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Negative investment in China: financing constraints and restructuring versus growth

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  • Sai Ding
  • Alessandra Guariglia
  • John Knight

Abstract

This paper addresses a puzzle in China’s investment pattern: despite high aggregate investment and remarkable economic growth, negative investment is commonly found at the microeconomic level. Using a large firm-level dataset, we show that private firms divest in order to raise capital. We also find that, owing to over-investment and mis-investment in the past, state-owned firms have had to restructure by getting rid of obsolete capital in the face of increasing competition and hardening budget constraints. Finally, rapid economic growth counterweighs both effects for all types of firms, with a larger impact in the private and foreign sectors.

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Paper provided by University of Nottingham, GEP in its series Discussion Papers with number 12/01.

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Handle: RePEc:not:notgep:12/01

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Keywords: Negative investment; Financial constraints; Industrial restructuring; Economic transition; China; firm-level data;

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Cited by:
  1. Sai Ding & Alessandra Guariglia & John Knight, 2010. "Does China overinvest? Evidence from a panel of Chinese firms," Working Papers, Business School - Economics, University of Glasgow 2010_32, Business School - Economics, University of Glasgow.
  2. Minjia Chen & Alessandra Guariglia, . "Financial constraints and firm productivity in China: do liquidity and export behavior make a difference?," Discussion Papers, University of Nottingham, GEP 11/09, University of Nottingham, GEP.
  3. Natasha Agarwal & Chris Milner & Alejandro Riaño, 2013. "Credit Constraints and FDI Spillovers in China," CESifo Working Paper Series, CESifo Group Munich 4313, CESifo Group Munich.
  4. Paul Mizen & Serafeim Tsoukas, 2014. "What promotes greater use of the corporate bond market? A study of the issuance behaviour of firms in Asia," Oxford Economic Papers, Oxford University Press, Oxford University Press, vol. 66(1), pages 227-253, January.

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