After China’s economy enters the " new normal” era, the structural imbalance problems between fictitious economy and the real economy have become increasingly prominent. Under the driving force of fictitious economy’s excess return rate, the entity sector enterprises hold much more financial assets than before and gradually affect the entity’s main business, which has become one of the stylized facts of China’s economy. Therefore, understanding the impact and mechanism of fictitious economic development on micro-entity enterprises is an important prerequisite and basis for resolving structural imbalances, preventing financial risks, and cultivating new kinetic energy for economic growth. The existing research explores the interaction and deviation between fictitious economy and the real economy from multiple perspectives, but it is not sufficient to discuss the imbalance mechanism between Chinese entities and the fictitious economic structure under the current macroeconomic background. China’s economy has entered a new normal, and new features and new phenomena are constantly emerging, requiring new explanations. With the rapid development of China’s economy, only part of fictitious economy represented by banks has been unable to explain some new problems. For example, the rapidly developing shadow banking system which is outside the supervision is very worthy of attention. In addition, the maturity mismatch and credit mismatch caused by local government financing platforms also affect the real economy and cause structural imbalances. Therefore, it is necessary to further expand the relationship between the two issues, and summarize and extract new models and lessons. Therefore, this paper attempts to examine the impact of the " financialization” process of holding financial sector assets on the output and efficiency of the real economy sector driven by the development of fictitious economy under the micro-enterprise level. The paper conducts empirical research through the data of Chinese listed companies. Considering the possibility of endogenous problem, it is found that the rapid development of fictitious economy after 2008 has a significant and long-term inhibitory effect on the real economy. This suppression is mainly reflected in private enterprises and manufacturing industries, and it has a more negative impact on the real economy in the " new normal period” of the economic downturn. From the macro-environment perspective, the rapid expansion of shadow banking and the impact of local government financing platforms on the real economy are the main transmission mechanisms for this inhibition. From the perspective of micro-enterprises, arbitrage motives enable entities in the real sector to allocate financial assets, squeeze capital investment and ultimately reduce the efficiency of business operations. These conclusions have important policy implications for clarifying the relationship between the real economy sector and the fictitious economy sector, and the future direction of China’s financial and real estate reform. The paper may have three possible innovations. First, according to the industry and the nature of enterprises, the dynamic relationship between fictitious economy and the real economy is deeply combed, and it is found that the impact of fictitious economy on the various components of the real economy is heterogeneous. Second, given China’s economic development process, from the external and internal dimensions of micro-enterprises, the paper analyzes the impact mechanism of fictitious economic development on micro-entity enterprises. Third, as to the policy factors behind these relations and mechanisms, such as interest rate marketization reform, necessary financial industry policy coordination, and local government soft budget constraints on debt, a preliminary analysis is also conducted. The conclusions obtained by the article provide important inspirations for China to adjust the structural problems of both fictitious and the real economy in the future. The complementary relationship between fictitious economy and the real economy requires certain premise, such as hard constraints of the enterprise budget, and strictly-regulated financial fictitious economy. Therefore, it is necessary to improve the overall financial supervision, and control speculative motives from the source; to encourage the transformation and upgrading of the real economy, vigorously implement supply-side structural reforms, and realize industrial transformation and upgrading through innovation; to regulate local government financing platforms, strictly implement government debt balance management, and improve the local government debt budget management system.
