Summary： Becoming a powerful country in international trade (PCIT) is one of the most important goals in China's 13th Five Year Plan and perhaps beyond. This paper illustrates which countries are PCITs. In the trend toward world economic multi-polarization， there cannot be only one PCIT. As such， like the law of natural biodiversity， which holds that no two leaves of the forest are the same， no two trade powers can be exactly the same. PCITs have common and distinct characteristics. This paper analyzes their common and distinct features. Paying attention to changes in the global political and economic environment and the New Normal of China's economy after the international financial crisis， we construct indicators of common characteristics for empirical studies to identify PCITs. We also develop indicators of specific characteristics and classification methods to divide these countries into several categories， and analyze representative countries from every category. On the basis of this analysis， this paper analyzes the gap between China and these countries， and outlines the goal and path for China to become a PCIT. It is especially necessary to make scientific judgments about China's criteria and goals for PCIT， analyze the evolutionary trend for China's category of PCIT， and propose strategic policy suggestions.
Based on the preceding methodology， using data from UNCTAD， OECD， International Trade Center (ITC) and IMF， this paper chooses the top 30 countries in international trade value for its empirical study. Based on per capita exports， per capita outward FDI (OFDI) stock， and per capita intellectual property exports， we select certain PCITs and discover that these countries also perform well in all other indicators. The PCITs are then divided into big and non-big categories according to trade scales. They are also divided into balanced developed， more developed in goods， more developed in services， and more developed in agricultural products by trade structure. Considering trade scales， trade structure， currency competitiveness and global economic governance simultaneously， PCITs are classified as integrated or non-integrated and as old or new. We analyze the United States， the Netherlands， Germany， Japan， Britain， Switzerland， Ireland， Australia， Singapore and South Korea to obtain useful information.
We find that per capita exports are not the main characteristic that distinguishes China from PCITs. The major shortcomings of China' exports are the low level of per capita OFDI stock， per capita intellectual property export， relative unit value， value added ratio and share of service export， the low scale of OFDI stock relative to the export scale and the limited supply in global public goods. The enormous size of the Chinese population benefits the export scale， but also limits the growth of per capita indicators. Therefore， in the process of becoming a PCIT， China should not seek to match all per capita PCIT indicators， but should rather pay more attention to export quality. China should also realize that although the renminbi cannot catch up with the US dollar's position in the world in the short term， it can catch up with and surpass the Japanese yen and the British pound. China can also play a more important role in global economic governance.
The type， positioning and construction ideas of China's PCIT can be broken down into two issues. The first issue includes periodical objectives for China as a whole. China should learn from the experiences of Japan and Germany to become a PCIT in goods as the first step， then become a PCIT in services like England and the Netherlands， improve the international competitiveness of the renminbi and finally improve its global economic governance ability to reduce its disparities with the US. Second， at the provincial and municipal levels， based on the factor endowment and comparative advantage conditions， provinces and cities must strive to achieve certain types of small and even large-scale PCIT.
Key Words： Powerful Country in International Trade; Common and Specific Characteristics; Classify and Positioning; Policies Decomposition

Summary： The cause of the environmental governance failure in China has always been a hot issue. Many studies argue that environmental standards set by the central government cannot always be fully implemented by local governments under the mechanism of fiscal decentralization and political centralization (Wang et al.， 2003). However， although some developed regions have strengthened their environmental regulation， serious pollution remains a problem throughout the country. This study examines micro enterprises' location decisions and pollution spillover to explore common environmental problems in China， and provides inspiration for further environmental policies.
When the areas in which enterprises are located strengthen environmental regulations， enterprises seek to upgrade production or pollution control technologies to reduce the cost of pollution abatement. However， if there is a significant difference in regional regulatory levels， enterprises could instead reduce costs by moving to areas with more relaxed environmental regulations (Becker and Henderson， 2000; List et al.， 2003; Keller and Levinson， 2002). Furthermore， due to interactions between local market effects and migration costs， enterprises often tend to transfer nearby. Thus， tightened environmental regulation in some regions may lead to increased pollution in others.
This paper suggests that this nearby diversion effect of pollution caused the failure of the central government's environmental policy in the long run. The transfer of pollution to less developed areas means that a reduction in one region could lead to an increase in another， and because less developed regions have relaxed regulation， pollution reduction on a regional level could thus actually increase overall national pollution. The transfer of pollution does not reduce the threat to environmental carrying capacity， as pollutants are still discharged in the population and economic agglomeration areas and still affect regions that have strengthened their environmental regulation.
