Whether the government debt affects the twin deficits is an important issue in the international trade research. Due to the serious endogeneity between the fiscal deficit and the current account deficit, empirical research has not been concluded in agreement with theoretical research. This paper introduces the duration of education as an effective instrument variable for fiscal deficit to solve this problem. Using panel data from 150 countries in 2000 to 2014, including developed countries, emerging markets and developing countries, the empirical evidence is in line with theoretical expectations. Firstly, with a increase in government debt, the twin deficits tend to weaken. Secondly, the twin deficits in high-debt countries tend to be weaker than low-debt countries, but sill significant. Thirdly, the role of government debt on twin deficits is mainly reflected in developing countries, while which is relatively vague in developed countries due to endogeneity concerns and other disturbances including monetary policy. It is found that expansionary fiscal policy would lead to a significant reduction in current account surpluses for developing countries with low government debt such as China. For developed countries that are already at a high government debt, strategies to regulate current account imbalances through tight fiscal policy should play with proper monetary policy and be independent from the reverse impact of current account imbalances on fiscal policy.

In this paper, we verify the existence of pro-cyclicality in China's cross-border capital flows from the three dimensions of bank foreign exchange assets and liabilities, Capital and financial account flows, and the foreign exchange settlement and sale willingness. This paper establishes monitoring and early warning system of monthly indicators by applying the KLR model. The effectiveness of the KLR model is verified by sentiment indicator method. Based on the pro-cyclicality of cross-border capital flows in China and the results of monitoring and the early warning system, this paper puts forward the suggestion of using countercyclical management of banks and foreign exchange markets to manage cross-border capital flows in China.

It has been 10 years since the global financial crisis of 2008. The liquidity and financial crisis has long gone with asset prices at historical high but the Euro Area debt crisis still casts a long shadow. I summarize 10 most important lessons from crisis lending programs into three different groups. The first group consists of the lessons well learnt and being currently applied, including repairing balance sheet, strengthening regulation and maintaining exchange rate flexibility. The second group consists of the lessons once learnt but soon forgotten with the recovery of economic cycles and asset prices, including the use of leverage, the cyclicality of regulation and market complacency. The third group are the lessons that prove to be elusive and challenging for policymakers, including the politics of crisis lending, the political economy of structural reforms and preventing the next crisis. Each of the 10 lessons summarized here applies directly to today's China and can be viewed as the Ten Commandments of China's own crisis fighting.

Repo is an important trading tool of financial institutions, which facilitates both the flow of cash and securities around the financial system. It has a strong linkage with the market of lending, cash bond and derivatives, and is also one of the main tools of monetary policy operations of central banks. As an critical component of China's interbank market, repo plays a key role in liquidity adjustment, monetary policy transmission, interest rate liberalization and so on. Different from the international practice of transferring the ownership of the pledged property, the interbank repo in our country mainly freezes the ownership of the pledged bonds. With the development of the interbank bond market, more and more bonds are frozen by the pledged repo, which results in the phenomenon that the more liquid the bond is, the easier it is to be frozen, which restricts the liquidity of the secondary bond market. It is also not conducive to the integrity of the yield curve of treasury bonds and monetary policy transmission, affecting the price discovery and bond valuation. Moreover, the pricing mechanism of the pledged repo and outright repo is segmented, widening the spread between two types of repo rates. We should prudently promote the reform of the interbank repo market, comply with the market's independent choice, moderately adjust the structure of the repo market, and improve the existing repo system gradually in line with international standards. It is beneficial to improve the liquidity of the secondary bond market, to meet the needs of financial institutions for bond transactions, to strengthen the role of repo as a stabilizer and interest rate anchor in the money market, and to promote the opening-up and prosperous development of the inter-bank bond market.

This paper explores the role of financial markets and fiscal institution design in controlling the risk of local government debt in perspective of Chengtou bonds' risk premium. By taking the 2014 “self-issuing self-paying” pilot implementation as a natural experiment, we employ a difference-in-differences model to identify if market discipline can lower the risk premium of Chengtou bonds. Furthermore, market discipline is more effective in places where the fiscal transparency is higher, and less effective in presence of fiscal imbalance. We conclude that fiscal imbalance and low fiscal transparency weakens the market discipline efficiency. These results have important implications: only relying on market discipline can not lower the risk of local government debt effectively, the key is to improve the efficiency of fiscal institutional arrangement.

This paper studies the impact of carry trade on China's short-term capital flows based on the dynamic portfolio theory. Specifically, we include RMB carry trade assets, dollar risk-free assets and dollar risky assets to establish an international portfolio and calculate their optimal weights to explain changes in short-term capital flows in China. The results show that the optimal portfolio weights can significantly predict changes in China's capital flows. Moreover, the carry trade effect is still not the fundamental reason that drives the trend of China's capital flows.

