This article considers pension reform in China. Its analysis comprises four parts. The first is an analysis of multidimensional influence induced by pension reform. From a macro perspective, the pension systems of most countries around the world are facing a financial gap or complete unsustainability. The conversion of pay-as-you-go pension systems into funded systems is closely tied to the development of capital markets. Pension funds are important sources of long-term capital and are vital to the efficiency of financial markets. From the micro perspective, the pension contribution model is closely related to labor productivity. If individual workers cannot observe contributions to their accounts, they will not consider them to be part of their salary, so they will not work hard. From the perspective of companies, contributions are regarded as extra fees with no output. During economic downturns, companies complain that the contribution rate is high and lobby the government to reduce it.
The second part of the paper proposes a general framework for pension reform in China. First, it is necessary to ensure that discussion occurs within the same framework to avoid ineffective communication. At the moment, the goals of China's pension reform are highly disputed. Various government departments have different opinions on the problems, methods, and policies of the pension system. Hence, it is necessary to establish a more comprehensive measure, such as the Lifetime Financial Security (LFS) method adopted by the G30. This will enable the comparison of policy effects across departments. Second, this paper proposes a solution to the costs of pension system reform involving a transition to the Defined Contribution (DC) model. Most countries around the world have been gradually changing from Defined Benefit (DB) plans to DC plans. If China does the same, there will be problems of transition between the older and younger generations.
The third part of this paper proposes several ideas regarding pension benefit payments and pension funds operations. One is to establish an N-to-1 model for paying pension benefits. In practice, ensuring the portability of pension benefits is easier said than done. Due to the development of Fintech and electronic payment systems, pension funds can make use of an N-to-1 payment system. Another idea is to balance the trade-off between competition and efficiency in pension fund administration. In theory, a certain degree of competition will encourage pension fund administrators to increase investment returns through better operations and management. Financial institutions that perform well will exert pressure on poorly-managed institutions. However, an excess of pension fund administrators will lead to high costs and loss of returns. Given the future long-term economic outlook and uncertainties in the financial markets, it is also impossible for government agencies to ensure long-term return on investment. The risk sharing of investment is also an important determinant of the sustainability of pension systems. Another idea is that pension fund administrators should invest globally. Some small countries make globally diversified investments to increase returns and diversify risks. As far as China is concerned, whether pensions can be invested globally depends not only on China's continued opening up, but also on the healthy development of the domestic capital market.
The last component of this paper is cross-disciplinary, offering wide-ranging thoughts on pension reform. Pension reform involves a multitude of financial and other complex issues. Pension reform must deal with the relationship between voluntary and compulsory savings, and consider the relationship between pensions, housing, and health insurance. In addition, in many countries, the different political influence with different generations, and populist tendencies can easily lead to biased policies that aim to gain votes.
Lastly, the paper concludes that China's pension reform is a major project that draws on the entire discipline of economics. We should comprehensively analyze, discuss, measure, and verify reform proposals from multiple perspectives. We should also focus on incentive mechanisms in pension reform to enable bold and effective reform.

Since the exchange rate reform was implemented in 2005, the RMB exchange rate has continually appreciated. Following the reform, especially during the long period after the financial crisis, the market formed strong expectations of the appreciation of the RMB (Yao, 2008; Zhang, 2010). In this context, many firms hope to convert overseas currencies into RMB to enjoy the gains from the continuing appreciation of the RMB. This type of trading is called currency arbitrage (Zhang, 2010). However, due to China's capital controls (Ma & Mccauley, 2008), hot money cannot flow into China through legal channels. Thus, firms need to engage in a series of activities to evade the tight capital controls. One of the most commonly used channels is false trade, whereby firms manipulate the value of imports or exports, or even completely falsify their transactions (Gunter, 2004; Ferrantino et al., 2012; Kellenberg & Levinson, 2014; Lin et al., 2018). Although false trade has aroused significant attention at the policy level in China, few studies have quantitatively examined false trade, especially in terms of the traders' motivations, because false trades are difficult to detect and measure. In this paper, we examine the false trade activity of Chinese exporters from a currency arbitrage perspective.