/ Journals / Journal of Finance and Economics
Journal of Finance and Economics
LiuYuanchun, Editor-in-Chief
ZhengChunrong, Vice Executive Editor-in-Chief
YaoLan BaoXiaohua HuangJun, Vice Editor-in-Chief
Does the Development of Fictitious Economy Inhibit the Real Economy? Microcosmic Evidence from Chinese Listed Companies
Journal of Finance and Economics Vol. 44, Issue 11, pp. 74 - 89 (2018) DOI:10.16538/j.cnki.jfe.2018.11.006
Summary
References
Summary
[1] Cheng S W. Fictitious economy and financial crisis[J]. Journal of Management Sciences in China, 1999, (1):4-9. (In Chinese)
[2] Hu X. The effects of the fictitious economy development on real economy: Promoting growth or adjusting structure [J]. Finance & Economics, 2015, (2): 52-62. (In Chinese)
[3] Hu Y M, Wang X T, Zhang J. Themotivation for financial asset allocation: Reservoir or substitution?——Evidence from Chinese listed companies[J]. Economic Research Journal, 2017, (1): 181-194. (In Chinese)
[4] Li Y. Contention on finance serving the real economy[J]. Economic Research Journal, 2017, (6): 4-12. (In Chinese)
[5] Liu J Q. An econometric analysis of linkages and influences between real and nominal economic[J]. Social Sciences in China, 2004, (4): 80-90. (In Chinese)
[6] Liu J M, Wu C M. A model of fictitious economy and real economy——An explanation of Chinese stock market deviating from real economy[J]. Economic Research Journal, 2004, (4): 60−69. (In Chinese)
[7] Liu R, Li R H. Analysis of the high profitability of China’s banking——Based on the data of listed companies[J]. China Review of Political Economy, 2013, (2): 160-171. (In Chinese)
[8] Luo D L, Liao J P, Wang J. Local officials, turnover and corporate risk——Evidence from Chinese listed firms[J]. Economic Research Journal, 2016, (5): 130-142. (In Chinese)
[9] Luo L J, Jiang C, Wang Y Z. Financing discrimination, market distortions and profit lost——Also discussing the influence of virtual economy on real economy[J]. Economic Research Journal, 2016, (4): 77-88. (In Chinese)
[10] Shi D H. Ownership structure, corporate governance and performance[J]. The Journal of World Economy, 2000, (12): 37-44. (In Chinese)
[11] Song J, Lu Y. U-shape relationship between non-currency financial assets and operating profit: Evidence from financialization of Chinese listed non-financial corporates[J]. Journal of Financial Research, 2015, (6): 111-127. (In Chinese)
[12] Su Z, Fang T, Yin L B. Correlation of the virtual and the real economy: Empirical research at the level of scale and periodicity[J]. Social Sciences in China, 2017, (8): 87-109. (In Chinese)
[13] Wang A J. Research on the relationship between fictitious economy and real economy[J]. Modern Finance and Economics (Journal of Tianjin University of Finance and Economics), 2003, (1): 8-11. (In Chinese)
[14] Wang H J, Cao Y Q, Yang Q, et al. Does the financialization of non-financial enterprises promote or inhibit corporate innovation[J]. Nankai Business Review, 2017, (1): 155-166. (In Chinese)
[15] Xu L P, Xin Y, Chen G M. Ownership concentration, outside blockholders, and operating performance: Evidence from China’s listed companies[J]. Economic Research Journal, 2006, (1): 90-100. (In Chinese)
[16] Yu M Z, Zhi K. Import liberalization and firm profitability[J]. Economic Research Journal, 2016, (8): 57-71. (In Chinese)
[17] Yu Z, Lu Y Z, Wang W D. Monetary policy execution mode, financial mismatch and investment constraints of Chinese Enterprises[J]. Economic Research Journal, 2015, (9): 52-64. (In Chinese)
[18] Zhang C S, Zhang B T. The falling real investment puzzle: A view from financialization[J]. Management World, 2016, (12): 32-46. (In Chinese)
[19] Arellano M, Bover O. Another look at the instrumental variable estimation of error-components models[J]. Journal of Econometrics, 1995, 68(1): 29-51.
[20] Bai C E, Zhang Q. Is the people’s republic of China’s current slowdown a cyclical downturn or a long-term trend? A productivity-based analysis[J]. Journal of the Asia Pacific Economy, 2017, 22(1): 29-46.
[21] Blanchard O J, Giavazzi F. Improving the SGP through a proper accounting of public investment[R]. CEPR Discussion Papers 4220, 2004.
[22] Blundell R, Bond S. Initial conditions and moment restrictions in dynamic panel data models[J]. Journal of Econometrics, 1998, 87(1): 115-143.
[23] Dore R. Financialization of the global economy[J]. Industrial and Corporate Change, 2008, 17(6): 1097-1112.
[24] McKinnon R I. The rules of the game: International money in historical perspective[J]. Journal of Economic Literature, 1993, 31(1): 1-44.
[25] Orhangazi Ö. Financialisation and capital accumulation in the non-financial corporate sector: A theoretical and empirical investigation on the US economy: 1973-2003[J]. Cambridge Journal of Economics, 2008, 32(6): 863-886.
[26] Shaw E S. Financial deepening in economic development[M]. New York: Oxford University Press, 1973.
Cite this article
Zhou Bin, Xie Jiasong. Does the Development of Fictitious Economy Inhibit the Real Economy? Microcosmic Evidence from Chinese Listed Companies[J]. Journal of Finance and Economics, 2018, 44(11): 74-89.
Export Citations as:
For
ISSUE COVER
RELATED ARTICLES