2023 China Business Report: On Business Performance and Operations of Companies in China in the New Business Environment

The China and Europe International Business School (CEIBS) Research Team with three professors and two research assistants conducted an online survey from November 18th to November 27th 2022, receiving 1,474 unique responses in total. 1,181 (80.2%) survey participants work for Chinese-owned firms or firms with 50% or more Chinese ownership, and 291 (19.8%) participants work for foreign-owned firms in China or firms with more than 50% foreign ownership.The professional distributions show that the survey sample is not a typical sample of enterprises operating in China, but rather reflects the situation of the enterprises of the senior executives who have study experiences in CEIBS, especially that of enterprises of more than half of the EMBA alumni and students. According to the class profile of CEIBS EMBA programme, the average age of participants is 41, average years of working experience is 17, and their average years of managing experience is 12. More than 95% of the participants are senior managers. CEIBS has more than 20,000 alumni, including EMBA alumni who participated the most in this survey among all alumni or students. Based on the above information, we conclude that the survey result has reference value in the sense that it largely reflects how “head companies” (the leading companies and most active ones in their respective industries) in China assessed and judged the impacts of business environment and innovation on business operations. This is also confirmed by the survey results of the reported market positioning of their products and services

Monetary Policy with Diverse Private Expectations

We study the impact of diverse beliefs on conduct of monetary policy. Individual belief is modeled by a state variable that defines an individual\u2019s perceived laws of motion. We use a New Keynesian Model that is solved with a quadratic approximation hence individual decisions are quadratic functions. Aggregation renders the belief distribution an aggregate state variable. Although the model has standard technology and policy shocks, diverse expectations change materially standard results about a smooth trade-off between inflation volatility and output volatility. Our main results are summed up as follows: (i) The policy space contains a curve of singularity which is a collection of policy parameters that divides the space into two sub-regions. Some trade-off between output and inflation volatilities exists within each region and some across regions. (ii) The singularity causes volatility of variables to be non monotone in policy parameters. Policy-makers cannot assume a more aggressive policy will change outcomes in a predictable manner. (iii) When beliefs are diverse a central bank must also consider the volatility of individual consumption and the related volatility of financial markets. We show aggressive anti-inflation policy increases consumption volatility and aggressive output stabilization policy entails rising inflation volatility. Efficient central bank policy must therefore be moderate. (iv) High optimism about the future typically lowers aggregate output and increases inflation. This \u201cstagflation\u201d effect is stronger the stickier prices are. Policy response is muted since the effects of higher inflation and lower output on interest rates partially cancel each other. Effective policy requires targeting exuberance directly or its effects in asset markets. Central banks already do so with short term interventions. (v) The observed high serial correlation of 0.80 in policy shocks contributes greatly to market volatility and we show that a reduction in persistence of central bank\u2019s deviations from a fixed rule will contribute to stability. (vi) Belief dispersion is measured by cross sectional standard deviation of individual beliefs. An increased belief diversity is found to make policy coordination harder and results in lower aggregate output and lower rate of inflation. Bank policy can lower belief dispersion by being more transparent

Did state-owned enterprises do better during COVID-19?:Evidence from a survey of company executives in China

In a survey of 1,182 company executives in China, state-owned enterprises (SOEs) reported less business reductions under COVID-19. This paper examines if SOEs’ superior performance was resulted from government support rather than innate ability of coping with the pandemic. We construct a proxy for firm-level government support using firm's human resources (HR) action taken during the outbreak with firm's 2019 China revenue share as an instrument for the HR action variable. After controlling for the proxy for firm-level government support as well as other observed firm characteristics, we find SOEs in the sample performing significantly worse in the pandemic period

Could government lead the way? Evaluation of China's patent subsidy policy on patent quality

As China aimed to transform her growth into an innovation-driven model, we study the impact of China's effort to promote technology inventions. By linking to Google Patents, we compile a comprehensive set of patent quality indicators. Based on Chinese provincial panel data from 1995 to 2010, we find that the effect of the implemented patent subsidy policies on quantity, as well as various quality metrics of patents, was significantly positive. Moreover, the explanation power of subsidy policies on both patent quantity and quality diminished as time goes by. We also find that the effect of these policies depended on the growth rate of experienced innovators rather than entrants. Since the implemented policies we study in this paper were designed to focus on subsidizing expenses incurred during the patenting process, our results show that the provided partial funding led the way for improving China's patent quality

Hosting annual international sporting events and tourism: Formula 1, golf or tennis?

Hosting sports events to attract international tourists is a common policy practised by many host governments. Hosting mega-sports events like the Olympics is said to leave a legacy that could impact the attractiveness of a country/city in the long term. However, the opportunity to host these mega-events is limited and expensive. This study considers the economic impact of hosting annual international sporting events, specifically the extent to which Formula 1, ATP Tennis and PGA Golf can attract international tourists. Using monthly data from 1998 to 2018, we show that the effect differs from one sport to another within a country and the same sport across countries. Hosting the Formula 1 is most effective for Canada but has no significant impact in Australia and the United Kingdom. ATP Tennis and PGA Golf have a significant impact on at least two countries. Policy-makers must consider carefully the sport that gives the best bang-for-the-buck

Hosting Annual International Sporting Events and Tourism: Formula 1, Golf or Tennis (CEIBS Working Paper, No. 013/2020/ECO)

Hosting sports events to attract international tourists is a common policy practised by many host governments. Hosting mega-sports events like the Olympics are said to leave a legacy that could impact the attractiveness of a country/city in the long term. However, the opportunity to host these mega-events are limited and expensive. This study considers the economic impact of hosting annual international sporting events, specifically the extent to which Formula-1, ATP Tennis, and PGA Golf can attract international tourists. Using monthly data from 1985 – 2018 and we show that the effect differs from one sport to another within a country, and the same sport across countries. Hosting the Formula-1 is most effective for Canada but has no significant impact in the UK. ATP tennis has a significant impact on all three countries but may not be the star event. Policy-makers must consider carefully the sport that gives the best bang-for-the-buck

Modeling diverse expectations in an aggregated New Keynesian Model

We explore a New Keynesian Model with diverse beliefs and study the aggregation problems in the log-linearized economy. We show the solution of these problems depend upon the belief structure. Agents' beliefs are described by individual state variables and satisfy three Rationality Axioms, leading to the emergence of an aggregate state variable named “mean market state of belief.” In equilibrium, endogenous variables are functions of mean market belief and this state variable is the tool used to solve the aggregation problems. Diverse beliefs alter the problem faced by a central bank since the source of fluctuations is not only exogenous shocks but also market expectations. Due to diverse beliefs the effects of policy instruments are not monotonic and the trade-off between inflation and output volatilities is complex. Also, monetary policy can counter the effects of market belief by aggressive anti-inflation policy but at the cost of increased volatility of financial markets and individual consumption

The Effect of Belief: Reevaluating CAY

This paper reevaluates the importance of the cay variable and studies the role of market belief for predicting changes in consumption and asset wealth. The cay variable on its own is not a stable predictor, which leads to a reasonable doubt of how robust this proxy for expectations is. We use expectations data from the Livingston Survey and Blue Chip Financial Forecast to construct the average market belief, and find that the presence of the belief variable wipes out the effect of the cay variable, and that the explanatory power of the belief variables is consistent throughout different time horizon