In the new stage of development, China faces the dual challenges of a shrinking demographic dividend and a transformation of investment structure. How to promote sustained growth of labor productivity through structural transformation in production has become a vital issue for China to advance high-quality development and achieve qualitative improvement and reasonable quantitative growth in economy. Over the past half-century, global economic development has provided a rich and diverse set of experience in catch-up with the productivity frontier. The success and failure of these economies offer important insights for China to promote steady economic growth and high-quality development. We develop a novel accounting framework for productivity growth, and quantify the contribution of structural transformation in production to the catch-up with the productivity frontier among the world's major economies from both global and long-term perspectives.
We first calculate the industry-level Purchasing Power Parity indices based on micro survey data from the World Bank's International Comparison Program. We integrate these indices with the World Input-Output Database to apply double-deflation method on both nominal final outputs and intermediate inputs, through which value added measured by industry-level PPP is calculated yielding internationally comparable and additive measures of industry-level productivity. We incorporate the non-homothetic constant elasticity of substitution preference into productivity comparison study and employ a multi-sector general equilibrium model to characterize and estimate the mechanisms through which productivity drives structural transformation of industry. We calibrate the model with cross-country long-term panel data, allowing for a more accurate quantification of structural transformation. Compared to existing literature, this paper offers a novel theoretical framework from an international comparative perspective for understanding the process of catch-up to the productivity frontier and patterns of development. Prior research has seldom focused on the issue of catch-up. Besides, this paper improves on methodologies for analyzing productivity growth and structural transformation. Most previous studies either rely on aggregate PPP as industry-level price deflator for international productivity comparisons, or neglect the input-output structure and fail to employ accurate structural transformation models in their quantification, which may cause potential measurement errors.
Key findings are as follows. First, we find that the ability of economies to catch-up with productivity frontier hinges critically on labor productivity in manufacturing and nontraditional services. These sectors constitute the primary distinction between successful and unsuccessful catch-up economies. Specifically, the catch-up in labor productivity within manufacturing and nontraditional services contributes the most to the overall labor productivity catch-up, with the contribution rates reaching 32.2% and 46.6%, respectively. Second, we find that nontraditional services exhibit the greatest contribution to overall catch-up, followed by manufacturing and traditional services, with agriculture contributing the least. Counterfactual analysis suggests that, if labor productivity in nontraditional services across all economies were to grow in tandem with that of the United States, the average productivity gap (relative to the U.S.) would narrow by 2.1 percentage points. Structural transformation plays a pivotal role in this process, as growth and catch-up in sectoral productivity alter the employment structure across sectors, thereby significantly influencing the dynamics of overall productivity growth and catch-up. Third, we find that dominant sectors contributing to overall catch-up vary across stages of economic development. In low-income economies, overall catch-up is mainly driven by agriculture and traditional services. Importance of manufacturing and nontraditional services increases with income. At the middle-and high-income stages, these two sectors become the central engines of catch-up. Notably, in high-income economies, the contribution of nontraditional services to overall catch-up exceeds 60%, underscoring its significance in the advanced stages of development.
To further advance the upgrading of China's production structure and enhance labor productivity, thereby sustaining the catch-up toward the productivity frontier, we propose the following policy implications. First, the government should maintain the stability of manufacturing share and accelerate the development of modern services, supporting the modern industrial system anchored in the real economy. Second, the government should deepen market-oriented reforms to enhance the efficiency of factor and resource allocation and provide sustained momentum for productivity growth. Third, the government should integrate the strategy of expanding domestic demand with supply-side structural reform to realize economies of scale in the domestic market, and upgrade the demand structure to drive the structural transformation in production. Fourth, the government should promote coordinated regional development and optimize the spatial distribution of industries, to foster a complementary, synergistic regional economic structure and an integrated industrial spatial system.

Small and medium enterprises (SMEs) are the mainstay of national economic growth and social development, an important foundation for building a modernized economic system and promoting high-quality economic development, an important support for expanding employment and improving people's livelihoods, and an important source of entrepreneurship. Since the 18th National Congress of the Communist Party of China, the central government has attached great importance to the development of SMEs. The legal and policy support system related to SMEs has been continuously improved to encourage and promote the sustained and healthy development of SMEs, and push forward the continuous enhancement of SMEs' comprehensive strength, core competitiveness, and ability to fulfill their social responsibilities. State support for SMEs has risen to a new level, and understanding these support policies and evaluating their policy effects requires an in-depth analysis of the role of SMEs in economic growth.
In the theoretical part, this study identifies the links and differences between entrepreneurship and SMEs, and concludes that SMEs are an important vehicle for connecting entrepreneurship and economic growth, but the role of SMEs themselves has not been adequately investigated due to theoretical and empirical shortcomings. This study proposes two main mechanisms through which SMEs promote economic growth. First, the mechanism of market competition: the increase in the number of SMEs can promote market competition and reduce the market power of incumbent enterprises, thus effectively improving the efficiency of resource allocation, reducing the loss of economic efficiency brought about by monopolistic behavior, and leading to an increase in the level of output. Second, innovation mechanism: as one of the main carriers of innovation activities, SMEs are able to promote the improvement of total factor productivity (TFP) by promoting technological progress and optimization of the production process, providing impetus for economic growth.
