We empirically examine some listed Chinese firms' political connection, ownership, and financing constraints. Politically-connected firms display no financing constraints whereas firms without connection experience significant constraints. Non-connected family-controlled firms bear greater constraints than non-connected state-owned firms.JEL classification: E22, G31, G18, O16

In this paper, we investigate the effect of digital financial inclusion (DFI) on household consumption smoothing in China. We use four waves of the biennial China Family Panel Studies from 2010 to 2016, during which time DFI has significantly developed alongside financial technology across China. We split household income shocks into permanent and transitory components, and evaluate if DFI may help households to buffer against these shocks. We find that households are not able to insure against permanent shocks to income, but they can smooth approximately 70 percent of transitory shocks to income. We also find that DFI has diminished households’ ability to insure against transitory income shocks. This is partly because online purchase may lead to the oversensitivity of consumption to income. In addition, we find that contrary to DFI, traditional financial sector development contributes to better household consumption smoothing against transitory income shocks.

This article investigates capital mobility across 29 provinces in China for the period of 1970–2006 using the Feldstein–Horioka (FH) approach and Campbell and Mankiw’s consumption‐smoothing (CS) framework. It also examines the role of the governments in driving provincial capital mobility. If the provincial government investment is not properly separated out from the private investment, the FH framework applied to the overall saving and investment (private plus public) is found to underestimate the private saving–investment correlation and hence overstates the degree of private capital mobility compared with the CS framework that focuses on the private consumption and output. Both frameworks indicate strong correlation between private saving–investment and private consumption–output, implying strong barriers in the provincial private capital flows. However, there is ample evidence that capital mobility has been rising over time, particularly after the mid 1990s. It also appears that the government facilitates capital flows through inter‐governmental transfers during the sample period. The extent of provincial capital mobility sheds light on the ability of different provinces in diversifying idiosyncratic provincial risks. The earlier findings are robust to alternative measurements of variables and model specifications.

We examine cross-region capital mobility in China and track how the degree of mobility has changed over time. The effects of fiscal and redistributive activities of different levels of government in China on private capital mobility are taken into account. Our results indicate that there is a significant improvement in capital mobility over time in China, particularly for private capital in the more developed regions. The central and provincial governments, via their taxation, spending, and transfers, loosen the relationship between private saving and investment and appear to promote capital mobility, particularly for less developed regions. There are considerable differences between more and less developed regions in terms of the degree of capital market integration and the improvement in capital mobility over time. The results have important policy implications on global re-balancing as well as regional development gap and risk-sharing within China. JEL code: C22, C23, F21

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