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China under Uncertainty: Outlook, Counterfactual and Policy Simulations, and Reform Implementation—A Summary of Annual Report (2016–2017)
Kevin X. D. Huang, Guoqiang Tian, Yibo Yang
Frontiers of Economics in China. 2017, 12 (2): 167-187.
https://doi.org/10.3868/s060-006-017-0008-8
China’s macroeconomy is surrounded by increased uncertainties while facing persistent downward pressures entering year 2017. Major external challenges are imposed by the chaotic political climate and disorderly retreat from globalization of the US accompanied with the impending FED rate hikes, which may trigger a destructive trade war and exert pressures on RMB depreciation and capital flight. Remaining ingrained in major internal challenges are the gridlock risks accumulated from excessive financialization of real estate sector and swelling housing market bubbles amid escalating debt levels, and more fundamentally, the continued off-real-to-virtual movement in the general economy and ascendancy of government over market in resource allocation. Based on IAR-CMM model, which takes into account both cyclical and secular factors, the baseline real GDP growth rate is projected to be 6.5% in 2017 (6.13% using more reliable instead of official data). Counterfactual analyses and policy simulations are also conducted to highlight the convoluted uncertainties surrounding China’s macroeconomy. Through the lens of these analyses, we identify a root cause of the weak outlook as the persistently distorted economic structure due to procrastination in reforms of the institutions and governance, which not only impairs China’s growth potential but also limits the power of its recent stimulating policies while exacerbating their side effects. Key to successful economic restructuring in the face of adversely evolving demographics are market-oriented reforms, with well-designed strategies to balance short-term stabilization and long-run development. Such reforms should hold center stage in China’s transition towards a modern free market economy and regulatory state.
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IPO Pricing Efficiency in China: A ChiNext Board Focus
Qi Deng, Zhong-guo Zhou
Frontiers of Economics in China. 2017, 12 (2): 280-308.
https://doi.org/10.3868/s060-006-017-0013-0
This paper examines what determines the offer price for a ChiNext IPO and discusses how we can improve the current “Chinese-style” bookbuilding process. We establish that the ChiNext IPO underwriter relies upon the institutional investors to discover the issuer’s intrinsic value (in the form of a preliminary price), and that the same underwriter adjusts the preliminary price to establish the final offer price, based on its assessment of the institutional investors’ motivations. Since the underwriter does not have discretionary power in new share allocation, this “Chinese-style” bookbuilding process contains certain pitfalls from an information asymmetry standpoint. The institutional investors mainly use “simple and direct” variables that do not adequately reflect the issuer’s true intrinsic value to develop the preliminary price, while the underwriter adjusts that price downward to establish the offer price to clear the market, as a measure to counter a perceived free-rider issue among the institutional investors. This process, in effect, contributes to initial IPO underpricing and causes principal-agent conflicts between the underwriter and the issuer. We argue that such a pricing inefficiency could be improved by an innovative “bookbuilding plus price discretionary auction” process, which is a combination of the modified OpenIPO and Taiwan-style auctioned IPO approaches.
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Inequality and Crime in China
Jiangli Zhu, Zilian Li
Frontiers of Economics in China. 2017, 12 (2): 309-339.
https://doi.org/10.3868/s060-006-017-0014-7
This paper attempts to investigate comprehensively, a “U”-shaped relationship between income inequality and crime rates in China after building a cost-benefit analysis model, by using time series data from 1981–2012 and panel data from 1999–2012. The empirical results show that: firstly, in the time series model, the U-shaped relationships between inequality and the total crime rate and rates of various crimes except from smuggling, are very significant in the period of 1981–2012, secondly, the panel threshold models show that inequality and crime tend to be correlated positively with each other during 1999–2012, because the inequality level during this period is much higher than the turning points of inequality estimated in the time series models, although three regions with different development levels are located in different parts of a U-shaped curve between inequality and crime.
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