Chapter

Chapter 4. Determinants of Corporate Investment in China: Evidence from Cross-Country Firm-Level Data

Author(s):
Anoop Singh, Malhar Nabar, and Papa N'Diaye
Published Date:
November 2013
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Author(s)
Nan Geng and Papa N’Diaye 

Building on the aggregate analyses of investment in the preceding chapters, this chapter analyzes the evolution of corporate investment in China, its main features, and its key determinants. Since the early 2000s, manufacturing, real estate, and infrastructure have been the main drivers of investment. Investment remains largely concentrated in coastal areas, but there has been a shift to greater investments inland since early in the 2000s. The empirical analysis of the determinants of investment indicates that financial variables, such as interest rates, the exchange rate, and the depth of the domestic capital market, are important determinants of corporate investment. The results suggest in particular that financial sector reform, including that which deregulates and raises real interest rates as well as appreciates the real effective exchange rate, would lower investment and help rebalance growth away from exports and investment toward private consumption.

Introduction

China’s investment as a share of GDP is now close to 50 percent, up from slightly less than 30 percent in 1982. This level of investment is high by most standards, including when compared with other countries with a similar development strategy, countries with similar income levels, and the rest of the world. Most of the investment has been concentrated in the manufacturing sector, encouraged by various cost advantages, including low costs of capital, labor, utilities, pollution, energy, and land; generous tax incentives; and an undervalued currency. How long can China sustain such a high rate of investment against the backdrop of weak demand from the rest of the world, in particular from the United States and the euro area?

Persistent high rates of investment create the risk of overcapacity in many sectors, exerting deflationary pressure, increasing nonperforming loans in the banking system, and ultimately worsening the general government’s fiscal position. A buildup of excess capacity would also have consequences for the rest of the world, because excess capacity in the manufacturing sector in China would further dampen tradables prices in global markets, potentially creating trade tensions. The Chinese government realizes these risks and envisages in its 12th Five-Year Plan a set of reforms to rebalance economic growth away from exports and investment toward private consumption. Key to such a structural change is the plan to reform the financial system, which includes liberalizing interest rates, developing capital markets, reforming the exchange rate system, and raising the costs of various inputs to production—capital, labor, energy, land, water—and reducing the high level of corporate saving and investment.

This chapter provides an overview of corporate investment in China and its key determinants using both macro- and firm-level data for China and evidence from other economies’ experience. The empirical frameworks relate investment as a share of output to standard determinants of investment (including growth, real interest rates, and measures of uncertainty) as well as to indicators of financial sector development. The main highlights are as follows:

  • Investment remains driven mainly by manufacturing, real estate, and more recently infrastructure. It is largely concentrated in coastal areas despite a recent move inland, reflecting the government’s urbanization efforts, focus on rural development, and construction of large interprovincial transportation networks (especially railways and roads).

  • China’s effective cost of capital is low, especially when compared with the high level of return investment can generate, creating strong incentives for firms to overinvest.

  • The empirical analysis of the determinants of investment indicates that financial variables such as interest rates, the exchange rate, and the depth of the domestic capital market are important determinants of corporate investment.

  • The results suggest that financial sector reform, including that which raises interest rates, appreciates the real effective exchange rate, and develops the domestic capital market, would lower corporate investment and help rebalance the Chinese economy. All else equal, developing the domestic capital market alone would increase investment.

The remainder of the chapter is organized as follows: The next section provides an overview of the evolution of investment in China and the factors that have influenced it. It is followed by a section that discusses the role of the cost of capital, and a section that presents the empirical frameworks.

Evolution of Investment

At close to 50 percent of GDP, China’s investment is high by most standards. First, China’s level of investment stands out when compared with economies that have had a similar development strategy of relying heavily on exports. This has not always been the case; in the early years of China’s development, both the level and evolution of investment appeared similar to that of other export-oriented economies such as Germany, Japan, and the Republic of Korea (Figure 4.1). Second, China’s investment stands out when compared with economies with similar income levels, notwithstanding the large variation in the level of investment by these economies (Figure 4.2). Finally, China’s investment is high when compared with the rest of the world (Figure 4.3).

