Between State and Citizen: Chinese Firms’ Responses to A Public Health Emergency (Job Market Paper)

During public health crises, politicians often call on firms to fulfill social responsibilities. Yet, many firms opt not to do so since they already struggle to survive. This paper offers a theory that combines state-business relations and state-society relations. It argues that during health crises, politically connected firms send signals to the state that they are working to meet citizens’ needs and the state provides rewards to them. Data on China’s listed firms (2009–22) show that during the COVID-19 pandemic, connected firms increased contributions to society. They got more state-controlled resources when they contributed more. This paper uses alternative measures, analyzes the mechanism (i.e., cheap signal or not), considers alternative explanations, and deals with endogeneity issues. It accounts for state-business relations by moving beyond lobbying and cronyism (i.e., favoritism to connected groups at the expense of citizens’ interest) which have dominated the research on American/comparative/international political economy.

-

Political Connections and Stock Market Liberalization Reform: Evidence from China

Why does China open some select domestic firms to foreign capital? For two reasons, this paper argues that China will open politically connected firms to foreign capital. First, politically connected firms have an easier time influencing the government to access foreign capital. Second, connected firms are less likely to benefit foreign investors at the expense of the state’s interests. Data from China’s listed firms (2008–20) shows that having connections raises the probability of being selected into the stock market liberalization program by 9 per cent. Connected firms become more profitable after they are opened to foreign capital. By contrast, connected firms are unprofitable when relying on subsidies. An implication is that a market liberalization reform leads to the misallocation of resources. Firms perhaps in need of foreign capital–those without connections and state financial backing–are opened to less foreign capital.

-

Unintended Consequences of Business Subsidies: Evidence from “Made in China 2025” (Revise and Resubmit)

In 2015, China adopted “Made in China 2025” to upgrade its manufacturing sector and to engage firms in contributing to state priorities such as economic growth and national security. Since then, the media and academics have noted that manufacturing firms of more strategic importance received more subsidies. Yet, firms manufacturing cutting-edge products do not necessarily mean that they are willing to meet the state’s political goals. This paper argues that China grants more subsidies to manufacturing firms more connected to the Communist Party. Data on manufacturing firms listed in China supports the argument. It also shows that the positive effect of subsidy on productivity declines as firms are more connected to the Party. The symbiotic relationship between connected firms and the Party may curb on the growth momentum, which contradicts one of the key goals of “Made in China 2025”: economic growth.