We collect data from the Chinese Urban Yearbook and the Institute of Public & Environmental Affairs. Based on the spatial lag of X model (SLX)， we identify the causal relationship between neighboring environmental regulation and local pollution discharge. To solve the endogenous problem of environmental regulation， the air circulation coefficient is used as the instrumental variable. Moreover， we examine three other topics： the spatial-temporal characteristics of the near-diversion effect of pollution， the mechanism of the near-diversion effect of pollution and the heterogeneity of the mechanism.
The results indicate several points. (1) A lack of coordination between local governments does cause a nearby diversion of pollution， which is mainly shown in cities within a 150 km radius. In recent years， pollution has been increasingly transferred to nearby regions. (2) Pollution transferred nearby not only increases the scale of the polluting industry， but also changes the pollution level of industrial structures. Although the exit barrier of pollution-intensive enterprises has helped to weaken the near-diversion effect of pollution， we find no evidence that state-owned property rights of enterprises mitigate the effect. (3) Although environmental regulation can reduce local pollution emissions， it seeks only the decontamination of industrial structures rather than upgrades to production or pollution control technology.
This paper provides a new perspective for understanding China's inefficient environmental policy. The central government must strengthen environment constraints on local governments， truly challenge the worship of GDP， and encourage local governments to seek consensus on environmental governance. It is also necessary to further optimize the structure of urban agglomeration， maximize returns of scale， optimize division and avoid homogeneity in city sizes.
Key Words： Environmental Regulation; Pollution Nearby Transferring; Polluted Industrial Structure; Spatial Lag of X Model

Summary： Using the heterogeneous enterprise trade theory framework provided by Melitz (2003)， this paper examines whether asymmetric carbon abatement leads to carbon emission leakage and losses in developed countries' competitiveness. We introduce carbon tariffs imposed by developed countries and technological changes in developing countries to examine the resulting impacts on trade and climate change. Our paper captures two facts. First， the emission intensity of a firm decreases with its productivity (Cui et al.， 2015; Cao et al.， 2016; Holladay， 2016). Second， the competitiveness of a country's exports increases when the profit of exporting increases relative to the fixed cost of exporting (Melitz and Redding， 2014). In addition， we demonstrate the mechanisms through which carbon emission and national competitiveness change due to asymmetric carbon abatement. We also examine the channels through which carbon tariffs and other climate policies affect countries in terms of carbon emissions， international trade and welfare. In contrast to current studies that lack emphasis on the role of firm heterogeneity and the role of changes in factor prices and terms of trade， we focus on the effect of resource reallocation in heterogeneous firms in different countries.
First， we set up a baseline two-country， one-sector， one-factor， theoretical trade model that allows for firm heterogeneity and changes in relative wage rates between a developed country and a developing country. Neither country controls the amount of carbon emitted， despite the asymmetry in population sizes and productivity distribution. Second， we set the pollution tax in the developed country to be higher than that in the developing country. We examine how cutoff productivities for domestic production and exporting change in each country. We also explore the effects of asymmetric carbon abatement on relative wages， competitiveness of exporting (as reflected by the number and output shares of exporters in an industry within each country)， trade openness (as reflected by the share of expenditure on foreign goods and the share of firm revenue in the export market) and carbon emissions and leakage. In addition， we introduce the carbon tariff policy and show how it affects both countries. We also separate the environmental effects of carbon tariffs into resource reallocation， structure， scale and productivity effects. We proceed with two additional discussions. First， we examine how improvement in pollution technologies within the developing country can affect the carbon emissions， trade openness and competitiveness of exporters in both countries. Second， we extend our analysis to a multi-country setup， where we combine theoretical models with calibrations of model parameters and counterfactual analyses of different policy scenarios.
We arrive at four findings. (1) Asymmetric carbon abatement incurs carbon leakage. However， the competitiveness of developed countries increases， as represented by decreases in the cutoff productivity for exporting and increases in the proportion of exporting firms. (2) Carbon tariffs harm all countries. In addition to the loss of competitiveness in each country， carbon tariffs increase carbon leakage and worldwide carbon emissions. (3) Technological improvement in developing countries reduces carbon leakage and worldwide carbon emissions. It also leads to decreases (increases) in the cutoff productivity for exporting in developed (developing) countries， indicating improvement in the competitiveness of developed countries. (4) Carbon tariffs decrease welfare worldwide， and technological change has the opposite result. Therefore policies that promote upgrades to emission technologies in developing countries are beneficial to all countries because they improve consumption welfare and reduce carbon emissions.
