship between city housing prices and the mobility of high-skilled talent in enterprises. The results show that city housing prices have a significant inhibitory effect on the mobility of high-skilled talent in enterprises: for every 1% increase in city housing prices, the probability of high-skilled talent mobility between enterprises decreases by 4.24%, supporting the “lock-in effect” of housing prices. Heterogeneity tests show that the “lock-in effect” of housing prices is more significant in eastern coastal cities, central cities of urban agglomerations, and super-large cities than in other cities; is more obvious in state-owned enterprises, high-paying enterprises, and mature enterprises than in other enterprises; and has stronger effects on those aged 25-35 years than on other age groups, on management talents, and on technical talents. Further analysis shows that city housing prices have a significant inhibitory effect on the mobility of high-skilled talent within and across cities, mainly inhibiting the mobility of high-skilled talent to higher-priced cities in the case of inter-city mobility, whereas the effects on the mobility to lower-priced cities are not significant. Therefore, low-priced areas do not attract more high-skilled talent than higher-priced areas. Overall, we find that high housing prices hinder the optimization of human capital allocation between cities.
The contributions of this study are threefold. First, whereas research on urban housing prices and labor mobility mainly focuses on inter-city migration, this study examines the impact of housing prices on inter-firm mobility. This can avoid many confounding factors and facilitate the understanding of the micro-mechanism through which housing prices impact labor mobility, thereby deepening the understanding of the macro decision-making process on the impact of housing prices on labor mobility between cities. Second, research on urban housing prices and individual micro-behavior mainly relies on labor survey data and focuses on low-income and low-skill workers; conversely, this study focuses on high-skilled talent by mining online resume data, providing useful supplementary information to the body of research. Third, in contrast with the focus in the literature on exploring the factors influencing inter-firm mobility from a micro perspective of individuals and enterprises, this study incorporates urban housing prices into the framework of analysis for inter-individual and inter-firm mobility, providing new ideas for exploring the influencing factors of individual and inter-firm mobility from a more macro perspective than that adopted in the literature.
The study's findings demonstrate new policy directions for the government to optimize human capital allocation and talent mobility policies. Departments concerned should focus on the main force of mobility in society, the 25-35 age group, by addressing their mobility demands and challenges through policies such as easing housing price pressures and providing talent housing guarantees. In addition, departments concerned in relevant regions should be alert to the “lock-in” effect of urban housing prices in central cities and take corresponding measures to promote the reasonable and orderly mobility of talent, and thus stimulate economic vitality.

Since the beginning of the 21st century, the scale of the digital economy has been increasing, and digital technology with information networks as the core has gradually become an important force to promote economic development worldwide and has profoundly changed the economic activities of different subjects. However, “big volume” does not mean “strong bones.” At the enterprise level, whether the digital transformation of enterprises yields high-quality development characterized mainly by benefits requires further discussion and analysis.
In this paper, digital transformation is included in the heterogeneity model of enterprises. Based on a general equilibrium analysis, we find that under the effect of diminishing marginal productivity, digital transformation does not always have a positive impact on firms' markups, but has an inverted U-shaped nonlinear influence, which first promotes and then inhibits markups. Firm innovation and firm productivity are the key micro-mechanisms for the above effects to play a role. Based on the analysis of typical facts and empirical data of listed companies, the measurement test yields the following results. First, digital transformation can significantly improve firms' markups when it is below a specific threshold value, but it will have a negative impact when it exceeds this value; that is, there is an inverted U-shaped nonlinear relationship between digital transformation and firms' markups. Second, the heterogeneity analysis shows that digital transformation has a greater effect on the markups of state-owned enterprises, export enterprises, and technology-intensive enterprises than on the markups of other firms. Third, digital transformation has an impact on firms' markups through two key micro-mechanisms: enterprise innovation ability and production efficiency.