In this paper, based on the HS six-digit product level export data from mainland China to Hong Kong during 2010-2012, we examine the false trade behavior of exporters seeking to evade the capital controls and profit from the appreciating RMB, and provide evidence for the motivation to engage in currency arbitrage. We find that the expected appreciation of the RMB significantly promotes the increase in the export value of products. For products with a higher value to weight ratio, we find that the exports are more sensitive to the appreciation of the RMB forward exchange rate. This finding strongly supports the false trade hypothesis. Firms do not randomly select products to export when they engage in abnormal trade to bypass capital control. Rather, to save transportation costs, they try to make their goods as valuable as possible given a fixed weight. Therefore, firms are likely to choose products with a high value to weight ratio when they engage in false trades. Our heterogeneous tests indicate that false trades are more likely to occur among products with a higher share of processing trade. In addition, we use the 2012 exchange rate reform as an exogenous shock to further verify the currency arbitrage hypothesis. The exchange rate reform in 2012 increased the volatility of the RMB exchange rate and thus increased the cost of cross-border currency arbitrage. We find that the false trade practices of firms are significantly reduced after the exchange rate reform.
Our paper makes three main contributions to the literature. First, studies have pointed out that the appreciation of the RMB exchange rate depresses exports. However, we find that when Chinese exporters expect the RMB exchange rate to appreciate, they increase the value of their exports to Hong Kong to transfer hot money to mainland China through false trades and engage in speculative arbitrage. Thus, this paper provides a new perspective for explaining that the surge in mainland China's exports to Hong Kong against the background of the continued appreciation of the RMB exchange rate following the exchange rate reform in 2005. Second, we further quantify the increase in the share of false trade in relation to the total exports as a result of currency arbitrage, and find that currency arbitrage is an important driver of the increase in the share of false trade. Third, to identify false trade behavior, we calculate the value to weight ratio of HS six products and find that when the forward exchange rate appreciates, the export value of products with a high value-to-weight ratio increases.
Our findings have several policy implications. First, customs supervision departments should continue to detect false trade activity, strengthen the customs audit mechanism, and pay more attention to products with a high value to weight ratio, such as electrical products and precious metals. Second, our heterogeneous tests show that false trades are more likely to occur in products with a higher share of processing trade. Therefore, the customs department should impose stricter regulations on the transactions of processing trade. Lastly, China should further promote the marketization reform of the RMB exchange rate to increase the cross-border arbitrage costs for firms, and restrict the false trade activities of exporting firms.

It is generally believed that fiscal autonomy gives local governments greater incentives to pursue economic development. However, the research literature on fiscal autonomy has focused on the relationship between local financial autonomy and public goods supply (Sharma and Hotchkiss, 2001), fiscal autonomy and public expenditure efficiency (Bartolini and Santolini, 2013), equalization of public services for local financial self-sufficiency, and transfer payments. The literature on the relationship between fiscal autonomy and economic efficiency is still inadequate.
This paper links fiscal autonomy with economic efficiency and reveals the relationship between local fiscal autonomy and technological progress under the theoretical framework of Chinese-style fiscal decentralization. The contributions of this research are twofold. (1) It reveals the relationship between fiscal autonomy and technological progress under the framework of Chinese-style decentralization, enriching the breadth and depth of fiscal decentralization theory research. (2) It uses a research sample based on municipal level data to provide a deeper understanding of the impact on China's transitional economy of the relationship between central and local governments, and between provincial and municipal governments under fiscal decentralization.
This paper tests the following hypothesis: higher local financial autonomy is related to a higher level of technological progress; however, in cases of diminishing marginal efficiency of economic fiscal expenditure and long-term lack of social fiscal expenditure, the impact of fiscal autonomy on technological progress decreases.
First, in the empirical study, this paper calculates the total factor productivity of 230 cities in the period 1999-2013 and tests the impact of urban financial autonomy on urban total factor productivity. To avoid the influence of causal endogeneity on the empirical results, this paper constructs the number of state-level poverty-stricken counties in cities and the fiscal revenue of the previous year as the instrumental variables for financial autonomy. The regression results of the instrumental variables show that urban financial autonomy has only insignificant influence on total factor productivity (TFP). However, urban financial autonomy has a significant impact on scale efficiency (SE) and technological progress (TP) in the composition of TFP, and this effect is still significant with the addition of various control variables.
Second, the phased results show that the impact of fiscal autonomy on SE and TP in the composition of total factor productivity has shown a declining trend, mainly as the coefficient becomes smaller and the significance is reduced. To a certain extent, this indicates that due to imbalances in fiscal expenditure, expenditure on non-productive public goods such as education, science and technology, the environment, and medical care has been squeezed, which has led to insufficient investment in technological progress for long-term economic growth; thus, the impact of fiscal autonomy on technological progress is waning.
