Five-Year Plans, China Finance and Their Consequences

67 Pages Posted: 28 May 2013 Last revised: 4 Mar 2014

See all articles by Donghua Chen

Donghua Chen

Nanjing University

Oliver Zhen Li

National University of Singapore (NUS)

Fu Xin

Nanjing University

Date Written: March 2013

Abstract

Economic growth of developing countries often relies on strategic support from their governments, who have the ability to utilize their late developing advantages and reduce transaction cost. An important factor influencing corporate finance and economic growth in China lies in its government sponsored industrial policies. Examining China’s strategic five-year plans during 1991-2010, we find that state-owned firms in government supported industries enjoy faster growth in initial public offerings and higher offer prices. Further, they enjoy faster growth in loans granted by major national banks. However, this preferential access to capital by state-owned firms appears to be achieved at the expense of non-state-owned firms which are crowded out. Government support induces more investment but also brings more overinvestment, which mainly comes from the non-state sector. Finally, supported industries have higher stock market returns and cash flow growth that dampen when state ownership increases. However, government supported industries have a higher ratio of non-performing loans.

Keywords: five-year plans, government engineering, industrial policies, corporate finance, economic growth, China

JEL Classification: O50, K00, G34

Suggested Citation

Chen, Donghua and Li, Oliver Zhen and Xin, Fu, Five-Year Plans, China Finance and Their Consequences (March 2013). Available at SSRN: https://ssrn.com/abstract=2259388 or http://dx.doi.org/10.2139/ssrn.2259388

Donghua Chen

Nanjing University ( email )

Nanjing, Jiangsu 210093
China

Oliver Zhen Li (Contact Author)

National University of Singapore (NUS) ( email )

Bukit Timah Road 469 G
Singapore, 117591
Singapore

Fu Xin

Nanjing University ( email )

Nanjing, Jiangsu 210093
China

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