Key Words： Heterogeneous Firms; Carbon Tariff; Carbon Leakage; Competitiveness

Summary： Many Chinese firms face credit constraints in business because the country's financial system is much less developed (World Bank， 2013). The recent trade literature indicates that credit constraints can hinder firms' exports (Manova， 2013; Chaney， 2016). However， China has experienced a rapid growth in exports over the last 30 years. How can this boom be explained? How do credit constraints affect the export intensity of Chinese firms? To address these questions， this paper extends the current heterogeneous firms trade models， endogenizes the sorting behavior of heterogeneous firms with credit constraints on trade modes， and analyzes how credit constraints affect the upgrading behavior of firms. The paper presents an interesting result： credit constraints can promote exports. The underlying logic is straightforward. Firms must pay fixed costs to conduct normal exporting and raise outside capital for a fraction of the fixed cost， as outlined by Manova (2013). However， firms can avoid credit constraints by operating in an export-oriented trade mode， as export-oriented firms can benefit from the government promotion policy. However， the export-oriented trade mode should distort the firms' export intensity choice， leading to lower profits. Thus， the less efficient and more financially constrained exporters tend to operate in an export-oriented trade mode because the profit loss caused by the export intensity distortion is smaller. Therefore， credit constraints can hinder the upgrading of firms from export-oriented trade modes to normal trade modes and lower the average labor productivity of the industry while expanding the industry's export volume.
Our paper is related to the literature on the trade model and heterogeneous firms. Some papers incorporate the tradeoff between the fixed and variable costs into the Melitz(2003) model to analyze different choices by heterogeneous firms (Helpman et al.， 2004; Bustos， 2011)， but they do not consider credit constraints. Some studies focus on credit constraint and firm behavior by incorporating credit constraints into the Melitz (2003) model (Manova， 2013; Chaney， 2016)， but they do not allow for different exporter trade modes. Manova & Yu (2016) study is most closely related to our paper. However， unlike Manova & Yu (2016)， in our model， heterogeneous firms have the same fixed cost， and we focus on export intensity rather than the processing trade.
Our model can explain why China's exports have increased under a less developed financial system from a firm-level perspective. As lower productivity firms select the export-oriented trade mode and credit constraints reinforce this selection， it is no wonder that China has experienced a fast growth in exports over the last 30 years. Our model can also explain why the firm's export price is lower than the domestic selling price in China. Firms must manipulate the export intensity， which distorts the export price relative to the domestic selling price. Our model provides a theoretical foundation for the supply-side reform of China's foreign trade. Unlike in other countries， exporters and non-exporters' activities were controlled by separate government departments until 2003. Thus， firms could not freely switch between exports and domestic sales before 2003. The supply side of the market is heavily segmented into foreign and domestic markets. Influenced by the export-promotion policy， an oversupply of exports， especially of low-end products， has arisen. Using firm-level Chinese manufacturing data， we provide robust empirical evidence consistent with the main predictions of the theoretical model. We find that firms with lower credit constraints perform better on average， the relationship between credit constraints and firm export intensity is not statistically significant after controlling for firms' initial characteristics， and pure domestic sellers with greater credit constraints are more likely to operate in a high-export-intensity trade mode next year. This paper indicates that changing the export-oriented trade policy and deepening the supply-side reform are essential to the transition and upgrading of firms.
Key Words： Credit Constraints; Transformation and Upgrading; Heterogeneous Firms; Trade Mode; Supply Structure

Summary： In the past decade， countries and regions have formed global production network through trade of intermediate products and have created technical links and linkage effects between each other. Therefore a country's economic growth depends on not only its own resources and production technologies， but also the international division of labor and the country's position in the global value chain. To analyze the source of China's economic growth in the context of global integration， we must consider the impact of economic spatial linkage in other countries.