Finally, to verify the impact of urban financial autonomy on total factor productivity, this paper examines the impact of urban financial autonomy on corporate total factor productivity. The regression results of enterprise total factor productivity calculated based on Chinese industrial enterprise data show that improved urban financial autonomy can significantly increase total factor productivity at the enterprise level.

Since the reform and opening up, China's economy has demonstrated many remarkable achievements, but its capital-driven economic growth model has frequently been attacked as “inefficient” and “unsustainable.” These attacks are based on the notion that the diminishing law of capital marginal returns restricts economic growth. However, Japan, the “Four Little Asian Dragons,” and China mainland have all attempted to deal with this economic bottleneck through various channels. Some studies hold that the equal expansion of capital and labor under a “dual economic structure” inhibits the diminishing marginal returns of capital. However, the data show that the degree of capital deepening in China is actually increasing. This paper also starts from the “dual economic structure” and proposes a new way of thinking about how the Chinese economy can break the restriction of the decreasing marginal return of capital. In this view, the labor price distortion caused by labor mobility and the household registration system provides a source of monopoly profit for factor market buyers. The monopoly profit created by this distortion subsidizes the enterprise's return on capital and thus promotes the continuous accumulation of capital. There is no doubt that factor price distortions and their mismatches in price performance will harm output performance and total factor productivity, and this issue has been widely discussed. The excessive profit subsidy by the labor price distortion of corporate capital has been an important channel in China's economy for offsetting the diminishing marginal return of capital, but few studies have focused on its specific role in the period of economic growth. Therefore, this paper attempts to provide a more objective and comprehensive examination of the effect of labor price distortion on China's capital output, capital return, and capital flow.
This paper is based on the monopoly market equilibrium model of the factor buyer in the production department. It uses Chinese provincial panel data from 1996 to 2016 to measure the degree of Chinese labor price distortion, and it uses the fixed effect model (FE) and the instrumental variable of the panel fixed effect (IV) to estimate the parameters. Using this method, the paper analyzes China's capital output, capital return, and capital flow from the perspective of labor price distortion. It thus shows how the Chinese economy achieves both low capital output and high return on capital in a phase of increasing capital deepening and weak TFP growth by relying on labor price distortion, thereby maintaining long-term high-speed capital accumulation and high-quality capital flow structure. The empirical analysis shows that the negative distortion of labor price in China has existed for a long time, which has reduced the efficiency of capital production. However, this does not cover the direct subsidy throughout the return of monopoly profits transferred from labor to capital; the labor price distortion has thus played an important supporting role for China in maintaining a high level of return on capital. The result has been a rapid accumulation of regional capital through a high return on capital. The positive effect of labor price distortion on capital flow is also reflected in restraining the capital from “de-reality” and attracting foreign capital inflows.
It is important to understand that the distortion of labor prices is only an intermediate state created by special conditions, such as surplus labor flow and market segmentation in the catch-up phase. This distortion will surely disappear as China goes beyond the “dual economy” development stage and the marketization of factor markets. Although the labor price distortion plays an important role in breaking the marginal diminishing returns of capital in the catch-up phase, the distortion phenomenon and its effects are unsustainable. After the Chinese economy enters the “new normal” stage, the collapse of labor price distortion will bring new challenges to sustained economic growth. This correction will bring about an increase in output efficiency but reduce the return on capital and change capital flows, leading to a decline in capital growth, driving capital to “de-reality” and increasing the risk of international capital outflows. It will consequently have an adverse impact on economic growth. Therefore, it is necessary to actively take measures to avoid the adverse effects of distortion correction on capital return and capital flow. In this way, it can create new channels to address the diminishing marginal output of capital, transform the economic growth model from capital-driven to total factor productivity driven, and ensure the healthy and orderly development of the national economy.

As the economy transitions to more advanced versions of “the new normal,” the Chinese government has issued a call for “mass entrepreneurship and innovation” to inject new vitality into economic development. A sound financial system plays a vital role in promoting entrepreneurship. The “Promoting Inclusive Financial Development Plan (2016-2020)” emphasizes that “It is necessary to improve the availability of financial services and substantially improve financial support for entrepreneurs, entrepreneurial college students, and disabled workers.”