The innovation of this paper is mainly reflected in the following aspects. First, from a research perspective, this paper discusses the possible impact of the digital transformation of Chinese enterprises on the quality, benefits, and competitiveness of enterprise development, within the context of the digital economy and the specific perspective of firms' markups. Second, in terms of the mechanism of action, digital transformation is included in the heterogeneity model of enterprises. Based on the general equilibrium analysis, this paper proposes an inverted U-shaped micro-mechanism of influence of digital transformation on firms' markups, which first promotes and then inhibits markups. Finally, in terms of research methods, based on the non-dynamic threshold model, this paper estimates the impact of digital transformation on firms' markups and, compared with other approaches, better deals with the endogeneity problem and corporate information disclosure bias, which enhances the credibility of the conclusions. In addition, the multi-dimensional heterogeneity test is conducive to deepening understanding of the impact of digital transformation on firms' markups.
The findings of this paper not only help deepen our understanding and objectively evaluate the impact of digital transformation on firms' markups but also have important policy implications for ways to further improve the quality and efficiency of enterprise development and enhance their market competitiveness through digital empowerment. We make the following recommendations on this basis. First, we must accelerate the digital transformation of enterprises by strengthening the digital thinking ability of enterprises, improving digital application and management ability, and comprehensively and systematically promote enterprise cooperation and digital transformation in the whole value chain, including R&D, design, production and processing, operation and management, sales and services. Second, we must pay attention to grasp the enterprise digital transformation degree. In other words, to grasp the important strategic opportunities brought by digital technology and promote the digital transformation of enterprises, we must pay attention to the “overkill” formed by the law of diminishing marginal productivity. The digital transformation of enterprises in China remains in the initial stages, far from the threshold values or critical points, leaving huge scope for digital transformation to develop. Third, we should optimize the external environment of enterprise digital transformation. Starting from the basic principle of multi-factor cooperation, continuous optimization of external conditions is also an important way to continuously raise the threshold value for possible negative effects of enterprise digital transformation, to lay a necessary foundation for further improving the degree of and space for enterprise digital transformation. Fourth, it is essential to make arrangements for key areas of enterprise digital transformation. The research in this paper shows that there remain important differences between types of enterprises in terms of the quality benefits and competitiveness represented by their markups. These differences may mean that in the future, to grasp the strategic opportunities brought by the progress of digital technology and accelerate the process of promoting the digital transformation of enterprises, it will be necessary to effectively select key areas, departments, and types of enterprises.

At the beginning of 2020, the COVID-19 pandemic had a massive impact on the Chinese economy, leading to debates about whether consumption would slow down after recovery from the pandemic. It is crucial to achieve real-time forecasting consumption growth, which is important for government policy implementation. Moreover, accurately predicting the changes in consumption growth can provide timely warnings about downward pressures on consumption, allowing sufficient time for stimulus policy plans. Consumers' expectations of future economic conditions, personal incomes, price levels, and macro policies, among other factors, affect their investment and consumption decisions. Narrative economics suggests that consumer expectations are largely guided by media narratives. Therefore, consumption-related media coverage can be used to reflect changes in consumer expectations and predict future consumption activities.
This article constructs a consumption-related news sentiment index (CNSI) based on close to 600,000 news articles from five mainstream media outlets in China from 2007 to 2020. We evaluate the performance of the news-based CNSI and the survey-based consumer confidence index (CCI) in real-time consumption projections. We study the time-series characteristics of consumption growth and find an obvious trend disconnection between consumption growth and consumer sentiment in China, especially after the advent of the “new normal” period, with a decline in consumption growth and an increase in consumer sentiment. This trend disconnection is an important feature that is ignored in the literature. By using wavelet decomposition, or detrending processing, we find a positive and significant correlation between the CNSI and the short-term cyclical component of consumption growth, whereas the CCI does not identify this correlation. Correspondingly, our CNSI can considerably improve the out-of-sample forecasting of short-term consumption, and it can be applied to nowcasting and mixed-frequency forecasting. We further explore the content structures of news texts and find that the “current status” content of news performs better for real-time nowcasting, whereas the “foresight analysis” content is more effective in predicting future consumption growth. Furthermore, more objective and emotionally neutral (non-seditious) media texts perform better in nowcasting and forecasting. Compared with the Internet-based CCI, the construction of CNSI is simpler and more transparent, which results in outstanding advantages in consumption projections.
