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Since 2015, when China opened up its onshore bond markets more substantially, foreign investors have significantly increased their investments in Chinese local currency bonds. This study aims to examine the effects of foreign participation on Chinese government bond yields. This study adopts a robust least squares model and a cointegration model. (Greater) foreign participation can significantly decrease 10-year Chinese government bond yields. There are almost no studies of the benefits and costs of foreign participation in Chinese bond markets. The conclusion drawn from this study is the first of its kind in the academic literature on the Chinese market, and contributes to knowledge about foreign participation in local currency bond markets. [ABSTRACT FROM AUTHOR]

An automatic alpha factor mining method is proposed in this paper to assist expert traders in finding profitable alpha factors efficiently. Unlike finding qualified alpha factors by directly enumerating all possible combinations, the mining task is formulated as an iterative convolution kernel learning problem. Each kernel to be learned is associated with a unique alpha factor. To better solve the learning problem, the sparsity is introduced at the mutation step of the learning process to find simple and interpretable solutions efficiently and relieve the overfitting risks in real-world trading. A theorem is proposed to prove that the designed learning process can complete automatically in finite iterations as all convolution kernel vectors converge to zero vectors. In addition, a score function based on win rate, expected return and trade frequency is designed to evaluate the performance of market entry signals generated by the alpha factors practically. The convolution kernels with high score values are recorded and exported as the mined alpha factors. The experiment results show that the proposed method can achieve superior performance on both the China government bond dataset and the gold dataset. [ABSTRACT FROM AUTHOR]

Although China's monetary and financial system differs drastically from its Western counterpart, empirical studies covering this vast economy have often been simple reestimations or recalibrations of models originally designed to describe US or European monetary policy. In this paper, we aim to assess Chinese monetary policy and, in particular, monetary policy transmission through yield curves into the real economy. Our study takes into account the peculiarities of the Chinese economy: Namely, our model includes both China's modern attempts at a market-based monetary policy as well as the "authority-based" one that is a relic of the original banking system. Besides, it considers the special nature of the Chinese treasury bond market, which is separated into two independent ones with very limited direct arbitrage opportunities between almost identical assets. Finally, it incorporates the role of real estate, which played an essential role in China during the last decade. Our results show that different monetary policy shocks cause asymmetric effects on macroeconomic and financial variables. [ABSTRACT FROM AUTHOR]

Using Renminbi (RMB) bonds, especially Chinese Government bonds (CGB), as collateral for both onshore and cross-border over-the-counter (OTC) derivatives is a hot topic following China switching to a netting jurisdiction in August 2022. Since then, Chinese financial institutions are required to exchange initial margin and variation margin with offshore counterparties for dealing cross-border derivatives. As the market infrastructure for using RMB bonds as collateral for cross-border OTC derivatives transactions is not well established and RMB bonds are not extensively accepted by foreign counterparties as eligible collateral, Chinese financial institutions are unable to utilise their huge RMB bond holdings. At the same time, many foreign investors are allowed to access China's onshore RMB bond market with RMB bond holding up to RMB 3.4tr, but are unable to use those inventories as collateral for their onshore and cross-border derivatives trading and other financial transactions. Using RMB bonds as collateral is also an initiative of RMB internationalisation. The purpose of this paper is to give an extensive explanation of the status of using RMB bonds as collateral in the Chinese market, point out challenges faced by market participants and provide suggestions to promote using RMB bonds as collateral for both onshore and cross-border derivatives transactions. This paper provides the full picture of China's onshore RMB bond investment and bond collateral management along with the latest data. It also provides extensive analysis for deficiencies in respect of the RMB bond collateralisation. It concludes with suggestions for the future development of the Chinese market to use RMB bonds as collateral for both onshore and cross-border OTC derivatives. [ABSTRACT FROM AUTHOR]

This paper models the dynamics of Chinese yuan–denominated long-term interest rate swap yields. It shows that the short-term interest rate exerts a decisive influence on the long-term swap yield after controlling for various macrofinancial variables, such as core inflation, the growth of industrial production, the percent change in the equity price index, and the percentage change in the Chinese yuan exchange rate. The autoregressive distributed lag approach is applied to model the dynamics of the long-term swap yield. The findings reinforce and extend John Maynard Keynes's conjecture that in advanced countries, as well as emerging market economies such as China, the central bank's actions have a decisive role in setting the long-term interest rate on government bonds and over-the-counter financial instruments, such as swaps. [ABSTRACT FROM AUTHOR]