This paper focuses on the relationship between financial support and entrepreneurial activities, and investigates the influence and role of inclusive finance on entrepreneurship. Using data from the 2015 China household finance survey, this paper finds that the development of inclusive finance has a significant positive impact on the improvement of entrepreneurial activities, and compared with the use of inclusive finance, its penetration has a more important and fundamental impact on entrepreneurship. The results of the mechanism test show that inclusive finance promotes entrepreneurship not by relieving the constraint of limited family funds, but mainly through the improvement of residents' financial ability. Due to the popularization of financial education, the role of inclusive financial development in promoting entrepreneurship will be strengthened. Moreover, by distinguishing different dimensions of inclusive finance, it can be found that the moderating effect of financial education on the relationship between inclusive finance and entrepreneurship is realized by improving the enhancement effect of financial service usage on entrepreneurship. This paper's research shows that compared with traditional financial development, the realization of financial expansion is more conducive to stimulating residents' entrepreneurial spirit. Inclusive finance plays a significant role in promoting entrepreneurship, which can provide guidance for China in developing inclusive finance. First, it is necessary to improve top-level design and promote inclusive financial development. Top-level design will allow the overall financial system to better provide financial services to vulnerable areas, regions, and groups, and help the economy achieve fuller, more balanced development. Second, it is important to expand the breadth of services and improve their availability. To give full play to the supporting effect of inclusive finance on entrepreneurs, it is vital to reasonably distribute the network layout, sink the center of gravity of financial services, and get through the “last mile” of financial services. Third, it is important to focus on coordinated development and establish a financial service system that benefits all. Inclusive finance development should not only strengthen credit support, but also promote the upgrading of exchange media, improve payment and clearing services and expand risk management channels so that residents can fully enjoy the benefits brought by inclusive finance development.
The contributions of this paper are as follows. First, the financial broadening perspective is vital for the study of financial support for entrepreneurship, but the supporting role of inclusive finance in entrepreneurship is at present rarely discussed.This paper studies the supporting role of inclusive finance in entrepreneurship from the perspective of financial expansion.Second, with the help of China household financial survey data and principal component analysis, this paper measures the level of inclusive finance from the micro perspective. Thirdly, most studies have focused on the impact of financing mechanisms on entrepreneurial activities. This paper studies the mediating effect of various financial capabilities, including capital supply and use of exchange media, risk perception and risk management, on the capacity of inclusive finance to promote entrepreneurship.

Since China's tax-sharing reform of 1994, local governments have struggled with insufficient fiscal revenue to meet their investment needs. Under the reform, taxes collected from concentrated sources become central taxes, while taxes from scattered and sporadic sources become local taxes. Therefore, the reform led to declining tax revenues and increasing government expenses, increasing the fiscal pressure on local governments (Fu and Zhang, 2007; Li and Zhou, 2009; Zhao et al., 2010). In these circumstances, local governments, motivated by the goal of local economic development, have strong incentives to intervene in financial market resource allocation to make up for their fiscal deficits (Ba et al., 2005). We intend to investigate how fiscal pressure on local governments influences commercial banks' credit investment and what impact this type of government intervention has on credit resource allocation efficiency.
To explore these questions, we conduct an empirical analysis using data from Chinese city commercial banks from 2005 to 2015. We choose city commercial banks for two main reasons. First, city commercial banks and local governments are inextricably linked. In China, city commercial banks are local joint-equity commercial banks approved by the State Council and founded on the basis of urban credit cooperatives. China's central bank tasks city commercial banks with providing financial services to promote local economies, facilitate the development of small and medium-sized enterprises, and serve local urban residents. Second, city commercial banks are more appropriate for this research than national commercial banks because local governments are usually able to exert stronger influence on city commercial banks. As a result of the vertical management structure of national commercial banks, their local branches are directly controlled by the head office, and local governments are limited in their ability to persuade these branches to lend to local performance-related projects (Liu, 2013). Most city commercial banks are 75%-owned by local governments or state-owned enterprises. For this reason, local governments can easily control the equity investments and personnel appointment and dismissal decisions of these banks (Xu, 2018).
Through empirical analysis, we find that local governments' fiscal pressure significantly determines city commercial banks' credit allocation. When fiscal pressure increases, city commercial banks allocate more credit resources to local state-owned economic sectors. However, this kind of credit resource allocation negatively affects bank performance, resulting in higher non-performing loan ratios and worse accounting performance. Further analysis finds that banks located in provinces with higher fiscal pressure have lower allowance ratios for loan losses and allocate more credit resources to local state-owned economic sectors. This finding suggests that banks use allowances for loan losses as an earnings management tool to deal with regulatory pressure.