In the empirical part, this paper constructs Bartik IV based on the initial regional industrial structure and the growth rates of SMEs in different industries to address the possible endogeneity between SMEs and economic growth. Utilizing China's industrial and commercial registration data and urban panel data from 2004-2019 provided by the China Urban Statistical Yearbook, this study examines the role of the increase in the number of SMEs in promoting regional economic growth.
The findings of this study show that for every 1% increase in the number of SMEs, the regional GDP will significantly increase by about 0.22%. This paper also validates the market competition mechanism and innovation mechanism. The results show that the growth of SMEs increases the level of competition and significantly reduces the market power of incumbent firms, which in turn contributes to the increase in the level of output. At the same time, an increase in the number of SMEs will also lead to an increase in the number of regional patents and regional total factor productivity, which promotes economic growth by leading to technological advances in production and improvements in production efficiency in the region. This paper also conducts a variety of robustness tests, including replacing the construction method of IV and changing the measurement of explanatory variables, and the results verify the robustness of the conclusions. In addition, this study examines the heterogeneity of the contribution of SMEs to economic growth within different regions and across different types of SMEs. At the regional level, the results suggest that an increase in the number of SMEs is more likely to lead to regional economic growth in regions with a lower level of economic development, as well as in regions with a lower degree of marketization. For different types of SMEs, the findings of this study suggest that the stronger the innovation capacity of SMEs, the more positively they contribute to regional economic growth.
The contribution of this paper is reflected in the following points: firstly, this paper utilizes the Bartik IV to address the endogeneity between SME development and regional economic growth, thus more accurately assessing the role of SMEs in contributing to economic growth. Secondly, this paper analyzes in detail the mechanism through which SMEs contribute to economic growth by enhancing market competition and promoting innovative activities. Finally, the paper examines the heterogeneous impact of SMEs to economic growth in different regions and the heterogeneous effect of different types of SMEs on economic growth.
This paper makes the following policy implications for SME development. First, China should support the development of SMEs, which includes not only relief and assistance for incumbent SMEs, but also encouragement for market access. Second, efforts should be made to develop high-quality SMEs, increase support and incentives for them, and promote the development of SMEs' specialization, refinement, characteristics and novelty, which can shape the competitive advantages of SMEs, so as to provide impetus for high-quality economic growth. Thirdly, support policies for SMEs should focus more on fostering the innovation capacity of SMEs. Innovation is an important source of motivation for SMEs to promote economic growth, and compared with policies that improve the performance of SMEs in the short term, fostering the innovation capacity of SMEs is more likely to lead to sustained economic growth in the long term.

The Resolution of the Central Committee adopted at the third plenary session of the 20th Central Committee of the CPC pointed out that improving the institutional governance of commercial banks is an important connotation of deepening the reform of the financial system and preventing and defusing financial risks. In November 2023, the Financial Stability Bureau of the People's Bank of China pointed out that banking stability underpins financial system stability. Early identification and proper treatment of risks in small and medium-sized banks are crucial to prevent systemic risks. Recent risk events involving commercial banks have drawn significant attention and substantially impacted financial markets. Currently, high-risk small and medium-sized banks are major risk sources for the entire banking industry and even the financial industry, with their risks rooted primarily in deficient corporate governance. Although Baoshang Bank lacks traditional “systemically important bank” characteristics, its internal governance flaws and extensive interbank linkages rendered it a “systemically vulnerable bank”. Notably, Chinese commercial banks share consistent corporate governance mechanisms, with shareholder governance being central across all banks, which is a key distinction from the board-governance focus in developed economies. This study examines the frequent risk occurrences in commercial banks through the perspective of bank shareholder governance, analyzing how equity structure characteristics influence systemic vulnerability. The findings offer practical insights for enhancing bank corporate governance and mitigating systemic risks in the banking industry.
First, we utilize the Chinese Banking Database (CBD) to construct interbank asset-liability networks and compute bank-level default probabilities under external shocks to measure systemic vulnerability. This methodology enables accurate identification of systemically vulnerable banks, including non-listed institutions that are often overlooked in conventional analyses. Our empirical analysis reveals several key findings regarding the influence of equity structure characteristics on systemic risk. State ownership and the increase of the degree of equity balance are found to significantly reduce bank vulnerability, with this effect being particularly pronounced among city and rural commercial banks. We also identify a distinct U-shaped relationship between ownership concentration and vulnerability, demonstrating that both excessive concentration and excessive dispersion of ownership weaken governance effectiveness. Furthermore, our analysis of bank-shareholder networks shows that greater network centrality negatively affects vulnerability, suggesting that well-connected shareholders contribute to financial stability. These empirical results remain robust after considering endogeneity issues. Additional mechanism analysis reveals that sound shareholder governance mitigates systemic risk through three primary channels: lower financial leverage, reducing active risk taking, and limiting interbank risk exposure.