Government bonds might provide reference entities that reduce corporate bond yields. We study China's 2017 issuance of two U.S. dollar (USD)-denominated sovereign bonds when there were (effectively) no outstanding USD sovereigns. We find that Chinese corporate USD bonds experienced a four- to nine-basis-point decline in yield spreads, whereas corporate renminbi (RMB) bonds did not. The effect was stronger for corporate bonds with maturities similar to those of the USD sovereigns. Further consistent with the reference effect, USD-denominated corporate bonds experienced declines in bid-ask spreads and volatility; corporate bond yield spread changes became more sensitive to sovereign yield innovations; and the less-informed foreign mutual funds significantly increased their holdings of offshore USD Chinese corporate bonds. Limited evidence indicates that new corporate bond maturities shifted toward the sovereign bonds' maturity after their issuance. This paper was accepted by Lukas Schmid, finance. Funding: B. Wang received financial support from Hong Kong Institute for Monetary Research. C. Y. Hong received financial support from the National Natural Science Foundation of China [Grant 72003125]. Supplemental Material: The internet appendix and data are available at https://doi.org/10.1287/mnsc.2022.4499. [ABSTRACT FROM AUTHOR]

The purpose of this paper is to study the spillover effects of financial stress among five important financial markets (bond, stock, foreign exchange, interbank, and real estate markets) in China, and explore the important determinants of financial stress spillover level among the markets and the impact of the Chinese stress spillover situation on the European markets. Our findings are as follows: First, there is a significant stress spillover effect among the five markets, and the total financial stress spillover index (TSSI) is very high during the global financial crisis. Generally, the stock and real estate markets are the major transmitters of stress spillover, and the interbank and bond markets are the major receivers. Second, the most macro factors have significant impacts on the financial stress spillover level among the markets, especially CPI index, the Chinese economic policy uncertainty index and VIX index. And the severity of the COVID-19 epidemic in China and the world has a significant impact on the TSSI, especially from March 2020 to August 2020. Finally, the TSSI can significantly increase the volatility of French stock market, Italian stock market and German government bond market, especially during the Sino-US trade war and the COVID-19 epidemic. [ABSTRACT FROM AUTHOR]

• Crowding-out effect of the public sector on private sector economic activity. • Two sources of financing for the government sector are discussed: government bonds and bank loans. • Contrasts state-owned and non-state-owned corporations. • The role of central government regulation. The local government debt risk has attracted government regulators' attention, and its economic consequences have become a new research topic. Based on data from Chinese prefecture-level cities, this paper empirically examines the impact of local government debt on corporate financing from 2006-2018. The results show that government debt financing reduces total corporate debt financing, increases the cost of corporate debt financing, and has a crowding-out effect on corporate debt financing. Local government financing through the financing platform company injects quality projects and reduces the financing constraints of the financing platform to attract credit resources from banks. Insides, the government provides a guarantee for the financing platform company and reduces the bond risk of the financing platform to attract investors to purchase. Severing the link between local governments and financing platform companies can reduce the crowding-out effect to a certain extent. The results of this paper provide evidence for the micro effects of local government fiscal policy, which are informative for further improving the financing capacity of enterprises. [ABSTRACT FROM AUTHOR]

We construct a daily liquidity index of China's government bond market using transaction data from the national interbank market during 2001–2020. The index is a composite of popular price-based and quantity-based metrics of liquidity. The composite indices, obtained by averaging across different metrics and by applying the principal component analysis, respectively, both point to a better liquidity condition after 2010. Market liquidity swings appear to be highly correlated with domestic funding liquidity and financial market volatility, but display fewer correlations with global macrofinancial indicators. Our findings suggest that the further deepening of the government bond market would support domestic financial stability and monetary operations down the road. [ABSTRACT FROM AUTHOR]