Unlike existing research, our study uses data manually collected from city commercial banks, which makes our findings on the relationship between local governments and commercial banks more generalizable. Our findings have significance in explaining the channel of local governments' influence on banks' credit resource allocation efficiency. Our study also has significant policy implications. Large-scale borrowing by local governments has brought significant theoretical and practical attention to the issue of financial risk prevention. Our results suggest that local government-related financial risks could arise from both the tournament-based incentive system for local officials in China and the mismatch between local governments' financial and administrative powers. To alleviate the fiscal pressure on local governments and reduce financial risks, it is important to build a well-established debt financing system and improve the financial market for local government bonds. It is even more important to launch a new round of fiscal reforms aimed at balancing the financial and administrative powers of local governments (Liu, 2013) and effectively supervise the promotion of local officials. Furthermore, to improve the performance of commercial banks and ensure that they play a major role in credit resource allocation and better serve the real economy, local governments should intervene less in commercial banks, and the level of marketization should be further improved.

By the end of 2017, nine countries and zones, whose combined GDP was more than 30% of the world total, had adopted a negative interest rate policy (NIRP). These countries and zones have a common feature: their financial sectors are all bank-dominated, with bank revenues heavily relying on net interest income (NII). Since the implementation of NIRP, the banks' net interest margins (NIMs) have dropped significantly. European banks' share of NII has decreased by 5%, and their NIMs have decreased by 10 basis points. The NII of Japan's banking sector has decreased by 9%, and its NIM has dropped by 0.1%.
Bank behaviors under different monetary stances are subject to heated debate. Since the wide implementation of NIRP, much attention has been drawn to its transmission mechanism. However, due to a lack of data, very few academic studies have examined the effects of NIRP on banks' NIMs. Practically, there has recently been significant progress in Chinese banks' international banking activities. It has been difficult for Chinese banks to maintain a stable performance in NIRP zones. This study examines banks' NIM-adjusting behaviors under NIRP, especially the different behaviors of banks with specific features. It enriches the theoretical understanding of the transmission mechanism of NIRP and its micro-impacts on banks. In addition, it provides solid references for banks' NIM management under an NIRP environment.
Building on Busch and Memmel (2017), this study develops a model to explain how banks' NIMs respond to adjustments in policy rates. Due to mismatches between maturity of assets and liabilities, banks' NIMs tend to show a positive co-movement with policy rates. Under NIRP, the positive relation is greatly strengthened due to a flatter yield curve and the price sticky feature of retail deposits. This study also explains why, under NIRP conditions, banks with larger sizes and higher levels of internationalization are less responsive to policy changes, whereas banks with higher shares of retail business and banks that are more reliant on NII are more responsive. Following our theoretical analysis, we carry out an empirical study to test our hypothesis. The empirical study is based on annual unbalanced panel data of major listed European banks and uses a dynamic panel model and one-step system generalized moments method (GMM) estimation. The dataset includes 102 listed commercial banks from 18 European countries. Given the substantial changes in accounting standards after the wide implementation of IFRS 9 (on January 1, 2018), this study focuses on the 2004 to 2017 period. All of the sample banks are headquartered in NIRP areas. By the end of 2017, the total assets of the sample banks made up more than 70% of the total banking assets in these 18 European countries. All of the bank-level data are drawn from the SNL database. The macro-level data such as policy interest rates are obtained from corresponding central bank websites.
The results show that an increase (decrease) in policy rate leads to an increase (decrease) in banks' NIMs. Under NIRP, the above-mentioned sensitivity is significantly enhanced, especially when interest rates decrease. Banks with different specific features response differently to changes in policy rates. Specifically, larger banks and banks with higher levels of internationalization are less affected by adjustments in policy rates, whereas banks with higher percentages of retail business and interest income are more likely to be affected by changes in policy interest rate.
To address the adverse impacts of NIRP, European and Japanese banks are trying to increase non-bank and non-interest income to compensate for the loss caused by decreased NIMs. They are also reducing assets in NIRP areas by expanding overseas businesses, enhancing cost management by cutting staff and streamlining physical outlets, encouraging digital and scientific transformations to improve efficiency, and conducting mergers and acquisitions to improve competitiveness.