This paper makes three key contributions. First, it addresses a critical research gap by examining the relationship between bank shareholder governance characteristics and systemic vulnerability, which is a crucial yet understudied determinant of bank risk events. We innovate methodologically by constructing a bank-level systemic vulnerability indicator, thereby expanding the research scope of bank systemic risk from a corporate governance perspective. In light of the recent risk events affecting small and medium-sized banks in China, our research on identifying systemically vulnerable banks and analyzing the underlying shareholder governance factors is of great significance, providing both theoretical insights and practical implications. Second, the study provides a comprehensive, multidimensional analysis of how shareholder governance characteristics influence vulnerability of banks, yielding new micro-level evidence on the governance-systemic risk nexus in commercial banks. Third, our research advances beyond existing studies through more diverse equity feature indicators and more representative bank samples, with empirical results demonstrating greater reliability through standardized large-sample analysis. Collectively, this study systematically examines the equity characteristics of commercial banks in China, making significant contributions to the emerging literature on bank governance and systemic risk.

With the development of digital technologies, banks have been undergoing digital transformation. Digital transformation has become a key factor for banks to enhance their core competitiveness and improve operational efficiency. However, banks face various issues with their data such as inaccuracy, lack of timeliness and inconsistent standards. Low-quality data may lead to poor decision-making, prevent banks from optimizing risk management and improving efficiency, and ultimately have an adverse impact on the high-quality development of banks. Data governance is a necessary means to improve data quality. Thus, it is evident that data governance serves as an important focus in banks' digital transformation and a key point in optimizing the risk management system of banks. To guide banks in strengthening data governance, China has introduced a series of policies enhancing data governance. Under the guidance of regulatory policies, data governance in banks has progressed rapidly. Many banks have vigorously promoted data governance and significantly improved data quality to support their risk management. However, some banks still fail to improve data governance effectively. Based on the background, it is important to explore how data governance impacts bank risk and what factors lead to the significant differences in data governance practices across banks. The study of these questions will have great practical significance for Chinese banks to improve data governance, advance digital transformation and enhance risk prevention capability.
To analyze the above issues, we collect microdata of 198 commercial banks from 2015 to 2022. The paper measures the level of commercial banks' data governance based on the "Guidelines for Data Governance of Banking Financial Institutions". Applying the PSM-DID method, the study explores the impact of data governance on bank risk and its mechanisms, and further examines the synergy effect of data governance and digital transformation on bank risk. The results show that: firstly, data governance significantly reduces bank risk. Secondly, data governance mainly lowers bank risk by improving bank information disclosure quality and bank efficiency. Thirdly, heterogeneous analysis finds that while data governance significantly suppresses risks of larger banks and city commercial banks, it fails to effectively reduce risks of rural commercial banks. Fourthly, data governance and digital transformation exhibit a synergistic effect in mitigating bank risk.
The research offers certain policy implications for improving data governance in commercial banks. First, the financial regulatory authority should encourage banks to actively engage in data governance efforts. Second, banks need to formulate differentiated data governance strategies based on their own digital transformation progress. Third, it is essential to improve the coordination mechanism between data governance and digital transformation.
The study contributes to existing literature in several ways. Firstly, it conducts an in-depth analysis of the impact of data governance on bank risk. This expands the research on the relationship between financial technology development and bank risk. Existing studies mainly focus on the impact of internet finance, financial technology, and digital transformation on bank risk, with few papers analyzing the important role of data governance. Some studies analyzing the effect of data governance are mainly qualitative and lack empirical evidence. Second, the paper examines the synergistic effect of data governance and digital transformation on bank risk. It is known from the practice of data governance in Chinese banks that the data governance capabilities of different banks vary greatly, and digital transformation is an important driver for data governance. Meanwhile, data governance influences the efficiency of digital transformation. Therefore, it is essential to explore the synergy effects of data governance and digital transformation. Third, the study explores the underlying mechanisms about how data governance impacts bank risk. Using data quality as a bridge, it analyzes the channel between data governance and bank risk from novel perspectives of bank information disclosure quality and bank efficiency.

With the risk event of Baoshang Bank breaking the expectation of rigid payment, regulators have realized that the key premise for mitigating the risks of small and medium-sized banks (thereafter SMBs) lies in identifying those risks. Due to the delayed and possibly manipulated disclosure, it is difficult to monitor the SMBs' credit risks in real time through traditional financial indicators such as non-performing loan ratios. In this context, our paper first investigates whether the spread of Interbank Negotiable Certificates of Deposits (IBNCD) can serve as a real-time measure of credit risk for SMBs. Furthermore, the development of SMBs has led to the possibility that IBNCD pricing could be influenced by factors beyond the issuer's fundamentals, with the implicit guarantees from local governments being the most typical example. The key research question of the paper is how the capabilities and willingness of implicit guarantee from local governments affect the IBNCD pricing of regional SMBs.
From a theoretical perspective, the paper includes a preliminary hypothesis, which posits that the IBNCD spread can serve as a forward-looking indicator of SMBs' credit risks. On the one hand, an increase in the IBNCD spread reflects a rise in the bank's interbank market financing costs, which ultimately transmits to the credit risks. Therefore, the IBNCD spread should be consistent with low-frequency credit risk indicators (e.g., non-performing loan ratios). On the other hand, after the global financial crisis, the interaction between shadow banking risks and on-balance-sheet risks deepened, and the rapid growth of off-balance-sheet wealth management products increases banks' rollover risk. If the IBNCD spread reflects SMBs' credit risks in real time, it should also predict risk indicators with higher frequency, such as the yield shortfall of wealth management products.
