Research

Current Research Papers

　

Bond Market and War: Evidence from China 1921-42

with Dan Li, version: May 2009

Abstract: During the republic period (1912-1949), China suffered from numerous internal conflicts and colonial wars. Historians have not yet reached an agreement on the importance of the various conflicts to China’s economy. A subjective way is to look at the people’s perception of a specific conflict’s impact on the economic situation at that moment. We study the impacts of conflicts by examining the bond markets since the people’s confidence on the survivability of the shaky governments could be reflected by the fluctuations of government bond prices. We collect a novel dataset on the prices of Chinese government bonds listed in domestic and foreign markets. We first identify the breaks in bond prices, and their corresponding timings and magnitudes. We then match the breaks with the historical events to identify the turning points of the Chinese civil conflicts and the Second Sino-Japanese War (1937-1945). Our results suggest that the reactions of domestic and foreign investors depend on the potential damage of the collaterals by the conflicts. Furthermore, we show that the Sino-Japanese conflicts have stronger long-term impacts than the civil wars on bond prices, but the short-term effects are similar. Finally, our turning points from the data match closely with those identified by historians, except the Battle of Yunnan-Burma Road.

Banks, Silver and China 1921-36

with Dan Li, version: Nov 2009

Abstract: Utilizing a newly compiled bank-level dataset of 27 principle banks in China, we examine the impacts of macroeconomic and bank-specific conditions on bank behaviors between year 1921 and 1936. We show that the Chinese banking sector was actively channeling capital and managing their risk profiles. Moreover, there is no evidence that silver outflow during 1930s acted as a negative shock on bank profitability and hence triggered depositor runs. Although bank lending became stronger, a disruption in loan supply was found among the well-capitalized banks. The credit crunch suffered by certain sectors can be attributed to the adjustment by banks rather than a credit constraint imposed by silver outflow. Overall, the banking industry was sound and promoted macroeconomic stability during 1920-30s.

　

　

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