Chinese bank branches operating in NIRP areas have limited access to non-interest income due to regulatory limitations. Their main strategy is to refine their portfolio allocations, which includes increasing inter-bank and bond financing in NIPR areas on the liability side, which allows them to enjoy the low cost of financing and increase the sensitivity of liability cost to the policy rate. On the asset side, they can enhance cooperation with branches outside NIRP areas to increase the proportion of loans outside these areas. They could also flexibly adjust the pricing and re-pricing strategies on both sides by absorbing fixed rate, long-term liabilities and extending floating rate assets with short re-pricing periods.

Bond rating agencies play a critical role as intermediaries in bond markets by providing information to investors about the default risk of bond issues. A frequent concern regarding the rating process is that the bond issuer generally pays the rating agency, which could compromise the information content of the rating due to a lack of independence. The three major credit rating agencies—Standard & Poor's (S&P), Moody's Investor Service (Moody's), and Fitch—have been heavily criticized since 2002, when they failed to foresee the bankruptcies of Enron and WorldCom. During the recent financial crisis, the major rating agencies were again criticized for not providing accurate ratings for subprime mortgage-backed securities. Critics argue that the issuer-pay revenue model drives the failure of rating agencies, and they blame it for creating potential conflicts of interest and ratings inflation (Livingston et al., 2018; Becker and Milbourn, 2011; Bolton et al., 2012.)
A well-established credit rating industry is crucial for a healthy and vigorous bond market. Along with the development of the bond market, the Chinese credit rating industry has experienced significant growth. Major credit rating agencies in China adopted the issuer-paid model from the beginning. Issuer-paid agencies tend to cater to issuers' interests and understate credit risk, which could lead to less informative ratings. Credit rating agencies in China have faced growing criticism and regulatory pressure for their inability to adequately predict firm defaults. It is widely acknowledged that the ratings provided by major rating agencies lack timeliness and are unresponsive to market-based risk measures.
Consequently, investor-paid rating agencies have generated growing attention due to the market's criticism of issuer-paid raters. On September 29, 2010, China's first investor-paid agency, the China Bond Rating Corporation (hereafter CBR), was established in Beijing. CBR is funded by the National Association of Financial Market Institutional Investors (NAFMII). The establishment of the CBR provides us with an ideal setting to examine how various institutional arrangements affect credit ratings, and in particular how pay models affect agencies' performance.
There are two opposing perspectives on whether investor-paid will lead to more informative ratings than issuer-paid. From one perspective, the issuer-paid model leads to an independence problem. Issuer-paid creates incentives for rating agencies to become more aligned with their clients, which could lead them to only communicate information that benefits their clients, resulting in less informative ratings under issuer-paid than investor-paid. From the other perspective, the issuer-paid model allows for economic bonding between rating agencies and issuers through explicit contractual arrangements, which should improve the flow of nonpublic information. These rating agencies would gain greater access to private information and better resources. From this perspective, issuer-paid should promote the sharing of value-relevant information with rating agencies.
In this paper, we utilize a set of publicly listed firms in China from 2011 to 2015 to compare the quality of credit ratings issued by an investor-paid agency (CBR) and issuer-paid agencies. We find that CBR gives more negative ratings than issuer-paid rating agencies, and the negative ratings given by CBR are associated with worse future profitability, higher default risk, and higher risk compensation requirements by investors compared to ratings from issuer-paid rating agencies. This indicates that the investor-paid agency's ratings have better quality. Even though issuer-paid credit ratings can benefit from private information, the better quality of the investor-paid ratings suggests the importance of credit rating agencies' independence.
The findings of this paper have important theoretical and practical implications. First, our paper contributes to a growing body of literature concerning rating agencies' rating quality. Second, our major findings suggest that the quality of ratings given by CBR, which has adopted the investor-paid model, is higher than that of issuer-paid rating agencies' ratings. This provides empirical evidence for the rationality and necessity of the establishment of CBR, the first investor-paid rating agency in China. However, we also find that CBR has little access to the private information of issuers. Measures should be taken to ensure that CBR has greater access to nonpublic information for its rating process. Lastly, this paper will provide information for regulators who wish to improve the behavior of rating agencies.

