Powell’s seminal debut

After easing substantially during 2017, financial conditions in the United States have reversed some of that easing. At this point, we do not see these developments as weighing heavily on the outlook for economic activity, the labor market, and inflation.

The FOMC will continue to strike a balance between avoiding an overheated economy and bringing PCE price inflation to 2 percent on a sustained basis. [Link]

Powell’s prepared remarks were rather brief but telling. He does not think that financial market volatility will have a big bearing on  economic activity.  We agree. One hopes that it is not just about current level of volatility but also reflects a structural attitude that assigns a lower weight to the goings-on in financial markets in terms of their impact on the real economy. Anna Cieslak and Annette-Vissing Jorgensen have documented this rather well. The Fed is more concerned about declines in financial asset prices than they ought to be. In reality, the impact is far lower than what Fed models assume.

His second statement is even more interesting. He is no longer talking about striking a balance between employment and inflation but between avoiding overheating and bringing inflation to 2% (from below). He is not going to be fixated on bringing inflation up to 2% from below. He will also keep an eye on overheating. Good for him!

Interesting times ahead.

Nearly three months ago, Gavyn Davies wrote a blog post for FT that Trump has the opportunity to shape the Federal Reserve Board this year in an unprecedented manner:

Including the promotion of Jerome Powell to Chair, six of the seven board members will have been nominated by the current administration when the process is completed next year. In addition, the President of the New York Fed will have been replaced by its own board. Such a root-and-branch upheaval in the Fed’s key personnel is unprecedented in its history.  [Link]

He predicted that the new Federal Reserve Board would likely display the following tendencies:

There may be more enthusiasm for expansionary fiscal policy, and greater belief in beneficial supply side effects from cuts in marginal tax rates;

There may be greater concern about possible instability from rising asset prices;

There may be greater willingness to reverse some of the regulatory restrictions in the Dodd Frank legislation;

There may be less emphasis on gradualism when it comes to raising interest rates;

There may be a greater eagerness to run down the balance sheet, especially in non-treasury assets;

There may be more emphasis on rules-based policy decisions, notably on the use of the Taylor Rule.

I like most of the above. In fact, I think Jerome Powell alluded to the second item in the above list when he spoke of balancing between overheating considerations and bringing inflation up to 2%.

I was surprised that many have not observed his comment about balancing between avoiding an overheating economy and bringing inflation to 2.0%. John Authers, here, notes that his message was not too different than that of Ms. Yellen but that he delivered the message in a business-like fashion. I disagree. The message too was different.

It is the first time in a long time that a Fed chair mentions overheating risks while trying to bring inflation back up to 2%!

In November 2017, Stephen King (formerly with HSBC) wrote a nice piece in FT suggesting that “central banks that focus on price stability alone may only be stoking the next financial bubble”.

We may have found a central banker who wants to put an end to that practice.

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Detox moment, Political funding and nothing new in the PNB scam

Anil Padmanabhan has a piece in MINT that calls the PNB a potential detox moment for Indian businesses. Will they seize the moment? Who knows? But, I doubt. Check out this story. This is the stuff of eventual Balance of Payments crises! Who would trade with a country – accepting its exports or importing to it – if it reneges on international contracts, just like that?

Nonetheless, I am glad that Anil mention it and I am glad that the FM mentioned it in his remarks at the ET Business Summit.

TCA Srinivasa Raghavan says that bank funding of corporate projects is backdoor political funding. He is likely correct.

If bank frauds are backdoor funding of political parties with taxpayers recapitalising the banks for their ‘help’ with political funding, then effectively we already have taxpayer funded elections. Perhaps, it will be far more efficient if it were done directly, then?

He says yes, but there is the allocation problem. There you go. Status quo will persist.

Amol Agrawal writes that the regulator cannot absolve itself of all responsibility by just saying this, given that it regularly inspects banks and is expected to address these very risks. [Link]

A former banking regulator tells me that it would involve a decision to revert to transaction based rather than risk based supervision. Seems like a fair point. Transactions have to be monitored by the management, the Board and statutory auditors.

The non-reconciliation of SWIFT and CBS is a risk and the RBI had flagged it. Should it also audit transactions? Does the RBI have the manpower to do that or, should it do that?

In today’s MINT, I argue that frauds are the ways in which public policy makes progress. Is private sector banking the answer? I doubt it.

