The “Belt & Road” Initiative, Its Enhancement Effect on Credit Financing for Enterprises and Heterogeneity, a paper co-authored by our school’s Professor Li Jianjun and PhD student Li Juncheng, is published in the 2020 2nd issue of Journal of World Economy, and chosen as the first article in the special report on Marxism and the study of contemporary world economics.
With the continued furtherance of “Belt & Road” construction, in response to the government’s call for “going global”, an increasing number of Chinese enterprises are engaging in investment and trade activities in countries and regions along the “Belt & Road”. Statistics from the Ministry of Commerce show, during January-July 2019, investment by Chinese enterprises in the 52 countries and regions along the “Belt & and Road” increased by US$7.97 billion, accounting for 12.5% of the total in the same period, while imports and exports between China and those countries (regions) grew by 10.2%, boosting overall imports and exports by 2.8 percentage points. Against the background of a slowing world economy and continuously rising trade protectionism across developed countries, the steady progress in trade and economic cooperation between Chinese enterprises and countries (regions) along the “Belt & Road” has become a major bright spot amid global economic development.
As the scale of investments and trade grows by the year, the financing demand of enterprises along the “Belt & Road” also keeps rising. “Belt & Road” projects usually have such characteristics as large capital investment, long profit cycle and high uncertainty about short-term returns. Besides, countries and regions along the “Belt & Road” are largely developing economies, with capital utilization ratio and degree of financial activity far lower than their developed counterparts. So Chinese enterprises generally find it difficult to meet their huge financing demand through the financial market of host countries. Meanwhile, given the great uncertainty about the payment ability and credit standing of some of those countries and regions, some enterprises have to face relatively high funding pressures. Therefore, stepping up support of enterprise financing for “Belt & Road” construction has become key to the continuous facilitation of the initiative.
Against such a backdrop, this paper looks into the issue of credit financing for enterprises by centering on the “Belt & Road” Initiative. Based on the panel data about listed A-share companies in 2008-2017, the paper examines the impact of the “Belt & Road” Initiative on credit financing for enterprises using the DID method. Later it finds that the initiative, after it was put forward, has notably facilitated credit financing for relevant enterprises. And the above conclusion remains tenable after a series of robustness tests including parallel trend testing, placebo testing, replacement of core explanatory variables, propensity score matching, interference testing of enterprises, testing of systemic changes to macro factors, and interference testing of policies. Research on its mechanism shows that the initiative can facilitate credit financing for enterprises by lowering information asymmetry and improving the financial condition of enterprises. Heterogeneity analysis shows that the initiative’s enhancement effect is more highlighted in key export-oriented cities along the “Belt & Road”; its financing boosting role is mainly reflected in the commercial and trade services industry; it has remarkably raised the credit financing level of major enterprises without discrimination against any forms of ownership. In addition, the paper also finds that the initiative can effectively reduce the financing cost and transaction cost of financing for relevant enterprises.
It has made the following key contributions: First, broaden the research scope regarding the “Belt & Road” Initiative, and complement previous studies based on theoretical perspectives. Existing scholars mainly engage in theoretical studies over subjects related to the initiative, with focus placed on its realistic background, policy contents and economic connotations, but without performance assessment thereof. The paper examines the economic performance of the initiative through quasi-natural experiments after China put forward it in the autumn of 2013. Second, study the effect of the initiative on enterprises’ credit financing at the corporate level, which helps boost all-round and objective understanding of its impact on the micro economy from both theoretical and practical perspectives, and provides a micro perspective for the formulation and implementation of a “Belt & Road” policy system. As the market medium for economic cooperation with foreign countries, enterprises are the main implementer of “Belt & Road” construction. However, due to the restricted availability of micro data, studies on enterprises are relatively few in number, while those on the effect of the “Belt & Road” Initiative on the micro economy, esp. on corporate behaviors, are very scarce. In light of this, by collating the annual reports of listed companies and other means, the paper has sorted through and obtained information about listed companies’ businesses carried out with countries and regions along the “Belt & Road”, and, on this basis, examined the initiative’s effect on credit financing for enterprises. Third, study the transmission mechanism of the initiative’s impact on enterprises’ credit financing from the perspective of information asymmetry and financial condition of enterprises, which helps further open up the black box of how the initiative affects credit financing for enterprises. In studying the economic effects of the “Belt & Road” Initiative, most previous documents took the perspective of system-related factors, and emphasized the role of government policies in resource allocation, which failed to demonstrate the initiative’s distinct characteristic of being “open, inclusive and market-oriented”. Different from previous studies, this paper focuses on probing into the market mechanism of how the initiative affects the operation of the micro economy.
It is of great guiding significance in furthering “Belt & Road” construction and boosting the financing efficiency for the initiative.
Firstly, enterprises can enhance their ability to gain development resources from their response to the initiative, which does not discriminate against any forms of ownership in facilitating credit financing for enterprises. Therefore, they shall make full use of the development opportunities brought by the initiative, respond actively to the guidance and call of government policies, boost their ability to obtain policy dividends and promote their own long-term development. Secondly, the government shall adjust measures based on different local conditions and fully consider the heterogeneity of enterprises in establishing the “Belt & Road” policy system; break down the policy system based on the realities of different enterprises; highlight the positioning and industry function of cities, but also underscore the integrity and synergy of development; properly coordinate the competition and cooperation relationship between export- and import-oriented cities, key and non-key industries, major enterprises and SMEs, state-owned enterprises, private enterprises and foreign-owned enterprises as they participate in “Belt & Road” construction, give maximum play to the resource allocation function of the policy system, and maximize the financing efficiency of various types of enterprises. Lastly, in facilitating “Belt & Road” construction, the government shall minimize direct intervention in the micro economy and market, and avoid substituting the will of government for market choices. As an initiative for economic cooperation, the “Belt & Road” Initiative is not only a cooperation model for mutual benefit and win-win results, but also an economic mechanism for coordinating the market order. It can boost enterprises’ ability to obtain credit resources by lowering information asymmetry between enterprises and outside markets, improving the financial condition of enterprises, and other market-driven means.