America's current-account deficit has grown significantly since 2020, reaching 3.6% of GDP last year – its highest level since 2008. At the same time, its net foreign debt reached a staggering $18 trillion, or 78% of GDP. And fast-rising inflation has prompted the US Federal Reserve to begin raising interest rates and reducing its holdings of Treasury securities – moves that are likely to impede growth and increase the government's borrowing cost. Will America's "external sustainability" be at risk again? To answer that question, we must consider the four variables on which external sustainability depends: the gap between private saving and private investment, the size of the budget deficit, investment-income levels, and the rate of GDP growth. Geopolitics might compound the challenges ahead. The US has avoided a balance-of- payments and dollar crisis in the past largely because Asian central banks and oil- exporting countries have tirelessly purchased US government bonds and Treasury bills. But amid rising geopolitical tensions, these buyers might decide – or be forced – to rethink their purchases. It is against this backdrop that the Fed is pursuing rather aggressive interest-rate hikes and quantitative tightening. But increased demand for foreign capital to finance the trade deficit, together with greater reluctance by foreign investors to purchase US government bonds and Treasuries, might put America in a quandary. It is likely that America's external balance will deteriorate significantly, unless US GDP growth slows significantly. [ABSTRACT FROM AUTHOR]

This research studies the strategy of risk evaluation of China government bonds with the latest data. The angle of evaluation focuses on the interest rate and the stability risk, employing the EWMAVaR and SVM methods. The weights of each risk indicator are determined by the entropy method. Experimental results show that the risk of government bonds is stable in recent years. However, the impact of COVID-19 cannot be ignored because the risk level increased in the year 2020. The issuing of one trillion special antipandemic bonds could explain the fluctuation of the market because the fiscal incomes of Chinese government decreased in 2020 and could not be recovered in a short time. The experimental results show that the method proposed in this paper has a better performance than the existing methods, and it can help well in realizing the risk assessment of government bonds. [ABSTRACT FROM AUTHOR]

To correct US current account deficits, dollar depreciation rather than imposition of tariffs is economically the better response. The theory of second best (The Review of Economic Studies, 24, 11) implies that if there is only one distortion then correct it, but the welfare effects of adding a second, supposedly offsetting distortion, may not increase welfare and can reduce it. In the context of an overvalued dollar caused by the dollar's status as the predominant global investment currency—a distortion adversely affecting the US manufacturing sector, the first best policy is not to impose tariffs because this adds a trade distortion on top of an exchange rate distortion and can easily be welfare reducing. US imports may be diverted from China to higher‐cost foreign producers not subjected to the tariff, and tariffs do nothing to promote US exports. The first best policy is directly to reduce the distortion of an overvalued exchange by discouraging excessive accumulation of foreign holdings of US securities held as foreign exchange reserves and by foreign private investors. A tax on the foreign holdings is a way to accomplish this. [ABSTRACT FROM AUTHOR]

The article explores the threat posed by the growth of the Chinese economy to global capitalism. This threat has been attributed to China's integration into global financial markets and the government's decision to allow wholly-owned foreign financial firms to operate in the Chinese securities and futures markets. The increasing volume of transnational investments in Chinese government and corporate bonds is discussed, as well as the growing market role of state-owned enterprises (SEOs).

Australia—China relations, and especially Chinese influence in Australia, have been the subject of heated debate in Australia since 2016. The central issue is, how to balance concerns over Chinese influence in Australia with the economic benefits of Chinese trade and investment? This study—arguably the first of its kind—answers this question using rigorous empirical modelling. First, it uses Google Trends search results to measure Chinese influence in Australia. Second, it connects Chinese influence, as reflected in Google Trends search results, to financial markets, including stock markets, government bond markets and foreign exchange markets. Weekly data for January 2016–December 2019 are entered into an exponential generalised autoregressive conditional heteroskedastic model. The study finds that the effects of concerns over Chinese influence relate mainly to increased volatility of stock market indices and government bond yields, and downward pressure on the share prices of individual firms that are heavily exposed to Chinese markets. However, the overall effects appear to be minor or insignificant. The implications of these results are that China's economic coercion (if any) may not be effective, and Australia's responses to Chinese influence and interference (if any) may generate insignificant costs. Finally, this study makes original and significant academic contributions to academia by providing a novel framework for exploring international relations. [ABSTRACT FROM AUTHOR]