A friend wrote to me and I am paraphrasing him:

Private sector banks may have required bailouts in some countries because those countries featured excessive financialisation. In other words, private sector banks may not have needed taxpayer-funded bailouts but for ‘excessive financialistion’ of their economies, banking and financial systems.

Fair point.

But, that brings me to two reciprocal caveats on my part:

(a) As long as financialisation of the global economy (or, of specific countries) is a reality, then that does raise questions on the superiority of the private sector led banking model.

(b) Private sector banks have required bailouts even in countries or periods when ‘excessive financialisation’ was not a consideration. I recall the Latin American debt crisis when American banks had to be bailed out (the Brady bonds?) and in Asia, after the Asian crisis. Not much financialisation was involved in either.

Therefore, is it the case that bailouts of banks owned by private capital with public funds may be a political economy question regardless of the degree of financialisation?

But, regardless of who pays for the bailout or if private banks can be subject to voluntary workouts, wholly private sector dominated banking might be undesirable, as long as financialisation is a fact of life.

It may be better than our Public Sector dominated baking only if the regulator is strong enough to resist financialisation pressures from global financial institutions including hedge funds, asset management firms. Is that possible? yes. Probable? I am not sure.

Boring banking with less political control may even be superior to this reality. Is ‘less political control’ possible? Yes. Probable? I am not sure.

As always, more questions than answers. The blog is living up to its credo!

Finally, the Financial Times, as a rule, is not well disposed towards India. Probably, it became somewhat more acute since 2014. No prizes for guessing why. But, one has to compliment them for choosing this picture. It serves their ‘coverage’ of India and ‘slant’ towards India rather well.

The article itself has nothing more to add to the saturation coverage in India, of the scam.

FT Picture of Mehul Choksi

Caption for the picture from FT: Diamond dealer Mehul Choksi, pictured with two Bollywood actresses at a Mumbai racecourse, is being sought by Indian authorities for his role in the alleged fraud © AFP 

 

 

 

Need for luck and learning: constant and continuous

Last week was rich pickings for insightful stories, for me. I still remain captivated by the story, ‘The case against Google’. I blogged on it here.

The next story that I liked immensely was the story in Wall Street Journal on GE under Jeff Immelt.

I like such stories not for the reason that they vindicate my priors (I remind myself not to hold too many of them!) but because they make me think.

This one short paragraph summed up the story rather well:

But Mr. Immelt didn’t like hearing bad news, said several executives who worked with him, and didn’t like delivering bad news, either. He wanted people to make their sales and financial targets and thought he could make the numbers, too, they said. [Link]

Jena McGregor in Washington Post has a good follow-on article on this story. She writes,

The article puts GE well out of its usual role as management exemplar. And it shines a light on a problem endemic to corporate America, leadership experts say. People naturally avoid conflict and fear delivering bad news. But in professional workplaces where a can-do attitude is valued above all else, and fears about job security remain common, getting unvarnished feedback and speaking candidly can be especially hard.

There was an added complication for Jeff Immelt. He was a celebrity CEO. No matter how hard he tried, people would hesitate to share bad news.

From Jane McGregor’s article:

Being led by a celebrity CEO who succeeded a man once named “manager of the century” probably doesn’t help either. Immelt, who rose through GE’s sales and marketing ranks before leading its plastics and health care divisions, became CEO after a high-profile horse race to succeed Jack Welch that catapulted him into the spotlight. One of the most recognized faces of corporate America for the 16 years he held the job (he stepped down last year) Immelt led President Obama’s jobs council and was considered as a veteran corporate hand to replace Uber CEO Travis Kalanick.

Leadership experts say such prestige can create a “social distance” between the CEO and direct reports, even if they make efforts to improve personal relationships. (Immelt, for instance, was known to host dinners with one of the top 185 officers of the company each month at his home and reconvene for a few hours the next morning to talk about their careers and their performance.)

“People tend to not want to tell them the bad stuff,” said Tim Pollock, a professor of business at Penn State University who has studied celebrity CEOs. “They become starstruck; they’re less likely to want to speak up and say negative things.”

As with most things in life, this too could go wrong. You could create an organisation culture where everyone only brings up bad news and uses them as an excuse not to perform or deliver. There is a fine line and no one knows where it is drawn.

It requires repeated experimentation, trial and error, learning by trying and, above all, good luck, to figure out the right balance between fostering a culture of frankness, honesty and of positivism; right balance between awareness of limitations and of strengths too.