This paper studies the impact of FDI on the export quality of Chinese enterprises based on the upstream and downstream linkage, and we also decompose the impact in to that of FDI in the upstream service industry and upstream manufacturing industry. Furthermore, this paper discusses the differences of the upstream FDI on the export quality according to the trade patterns,ownership and regions. We find that the upstream FDI in service industry will significantly improve the export quality of the downstream enterprises, but upstream manufacturing FDI will reduce the export quality of the downstream enterprises to some extent. And the impact of the upstream comprehensive FDI is ambiguous because of the structure of the FDI in China. And at the same time, FDI mainly affects the downstream non-pure processing trade enterprises, non state-owned enterprises and enterprises in the high market-oriented areas.

It is still an open question what effects introducing deposit insurance systems (hereafter, “DIS”) have on financial institutions in economies with implicit government guarantees. The paper exploits a quasi-natural experiment and uses event study methodology to estimate the effects. The results show that DIS actually makes smaller banks less trustworthy; DIS had more negative effects on small and local banks than large state-owned and shareholding banks. One explanation is that DIS has made implicit government guarantees explicit, leading to fears that guarantees for smaller banks will only be partial, while state-owned banks are believed to be “too big to fail”.

This paper uses a unique data set to empirically investigate the effect of consumer protection on consumption, which has been less studied in China. A panel data set was collected from 2009 to 2014 which includes provincial quarterly information on processing of consumer complaints. We use fixed effect model and instrumental variable method to estimate the effect. We found a significantly positive and robust causal effect between consumer protection and consumption. Based on the result, the decline of consumer protection in recent years may partly explain the decline in consumption growth rate. The statistics also shows that the reduction in members of consumer protection staff per ten thousand people can explain the decline of consumer protection. This study provides a new perspective to understand the low consumption rate in China and has direct policy implications.

Using the customer data by Chinese listed firms in annual reports between 2007 and 2012, we investigate the impact of top-5 customers on debt financing. We find that firms with higher customer concentrations seem to have more bank loans and longer loan maturities.This relation is stronger when there are more superior customers (Public Firms and State-Owned Enterprises),and this impact only exists in private companies because of credit discrimination in China. Empirical results show that big customers (especially superior customers) have reputation effects, which can provide assurance and confirmation for the value of supplier firms. Such positive effects dominate banks’ credit decisions and therefore relieve financial constrains of private firms.

Usinging the data of listed companies from 2003 to 2013, this paper investigates the effect of the compensation of independent directors on corporate governance. When the compensation of independent directors is too low, the underpayment problem decreases the incentive of directors to fulfill their responsibilities, leading to a lower sensitivity of manager turnover and firm performance and a higher level of earnings management. Moreover, when the compensation of independent directors is too high, the overpayment problem reduces the independence of independent directors, also resulting in a lower sensitivity of manager turnover and firm performance and a higher level of earnings management. Finally, we investigate the influencing mechanism of the compensation of independent directors. We find that underpayment decreases the incentive of independent directors to attend board meetings and overpayment makes independent directors less likely dissent the proposals of board meetings.

This paper uses corporate bond data issued on the exchange bond market from 2008 to 2015 to examine the effect of the senior management experience on bond issuance success rates and credit spreads. The study finds that compared to companies without senior executives serving as deputies to the National People's Congress or members of the Chinese People's Political Consultative Conference, the companies whose executives have served as deputies to the National People's Congress or members of the Chinese People's Political Consultative Conference have higher success rates for issuing bonds, but at the same time, their issuing costs are also greater. After considering possible endogenous issues, the above results remain robust. Our further study finds that for companies with senior management experience mentioned above, they perform more earnings management before the bonds were issued, making subsequent performance “changing face,” so investors would demand a higher risk premium. The research in this paper shows that although the experience of senior executives will help companies successfully issue bonds, the bond market also requires companies to pay higher costs.

Based on director interlocks of all public companies in China, this article explores how board networks affect non-state-owned enterprises' innovation. We find that there are two positive effects of political connection: attracting resources and introducing intelligence. Being a carrier of capital flows, board networks have significantly positive influence on accessing to external resources for R&D expenditure, which is called attracting resources; being a carrier of knowledge dissemination, board networks play great roles in accessing to heterogeneous information for enterprises' patents, which is called introducing intelligence. Empirical evidence also shows that trade credits are major sources for R&D expenditure, heterogeneous information are mostly provided for invention patents not for utility model patents and design patents. A direct policy implication of our research is that, in order to improve levels of technical innovation, non-state-owned enterprises can build board networks with other enterprises, which contributes to not only mitigating financing constraints but also providing intellectual support.