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Notching R&D Investment with Corporate Income Tax Cuts in China

Zhao Chen, Zhikuo Liu, Juan Carlos Suárez Serrato, Daniel Yi Xu, Aug 16, 2017

To encourage innovation, the Chinese government gave tax incentives to firms whose R&D intensity (as measured by the ratio of R&D expenditures over total sales) exceeds a threshold that varies by their total sales. Using a major corporate tax reform in 2008, Professor Daniel Yi Xu from Duke University and his coauthors provide empirical evidence for some "strategic" behavior — including some relabeling of administrative expenditures as R&D — by the firms to take advantage of the tax incentives.

Industry/Policy View The US-China Trade War Is Based on Misleading Statistics

Zhiwei Zhang, Yi Xiong, Xinyu Ji, Jul 11, 2018

General Motors and Apple sold more cars and iPhones in China than in the US, but their sales were not counted as US exports to China, as these were made and sold in China. Policymakers should look at both trade and local sales by foreign firms (the FDI channel) to gauge bilateral economic balance. We estimate that US firms sold more goods and services to China than Chinese firms sold to the US in 2017, once the FDI channel is taken into account.

Chinese Economic Growth Doesn’t Appear Overstated, but Its Heavy Reliance on Credit May Be a Cause for Concern

Hunter Clark, Jeff Dawson, Maxim Pinkovskiy, Xavier Sala-i-Martin, Jun 20, 2017

Are China's official GDP growth number exaggerated? Hunter Clark, Jeff Dawson and Maxim Pinkovskiy from the New York Fed and Xavier Sala-i-Martin from Columbia University use satellite measurements of the intensity of China’s nighttime light emissions to proxy for GDP growth. Their estimate of Chinese GDP growth, since 2012, was never appreciably lower, and was in many years higher, than the GDP growth rate reported in the official statistics.

Chinese Corporate Credit Ratings: Comparing Global and Domestic Agencies

Xianfeng Jiang, Frank Packer, Dec 06, 2017

When comparing the credit ratings of domestic and global agencies on Chinese corporations, because of the differences in ratings scales, it is best to focus on the domestic and global agency orderings of relative credit risk. Testing for differences in the determinants of ratings, we find that asset size is weighed more heavily as a positive factor by domestic agencies, while profitability and state-ownership are weighed more positively by global rating agencies, which also weigh leverage more heavily as a negative factor. In spite of these differences, both domestic and global ratings appear to be priced into the market values of rated bonds.

Industry/Policy View China’s High Savings: Drivers, Prospects, and Policies

Longmei Zhang, Ding Ding, Hui He, Rui C. Mano, Apr 17, 2019

China’s high national savings rate—one of the highest in the world—is at the heart of its external/internal imbalances. High savings finance elevated investment when held domestically, and lead to external imbalances when they flow abroad. Today, China’s higher savings, compared to the global average, mostly emanate from the household sector, due to demographic...