Figure 4.1Share of Investment in GDP

Sources: CEIC Data; and IMF staff calculations.

Figure 4.2Investment-to-GDP Ratio and per Capita GDP

Sources: CEIC Data; and IMF, World Economic Outlook.

Figure 4.3Investment-to-GDP Ratio

Sources: CEIC Data; and IMF World Economic Outlook.

From the national accounts, investment in China has contributed more than half of GDP growth on average since early 2000 (5¼ percentage points out of average growth of 10 percent). Little is known about the effectiveness of investment, but existing research suggests a high depreciation rate of capital, in the range of 10–15 percent, and a declining incremental capital-to-output ratio (Figure 4.4). Estimates of China’s capital stock using perpetual inventory methods show a capital-to-output ratio of about 2.4, close to that of the United States.1 Nevertheless, by unit of labor input, China’s capital-to-output ratio is about one-tenth of U.S. levels. This section highlights the main features of investment in China, including who is investing, the sectors and regions receiving the investment, the financing of investment, and the cost of capital.

Figure 4.4Incremental Capital-to-Output Ratio

Sources: CEIC Data; and IMF staff estimates.

Who Is Investing?

Detailed data on investment by type of enterprise are published as part of the high-frequency fixed assets investment data released by China’s National Bureau of Statistics on a monthly basis. These data, however, do not match the national accounts data because the fixed assets investment data include spending for land acquisition and purchases of used capital, and reflect only capital spending for projects exceeding RMB 500,000.

By type of enterprise, about 35 percent of total fixed asset investment (FAI) stems from state-owned enterprises (SOEs), 20 percent from private companies, and the remaining from “other” enterprises (which include shareholding companies, joint-stock companies, and share cooperatives). The relative proportions of these different categories have evolved substantially since 2005, with the share of investment by private companies almost doubling. The expansion of private company investment has come at the expense of SOEs, the investments of which declined steadily through 2008, when investment by SOEs accounted for about 34 percent of total investment (down from 39 percent in 2005). In 2010, the share of investment by SOEs rose slightly, to 35 percent of GDP, because of the extraordinary stimulus package put in place by the government in response to the global financial crisis. A downward trend can also be observed in the share of foreign-funded firms, with their investment declining from about 11 percent in 2005 to about 6½ percent in 2010. These foreign-funded firms include firms from Hong Kong SAR, Macao SAR, Taiwan Province of China, and other economies (Figure 4.5).

Figure 4.5China: Fixed Asset Investment by Enterprise Type

Sources: CEIC Data; and IMF staff calculations.

Although listed firms’ data show trends similar to those of SOEs and private companies, the level is very different from that observed in FAI data (Figure 4.6). One main reason for this discrepancy in the shares of investment accounted for by SOEs and private companies is that listed firms are dominated by SOEs (listed SOEs represent half of listed firms), and listed SOEs tend to be much larger than listed private companies.

Figure 4.6Ownership Structure and Investment by Type of Ownership of Listed Firms in China

Sources: World Scope and WIND databases; and IMF staff calculations.

In Which Sectors Are Enterprises Investing?

About 32 percent of investment goes to the manufacturing sector, 23 percent to real estate, and the rest goes to various other sectors of the economy, with transportation (11 percent) and utilities (8¾ percent) receiving important shares (Figure 4.7). The latter two sectors have seen a large increase in investment in 2008–10 because the government stimulus package was mainly geared toward these sectors. The government’s RMB 4 trillion stimulus package included about RMB 1¾ trillion for transportation and utility infrastructure and RMB 1 trillion for earthquake reconstruction.

Figure 4.7China Fixed Asset Investment: Sectoral Breakdown

Sources: CEIC Data; and IMF staff calculations.

In Which Regions Are Enterprises Investing?

Eastern regions, particularly large coastal cities, have received the highest share of investment as a percentage of total investment (Figure 4.8). This significant share reflects the large presence of manufacturing firms in coastal areas. Although provinces in the midwest and further inland are the recipients of a smaller share of investment in relation to total investment, the amounts they receive are substantial when compared with the region’s GDP (Figure 4.9). For example, although Xizang Autonomous Region (Tibet) gets less than ¼ of 1 percent of total investment, that investment represents 58 percent of Tibet’s GDP. Similarly, Zhejiang Province receives about 6 percent of total investment, but that investment represents only 42 percent of Zhejiang’s GDP.