In general, today’s world is a high pressure world – not just in jobs or in businesses but in just about everything. From parenting to maintaining social networks, friendships, from pursuing multiple interests. The culture is one of doing so much in so short a time. Efficiency and scale, even in personal lives, pursuits and social interactions, are privileged. They used to be expected only in business organisations.

When people are running everywhere and in every place with no place to rest, pause and reflect, anyone who allows them to step back, reflect and question these will actually be deemed a saviour! People feel grateful to be allowed to voice their self-doubts and inner doubts, their anxieties and frustrations once in a while and feel connected with those who do not hesitate to let them know that they share these too!

Therefore, that CEO or leader who allows his lieutenants the odd opportunity to step back, to say NO and to warn him of over-reaching, should be received with gratefulness and will be reciprocated with trust, commitment and higher motivation actually. That is my guess.

Not without dangers. Someone might take advantage and someone might embarrass the leader publicly about this. Some one in the media might say that the leader is a shirker and the share price might nosedive! The leader will be out of his or her job soon.

It is not that easy to swim against the prevailing currents even if you are convinced that the current will eventually plunge into a ravine. Given time, it will be right. The GE story is an example. The company went with the social norms and ethos of the times – good news, optimism, success, high performance, not taking NO for answers and deadlines are yesterday, etc. Indeed, it defined the ethos and norms of the times. Has it succeeded? Now, we know that it has not.

But, it takes time to know that it does not work. Not many have that luxury of time or luck to take a bet against consensus norms and ethos and succeed. They have to live in a society and be part of it. Humans are social animals. They need to belong. Some of us actually come to like it. It is seductive. It is lonely to be not part of it. Not easy.

The best we can do is to be aware of how excessive any organisational culture can become and modulate it from time to time. No one size fits all and no one culture works in all situations.

Let us also not forget that these articles are appearing with the benefit of hindsight. Note this paragraph in the WSJ story:

Former GE Chief Financial Officer Keith Sherin, who worked alongside Mr. Immelt during challenges such as the financial crisis, said the CEO would methodically approach a problem with his team, consider multiple viewpoints and communicate regularly with the board, making sure executives stayed focused on the most important issues. “I never found him to be overly optimistic,” said Mr. Sherin, who retired in 2016.

To his credit, Jeff Immelt did not preach one thing and practise another. He believed in his model:

At a conference hosted by Axios in November, the month after he stepped down as chairman ahead of schedule, Mr. Immelt noted that GE is “125 years old; we go through cycles,” and said he was “fully confident that this company is going to thrive in the future.”

A spokesman for the former CEO pointed to his decision to purchase $8 million worth of GE shares in 2016 and 2017. That included 100,000 shares in mid-May at a price roughly twice today’s.

The only enduring lesson in all this is that in business as elsewhere, the need for luck and learning is constant and continuous.

Are we ‘inevitably’ evil? – the story of the year

NY Times magazine published a very long piece titled, ‘The case against Google’. It will probably be the article of the year for me. It is a business case study, a public policy case study and a business ethics case study – all rolled into one. All of these are interwoven into the personal story of two small entrepreneurs whose search engine proved more powerful than Google for certain types of queries and how they paid for it!

Public policy students and analysts will appreciate the spirit behind ‘anti-trust’. In the process, you learn the story of Standard Oil, the story of Microsoft. Microsoft did win its appeal against anti-Trust decisions. It did not have to break up. But, the legal challenges – even though they failed – made the company a lot more sensitive and allowed an upstart (called Google) to emerge.

Google’s behaviour may not have been against consumer interests but was it simply fair?

One can also reflect on the spiritual and philosophical lessons of this. When Google was formed, it took on the motto, ‘Don’t be evil’. Has it lived up to it? Or, as one grows big, powerful and influential, does it become part of the DNA or almost inevitable to become ‘evil’? Is that true, almost without exception, for individuals, institutions, corporations and sovereigns?

[Note: Google’s new parent Alphabet abandoned that motto and took up, ‘Do the right thing’, circa 2015. Don’t be evil is simple and absolute. ‘Doing the right thing’ is relative, can be subject to interpretation and it can be bent. The yardsticks are malleable.]

Then, does it follow that if you are self-aware, you limit your own growth and stay small, lest you become inevitably evil?

Do we realise that, once we start rationalising, we are no longer wedded (but already divorced) to our values? In fact, the rationalisation is merely a confirmation of the divorce that would have happened some time earlier.