This paper analyzes the source of China's economic growth between 1995 and 2011 using the World Input-output Table under a new growth accounting framework， and provides a new idea for China's sustainable economic growth in the middle-income stage. The conclusions in this paper are as follows. (1)Although the influence of China's economy increased during the analysis period， its influence did not effectively improve during the same period. Considering the factors of income distribution， both the international division of labor rate and income distribution increased simultaneously. (2) China's economic dependence on Asia declined during the analysis period， while its dependence on the North American region increased. In terms of specific nations， China's economy was heavily dependent on the United States and Japan. Over the analysis period， dependency on the United States increased and dependency on Japan declined. (3) The change in global input-output structure benefited China's economy. This benefit is temporary and should weaken over time. At the same time， the structure of domestic final demand (which depends on investment) would not be sustainable in the middle-income stage.
This paper shows that the rapid growth of China's economy over the past decade was the result of external and internal factors. In terms of external factors， changes in global input-output structure had positive domestic multiplier， feedback and spillover effects.In terms of internal factors， strong domestic demand ensured sustained stable growth. However， in the middle-income stage， the Chinese economy will face new and severe challenges. First， the positive impact of global input-output structure changes on the Chinese economy is mostly short term and temporary， and will weaken over time. Second， the investment-based domestic final product structure will be unsustainable.
In view of the transition of China's economic growth engines， this paper puts forward the following suggestions. First， the positions of Chinese corporations in the global value chain should be enhanced through innovation. Second， a stable consumer market should be cultivated to avoid the distortion of final demand structure. Finally， we should objectively look at the relationship between the decline in economic growth and the improvement in quality.
This paper provides a number of innovations. First， it provides a new interpretation focusing on China's rapid economic growth from the perspective of global economic spatial linkages. Second， it builds a new growth accounting framework to break down economic growth into internal and external factors. Third， it defines indexes to measure the global economic spatial linkages more precisely.
Key Words： Spatial Linkage; Economic Growth Source; Global Input-output Model; Middle-income Stage

Summary： Volatility in housing markets is an important source of macroeconomic instability. The asynchronous changes in housing markets and macro-economy make it difficult to engage in the macroeconomic management necessary to achieve economic stability and healthy housing market development. It is important to clarify the following questions to improve macroeconomic management. What are the reasons for increased volatility in house prices？ Why does the housing market appear pro-cyclical in some periods and counter cyclical in others？ Which policy or policy combination can achieve economic stability， structure balance and housing price stability simultaneously?
The paper sets up a multi-sector dynamic stochastic general equilibrium model： medium-scale New Keynesian model with a housing sector. Several real and nominal frictions are added to the model to fit economic cycles， including credit constraint in housing investment， price stickiness of goods， household habit formation and investment adjustment cost. Parameters are calibrated and estimated with the Bayesian-DSGE method using China's macro-data. The four main results are as follows.
First， the type of shock determines the cyclical properties of housing markets. Housing prices and housing investment are counter cyclical under shocks of investment adjustment cost and fiscal expenditure， and are pro-cyclical under monetary policy shocks， cost shocks， house demand shocks， labor supply shocks and technology shocks.
Second， a higher leverage raises volatility in house prices. Leverage amplifies housing market fluctuations， acting as a financial accelerator. House market values limit financing in the contexts of credit constraint. When housing prices rise， house market values increase， which increases financing and housing investment， further increasing housing prices. High leverages magnify the effect and increase instability in housing markets. This explains the increasing volatility of China's housing prices in the last decade.
Third， traditional macro-demand management policies are inadequate means of stabilizing economic growth， balancing economic structure and curbing house prices simultaneously when investment drops， which causes economic slowdown and a housing market boom. Loose monetary policy stimulates little investment but spurs considerable rises in house prices. Housing markets decline rapidly after short boom periods， raising the risk of a second recession. Active fiscal policy can stimulate aggregate demand， but it cannot balance the good and housing sectors， while the crowding-out effect brings a new type of imbalance and social welfare loss.
Fourth， two policies can achieve the multiple goals of macro-management when investment drops. The better of the two policies is to implement drastic tax cuts and investment subsidies to offset negative investment shocks. When this policy cannot be implemented for whatever reason， there is a second-best option： a policy combination that involves loose monetary policy， tax cuts and macro prudential policy.
This paper makes two contributions to the literature. First， it introduces a new housing sector modeling approach into the mainstream macroeconomic model. Different from much of the literature， this study models housing development， investment and consumption separately. This approach can mimic the dynamics of housing supply， housing as an asset and housing as a good. Second， we emphasize policy combination analysis， encompassing monetary， fiscal， supply and macro-prudential policy. This differs from the traditional literature， which mainly focuses on single policy analysis.