Figure 4.8China: Investment by Region as Share of Total, Average 2005–10

(Percent of total)

Figure 4.9China: Investment by Region as Share of GDP, Average 2005–10

(Percent of GDP)

This reflects in many ways the significant role of SOEs in less-developed regions and the fact that SOEs tend to invest more than other enterprises (Barnett and Brooks, 2006).

How Is Investment Financed?

Investment is financed primarily through retained earnings and bank loans. Financing through self-raised funds now accounts for slightly less than 60 percent of total financing according to FAI data, up from about 54 percent in 2005 (Figure 4.10). This large and increasing share of financing through self-raised funds reflects the healthy profits of Chinese corporations and the fact that until recently many firms paid small, if any, dividends (compared with companies in other economies). Before 2007, SOEs were not required to pay dividends to the state. Since the 2007 State Capital Management Budget reform, SOEs are often required to pay annual dividends of at least 5–10 percent of profits, depending on the industry. Enterprises in industries with low competition are required to pay 10 percent.2 Dividends are higher on average in the finance and insurance sector than in other sectors of the economy because competition in the banking system is minimal (Figure 4.11). By international standards, Chinese listed firms pay lower dividends than corporates do on average in the rest of the world (Figure 4.12).

Figure 4.10Fixed Asset Investment: Sources of Funds

Sources: CEIC Data; and IMF staff calculations.

Figure 4.11China: Dividends-to-Profits Ratio, by Sector

Source: IMF staff estimates.

Figure 4.12Dividends-to-Profits Ratio by Development Region

Source: IMF staff estimates.

Implications for Corporate Saving

The requirement for SOEs to pay to the state at least 5–10 percent dividends did little to reduce corporate saving or the self-financing of investment because dividends paid by SOEs are paid into a special capital budget that is used to finance state enterprise investment (IMF, 2009). This dividend policy, the lack of contestability in many markets, and cheap capital all contribute to relatively large (gross) savings for Chinese listed and nonlisted corporations by international standards (Figures 4.13 and 4.14).

Figure 4.13Corporate Saving, by Country

Sources: United Nations database; and IMF staff estimates.

Figure 4.14Gross Saving Rate of Listed Firms

Note: Gross Saving = Sales − Cost of Goods Sold − Operating Expenses – Interest Expenses − Dividends Sources: WorldScope database; and IMF staff estimates.

Among listed companies, saving rates are highest for banks (finance and insurance) and real estate companies, averaging about 30 percent and 16 percent, respectively, during 2005–09. Gross saving rates for manufacturing firms are about 5 percent (Figure 4.15). By size, gross saving rates are about 60 percent higher for small firms than for large firms, mainly because small firms pay lower dividends than large firms and have less access to credit, which forces them to rely more on retained earnings for financing investment. This latter reason also explains why non–state owned firms save more than state-owned firms.

Figure 4.15China: Gross Saving Rate

Sources: WorldScope and WIND databases; and IMF staff calculations.

The second largest source of financing of corporate investment is debt, including bank loans and corporate bonds. Borrowing represents about 17 percent of total investment financing by listed firms. Bank financing is the prime source of debt financing: China’s large saving rates for both the private sector (especially households—household savings now represent about 23½ percent of GDP and are primarily in the banking system, earning on average negative real interest rates since 2003) and the public sector provide ample and cheap funds. At the macroeconomic level, bank loans accounted for about 63 percent of total social financing (a broad measure of credit) as of end-2011, while corporate bonds accounted for 11 percent of total social financing (Figure 4.16).

Figure 4.16Social Financing

Sources: CEIC Data Company Ltd.; and IMF staff estimates.