Is there no better way at all than to become inevitably evil? What is that ‘better way’ if there is one? What does it take to traverse down that path? Do the modern society and its organising principles militate against individuals, institutions and businesses walking down that path? Or, is that question too a form of rationalisation? Isn’t it implicit in the question that we have simply re-arranged our priorities?

How do we stop rationalising or, better, realise that we have started rationalising? Is it about having fearless upstarts and advisors telling us that? Does it work?

In the Indian epic Ramayana, Kumbakarnan warns Ravana eloquently of the doom that he was courting by having brought Sita forcibly to his kingdom. It did not work. It was too late. In Mahabharat,  Vithurar was the voice of wise counsel in the Kaurava court. Even Vikarnan warns his brother, Duryodhana of the destruction that awaits in  the path that he had chosen to walk on. No avail.

Indeed, even the wise ones and the exalted souls are not exempt. The illusion of size, power and influence shrouds their intellect. Knowledge, spirituality and reason retreat.

Therefore, ‘are we doomed to end up like this only?

Utterly fascinating, utterly educative and utterly and ultimately sobering, about us. [Link]

What does OBOR stand for? and the ‘Movement method’

From James Kynge’s Twitter handle:

(O)dious (B)orrowing (O)nerous (R)ates [Link]

This from a long-form article by Mohan Malik in ‘The American Interest:

China’s strategy of fusing its maritime expansion with regional economic development and multilateral integration is yielding rich dividends. Having acquired on lease Pakistan’s Gwadar port for 40 years, Greece’s Piraeus port for 35 years, Djibouti port for ten years, Sri Lanka’s Hambantota port for 99 years, 20 percent of Cambodia’s total coastline for 99 years, and the Maldivian island of Feydhoo Finolhu for 50 years, Beijing is now pressuring Myanmar to raise China’s stake from 50 percent to 75–85 percent in the Kyaukpyu port on the Bay of Bengal, and to lease it for 99 years as well if Myanmar does not want to pay penalty for reneging on the $3 billion Myitsone energy dam deal. A military base in Djibouti, along with major port development projects in Kenya, Pakistan, Sri Lanka, the Maldives, Bangladesh, Myanmar, Malaysia, and Cambodia define the contours of China’s Maritime Silk Road—an oceanic connectivity project centered on the Indian Ocean. [Link]

Former Maldivian President Nasheed had this to say – from the Asia Nikkei review:

“Without firing a single shot, China has grabbed more land than the East India Company at the height of the 19th century,” Nasheed said, alleging that the Asian economic powerhouse has taken over “16 islands already” under the Maldives’ current president, Abdulla Yameen. “This land grab exercise hollows out our sovereignty,” he argued. Nasheed did not provide any names of the islands he alleged China had taken. [Link]

Andrew Small has a short piece in ‘Theprint.in’ and a longer (more meaningful) piece in Foreign Affairs on China’s presence in the Maldives. If you have access, it is worth reading the piece in ‘Foreign Affairs’.

Sample this from his piece in ‘Foreign Affairs’:

At the crux of this contest is the Sino-Indian relationship, which has deteriorated sharply in the last few years. In other regions, Beijing offered careful reassurances to countries that might try to frustrate Chinese investments in their backyards. With Russia, for example, China noted that OBOR would complement and reinforce Moscow’s own connectivity plans. Beijing made no such efforts with India. New Delhi had been willing to join earlier Chinese-led initiatives, such as the Asia Infrastructure Investment Bank (AIIB), when Chinese diplomacy displayed deftness and a multilateral spirit. China’s conduct around OBOR in South Asia took a clumsier and more unilateral form. Its quasi-official maps of the initiative included Indian ports, despite the lack of any consultations between the two sides. The economic corridor linking Bangladesh, China, India, and Myanmar was likewise folded into the scheme without Indian agreement. [Link]

Finally, David Bandurski’s article in ‘China Media Project’ is very fascinating. It features another article by Sun Liping, Professor at Tsinghua University on the ‘Movement method’. Fascinating. The Professor’s article was asked to be pulled down.

What is the ‘Movement Method’?:

Not all societies have the capacity for social mobilization or for the creation of movements. For the movement method to be possible, the first requirement is a certain kind of system. In this system, there must be a center (中枢) [or central administration] that is capable of mobilizing the populace, or that can efficiently direct the system of administration, or that can achieve both simultaneously. At the same time, the entire society must have a high degree of integration, or [a high degree of] linkage (联动性), so that in the process of social mobilization the whole of society can be spurred into action — and the condition necessary for action is entails all different sorts of organization, or administrative methods of organization, or some other form of organization.

