China’s economic pledge stoked investor euphoria

Investors cheered Wednesday when China’s top economic policy czar promised a package of sweeping measures to support the nation’s economy and financial markets. To get more china economy latest news, you can visit shine news official website.

The pledge, announced by Vice Premier Liu He after convening a special meeting of the powerful State Council’s Financial Stability and Development Committee, reversed a historic rout in China shares on mainland and global equity markets Monday and Tuesday. China stocks roared back on Wednesday and Thursday, with many posting double-digit gains, as investors bet Liu’s intervention meant Chinese President Xi Jinping had finally abandoned his two-year crusade to rein in what he has called the forces of “disorderly capital.”

But the rally stalled on Friday, and as the dust settles on a tumultuous week, the skeptics are creeping back.

Analysts and insiders cite a host of reasons to doubt that Liu’s assurances signal a fundamental shift in China’s approach to managing markets and regulating the nation’s technology and property giants. Rather, many argue, Wednesday’s unusual announcement should be seen as a modest course correction—or worse, a cynical attempt by China’s leaders to shore up stock prices with empty rhetoric. .
Researchers from The University of Manchester and University of Navarra have examined the value of politically connected firm directors to the Chinese elite, in terms of getting preferential access to resources.

The study found that being connected to the political elite in China brings advantages to firms, despite the launch of the Anti-Corruption Campaign (ACC) by president Xi Jinping in 2012. According to the paper, recently published in the Journal of Institutional Economics, private firms benefit from higher subsidies if at least one director in the boardroom has ties with the ruling Communist Party's Politburo. State-owned enterprises (SOE's) that have at least one connected director also enjoy privileges, such as paying lower interest rates.

The findings differ between private and state owned firms, showing that connections have become more valuable for private firms following the anti-corruption campaign. According to the research, private firms face a more aggressive environment within the Chinese context, and often engage in corrupt practices as a mechanism to survive.

By contrast, corruption in state firms differs in nature, given that state firms already enjoy a privileged status within the Chinese economy and do not need to engage in corruption in order to survive. The value of connections in the state sector did not increase after the ACC, however, political connections remained important.

According to the study, in state owned firms the problem of corruption and personal connections lies in the politicization of these companies. Whilst SOEs are tied to the Chinese Government, they can be used as a means for political interests. The researchers suggest that reducing connections between politicians and firms and introducing market rules within state companies would increase efficiency.

This research sheds light on a resource allocation mechanism that has become increasingly important in China since 2012, but which, according to the researchers, harms China's economic growth in the long term.

While the Anti-Corruption Campaign may have had some other positive effects, the researchers argue that improving market institutions in China and providing a more favorable environment for private companies requires deeper reforms.

"We show that the value of connections in the private sector increased after the Anti-Corruption Campaign because they became a less risky alternative to pecuniary corruption. We also show that connected firms do not perform better than others, despite benefiting from advantages. The Chinese economy as a whole hence suffers due to these political economy mechanisms at play," said Dr. Nuno Palma, from The University of Manchester.