This article makes the following contributions to the literature. First, to the best of our knowledge, this study is the first to focus on the trend disconnection between consumption growth and consumer sentiment in China. We address this issue by identifying the long-term trend and short-term cyclical components of consumption growth through cycle decomposition methods, and find that their performance differs. This indicates that economic forecasting studies cannot ignore the cyclical changes in China's economy, and future research must consider cycle decomposition.
Second, this article combines consumption projections with high-frequency and real-time textual data. Compared with the official CCI, the weekly news-based CNSI is timelier and more responsive to economic changes. The mix-frequency prediction results indicate that high-frequency data can further improve the accuracy of forecasting consumption growth, which can be an appropriate direction for further research.
Third, this article examines multi-dimensional text features, such as “current status vs. foresight analysis”, and “seditious vs. non-seditious” features. This not only supports the theoretical conclusion that consumer confidence and expectations are driven by information on economic fundamentals but also provides a new perspective on the application of textual data in economic research.

The 20th National Congress of the Communist Party of China proposed that China adhere to a high level of opening up, providing a scientific guideline for coordinating institutional openness and risk prevention in the capital market. The institutional opening up of the capital market has led foreign capital sources to pay increasing attention to China's A-share market, and cross-border capital flows have become more frequent than in the past. Simultaneously, the impact of climate risk has led to increased uncertainty in relation to financial risks. This article takes commonality in liquidity (CiL) at the level of the links between individual stocks and the market as a starting point and uses listed companies on the Shanghai and Shenzhen A-share markets from January 2011 to December 2019 as the research sample. It focuses on the micro-level of enterprises' systemic liquidity risk, studies the differentiated impact and overlapping effects of the institutional opening up of the capital market on systemic liquidity risk, and analyzes the underlying reasons for these effects based on the channels of action and exogenous institutional arrangements. Furthermore, this article incorporates climate risk factors to examine the impact of physical and transitional risks on the stability of the market for foreign institutional investors.
The results show that, first, the institutional opening up of the capital market generally reduces the CiL of open stocks, playing a stabilizing role in the market. However, in contrast with the Shanghai/Shenzhen-Hong Kong (SH/SZ-HK) Stock Connect policy, the inclusion of A-shares in the MSCI index significantly weakens this CiL-reducing effect. Second, the mechanism analysis shows that the SH/SZ-HK Stock Connect policy mainly plays a stabilizing role in the market by reducing the transactions of institutional investors and increasing the quality of information disclosure, whereas the inclusion of A-shares in the MSCI index increases the correlated trading behavior of institutional investors, and offsets the impact of improved information transmission, which weakens the effect of the policy in terms of reducing CiL. The relaxation of cross-border capital quotas, which increases foreign capital inflows, and the difficulty of supervision are important reasons for this effect. Third, further research on the impact of climate risk shows that when companies are hit by extreme weather disasters, are located in areas with high pollution levels or undergoing central environmental protection inspections, or when they are under intensive pollution monitoring, the stabilizing effect of the opening up of the capital market is weakened considerably, indicating that foreign institutional investors take climate risk factors into account in investment decision-making. We conclude that the institutional opening up of the capital market plays a role in stabilizing the market and reducing systemic risk, but it is necessary to further align the important relationship between opening up and risk supervision, and to pay attention to the low-carbon leadership role of institutional investors.
The innovate contributions of this article are as follows. First, it analyzes the impact of different internationalization policies on the CiL effect on the capital market, and reveals the underlying mechanism and reasons behind this phenomenon. In contrast with the comparative analyses of the global capital market liquidity commonality phenomenon by Karolyi et al. (2012) and Moshirian et al. (2017), this article focuses on a homogeneous institutional environment, which is conducive to focusing on the net effect of the policies to open up the capital market. Second, the inclusion of climate risk factors expands the research perspectives on institutional investors and financial risk, enriching the literature. This article selects multiple influencing factors for heterogeneity testing from the perspectives of physical and transformation risks, and expands the literature by incorporating climate risk into the research framework for micro-enterprise systematic risk.
Under the new development background, an important future research direction is to explore the benign interactions between domestic and foreign institutional investors with different investment styles, as well as their long-term impact on systemic risk.

