Huiwen Li: Policy Information Edge and Investment
time: 2015/11/23 views 686

Policy Information Edge and Investment Behavior of the SOE

In China, the stated-owned enterprise, a.k.a. the SOE, is generally supposed to be showered by the governments with factor resources which are, on the contrast, fairly scarce and limited for the private enterprise. This seminar, held in Room 710, Fanhai Building, on 17th, Dec. 2015, had the honor to invite Professor Huiwen Li of Shanghai University of International Business and Economics to present his latest co-authored work on the relationship between the SOE’s policy information edge and the relevant effect on its investment behavior. Professor Zhao Chen of CCES hosted the seminar with the attendance of Professor Weisen Li, Professor Ming Lu, Professor Yan Zhang and some of the PhD students.


To begin with the introduction of their research motivation, Professor Li remarked that usually when confronting the uncertainty, instead of making a premature decision, a rational enterprise will suspend the current investment project and then marginally cut the off the overinvestment part until it make a new equilibrium. Following this route, Professor Li added the recognized facts that the SOE in China possessed greater policy information edge than the private enterprise.

Further, Professor Li proposed two hypotheses which would be tested in his research. Firstly, compared with the non-SOE, when dealing with the uncertainty brought by a policy shock, the SOE would shrink less of their investment, or even enlarge the amount of their investment. Secondly, when dealing with the uncertainty of a non-policy shock, the SOE would take the wait-and-see strategy as well as the non-SOE would do.

Professor Li took use of the China Industrial Enterprises Database. In the setting-up of their empirical model, the dependent variable is the investment of enterprise i in category j from province s. The independent variables included the policy uncertainty of province s in year t, the category of enterprise i, and other control variables.

Based on the empirical results, Professor Li concluded that when the policy uncertainty became more serious, the SOE would enlarge the size of their investment; on the contrast, the non-SOE would wait and see which would possibly result in the reduction of the amount of their investment.

The conclusion of Professor Li met fierce challenges. In the discussion session, Professor Zhao Chen critiqued that the nature of the SOE was very complicated. “The so-called policy edge might be just a result of the pro-cyclical behavior of the SOE. Maybe like their rivalries, the SOE also know nothing about the alternation of policy package, but they show more confidence when they sense omen of the up-swing of the business cycle which impress people that they seem to predict the future and invest more accordingly and brilliantly.”




By SHI Shuo

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