Building on this preliminary hypothesis, the paper outlines the theoretical foundation of how local government implicit guarantees influence the credit risk of regional SMBs. From an investor's perspective, the financial strength of local governments reflects their capacity to provide guarantees. The weaker a local government's ability to provide guarantees, the higher the risk premium demanded by investors for local SMBs, which is reflected in higher IBNCD spreads. On the other hand, we argue that the expansion of off-balance-sheet liabilities of local governments is a stronger signal of their willingness to provide guarantees. According to the too-big-to-fail theory, local governments in regions with higher off-balance-sheet debt growth, i.e., a larger expansion of Local Government Financing Vehicle (LGFV) debt, are more likely to provide implicit guarantees. More importantly, LGFV uses financial resource from regional SMBs to help local government to boost economic growth; thus, a larger expansion of LGFV debt indicates stronger willingness of local governments to provide implicit guarantees, which is reflected in lower IBNCD spreads.
Our sample includes publicly issued IBNCD by urban and rural commercial banks in prefecture-level cities between 2014 and 2019. We examine the predictive power of IBNCD spreads for bank credit risk indicators. The results demonstrate that widening IBNCD spreads among SMBs are associated with elevated non-performing loan ratios, heightened customer concentration, and increased loan risk in the subsequent quarter, alongside more pronounced shortfalls in wealth management product returns. This indicates that the IBNCD spread has an advantage in capturing the real-time credit risk of SMBs.
Furthermore, we explore how the capabilities and willingness of local governments to provide implicit guarantees affect the credit risk premia of SMBs. We use the fiscal deficit rate as a measure of the local government's guarantee capacity and the additional growth of LGFV debt (i.e., the residual from regressing the increment of LGFV debt on fiscal pressure) to measure the local government' s willingness to provide implicit guarantees. The results show that the fiscal burden of the cities where the issuing banks locate significantly increases the SMBs' credit risk. In contrast, the additional expansion of LGFV debt is seen as a strong signal of the willingness to provide implicit guarantees, which lowers the IBNCD spread.
Finally, we try to address the endogeneity issues through two methods. First, we use the guarantee capacity and willingness of other cities in the same province (but excluding the provincial capital cities) as instrumental variables, and the results are consistent with OLS. Second, we examine the Baoshang Bank event as a shock, finding that after the breakdown of the implicit guarantee expectation, the spread on IBNCD issued by SMBs in regions with weaker guarantee capacities increased more significantly, and the issuance success rate decreased more than regions with stronger guarantee capacities.
Our findings have key policy implications. First, an early identification and risk warning system for problematic banks is crucial, with the market-oriented characteristics of IBNCD serving as valuable complement to regulatory tools. Second, future policies should avoid distorting incentives for SMBs through the evaluation of local economic development. Third, regulators must address non-performing loans in SMBs. While this may increase the burden of supporting the financing of small enterprise in the short term, it helps authorities to manage the monetary creation in the long term by curbing the arbitrage in the interbank market. Future research can track the impact of implicit guarantees on IBNCD pricing during the debt reduction process.

One prominent feature of the current economy is the emergence of a complex production network among various sectors and firms through supply chains, rather than simple upstream and downstream relationships (Carvalho, 2014). The formation and stability of production networks facilitate the exchange of information and technological collaboration across different sectors, improving corporate performance (Bernard et al., 2019) and contributing to both national and global economic growth. However, complex production networks can also serve as channels through which systemic shocks propagate, potentially amplifying the adverse effects of macroeconomic fluctuations (Acemoglu et al., 2012; Baqaee, 2018). Compared to the potentially enormous economic losses that may result from shocks to production networks, most existing finance and accounting research focuses on examining the spillover effects of operational or financial risks between upstream and downstream firms within supply chains (Chiu et al., 2019; Costello, 2020), while neglecting the possibility that idiosyncratic micro-level shocks between these firms could accumulate into systemic shocks affecting the entire production network (Ahern and Harford, 2014).
The limited existing research on production networks primarily examines the economic impacts and risk mitigation strategies from the perspective of individual firms when the production network is subjected to shocks (Ahern and Harford, 2014; Aobdia et al., 2014; Barrot and Sauvagnat, 2016; Gao, 2021). However, few studies have explored risk prevention before shocks and the post-shock recovery of supply chains from the perspectives of bank lending decisions, as well as government monetary, fiscal, and industrial policies. In fact, bank lending policies and government economic policies are common measures used to prevent macroeconomic fluctuations and can significantly influence such fluctuations. Therefore, conducting related research from the perspective of production networks offers important theoretical implications for understanding the sources, transmission, and prevention of macroeconomic risks more comprehensively. Simultaneously, it provides practical insights for governments and banks to enhance the stability and resilience of production networks, thereby advancing the modernization of supply chains and achieving high-quality economic development in China.