According to data from the China Securities Depository & Clearing Statistical Yearbook, as of the end of 2016, registered natural investors accounted for 99.85% of all investors. The proportion of elderly investors had also steadily increased, exceeding 10%. This phenomenon is worthy of researchers' attention. Different from young and middle-aged investors, most elderly investors have low risk tolerance, and they will suffer great negative impacts on their pension assets and health status once they encounter problems with financial risk. The above is not only directly related to residents' asset security and everyday stability but also concerns the healthy development of the capital market in China.
The literature analyzes the issue from the perspectives of the personal characteristics of investors and the economic and social environment. This paper concludes that investors' experiences during adolescence may have a significant impact on their future venture capital investment. Psychological research points out that an individual's early life experiences have long-term effects on their behavior (Kendler et al., 2002), especially catastrophic experiences, which can cause personal psychological trauma. Early life experiences affect people's long-term risk perceptions, personal preferences, and beliefs (Shi Kan, 2010), all of which are closely related to individuals' behavioral decisions. Household risky financial assets investment is an important financial decision. It is directly related to individual psychological factors, such as risk awareness and risk appetite. Therefore, this paper concludes that individuals' early experiences affect their future household risky financial investment. However, there is a lack of quantitative research on this issue .
This paper uses micro-data from the 2010 China Family Panel Studies to match financial asset investment data at the household level with personal data from the Going up to the Mountains and Down to the Countryside experience. Furthermore, it adopts fuzzy regression discontinuity method (Fuzzy RD) to estimate impacts of the Going up to the Mountains and Down to the Countryside experience on investment in family risky financial assets. The estimation results show that the experience significantly increases the probability of household investment in financial assets and the corresponding investment scale. The probabilities of households with such experience participating in stock investment and general risky financial assets are 50.4% and 53.7%, higher than those of the households without such experience, respectively. As for scales of stock investment and general risky financial assets investment, people with the experience is higher than those without it by 5.9% and 5.7%, respectively. Finally, the sub-sample heterogeneity discussion shows that the positive impact of the experience on family investment in risky financial assets is more obvious among well-educated, high income, and high social capital demographic groups.
This paper makes contributions in at least three aspects. First, it uses for the first time survey data at the household level (collected from Chinese families) to explore the impacts of the Going up to the Mountains and Down to the Countryside experience on investment decisions involving family risky financial assets. Second, this paper uses Fuzzy RD to minimize the bias of the estimation results caused by the potential endogeneity problems that may exist in the key variable, the Going up to the Mountains and Down to the Countryside experience. Third, it explores two possible mechanisms that prove that the Going up to the Mountains and Down to the Countryside experience affects family investment behavior by influencing risk appetite of investors and per capita income of family.
This paper's conclusions indicate that early personal experience has a certain impact on the development of personal characteristics, which affect people's future economic decisions. Analysis from this perspective provides a new perspective for understanding the special structure of participants in China's stock market and provides a new entry point for understanding the investment behavior of individual investors. Therefore, to enhance the effectiveness of the policy, it is necessary to consider personal characteristics, common experiences, and specific histories of people when formulating relevant policies.

“Socialism with Chinese characteristics” has entered a new era, in which the major social contradiction is between people's growing needs for a better life and the problem of inadequate and unbalanced development. China must address the current reality of severe environmental pollution as the same time as alleviating these major social contradictions. Environmental problems have many externalities, and thus environmental pollution control relies heavily on environmental regulation to internalize external costs. The “Porter hypothesis” suggests that reasonable and strict environmental regulation can promote enterprises' technological innovation; the resulting first-mover advantage can compensate for the costs of environmental regulation and achieve a win-win situation. Based on this argument, formulating and implementing appropriate and effective environmental regulation policies that realize the Porter hypothesis have become a key issue in the process of building socialism with Chinese characteristics in the new era.
Depending on the regulatory bodies and mechanisms involved, environmental regulation can be divided into two types: command control and market incentive. Since the beginning of the 21st century, market-incentive environmental regulation policies have been gradually implemented in China. Around 2002, China tentatively established an emissions trading policy mainly for sulfur dioxide emissions. In June 2013, China pioneered the introduction of a carbon emissions trading mechanism originating in the developed capital markets of Europe and the United States, and it successively established carbon trading exchanges in seven regions. At the end of 2017, the National Development and Reform Commission announced an official nationwide launch of a unified market for carbon emissions trading.