Cost of Capital

China’s capital-intensive growth relies on various low-cost factor inputs, including land, water, energy, labor, and capital. These relatively cheap inputs offer Chinese firms a competitive edge and create incentives for capital-intensive means of production. Studies estimate that the total value of China’s factor market distortions could be almost 10 percent of GDP (Huang and Tao, 2010). Factor inputs are priced below market for many industries and are low compared with those in other economies.

Land and water. In China, all land belongs to the state, and local governments have the discretion to sell industrial land-use rights to companies for up to 50 years. In many cases, industrial land is provided for free to enterprises to attract investment (Huang, 2010). The price for water in China is about one-third of the average of a sample of international comparators (Figure 4.17).

Figure 4.17Water Prices, by Country

Sources: Global Water Intelligence; and IMF staff estimates.

Energy. Cross-country data on the cost of energy show that the price of gasoline in China is relatively low, although similar to that in the United States (Figure 4.18). For electricity, the cost is also somewhat below the average for international comparators, although discussions with private counterparts reveal that many companies are able to negotiate significant discounts from the regulated price. However, China is making progress in bringing energy costs in line with international levels: oil product prices have been indexed to a weighted basket of international crude prices; natural gas prices were increased by 25 percent in May 2010; and preferential power tariffs for energy-intensive industries have been removed.

Figure 4.18Retail Price of Gasoline, by Country

Source: International Energy Agency.

Capital. By various cross-country measures, the cost of capital appears to be low in China (Figure 4.19). Estimates based on data for 30,000 firms across 53 economies show that the real cost of capital—defined as a weighted average of the real costs of bank loans, bonds, and equity—faced by Chinese listed firms is below the global average.3 The low cost of capital reflects the lower cost of equity for Chinese firms relative to the rest of world. Chinese firms, mainly SOEs, pay little if any dividends, compared with the global average (dividend payments averaged 33 percent of profits during 2000–08 according to World Bank [2009]). On average, equity costs are about 5 percent in China as compared with 12 percent for the rest of the world (Figure 4.20). With regard to the cost of debt, Chinese listed firms are not out of line with companies in the rest of the world. Real effective interest rates paid by Chinese listed firms average about 2½ percent compared with a world average of 2¾ percent during 2005–09 (Figure 4.21).

Figure 4.19Real Cost of Capital, by Region, 2005–09

Sources: WorldScope Database; and IMF staff calculations.

Figure 4.20Real Cost of Equity, by Region

Sources: WorldScope database; and IMF staff calculations.

Figure 4.21Real Effective Interest Rate on Debt, by Region

Sources: WorldScope database; and IMF staff calculations.

Capital appears to be especially cheap when assessed relative to its high productivity in China. In particular, an estimate of the marginal product of reproducible capital (i.e., capital adjusted for land) shows that China’s return to capital is well above the average real loan rate of many advanced and emerging market economies (Figure 4.22).4

Figure 4.22Marginal Product of Capital (Adjusted for Land) versus Average Real Interest Rate, 2004–10

Source: IMF staff estimates.

This gap between real lending rates and the marginal product of capital is a rent that is shared between financial and nonfinancial corporations. Assuming the marginal product of capital (net of depreciation) is equal to the return on capital, this return can be distributed to banks, households, and nonfinancial corporations, with banks being remunerated at the spread between average deposit and lending rates, households being paid real deposit rates, and nonfinancial corporations getting the remainder of the marginal product of capital. This simple exercise shows that, in China, the returns to capital are largely shared between financial and nonfinancial corporations (Figure 4.23). Households have subsidized these corporations, on average, since 2003, given that China’s real deposit rates were negative during that period. Raising the cost of capital in China will therefore allow households to keep some of the returns to their capital, and help support consumption.5 Nonfinancial corporations get a slightly bigger share of the return to capital than do financial corporations. This distribution of the return to capital among the various players in China’s economy is in stark contrast with what is observed in countries like India, the Republic of Korea, Japan, the United States, and the United Kingdom. Unlike in China, households in these countries get at least some share of the returns to capital and the corporate sector ends up appropriating relatively little of the returns to capital.6

Figure 4.23Distribution of Real Returns to Bank-Intermediated Capital

Source: IMF staff estimates.