The combination of the above-mentioned institutional factors amounts to a nationwide system (举国体制), [or “whole-nation system”], so that whatever task is concerned the mobilization happens on a national scale, and the entire population is mobilized. Thereupon, a single word reverberates (一声令下), and the entire society acts together. But in this process, expert division of labor is smashed, and every department and unit has its own targets and quotas.

For example, a number of years ago when many locales [throughout China] were promoting investment, offices including [chapters of] the Chinese Communist Youth League, the All-China Women’s Federation and the Department of Family Planning all had investment promotion targets, and if those targets were not met then the leaders responsible for those offices would be removed. Land reclamation and demolition is also achieved through this process of mobilization of [responsible] units (单位动员) — and even primary and middle schools employ mobilization, making primary and middle school students return home to engage their parent in ideological work. Some places even have rules about penalization by association (连坐的惩罚办法) [for example with offending parents or relatives, in order to force compliance with overall objectives]. When social tensions arise as a result of demolition and land requisition, the task of stability preservation (维稳) falls to a number of different departments. I have a friend who labors free of charge and without real authority for the China Association for Science and Technology, and even he has been issued quotas for house visitations to offer sympathy and comfort [in complaint cases]. During these visits, he must offer a bit of money as a means of placation, or if there is no money must draw upon his meager research funds.

The result of this is the chaos of social functions throughout the society. In the midst of a movement, various offices and departments have no choice but to set aside the [normal] functions of their office and to engage in matters outside their own familiarity and expertise. In order to complete these tasks, and in order that the boss isn’t punished, these offices and departments must do whatever they can, by means fair or foul. [Link]

This metaphor explains the risks in the ‘Movement method’ too well:

This calls to mind a metaphor that emerged during the stock market crisis of 2015. Imagine that someone who fears you and is by nature a bit hesitant is serving as your driver. You tell them how they should drive. You tell them to go just a bit faster, or that they should slow down. OK, so you want to go a bit faster? Well, let’s just push the accelerator to the floor. But all at once this is too fast for you, so you ask to slow down — we don’t want an accident after all. OK, so you’re scared, right? You want to slow down? Their foot goes off the accelerator and slams hard on the brakes.

When I read the paragraph (above) about how all divisions and all members of the society, including school children, are pressed into service, I recalled these sentences from the harrowing piece by Peter Humphrey who was put behind bars for nearly two years in China:

The prison was a business, doing manufacturing jobs for companies. Mornings, afternoons and often during the after-lunch nap, prisoners “laboured” in the common room. Our men made packaging parts. I recognised well-known brands — 3M, C&A, H&M. So much for corporate social responsibility, though the companies may well have been unaware that prison labour was part of their supply chain. Prisoners from Chinese cell blocks worked in our factory making textiles and components.

He was the frauds investigator hired by Glaxo Smith-Kline when the company got into trouble with Chinese authorities who accused them of bribing Chinese officials.  Unfortunately, Peter Humphrey’s piece is most likely behind a paywall.

He added:

One day, they brought me a copy of the United Nations treaties on imprisonment and torture that I had requested. These confirmed to me that China failed to comply with most of the standards of treatment (on nutrition, sleep, labour, health, contact with family, etc) required by international laws that China had signed, and I urged my consul to complain.

Now, go back and re-read my previous blog post featuring tweets by Chris Balding as to why the NYC/DC crowd does not get it. It is hard to find words to describe their motivations and logic. I shall leave it at that.

All these links are thanks to the Twitter handle of James Kynge.

This short WSJ Editorial sums up OBOR well:

Xi Jinping’s Belt and Road Initiative puts the expansion of Chinese power and influence above all else, and the Maldives is an example of the collateral damage. U.S. Secretary of State Rex Tillerson has called China’s practices “predatory economics,” and too often that’s right. [Link]

Why is it so difficult to grasp this?