Key Words： Housing Markets; Business Cycles; Macroeconomic Policies

Summary： The implementation of the Household Responsibility System (HRS) played a key role in the recovery of the rural economy and the development of agricultural production at the beginning of the reform and opening-up period (Lin， 1992; McMillan et al.， 1989). Under HRS， land is allocated on the basis of household size. This system neglects household agricultural productivity heterogeneity， and can mean that there is no relationship between household productivity and land size. Generally， more productive producers tend to buy more input factors in competitive markets until their marginal output equals the marginal cost of input. This indicates that more productive producers are larger in size. There is therefore a positive correlation between plant size and their productivity， and a stronger positive correlation indicates more efficient capital allocation (Alfaro et al.， 2008; Adamopoulos and Restuccia， 2014). In China's rural land allocation under the current HRS， there is no relationship between a household's productivity and its land， and this suggests that land is misallocated. The Chinese government issued a number of policies to promote farmland rent after the 18th CPC National Congress to improve land allocation efficiency. What productivity gains could be obtained if land were efficiently allocated across existing farms？
Using a two-sector (agriculture and non-agriculture) model， combined with the Stone-Geary utility function and HRS's land allocation， this paper builds a customizable model to study the effect of land misallocation on structural change and aggregate labor productivity. We use unbalanced panel data from the National Fixed Point Survey (2004—2013)， a household survey collected by the Research Center for the Rural Economy in the Chinese Ministry of Agriculture to estimate household production efficiency. We use the equilibrium properties of the model to calibrate the parameters to observed moments and targets from the data for China. We also use the framework provided by our model and parameters obtained from previous steps to evaluate the effect of land misallocation on China's structural change and aggregate labor productivity. Our results show there was a change in household TFP between 2004 and 2013. The standard deviation (SD) of log total factor productivity (TFP) is 4.73 in 2004， 5.04 in 2008， and 6.37 in 2013. The dispersion of land marginal product of revenue (MPR) has the same trend as household TFP. The SD of log MPR is 0.84 in 2004， 0.90 in 2008， and 1.25 in 2013. The change in land MPR indicates that land allocation efficiency deteriorated over time. Furthermore， reallocating land across all existing farmers to increase efficiency increased aggregate agricultural output and TFP by a factor of 1.36 between 2004 and 2013， from a minimum of 1.08 in 2004. Finally， an efficient reallocation of land to existing farmers in China increased aggregate labor productivity by a factor of 1.88 over the sample period， from a minimum in 2004 (1.81) to a maximum in 2013 (2.30).
The paper makes two main contributions. It incorporates Chinese land allocation under HRS into a standard two-sector model to theoretically assess the effect of land misallocation on China's aggregate labor productivity. In addition， it uses National Fixed Point micro panel data to estimate the distribution of household productivity and evaluate potential gains from the elimination of land misallocation in China. The empirical result shows that there is severe land misallocation in China and that we can obtain huge gains by reallocating land efficiently. This result deepens our understanding of this problem in China's current land allocation system.
Key Words： Resource Misallocation; Structural Change; Labor Productivity

Summary： During the present “new normal” economic period， the financing channel of the Chinese real economy is blocked while social investment and financing are inefficient. This creates an urgent need for deepened interest rate liberalization to make the market mechanism play a leading role in the allocation of financial resources， thus promoting the development of the real economy. The process of Chinese interest rate liberalization occurred over 20 years until the nominal ending of the interest rate market reform process in late 2015.
In the process of interest rate liberalization， the competitiveness， volatility and uncontrollability of commercial banks' liabilities are bound to increase， and the profitability of commercial banks will depend more on the asset management business. Optimizing the allocation structure of credit resources is the key factor in determining the business advantage of commercial banks， and it is also an important way to improve interest rate bearing capacity. The competitive banking industry environment drastically changes the process of interest rate liberalization. The banking industry is facing a “disinfecting” process due to the rapid development of direct financing instruments， and the banks' competitive behavior has manifested in institutional expansion and price competition. Therefore， this paper focuses on the impact of changes in the competitive environment on the credit structure of commercial banks in the process of interest rate liberalization.