Empirical Determinants of Investment

Both firm-level and cross-country data are used to explain the dynamics of investment in China. For the analysis based on firm-level data, corporate capital expenditure (in relation to sales) is regressed on past capital expenditure, the capital-to-output ratio squared, stock market capitalization relative to GDP, real interest rates, the change in the real effective exchange rate, real GDP growth, the current account balance relative to GDP, the foreign-debt-to-GDP ratio, the relative price of capital to output, and the volatility of output. These variables capture the effects of various factors, including stickiness in investment, adjustment costs (captured by the capital-to-output ratio squared), capital market development, the cost of capital, exchange rates, country risk, countries’ levels of development, profit opportunities, uncertainty, and the availability of external financing.

The model is estimated using the dynamic panel data estimator developed by Arellano and Bond (1991) with both an unbalanced panel of 27,997 firms across 53 economies and an unbalanced panel of 1,908 firms in China during 1990–2009.7 To handle simultaneity, lagged values of the contemporaneous regressors were used as instruments, and a special correction for correlation was applied. All variables that enter with a lag on the right-hand side of the equation are considered exogenous. The set of instruments also includes country dummies, but no country dummies are included in the regression itself.

Table 4.1 shows the results of the firm-level data regressions. The “Cross Country” column shows the results based on cross-country data and the “China” column shows the results for China only.8 The results based on cross-country data indicate that investment is positively related to capital market development, output growth, and the relative price of capital, and negatively related to adjustment costs, real interest rates, changes in the real effective exchange rate, country risk, and uncertainty. Although most of these results are consistent with the priors—for example, capital market development increases financing opportunities and instruments (Beck and Levine, 2001; Leahy and others, 2001)—the sign of the relative price of capital is less obvious. Indeed, as shown in Caselli and Freyer (2005), the price of capital relative to that of output is higher the less advanced the economy. With investment rates being in general higher in less-developed economies, the result in Table 4.1 could simply be capturing the positive relationship that exists between the level of development and the level of investment.

Table 4.1Determinants of Corporate Investment, from Firm-Level Data
Explanatory VariablesCross CountryChina
Capital expenditure ratio (lagged 1 year)0.307**−0.031**
(0.000)(0.002)
Investment adjustment cost ((K/Y)^2 (lagged 1 year))−0.004**−0.030**
(0.000)(0.000)
Stock market capitalization/GDP1.043**0.080**
(0.011)(0.003)
Real interest rate (lagged 1 year)−2.420**−0.253**
(0.199)(0.008)
Appreciation of REER−0.411**−0.417**
(0.076)(0.009)
Real GDP growth1.620**
(0.245)
Current account balance/GDP (lagged 1 year)2.700**−2.230**
(0.387)(0.062)
Foreign debt risk−1.342**−4.104**
(0.089)(0.062)
Relative price of capital to GDP5.081**1.467**
(0.206)(0.044)
Volatility of GDP growth (lagged 1 year)−3.260**−4.210**
(0.489)(0.124)
Observations185,2177,532
Number of firms27,9971,908
Ar(1)0.0190.008
Ar(2)0.1170.267
Hansen J Test (prob>χ2)0.720.45
Source: IMF staff estimates.Note: Generalized method of moments estimates using an unbalanced panel of firms over the period 1990–2009. Robust standard errors in parentheses, with ** indicating significance at 5 percent level. REER = real effective exchange rate.
Source: IMF staff estimates.Note: Generalized method of moments estimates using an unbalanced panel of firms over the period 1990–2009. Robust standard errors in parentheses, with ** indicating significance at 5 percent level. REER = real effective exchange rate.

Table 4.2 shows the results of the estimation of a similar investment equation using aggregate national accounts data. The model relates total investment to real interest rates (lagged), real GDP growth, volatility of growth, indicators of financial development (the number of listed firms per 10,000 people), indicators of economic development, the debt-to-GDP ratio, and the change in the exchange rate. Dummy variables specific to China were introduced to see whether China stands out. The model was estimated using the generalized method of moments estimator using an unbalanced panel of 52 economies.