This study revisits the Fisher effect using a different empirical method that considers a potential nonlinear relationship between interest rates (treasury bond rates) and inflation in China. The rising uncertainty and asymmetric information in financial markets between bond holders and bond issuers suggest such a potential nonlinear relationship. To this aim, we apply Shin et al.'s (2014) nonlinear autoregressive distributed lag (NARDL) model with asymmetric dynamic multipliers for the sample period 2002M7-2018M4. The empirical findings reveal symmetric and asymmetric partial Fisher effects for all sample bond rates in China. Furthermore, we find that 20-year bond rates experience the lowest partial Fisher effect. [ABSTRACT FROM AUTHOR]

In recent years, with the rapid development of China's stock market and the awakening of investors' awareness of protection, the number of public enforcements in the Chinese public securities market have exploded, and the primary regulator of the securities trading, China Securities Regulatory Commission (CSRC) has become increasingly active in providing remedies for investors. It seems that the quality of rule of law in enforcing securities law of the country has been dramatically improved. However, based on a careful analysis on a series of the cases, this statement may not be quite accurate. This paper aims to deeply explore the social and political factors that are significantly directing the enforcement of securities law in contemporary China by examining the two landmark judicial cases occurred in the recent years. [ABSTRACT FROM AUTHOR]

The authors examine the sources of the funds that have financed China's infrastructure development since 1978. They define the five periods in which this development has taken place in terms of predominant financing: fiscal funds, build-operate-transfer (BOT), treasury bonds, the land financing, and local bonds. The system is characterized by a heavy reliance on debt financing and one-off revenues. These approaches have raised widespread concerns about fiscal sustainability in China. The authors explain why a shift towards the more conventional approach of fiscal funds is necessary. China's infrastructure development since 1978 has been characterized by a heavy reliance on debt financing and one-off revenues. The model raises the concern about the country's long-term fiscal sustainability. China should shift towards the more conventional approach of using fiscal funds to support infrastructure. [ABSTRACT FROM AUTHOR]

This paper investigates the volatility persistence in sovereign bond yields of India and China during study period of 2010–2018. For that purpose, the researcher has applied the Engle and Lee (in: Engle and Lee (eds) Cointegration, causality, and forecasting: a Festschrift in honour of Clive WJ Granger, Oxford University Press, Oxford, pp 475–497, 1999) C-GARCH model to decompose the volatility of 10-year sovereign bond yields of India and China into permanent and transitory components. The results reveal that permanent conditional volatility shows long memory with long-run component's half-life decay ranges from 91 to 97 days for India and China, respectively. However, the temporary component of volatility much smaller with short-run component's half-life decay ranges from.70 to.75 for India and China, respectively. [ABSTRACT FROM AUTHOR]

We estimate the value creation for the stocks purchased by the Chinese government between the period starting with the market crash in mid-June of 2015 and the market recovery in September. We find that the government intervention increased the value of the rescued non-financial firms by RMB 206 billion after netting out the average purchase cost, which is about 1% of the Chinese GDP in 2014. The short-term value creation came from the increased stock demand, the reduced default probabilities, and the increased liquidity. The intervention may come at a long-run cost of creating moral hazard, preventing price discovery, creating more uncertainty, and damaging government credibility. [ABSTRACT FROM AUTHOR]

To understand Sino-U.S. trade relations, this article interprets the trade imbalance between China and the United States from the Trump administration's perspective. The Trump administration claims that the Chinese government's subsidies and high import tariffs cause the Sino-U.S. trade deficit, resulting in job losses in the U.S. The Trump administration therefore argues that imposing high tariffs on Chinese exports can resolve the deficit. The article finds that U.S. statistical accounting overestimates the deficit. Reducing China's imports cannot increase U.S. employment, and China provides the United States with low-price and high-quality products. Chinese investors tend to invest the surplus by purchasing U.S. Treasury bonds. In addition, the United States limits Chinese investments due to 'national security' concerns. China's upgrading to the high end of the global value chain is a consequence of economic development. Therefore, the two countries should rebalance Sino-U.S. trade by seeking economic and trade cooperation via trade negotiations. [ABSTRACT FROM AUTHOR]