There is little literature on the impact of competition on bank credit behavior in the interest rate liberalization process. Most studies discuss the impact of competition from the viewpoint of risk or the total amount of credit rather than the credit structure. Moreover， most studies examine foreign banks， and the samples are taken from developed countries that have completed interest rate liberalization. Therefore， this paper discusses the impact of competition from the perspective of bank credit resource allocation structure， providing an important supplement to research on the investment behavior of Chinese commercial banks in the new period.
Based on the loan supply model framework proposed by DeYoung et al. (2015) and considering the characteristics of the Chinese banking industry， this paper expands the theoretical model of the optimal credit decision of commercial banks， and explores the influence of the mechanism of competition on banks' credit resource allocation structure in the context of interest rate liberalization. Data relating to 67 banks from 2007 to 2014 are used and collected from the Bankscope database， Wind Information database and the banks' annual reports. This paper examines the influence of competition on the credit structure of the Chinese banking industry. The structure of credit holding departments， the term structure and the credit structure are considered. Furthermore， the banking industry is subdivided at the microstructure level to assess the dynamic impact of competition on different banks' credit structures in the context of interest rate liberalization.
The main conclusions of this paper are as follows. First， price competition in bank loans has a double-edged sword effect on bank credit structure adjustment. Second， bank size， level of liquidity and capital adequacy ratios affect the efficiency of bank credit structure adjustment， and loan price competition also has a double-edged sword effect on the credit structure adjustment of banks with different micro-characteristics. Third， competition encourages banks to further increase long-term credit resource allocation. These conclusions have significant implications for efforts to deepen the reform of the Chinese banking industry and formulate policies for the regulatory body.
Key Words： Interest Rate Liberalization; Bank Competition; Credit Structure; Bank Heterogeneity

Summary： A key issue in the law and finance literature concerns whether and how legal reforms affect financial development. China has experienced rapid economic growth and has made remarkable achievements in constructing a market economy since the reform and opening-up policy， but its financial system and laws remain underdeveloped. Therefore， many researchers and policymakers are interested in the question of how the legal system can be improved to promote financial development. In particular， how can Chinese firms make financial decisions in response to the reform on security interests system brought on by the Property Law?
The Chinese security interests system has undergone several reforms. The Property Law enacted in 2007 introduced a broad and more efficient system of security interests， so related transaction costs were reduced. In particular， the list of assets legally accepted as collateral was enlarged to include accounts receivable， inventories and other liquid assets. From an empirical standpoint， China offers a unique setting to identify the types of assets that could allow for credit expansion under collateral reform.
Using the Property Law as a natural experiment， we construct a sample of privately owned listed firms between 2003 and 2009 and study the financial effect of the law using a differences-in-difference method. We find that the reform of the security interests system led to a significant increase in firms' current liabilities and total debt， and that these effects were more pronounced for firms that had a lower proportion of fixed assets. Moreover， the evidence shows that the law affects corporate debt financing via a mechanism with two unique characteristics. First， the increase in current liabilities is dominated by the increase in trade credit. After the Property Law was enacted， firms quickly reacted to provide more trade credit. However， due to the insufficient elasticity of the bank loan supply and the substitution effect on the short-term loan of trade credit， banks' short-term loans to firms did not increase after the legal reform. Second， the reform had a lagged positive effect on the growth of firms' long-term debt. This occurred because the growth of current liabilities relaxed firms' financial constraints and promoted firms' investment， sales growth and profitability. When they observed that firms' performance was enhanced， banks and other financial institutions increased their supply of long-term loans to the firms.
This paper improves our understanding of how legal reform affects debt financing in two ways. First， the evidence reveals that allowing firms to collateralize accounts receivable enlarges the trade credit contracting space， improving firms' access to debt finance. This finding not only fills the gap in the law and finance literature from the perspective of trade credit， but also helps us to identify the types of assets that may allow for credit expansion under collateral reform. Second， we show that the reform prompts banks to increase their supply of long-term debt to firms by promoting the use of trade credit， a type of informal finance. This finding adds a new perspective on the interaction between trade credit and bank loans to the literature. Our paper thus provides important approaches for emerging markets to further improve their legal systems and financial development.
Key Words： Property Law; Security Interests System; Trade Credit; Long-term Debt; Difference in Difference Method

Summary： Financing constraints are the main obstacles to corporate innovation (Hall and Lerner， 2010)， especially for economies such as China's that have underdeveloped capital markets with limited financing options. In these markets， banks have more power in allocating capital and enjoy a greater degree of freedom， which consequently creates an opportunities for credit rent-seeking. Credit rent-seeking is a double-edged sword for innovation. In one respect， it speeds up the loan process and promotes innovation. In another respect， it increases financing costs and hinders innovation. Few studies examine which side is dominant. This paper tries to fill this gap in the literature by exploring credit rent-seeking and corporate innovation and expanding research on the effect of financing constraints on corporate innovation.