This gradual development of a carbon emissions trading mechanism indicates that China's environmental regulation system is gradually shifting from command control to market incentives. This paper uses data on Chinese listed companies from 2011 to 2016, based on the analytical framework of Porter hypothesis, and tests whether the carbon emissions trading mechanism can promote technological innovation. This paper finds that the implementation of carbon emissions trading has significantly promoted technological innovation in regulated enterprises. However, the positive effects of carbon emissions trading on firm innovation are constrained in two aspects. First, the positive effects of carbon emissions trading on the technological innovation of enterprises is stronger if the carbon market is more liquid. Second, the positive effects decrease if the industry in which the company is located is less competitive and the concentration of customers or suppliers is lower.
The main contributions of our study are as follows. First, based on the Chinese institutional background, relevant studies have paid more attention to the policy effects of command control environmental regulation. In contrast, this paper focuses on the implemented carbon emissions trading mechanism and tests whether market-incentive environmental regulation can achieve the Porter effect in China. Second, based on the inherent design differences between the seven Chinese carbon trading markets, our paper finds that liquidity constraints in a carbon market will reduce the positive impact of carbon emissions trading on enterprise technology innovation. Third, the relationship between environmental regulation and enterprise technology innovation is a matter of controversy. From an examination of the cost transfer ability of enterprises under environmental regulation, this paper finds that the positive impact of carbon emissions trading on enterprise technology innovation mainly affects enterprises with relatively low cost transfer ability.

Initial public offerings (IPOs) are an important part of the healthy development of a stock market. IPOs not only allow firms to access capital markets and raise capital at low cost, but also provide investors with new investment opportunities. IPO pricing inefficiency has long plagued China's stock market. This study compares the IPO price efficiency of the market pricing mechanism with that of the window guidance (price cap). We find that IPO pricing mechanisms not only impact stocks' primary market price, but also influence stocks' secondary market price movement immediately after the stocks are issued. Only by examining stock prices in the primary and secondary markets together can we achieve a comprehensive understanding of the IPO mechanism.
Our heterogeneous and irrational investor-based theoretical model demonstrates that although a price cap can lower the primary market IPO price, it also amplifies the secondary market trading price immediately after the new shares are issued. When investors are not fully rational and conduct momentum trading, the primary market price cap can align investors' expectations in the direction of stock undervaluation. As irrational investors tend to buy shares of newly issued stocks more aggressively than their rational counterparts, they can drive the stock price to a level even higher than the price level under the IPO market pricing scenario.
To empirically test this theory, we collect a sample of 1,950 IPOs in both the market pricing period (from January 2009 to June 2014) and the window guidance period (from July 2014 to June 2018). The persistent price increase after the listing of the firms indicates that the secondary market is still engaged in the pricing process, which is not accomplished in the primary market. Only when the stock price stops increasing and reaches a local maximum is the pricing process completed. To effectively characterize the secondary market pricing of IPO stocks, we introduce a new concept, the extreme price-earnings (EPE) ratio, which is defined as the first local maximal closing price-to-earnings (P/E) ratio after the stock is traded in the secondary market.
Consistent with our theory, we find that an IPO price cap leads to an abnormal secondary market price increase after stock issuance. The average industry-adjusted EPE ratio of the IPO stocks reaches 30.4 in the window guidance period, which is significantly larger than the 10.0 average in the IPO market pricing period. This result is very robust even after controlling for firm accounting variables. It clearly demonstrates that instead of alleviating the IPO overpricing problem, the price cap policy exaggerates the overpricing issue. Although the price cap limits overpricing in the primary market, it only moves the problem to the secondary market at the cost of even higher secondary market overpricing.
We find three additional pieces of evidence to support our claim. First, the financial performance of IPO firms (e.g., sales growth, ROE, leverage, etc.) is much better in the market pricing period than in the window guidance period, suggesting that the higher industry-adjusted EPE ratio in the window guidance stage is driven not by higher firm quality, but by larger mispricing. Second, IPO stocks in the window guidance period have much lower market-adjusted long-term returns than the IPO stocks in the market pricing period. According to our theory, the price cap drives the secondary market price to an excessively high level, which will lead to much lower returns in the long run. Third, we find that the mispricing effect in the secondary market is stronger for the Growth Enterprises Market (GEM) Board IPO stocks than for the Main Board IPO stocks. As GEM firms are subject to more growth uncertainty and information asymmetry, they are more likely to be chased by irrational investors, thus creating larger mispricing.