In research on the international monetary system, prominence has been given to the international adjustment of gold standard countries between the 19th and 20th centuries. One of the main issues underlying this research theme is the relative efficiency of the gold standard and its role in moderating nominal exchange rates. Tests of its efficiency revolve around consideration of the gold-point arbitrage. Although the market exchange rate fluctuated due to supply and demand shocks in the currency market, its deviation from parity was generally constrained by the so-called gold points, which refer to the cost of cross-border shipments of gold.
However, there is a relative paucity of research into the conditions of the silver standard. In the early 20th century, China was the only large country in the world adhering to the silver standard, and the operation of China's foreign exchange market is largely neglected in the literature. Silver was just another commodity in the international monetary system dominated by gold. As the price of silver in the world market was notoriously fickle, it is generally considered that the international adjustment mechanism between China and gold countries was equivalent to the floating exchange rate regime of fiat currencies. However, the Chinese silver standard shared some important characteristics with a fixed exchange rate system. Specifically, the exchange rate was determined by the world price of silver and would not adjust spontaneously according to China's international balance of payments. Thus, in adhering to the silver standard, China lost the buffer function provided by a free-floating exchange rate, which would otherwise insulate it from international shocks.
Exchange rate fluctuations and corresponding cross-border silver arbitrage played an important role in determining China's base money supply and balance of payments. They also provided a valuable perspective for measuring the relative efficiency of China's silver standard and the degree of integration in its financial market. Despite political turmoil, China gradually opened up to the outside world and underwent its first wave of industrialization and modernization. By the early 20th century, although China as a whole remained economically underdeveloped, its eastern coastal areas were significantly more developed than its inland regions. The degree of market development in modern China is a topic of debate, with some researchers arguing that the country's spatial markets were seriously segmented, whereas others consider that China's market integration had reached a substantially high level during the late Qing Dynasty. Research on this topic generally focuses on evidence from commodity markets, particularly grain markets. In recent years, the integration of monetary and financial markets has received increasing attention, and the literature on China's domestic financial integration is growing rapidly. However, there remains a lack of research on the integration of Chinese and external financial markets.
In this paper, we collect high-frequency datasets on the foreign exchange market from 1902 to 1932 and apply the silver point arbitrage mechanism and threshold autoregression models to estimate silver points between Shanghai and London, the world's major international financial center during this period. Our inferred measures of silver points are small, with estimated silver points at around 1.7% during peacetime, which match the measured costs of the silver trade derived from contemporary accounts. We observe that silver point violations and exploitable arbitrage opportunities periodically emerged, but did not persist for long. We also find a general correspondence between silver-point violations and international flows of silver, indicating that there were no significant trade barriers in cross-border silver trade. This leads us to conclude that the Chinese foreign exchange market was remarkably efficient, and that the degree of Chinese financial market integration was substantial. However, during and immediately after World War I, our estimates of the silver points increase significantly, indicating the collapse of China's links to world financial markets. As the United Kingdom was at the center of the war, the destructive effect of the war on trade and on the financial links between Shanghai and London is expected.
At the turn of the 20th century, while most countries around the world were aspiring to join the gold club, China retained its traditional silver currency, remaining the only major silver outlier. This alternative monetary system is often viewed as a reflection of China's economic and political problems. Despite political disintegration and the chaos of the regional monetary system in China, the efficiency of Shanghai's foreign exchange market was comparable with that of the gold standard system at the time. This indicates that Shanghai and the international financial markets were highly integrated, and that the eastern China market, centered around Shanghai, was deeply connected to the global economy in the early 20th century. This finding is consistent with evidence of economic growth in Shanghai's surrounding areas during this period.
In recent years, the literature on market integration in modern China has expanded rapidly, but it largely focuses on the commodity market. Financial assets are more homogeneous and have lower transaction costs than commodities such as grain and other goods. Thus, our results regarding financial integration provide an important benchmark for comparing market development in modern China and the West. It is important to note, however, that our evidence from the financial market may not necessarily apply to commodity markets because commodities such as grain, which have lower value-to-weight ratios, are less profitable to arbitrage than silver.