A Bridge on Economic Issues between China and the World
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Pricing the Priceless: The Financing Cost of Biodiversity Conservation
Fukang Chen, Minhao Chen, Lin William Cong, Haoyu Gao, Jacopo Ponticelli, Feb 26, 2025This study investigates the pricing of financial risks associated with biodiversity conservation, with a particular focus on the Green Shield Action, a major regulatory initiative launched in China in 2017 to enforce biodiversity preservation rules in national nature reserves. While the initiative improved biodiversity, it also significantly increased bond yields for municipalities that are home to these reserves, effectively raising the general cost of public capital. These effects were primarily driven by heightened default risks plausibly caused by transition costs from shutting down illegal economic activities within the reserves and additional public spending on biodiversity conservation, even when local governments raise the same amount of money. Furthermore, the study reveals that the biological benefits of these conservation policies were not adequately recognized or impounded into the prices by the capital markets.
High-Speed Rail and China's Electric Vehicle Adoption Miracle
Hanming Fang, Ming Li, Long Wang, Yang Yang, Mar 19, 2025We investigate whether high-speed rail (HSR) connectivity influences electric vehicle (EV) adoption, using a quasi-natural experiment from China’s HSR expansion and several identification strategies. Our findings consistently show that, by alleviating range anxiety, the expansion of HSR can account for up to one third of the increase in EV market share and EV sales in China during our sample period from 2010 to 2023, with effects particularly pronounced in cities served by faster HSR lines. These results suggest that transportation infrastructure can play a complementary role in accelerating the transition to electric mobility.
Free Education's Impact on Schooling Outcomes: Direct Effects and Intra-household Spillovers
Naijia Guo, Shuangxin Wang, Junsen Zhang, Mar 05, 2025This study estimates the direct and spillover effects of a free education program on educational outcomes in rural China. We find that although the program encourages more eligible children to attend secondary school, it also leads to a decrease in high school enrollment among ineligible girls with eligible siblings, as they are more likely to choose work instead. In the long run, males exposed to free education have more years of schooling than their non-exposed counterparts. However, such effect is not found among females. This disparity suggests that a gender-neutral policy may have an asymmetric effect between males and females because of spillover effects through intra-household resource allocation.
E vs. G: Environmental Policy and Earnings Management in China
Darwin Choi, Feifei Lai, Mar 12, 2025We examine the conflict between environmental and governance issues arising from China’s automatic air pollutant monitoring system, introduced in 2012. Our findings suggest that polluting firms engage in downward earnings management to potentially minimize regulatory attention, with factors such as firm size, profitability, and market conditions influencing the extent of this behavior. This study highlights the unintended consequences of environmental policies.
Banking and Banking Reforms in China in a Model of Costly State Verification
Jie Luo, Cheng Wang, Mar 26, 2025We present a macro view of China’s financial system, in which a monopolistic banking sector coexists endogenously with bonds and private loans. In equilibrium smaller firms raise finance from private lending, larger firms do so through bank loans, and the largest firms do so by issuing bonds. The model predicts that expanding credit supply increases bank loans but reduces bond finance and private lending, in absolute terms and relative to total credit. In addition, removing the interest rate ceiling on bank lending—a recent reform in China—induces larger loans and higher lending rates, lowering the share of bank loans in total credit. We present empirical evidence to support these predictions.