There is one detail that is profoundly wrong with this piece. Except for 1989, when has the United States ever taken a “stick” to China in a sustained manner about its so called market or human rights? This has not been tried in a long long time. Profound naivety. [Link]

That was Chris Balding reacting to this tweet from ‘Foreign Affairs’
on their article on China:

Neither carrots nor sticks have swayed China as predicted. [Link]

I never cease to be amazed at the ability of some to appease brutal dictatorships. Liberal values do not happen magically but require the determination of people to stand up and defend them against countries and people that actively seek to limit freedom. [Link]

NYC/DC thinking summed up:

1. Trump Tweeted something stupid, let’s go protest
2. China’s gonna China. What are you gonna do [Link]

America and ex-Obama appeasers let me break it to you very slowly:

you are in Cold War 2.0. Period. Full. Stop. [Link]

When you read the history books of the Cold War, as a distant observer you sometimes wonder about Soviet appeasers or defenders and wonder how could they have been that blind to what was happening. Now I get to witness it first hand about China. [Link]

China publishes manifestos of spreading Beijing dominated communist authoritarianism and people wonder how to deal with Beijing? The PLA is literally annexing territory and people are questioning whether we are appeasing country seeking to export communist revolution? [Link]

The answer to the subject-header:

Their personal interest lies in not grasping this.

All these are Chris Balding’s tweets.

Interesting working papers

Can poverty be alleviated in China?

Abstract

The 2000s witnessed the third poverty alleviation wave in China. Compared with its predecessors, the third wave distinguished itself by new interventions and redefined standards for the National Poor Counties. This paper evaluates the effectiveness of the new program using a data set consisting of 1,411 of China’s western and central counties from 2000 to 2010. It combines the propensity score matching method with the difference‐in‐differences approach, which helps to avoid selection bias and track the policy impact on variables of interest at each time point. It is found that the non‐western local governments tended to manipulate data on income and output growth to maintain the special transfer payments disbursed exclusively to the National Poor Counties. It is also shown that the program failed to improve the infrastructure and sanitary conditions in general. [Link]

Regulatory Soft Interventions in the Chinese Market: Compliance Effects and Impact on Option Market Efficiency

Securities Laws in China are administered by the Chinese Securities Regulatory Commission (CSRC). The CSRC has great flexibility in administering securities laws since the committee represents the will of the state. Under the state-controlled financial system, the CSRC works closely with state-controlled financial firms and suggests, but does not mandate, actions to be taken in the equity market, especially during periods of extreme market stress. These suggestions, or soft interventions, have been used to block trades associated with short-sales, significantly reducing short-sales volume. With daily and intra-day data, we investigate the impact of these interventions on put-call parity and implied volatilities. There is overwhelming evidence of increased deviations from put-call parity and changes in implied volatility after soft interventions. Our results are robust after allowing for bid-ask spreads, taxes, transaction costs and Difference-in-Differences comparisons with control securities in the Hong Kong market. [Link]

Government Affiliation and Fintech Industry: The Peer-to-Peer Lending Platforms in China

Using unique hand-collected data, we examine how government affiliation influences the development of thousands of peer-to-peer (P2P) lending platforms in China. We find that P2P platforms with state-owned enterprise affiliations have higher trading volume and attract more investors. These platforms also have higher survival probabilities, especially during the 2015 Chinese stock market turbulence. We find no significant difference in profitability between P2P platforms with state-owned enterprise affiliations and those without. [Link]

Credit Allocation Under Economic Stimulus: Evidence from China

We study credit allocation across firms and its real effects during China’s economic stimulus plan of 2009-2010. We match confidential loan-level data from the 19 largest Chinese banks with firm-level data on manufacturing firms. We find that the stimulus-driven credit expansion disproportionately favoured state-owned firms and firms with lower marginal product of capital, reversing the process of capital reallocation towards private firms that characterised China high growth before 2008. We rationalise these findings in a dynamic model with financial frictions. In normal times, growth is driven by gradual reallocation of resources from low to high productivity firms. Recessions can slow down or even reverse this process due to implicit government bailout favouring state-connected firms. Credit expansion further amplifies this effect. [Link]

Bank Competition and Innovation: Evidence from Banking Deregulation in China

We present evidence that rise of bank competition, led by the 2009 banking deregulation in China, promotes innovation investment and outputs at firm level. Our results are highly robust. Banking deregulation significantly increases the innovation activities for non-SOEs, but has little effects on SOEs that mainly rely on relationship lending. Neither the pre-existing concentration of banks nor the local economic conditions can explain the variations of innovation investment changes after the banking deregulation. [Link]

All these courtesy the Twitter handle of Chris Balding.