Table 4.2Determinant of Investment, from Aggregate Data
Explanatory VariablesCoefficients
Number of listed companies per 10,000 people3.900**
(0.507)
Real interest rate (lagged 1 year)−0.054**
(0.019)
Appreciation of REER0.121
(0.044)
Real GDP growth0.215**
(0.053)
Current account balance/GDP (lagged 1 year)−0.073**
(0.023)
Foreign debt risk−0.013**
(0.003)
Relative price of capital to GDP0.198**
(0.090)
Volatility of GDP growth (lagged 1 year)−0.118
(0.079)
Relative per capita GDP−2.114**
(0.772)
Constant22.228**
(0.531)
Number of listed companies per 10,000 people (China specific)1151.2**
(80.637)
China-specific real interest rate (lagged 1 year)−0.351**
(0.092)
China-specific appreciation of REER−0.254**
(0.070)
China-specific constant5.110**
(0.721)
Observations840
Number of economies52
Durbin-Watson Test (p-value)0.33
Source: IMF staff estimates.Note: Generalized method of moments estimates using an unbalanced panel of firms over the period 1990–2009. Robust standard errors in parentheses, with ** indicating significance at the 5 percent level. REER = real effective exchange rate.
Source: IMF staff estimates.Note: Generalized method of moments estimates using an unbalanced panel of firms over the period 1990–2009. Robust standard errors in parentheses, with ** indicating significance at the 5 percent level. REER = real effective exchange rate.

Overall, the results are consistent with the priors. Investment falls with real interest rates, uncertainty, countries’ levels of development, and increases in countries’ external financial risk. Investment rises with growth opportunities, financial development, and an appreciating currency except for China, which may reflect the importance of manufacturing firms. In more detail, the following results in Tables 4.1 and 4.2 are noteworthy:

  • Real interest rates have a negative impact on investment. At the aggregate level, an increase of 100 basis points in real interest rates reduces corporate investment in China by about ½ percent of GDP. Based on these estimates, raising real interest rates to the level of the marginal product of capital net of depreciation would probably lower investment by about 3 percent of GDP. The estimated effect for China of real interest rates on investment is much larger than the average of the other 52 economies in the panel. The impact of interest rate changes on corporate investment is about half as large when estimated based on firm-level data. This outcome could possibly reflect the smaller reliance of this sample (which consists of large, listed enterprises) on bank-intermediated financing.

  • Exchange rate appreciation also lowers investment. A 10 percent appreciation would reduce total investment by about 1 percent of GDP. The large concentration of manufacturing companies in the firm-level sample means that the estimated impact of exchange rate appreciation from the firm-level data is much larger.

  • Indicators of capital market development suggest more-developed financial systems tend to promote higher investment, largely by easing the financing constraints faced by firms.

Conclusion

This chapter analyzes the evolution of investment in China, its main features, and its key determinants. In recent years, the manufacturing, real estate, and infrastructure sectors have been the main drivers of investment. Investment remains largely concentrated in coastal areas, although a slow move inland in recent years has been detected. The empirical analysis of the determinants of investment indicates that financial variables, such as interest rates, the exchange rate, and the depth of the domestic capital market, are important determinants of corporate investment. The results suggest, in particular, that financial sector reform, including that which raises real interest rates and appreciates the real effective exchange rate, would lower investment and help rebalance growth away from exports and investment toward private consumption.

Annex 4A. Data Definition

The firm-level data used in this chapter are from the Worldscope database and WIND database, which report data on listed financial and nonfinancial corporations’ annual financial statements during the period 1990–2009 for more than 50 economies worldwide. Tables 4A.1, 4A.2, and 4A.3 present an overview of these economies and the distribution of companies in the sample.