Our data are derived from the Business Environment and Enterprise Performance Survey (BEEPS， 2005) conducted by the World Bank， which covers 12，400 firms from 120 cities in China. We use R&D investment intensity (R&D/Sales) and whether the firm has invested in R&D (R&D Decision) as two proxies for firm innovation. The proxy for financing constraint is whether the firm has been granted a credit line by a bank. We measure credit rent-seeking with a dummy variable using a question from the BEEPS survey， where a firm manager is asked whether he or she should provide informal payments to bank staff to obtain a loan.
In the empirical section， we test hypotheses using probit and tobit models. The dependent variables are R&D Decision and R&D/Sales. The main explanatory variables are whether there is a credit line (proxy for no financing constraint)， whether there is credit rent-seeking and their interaction. Empirical results show the following points. (1) Both financing constraints and credit rent-seeking significantly impede corporate innovation. (2) There is an additional negative effect for firms encountering credit rent-seeking (interaction effect). These results are further confirmed with additional robustness checks using different credit constraint measures.
We use two methods to reduce possible endogeneity. Following Fisman & Svensson (2007)， we use the mean value of credit line dummy and credit rent-seeking from the same city and industry as the instrumental variables for financing constraint and rent-seeking. We also follow Ma (2014) in using the propensity score matching method (Rosenbaum and Rubin， 1983) to further address the endogeneity issue.
Furthermore， we split our sample according to firm size， types of controlling shareholder and capital intensity. The results show that the interaction effect is more pronounced for small-scale， privately held and capital-intensive firms.
Our paper makes the following contributions. First， it enriches the literature on financing constraints and corporate innovation by expanding it to include the additional dimension of credit rent-seeking. Second， because credit rent-seeking is a hidden phenomenon， it is very difficult to measure objectively. This paper overcomes this difficulty by using data from the World Bank survey. Third， this paper demonstrates that the detrimental effect of credit rent-seeking is more significant for firms with more serious financing constraints， providing direct evidence that credit rent-seeking can restrict firm innovation through financing constraints.
The policy implications are that credit rent-seeking is operating as a brake on the wheel of firm innovation， rather than greasing it. To foster innovation， development of the financial environment to ease corporate financing constraint and free it from credit rent-seeking activities is highly recommended. The current anti-corruption campaign should reduce rent-seeking activities and subsequently increase firm innovation.
Key Words： Credit Rent-seeking; Financing Constraints; R&D Decision; R&D Investment Intensity

Summary： Faced with lower domestic growth rates and an increasingly severe economic situation， the Chinese government has put forward a broad agenda for supply-side structural reform. The strategy aims to “cut overcapacity and excess inventory， deleverage， reduce costs， and strengthen points of weakness”. The elimination of nonviable “zombie” firms (insolvent firms that continue to operate due to continued access to financing at extremely low costs) is regarded as a key measure for effectively cutting overcapacity and deleverage.
To properly address the zombie issue， it is necessary to identify zombie firms and understand their negative effects. Although the zombie phenomenon has received considerable attention in policy discussion in China (He and Zhu， 2016a， 2016b)， rigorous empirical studies of the phenomenon in China based on large samples are limited. In terms of the phenomenon's effects， most discussions are still based on empirical evidence in the Japanese context (Caballero et al.， 2008; Kwon et al.， 2009).
However， it is important to empirically assess the impact of zombie firms in China， as China's economic system is different to advanced economies like Japan. First， China is in an economic transition period， and the finance sector is largely depressed. Banks are the main source of external corporate financing， and state-owned institutions dominate the banking system. As credit discrimination and credit rationing are widespread (Ji et al.， 2016)， distorted credit distribution by zombies can affect business investment by squeezing out financing opportunities for other firms. Second， state-owned enterprises (SOEs) in China are generally less efficient than private firms， but are still significant in the economy and have better access to resources (Cull and Xu， 2003; Ferri and Liu， 2010). We believe it is necessary to distinguish between SOEs and private enterprises when analyzing the impact of zombies firms in China. Therefore， in this paper， we account for China's unique characteristics in terms of the financial system and real economy and investigate how zombies affect other firms. We need to understand the spillover effect of the zombie phenomenon， understand China's economic slowdown from a micro perspective， estimate the benefits of a solution to the zombie issue， and clarify the policy direction for dealing with zombie firms.