Based on these backgrounds, our study investigates whether and how banks consider potential shocks faced by firms in different sectors in the production networks when making lending decisions. We choose A-share listed firms in China's capital market from 2002 to 2022 as the research sample. All financial and corporate governance data of the sample are sourced from the CSMAR and CNRDS databases, while the centrality of the sectors is calculated based on the Input-Output Tables published by the National Bureau of Statistics from 2002 to 2020. Our findings indicate that firms with higher centrality in the production network may face greater potential shocks. Considering both banks' own risk management and government policy objectives, banks are likely to provide these firms with more long-term (and less short-term) loans, especially for state-owned enterprises and sectors whose output is crucial to the national economy. Further analysis suggests that long-term loans help reduce the performance volatility of these central firms. These findings suggest that banks can act as an economic stabilizer by mitigating the risks associated with potential shocks to China's production network through their lending decisions.
Possible contributions of our paper lie in the following aspects: First, in the field of finance and accounting research on production networks, most existing literature focuses on the spillover effects of operational or financial risks between upstream and downstream firms in supply chains (Chiu et al., 2019; Costello, 2020). This paper fills a gap by examining banks' preemptive risk mitigation of potential shocks from the perspective of production networks, addressing the limitations of previous research that focused solely on firm-level interactions within supply chains. Second, regarding the factors influencing bank lending, previous research primarily examined firms' characteristics from the perspective of individual firms or supply chains (Giannetti et al., 2011; Donovan et al., 2021). This paper explores the role of bank lending in mitigating potential shocks from the perspective of production networks, providing deeper insights into the micro-level mechanisms through which banks influence economic growth and macroeconomic fluctuations. This has important practical implications for governments and banks in enhancing the stability and resilience of production networks, modernizing industrial and supply chains, and ultimately achieving high-quality economic development in China. Future research can be expanded in two directions: First, regarding endogeneity issues, future studies could consider exogenous shock events such as the U.S.-China trade war and the COVID-19 pandemic. Second, future research could delve deeper into the role of government monetary, fiscal, and industrial policies in preventing risks before shocks and restoring supply chains after shocks. Finally, future research could consider the availability of data on firms' credit demand to better disentangle the independent effects of both supply-and demand-side factors on long-term credit decisions.

The capital market acts as a bridge to achieve market-based deleveraging through market-based approach and promote the optimization of the financing structures. Specifically, the capital market regulates the allocation of funds through its price discovery function, influencing the investment decisions of micro-individuals and leading to changes and adjustments in industrial structure. On the transmission chain of "price effect-resource allocation-micro investment-macro changes," external shocks lead to price changes in the stock market and bond market, which can generate economic externalities. However, there are currently few academic researches on whether overvaluation or undervaluation of bond market prices will produce the same capital change effects.
A prominent feature of China's bond market is the expectation of rigid redemption for state-owned enterprise (SOE) bonds, which has led to the long-term overvaluation of many SOE bonds. Due to their greater financing advantages, some SOEs in high-pollution and high-energy-consumption industries tend to overinvest, resulting in overcapacity in the real economy and even the prevalence of "zombie enterprises." Obviously, the overvaluation of bond market prices exhibits negative externalities. However, does the capital market exist a negative transmission chain of "negative shock-price decline-capital outflow-industry contraction"？ Cases such as the "Yongcheng Coal and Electricity Holding Group Co., Ltd. bond default" have shown that debt defaults of local state-owned enterprises can severely deteriorate the credit environment of local governments and related industries, with spillover effects causing significant difficulties in the issuance of corporate bonds in the same region and industry. Thus, it can be inferred that if the government reduces the level of implicit guarantees for SOE bonds, the decline in bond prices (and increase in financing costs) may push capital to flow out of inefficient enterprises, limit the funding supply to overcapacity enterprises, and provide a feasible path for clearing out backward capacity and optimizing industrial structure through market means. Does the aforementioned transmission mechanism exist in the capital market？ Taking the policies implemented by the central and provincial (municipal) governments starting from the fourth quarter of 2015 to deal with enterprises with backward production capacity as an external shock, this paper uses a time-varying Difference-in-Differences (DID) method to compare the changes in bond financing, bank credit financing, leverage ratio, and other aspects between enterprises with outdated capacity and normal enterprises within state-owned enterprises.
In this paper, we find that with the reduction in the level of implicit government guarantees by the implementation of the "cutting overcapacity, reducing excess inventory, deleveraging, lowering costs, and strengthening areas of weakness" policy, the bond prices of outdated production companies have fallen sharply. The bond issuance spread in the primary market has increased over 100 basis points on average, corresponding to a decline in bond prices by approximately 2.5%; among them, the issuance interest rates for long-term bonds have risen by over 160 basis points, corresponding to a decline in bond prices by more than 6%. The decline in bond prices has led to a significant reduction in the financing scale of bonds issued by enterprises with outdated production capacity, and the capital outflow effect on these enterprises is evident. However, the price contraction effect does not result in a decrease in the leverage ratio of enterprises with outdated production capacity, due to the refinancing support provided by other financing channels, which fills the gap in bond financing for these enterprises. Mechanism tests demonstrate that there is a relatively complete price discovery function in the bond secondary market, which can quickly respond to negative information and make adjustments. Moreover, the bond market exhibits distinct pro-cyclical characteristics in terms of capital allocation. It can fully reflect changes in the fundamentals and effectively mitigate financial risks and give full play to the pivotal role of the capital market.