Table 4A.1Distribution of Firms
EconomyNumber of FirmsShare of Sample (percent)
Argentina650.23
Australia1,6145.76
Austria820.29
Belgium1120.40
Brazil1690.60
Canada1,1394.07
Chile1660.59
China1,9086.82
Colombia260.09
Czech Republic110.04
Denmark1680.60
Egypt680.24
Finland1190.43
France5541.98
Germany6142.19
Greece1650.59
Hong Kong SAR9193.28
Hungary340.12
India1,9446.94
Indonesia3341.19
Ireland450.16
Israel1540.55
Italy2650.95
Japan3,79013.54
Korea, Rep. of8803.14
Luxembourg260.09
Malaysia9383.35
Mexico1080.39
Morocco200.07
Netherlands1310.47
New Zealand1300.46
Norway1780.64
Pakistan1400.50
Peru650.23
Philippines1870.67
Poland3321.19
Portugal470.17
Russian Federation630.23
Singapore6042.16
Slovak Republic70.03
Slovenia120.04
South Africa3251.16
Spain1270.45
Sri Lanka280.10
Sweden3781.35
Switzerland2320.83
Taiwan Province of China9223.29
Thailand5001.79
Turkey2180.78
United Kingdom1,7006.07
United States5,21818.64
Venezuela130.05
Zimbabwe30.01
Total27,997100
Sources: Worldscope database; IMF Corporate Vulnerability Unit Database; and IMF staff estimates.
Sources: Worldscope database; IMF Corporate Vulnerability Unit Database; and IMF staff estimates.
Table 4A.2Chinese Listed Firms, by Industry
SICNumber of FirmsShare of Sample (percent)
Agriculture, forestry and fishing402.10
Mining442.31
Manufacturing1,11158.23
Utilities693.62
Construction381.99
Transportation733.83
Information technology1517.91
Wholesale and retail trade1015.29
Finance and insurance341.78
Real estate1186.18
Social services522.73
Communication and cultural industry170.89
Comprehensive603.14
Total1,908100
Source: Worldscope and WIND databases.
Source: Worldscope and WIND databases.
Table 4A.3Chinese Listed Firms, by Actual Ownership
Ownership TypeNumber of FirmsShare of Sample (percent)
Government agency1377.18
SASAC76239.94
SOE814.25
Private82643.29
Collective191.00
Foreign583.04
University90.47
Other160.84
Total1,908100
Sources: Worldscope and WIND databases; and IMF staff estimates.Note: SASAC = State-Owned Assets Supervision and Administration Commission; SOE = State-owned enterprise.
Sources: Worldscope and WIND databases; and IMF staff estimates.Note: SASAC = State-Owned Assets Supervision and Administration Commission; SOE = State-owned enterprise.

Tables 4A.2 and 4A.3 provide information on the ownership and industry distribution of the China-specific listed firms. The tables show that the sample is dominated by manufacturing firms, mainly state owned (including companies belonging to government agencies, the State-Owned Assets Supervision and Administration Commission, and other SOEs).

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The results are generally invariant to the choice of the initial capital-to-output ratio—that is, whether it is initially set at 2.5 or set at the ratio of initial investment and steady-state growth of investment plus depreciation.

Military SOEs and some particular types of SOEs (under the umbrella of specific public institutions) were initially exempt from this requirement. In 2011, the dividends payment requirements were raised to 10–15 percent, but military SOEs and SOEs under the umbrella of specific public institutions were required to pay 5 percent of their profits to the state.

Weights are assumed to be the relative shares of equity and debt in corporate liabilities. Here the cost of equity is measured following the methodology in ECB (2004).

The marginal product of reproducible capital in China is estimated following Caselli and Freyer (2005) and is the ratio of the income share of capital excluding land and other nonreproducible items to the capital-to-output ratio. The capital stock is derived from the perpetual inventory method. Alternative estimates of the return to capital in China by Bai, Hsieh, and Qian (2006) show a return to capital of about 20 percent in 2005, down from 25 percent during 1973–93.

See Guo and N’Diaye (2010) on the role of property income in private consumption in China.

This representation might not accurately depict the situation in the United States because corporations rely less on bank financing than elsewhere. U.S. flow of funds data suggest that as of end-September 2011, bank loans accounted for about 3½ percent of total nonfinancial corporates’ liabilities, while corporate bonds accounted for about 40 percent of total liabilities.

See Annex 4A to this chapter for a description of the data.

Both results pass the autocorrelation test at order 1 and 2 (AR(1) and AR(2)) and the overidentification test (Hansen’s J-statistic).

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