Using the Annual Survey of Industrial Firms dataset covering the period between 1998 and 2013， this paper investigates the effect of zombie firms on the investment behavior of non-zombie firms. Based on the identification of zombie enterprises in the literature， we measure zombies as firms with implicit subsidies on interest payments whose earnings before interest and tax are not enough to pay interest at prime interest rates. The number of zombie firms in China declined rapidly in the early 21st century， rebounded prominently during the financial crisis， and declined following the fiscal stimulus plan in 2010. However， it increased again in 2012 and 2013， and (weighted by debt) reached 16.6% in 2013. SOEs， the northeast region and resource industries have higher proportions of zombies.
Our regression results demonstrate that the higher the proportion of zombie firms in a province， the lower the investment scale of non-zombie firms. This effect is more evident for private firms and is not significant for state-owned firms. These patterns remain robust in different specifications of fixed effects， in different samples and in instrument variable regressions. In addition， the crowding-out of private firms' investment is more apparent in provinces with stronger government interventions and in industries that are more dependent on external finance. The policy implication of this paper is that the proper disposal of zombie firms is beneficial for the expansion of private firms' investment. Deepened reform of state-owned firms and the financial system and the development of market exit mechanisms are appropriate methods for coping with zombie firms.
Key Words： Zombie Firms; Private Firms; Investment

Summary： Momentum and reversal are prominent anomalies in financial markets. Although traditional behavioral models have made some progress in explaining these anomalies， difficulties remain in explaining significant variations across different markets around the world. Empirical evidence suggests that momentum is on average stronger in developed markets and weaker in emerging markets. As a predictable asset price behavior， momentum can be viewed as a direct index to measure whether the market is efficient. Differences in momentum between developed and emerging markets indicate that predictable price behavior is more likely to exist in developed markets， while asset prices in emerging markets should reflect greater randomness. According to the EMH， price randomness is associated with market efficiency. Does this mean that asset pricing in emerging markets is more efficient？ Obviously， in reality， the opposite is true.
Different types of investors have heterogeneous beliefs. Information asymmetry makes investors unable to acquire sufficient information， so there is an incentive to infer investors' beliefs. Many studies have shown that psychological biases of irrational investors are systematic， so their trading behavior should have a predictable pattern. It provides the possibility for speculators to infer the sentiment system of irrational investors. In reality， both information inference and inducement trading exist. Speculators can infer the trading behavior of irrational investors through market pricing and adopt favorable trading strategies accordingly. They can also manipulate market pricing by using their funding and information advantages， thus encouraging irrational investors to trade in favor of speculators. Deception and manipulation can be found everywhere in the markets， and smart market participants use deceptive schemes to “phish for phools”. From this perspective， a pronounced randomness in asset prices in emerging markets actually reflects rich information about investor behavior.
To construct a micro theory to explore the impacts on asset prices as a result of interaction by different types of investor， we extend the current investor behavioral models to provide a better understanding of speculative behavior that infers information and induces trading by irrational investors. In our model， the sentiment system of irrational investors is not entirely predictable： it contains randomness and “noise”. “Smart” speculators can maximize their profits by seeking information about asset value， the whole market pricing system and irrational traders' sentimental inference based on market price behavior. We find that speculators not only trade arbitrage against “noise”， but also actively produce “noise” and trade with irrational investors. Speculators' inducement trading can cause excessive volatility in asset prices. Meanwhile， fundamental-value traders play an important role in stabilizing market price. When fundamental-value traders dominate the market， asset prices are characterized by short-term momentum and long-term reversal in time series. However， when fundamental-value traders are in a weak position， speculators tend to create “noise” and are more likely to induce irrational investors， which aggravates the instability of asset prices in time series.
The contributions of our paper are as follows. First， we incorporate the inference of sentiment system of irrational investors into speculators' trading decisions， and study belief reasoning and interaction by different investors. Second， we explain differences in momentum across different markets in a unified theoretical framework. Our paper provides new insights into price manipulation and complexity in financial markets.
Key Words： Feedback Trading; Trading Inducement; Investor Sentiment; Volatility; Momentum and Reversal