The policy recommendations of this paper are as follows: The bond market can optimize resource allocation through its price discovery function, achieving structural deleveraging and other supply-side reform goals while maintaining overall economic stability. Therefore, it is necessary to further leverage the pivotal role of capital markets, significantly increasing the proportion of direct financing in the macro-financial system and corporate micro-debt structure, enriching bond product offerings, and advancing the development of high-yield bond markets. It is also essential to gradually break the rigid redemption expectations for state-owned enterprise bonds, achieving market-based pricing for their issuance. Secondly,the construction of information disclosure and risk disclosure systems in the bond market should be further strengthened. The quality of information disclosure by bond-issuing enterprises should be improved to reduce information asymmetry, laying a solid foundation for the effective functioning of the bond market's regulatory mechanisms. Finally, to enhance the effectiveness of various fund placements, it is crucial to strengthen policy expectation management, guiding micro entities to form stable and consistent expectations of macroeconomic control targets, thereby reducing economic uncertainty.

In recent years, a growing number of Chinese provinces have adopted the “Strong Provincial Capital” (SPC) strategy, aiming to leverage the leading and radiating role of provincial capitals to propel regional economic development. However, academia and policymakers warn that severe resource concentration in capital cities may generate a “siphoning effect”, exacerbating intra-provincial development disparities and hindering regional coordination. The emergence of SPC patterns varies across provinces: some evolved through market forces and historical accumulation, whereas others stem from government-led, policy-driven initiatives. The “invisible hand” of the market and the “visible hand” of the government jointly attract to provincial capitals the agglomeration of innovation elements, such as capital, talent, and technology. Unlike conventional investment activities, innovation inherently exhibits spatial externalities, implying that resource concentration in provincial capitals may exert profound economic impacts on neighboring cities.
Our study empirically examines the effects of the “Strong Provincial Capital” strategy on corporate innovation in non-capital cities within the same province, using data from Chinese A-share listed companies from 2007 to 2023. We find that the “Strong Provincial Capital” strategy significantly enhances the innovation level of firms in non-capital cities, demonstrating positive innovation externalities. These results remain robust when we instrument SPC adoption with the cumulative years a city served as an ancient dynastic capital and when we perform extensive robustness checks. Mechanism analysis shows two channels of innovation spillover effect: (1) knowledge-exchange effects, reflected in heightened cross-city learning and patent citations, and (2) industrial-division effects, whereby SPCs deepen the province-wide division of labor among firms. Heterogeneity analysis further shows that the innovation spillovers are stronger for privately owned enterprises, high-tech sectors, provinces with lower market segmentation, and areas whose industrial structures align closely with that of the capital. These findings yield three policy implications. First, the “Strong Provincial Capital” strategy generates positive innovation externalities that can stimulate development in non-capital cities. Accordingly, national and local governments should strengthen the “leading role” of provincial capitals when pursuing balanced regional development. Crucially, policymakers should avoid relying exclusively on administrative policies to concentrate resources; instead, they should harness the market's “invisible hand” to channel innovative factors while strengthening the radiating and spillover functions of provincial capitals. Second, the innovative spillover effects of “Strong Provincial Capitals” can operate through knowledge exchange and are stronger in samples with lower market segmentation levels. Local governments should therefore advance regional integration, dismantle inter-city market barriers, and narrow development gaps to maximize SPC-led growth. Third, because the industrial division of labor serves as another crucial channel for realizing the spillover effects, policymakers should encourage non-capital cities to develop complementary industries and extend industrial chains around the dominant industries of provincial capitals, adopting collaborative models such as “provincial capital R&D+peripheral manufacturing” and “provincial capital headquarters+peripheral production bases”, which foster complementary, synergistic industrial structures between capital and non-capital cities.
Compared to existing research, this study makes three principal contributions. First, it extends the SPC literature by focusing on micro-level corporate behavior rather than the aggregate growth that most existing studies examine. Because macro-level outcomes ultimately emerge from firm-level decisions, our micro perspective offers richer theoretical and practical insights. Second, we add to the literature on the determinants of corporate innovation. By juxtaposing siphon and spillover perspectives, we shed new light on how regional development policies shape firm-level innovation. Third, we identify and empirically validate the mechanisms—knowledge exchange and industrial division—through which SPC spillovers operate, an area previously under-explored. Our evidence that SPC spillovers flow through enhanced knowledge sharing and a finer division of labor offers novel perspectives on coordinated regional development and resource allocation.

