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Determinants of Corporate Investment in China

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  • Nan Geng
  • Papa N'Diaye
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    Abstract

    This paper analyzes the evolution of investment in China, its main features, and its key determinants. In recent years, 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 in recent years. 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.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/80.

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    Length: 19
    Date of creation: 01 Mar 2012
    Date of revision:
    Handle: RePEc:imf:imfwpa:12/80

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    Related research

    Keywords: Corporate sector; Exchange rate appreciation; Real effective exchange rates; cost of capital; capital market; domestic capital; domestic capital market; capital output ratio; corporate bonds; financial sector; real effective exchange rate; bonds; stock market; capital markets; capital market development; capital stock; stock market capitalization; real deposit rates; deposit rates; international standards; financial systems; bond; stock companies; financial system; asset investments; capital budget; joint-stock companies; capital spending; financial statements; stock markets; financial corporations; current account balance;

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    1. Chong-En Bai & Chang-Tai Hsieh & Yingyi Qian, 2006. "The Return to Capital in China," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 37(2), pages 61-102.
    2. Francesco Caselli & James Feyrer, 2006. "The Marginal Product of Capital," CEP Discussion Papers dp0735, Centre for Economic Performance, LSE.
    3. Yiping Huang, 2010. "China's Great Ascendancy and structural risks: consequences of asymmetric market liberalisation," Asian-Pacific Economic Literature, Asia Pacific School of Economics and Government, The Australian National University, vol. 24(1), pages 65-85, 05.
    4. Michael Leahy & Sebastian Schich & Gert Wehinger & Florian Pelgrin & Thorsteinn Thorgeirsson, 2001. "Contributions of Financial Systems to Growth in OECD Countries," OECD Economics Department Working Papers 280, OECD Publishing.
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