Local Government Financing Vehicles (LGFVs, or Chengtou platforms) have long played a crucial role in supporting local infrastructure development and economic growth in China. However, with the continuous expansion of municipal corporate bonds (MCBs), the burden of local government implicit debt has become increasingly severe, making the risk resolution of MCBs and the market-oriented transformation of LGFVs a central focus in China's financial stability and development. The 19th National Congress of the Communist Party of China identified "forestalling major financial risks" as one of the three critical battles. Furthermore, the establishment of the Financial Stability and Development Committee of the State Council marked an important step forward for China towards a risk-prevention-oriented regulatory phase of the financial system. Under this policy backdrop, LGFVs urgently need to explore sustainable market-oriented transformation paths. Currently, the reforms of LGFVs in China can be broadly categorized into two approaches. The first approach emphasizes controlling new debt issuance and converting implicit debt into explicit liabilities, thereby restricting the expansion of MCBs. This paper focuses on the second approach: promoting the marketization and transformation of existing LGFVs into independent and self-sustaining entities. The goal is to shift LGFVs from merely financing tools of local governments to commercially viable platforms capable of supporting their debt through stable revenue streams. The transformation of LGFVs can not only effectively alleviate the debt burden of local governments, but also establish sustainable mechanisms for resolving the credit risks of MCBs and promoting local industrial development, thereby reducing fiscal pressure on local governments.
This study explores a feasible transformation path from the perspective of LGFVs' actual controllers' equity holdings in listed companies. Using a sample of MCBs issued between 2015 and 2023, this paper investigates whether equity holdings by actual controllers help alleviate investors' concerns over default risks, reduce financing costs, and improve the overall financial condition of LGFVs. Our findings show that equity ownership in listed companies by LGFVs' actual controllers significantly reduces the subsequent issuance spread of MCBs in the primary market. Furthermore, the findings suggest that LGFVs with higher equity holdings of listed companies by their actual controllers exhibit greater cash flow stability, enhancing their ability to meet obligations. More importantly, equity holdings in listed companies enable local governments to better mobilize and integrate resources, foster key industries, and improve their fiscal capacity, thereby establishing a more sustainable path for resolving credit risks of MCBs.
This paper contributes to the literature in three main ways. First, the increasingly common cases of LGFV’s actual controllers holding equity in listed companies have not yet been systematically examined by academia. This paper bridges this gap by analyzing the motivations and effects of this path, providing timely insights for policymakers and researchers. Second, we show that the market-oriented transformation of LGFVs enhances not only the pricing performance of MCBs but also the financial resilience and operational capacity of LGFVs, verifying the effectiveness of this path from a fundamental perspective. The results confirm that the motivation behind local governments' equity injections into LGFVs is not merely expanding borrowing capacity. Instead, these actions are more often driven by a long-term strategic vision to reshape the development model of LGFVs and to optimize local industrial structures. Third, local governments not only face the urgent task of addressing existing debt burdens but also have to confront the fundamental question of the future direction of LGFVs. This paper contributes to guiding local governments beyond the traditional mindset of rolling over debt through new borrowing or relying on land sales for repayment. This study provides valuable insights by offering an effective solution to the transformation challenges of traditional LGFVs under the frameworks of “market-oriented debt resolution” and “asset-based debt resolution”. This paper also encourages local governments to recognize the dynamic relationship between assets and liabilities and adopt a more scientific and development-oriented approach in debt management.

Health is a vital indicator of both individual well-being and social welfare. With the public medical insurance fund approaching a state of "tight balance", understanding how house price fluctuations shape residents' capacity and willingness to invest in health has become an important pathway for enhancing residents' health and achieving sustainability of the public medical insurance system. Studies by Fichera and Gathergood (2016), Gupta et al. (2018), and Kopytov et al. (2021), which are based on data from the UK or the US, have found that rising house prices enhance the health of homeowners. Conversely, Xu and Wang (2022), using Chinese data, have discovered that such increases negatively affect the health of individuals under the age of 60. Through both empirical and quantitative-theoretic analyses, we investigate the short-term and long-term effects of house price changes on Chinese residents' health and explore the underlying mechanisms.
Utilizing data from the China Family Panel Studies spanning between 2012 and 2018, we firstly conduct an empirical analysis to determine if house price changes have short-term impacts on residents' health. We split our sample by age and homeownership, and show that rising house prices significantly improve the health of the elderly homeowners but negatively affect the health of the young without housing assets. We further empirically test the mechanisms behind the above result. Specifically, rising house prices and rental rates alter residents' ability and willingness to pay for health investments. In terms of the ability to pay, increasing house prices and rental rates elevate the wealth of homeowners and loosen their borrowing constraints, thereby enhancing residents' financing capabilities. Regarding the willingness to pay, increasing house prices and rental rates lower the relative price of health investments, thereby encouraging residents to allocate their wealth towards health investments via a substitution effect.
While the limited time span of our datasets allows us to study only the short-run effects of house price changes, as due to well-recognized costs it takes a long time for households to adjust their homeownership, we calibrate a life-cycle model with endogenous housing and health choices using Chinese household data and investigate the long-run effects of house price growth rate and volatility on residents' health.
The growth rate of housing prices simultaneously alters residents' ability and willingness to invest in health. On one hand, as the growth rate of housing prices increases, it increases the overall wealth of residents and thus enhances their ability to pay. On the other hand, it also raises the opportunity cost of health investments, leading to a decrease in residents' willingness to pay. Quantifying these two opposing forces using our calibrated model indicates that the overall impact of house price growth rates on health investments exhibits nonlinearity, that is, an excessively rapid growth predominantly reduces residents' willingness to pay for health investments, while an excessively slow growth predominantly lowers their ability to pay.
House price volatility primarily affects residents' willingness to pay for health. When house price volatility decreases, on one hand, housing investment becomes more attractive and this increases the opportunity cost of health investments and reduces residents' willingness to pay. On the other hand, residents' precautionary motivation to save also gets reduced, which conversely increases their willingness to pay for health. Quantitative results show that the former effect dominates.
The paper makes three contributions. First, this paper is the first to employ a life-cycle model that incorporates both housing and health to address policy issues in China. This model, calibrated using Chinese data, integrates health and financial decisions into a unified framework. It enables quantitative evaluation of the interactions between various types of residents' decisions and can be applied to a broader set of topics in this class. Second, this paper is the first to quantitatively analyze the long-term impact of house price dynamics on residents' health. Specifically, it highlights the endogenous long-term adjustments in residents' asset allocation, which subsequently interacts with their health decisions in a rich manner. Our finding shows the importance of understanding the relationship between residents' asset allocation and health behaviors under different economic environments. Third, while previous empirical studies have mainly focused on the impact of housing prices on the health of a restricted group of households, we provide a comprehensive analysis of the short-term impact of housing prices on the health of residents with different demographic characteristics. We not only analyze how house prices alter the distribution of residents' health, but also empirically test the mechanism behind, i.e., both their ability and willingness to pay for health.

Time preference is a trade-off between the present and the future. It is usually described by the rate of time preference, which is the discount rate of the marginal utility of future consumption. The higher the discounted value of future consumption utility, the lower the rate of time preference, the more people tend to consume in the future and the higher the savings. Therefore, time preference is the core factor that determines saving behavior.
Some existing studies have analyzed the changes in household saving, investment, and consumption behaviors caused by the fertility policy. However, the preference factors behind these behavioral changes have not been deeply investigated. This paper aims to quantify the impact of the universal two-child policy on the rate of time preference and to provide empirical evidence for predicting the future savings scale and the direction of savings structure adjustment in China. On the one hand, the adjustment of fertility policy can affect the scale of consumption and savings by changing households' future income and expenditure expectations. On the other hand, it can affect the structure of consumption and saving by adjusting the share of dependency expenditure in total expenditure.
The first work of this paper is to construct a time preference rate measurement model from the consumer intertemporal decision-making problem, and to estimate the rate of time preference using the two micro-databases of China Family Panel Studies (CFPS) from 2012 to 2018 and China Household Finance Survey (CHFS) from 2013 to 2019. Using the CFPS database, the average values of the RTP at the household level from 2012 to 2020 are 0.0239, 0.0278, 0.0225, 0.0291, and 0.0251 respectively. The time preference rates calculated using the CHFS database for the years 2015 and 2017 are 0.0259 and 0.0256. This can also be understood as the discount rate used by Chinese households in discounting future utility is 2.56 % and 2.58%. The utility of 1 unit in the future is discounted to the current utility of 0.9750(=1/(1+0.0256)) and 0.9748(=1/(1+0.0258)) units, which is close to the 3% commonly used in theoretical modeling.
The second work of this paper is to design four sets of experiments to examine the impact of the universal two-child policy on time preference from the perspective of fertility behavior and fertility intention. We identify the impact of the universal two-child policy on time preference using the PSM-DID method and find that the universal two-child policy leads to a decrease in the rate of time preference of Chinese households from 2.56 % to 1.84 %, and the corresponding discount factor increases from 0.9750 to 0.9819. The rate of time preference decreases by 0.72 percentage points, with a decrease of 28.13 %. This result is confirmed by multiple placebo tests and robustness tests.
The third work of this paper is to explore the heterogeneity of the impact of the universal two-child policy on the rate of time preference from four perspectives: household vulnerability, household happiness, household health, and expected economic uncertainty. The results show that the reduction effect of the universal two-child policy on the rate of time preference is more significant in households with higher economic vulnerability, higher level of happiness, higher level of health, and lower expected economic uncertainty, indicating that these households have a stronger motivation to save for their children.
The fourth work of this paper is to further analyze the impact of the universal two-child policy on household investment income. If the implementation of the universal two-child policy changes the rate of time preference of households, the preference adjustment will eventually affect household investment income and cause a change of the rate of return. Households that are considering having or have already had two children will prefer the future. The implementation of the universal two-child policy has led to a decrease in the share of enjoyable consumption, an increase in the savings rate, and a decrease in the rate of return on investment and the real rate of return for policy-sensitive households.
The marginal contributions of this paper are as follows: First, this paper focuses on the psychological variable of time preference and quantitatively analyzes the policy effect of implementing the universal two-child policy. This provides an interpretation with a preference perspective for understanding the change in household behavior caused by changes in fertility policy. Second, this study also provides evidence for understanding why and how preferences change. This paper finds that the psychological variable of time preference is affected by policy factors. This shows that preference is not a parameter set in the theoretical model and that the constant setting should be relaxed to describe reality. Third, this paper measures the rate of time preference parameters at the household level in China using the intertemporal consumption Euler equation, which provides a theoretical modeling reference for the subsequent research on the rate of time preference.