Summary： XI Jinping Thought on Opening up for a New Era is an important part of the Thought on Socialism with Chinese Characteristics for a New Era and XI Jinping Thought on the economy. It offers not only theoretical guidance for the further opening up of China， but also a profound theoretical questioning of the study of the Chinese economics of the New Era. It suggests， for example， that whoever does not craft overall plans cannot craft one plan， and whoever does not look to the future cannot look to today. This philosophy has already produced a new demand for opening up in the New Era. XI Jinping Thought on opening up is a product of its era that conforms to a historic demand. The Thought includes four components： breaking new ground by pursuing opening up on all fronts， putting forward new ideas on building an open world economy and economic globalization， reforming the global economic governance system and building a community with a shared future for humankind.
The major historical contributions of XI Jinping Thought on opening up are the following. First， it offers a Chinese approach for close connections between the open Chinese economy and the open world economy. There have been many important struggles associated with opening up in China in the last 5 years， such as the Belt and Road Initiative and the explorations of the Pilot free trade zone and free trade ports. They are not demands only for Chinese reform and opening up， but also for the exploration of development and innovation experiences for the world economy. Above all， they offer the world a Chinese approach to common growth and to finding the convergent point of benefits to all countries. Second， XI Jinping Thought on opening up provides a scientific summary of positive and negative experiences of economic globalization in the past. Based on these experiences， it develops new ideas to make economic globalization more open， inclusive and balanced so that its benefits are shared by all. Third， its new thinking on political economy emphasizes mutual benefit， multilateral regimes， the convergence of multiple countries' interests and common ground. It also puts forward the “non-economic man hypothesis” that upholds justice while pursuing shared interests and develops new ideas that pursue a non-hegemonic supply of international public goods， in contrast to the “economic man hypothesis” of modern western economics and the law of competition by which the winner takes all. Fourth， it shows that there is a logical historical connection between the development road to realizing the Chinese Dream and the building of a community with a shared future for humankind. It tells us that the Chinese Dream can be realized only in a community with a shared future.
The paper proves the truth of XI Jinping Thought on opening up using the same paradigm as Marx and Engels， proving the truth of scientific socialism by analyzing the relationship between capitalist productive forces and production relations and recognizing the increasing strength of the working class. In the New Era， the new productive forces， the mode of production and production relations are as follows. The first is the new technological innovations and productive forces represented by the internet and information technology， high-speed transport technology， new industry and energy. The second is the new modes of consumption and social production represented by the digital economy. The third is the new patterns of division of labor and exchange represented by cross-border e-commerce and the China-EU railway. The fourth is the new relations of social exchange. The fifth is the new micro-market players and the rise of the sharing economy represented by platform firms. The last is the rise of China and other emerging countries in the world. The six aspects form the material basis of XI Jinping New Thought on Opening up and prove that it is scientific in terms of Marxism. The tasks of theoretical researchers are to demonstrate the Thought and summarize new empirical knowledge from practices so as to improve on the current findings and conclusions.
Keywords： XI Jinping Thought on Opening up for a New Era; Economic Analysis; Economic Globalization; Political Economy; New Productive Forces

Summary： Along with its high-speed economic growth， China faces the problem of dramatic environmental deterioration. In particular， China's severe air pollution， characterized by an unprecedentedly high level of PM2.5 concentrations， has recently drawn increasing attention both at home and abroad. Air pollution regulations reduce the output level in the short term; however， during an era in which China's economy is shifting from a stage of high growth to high-quality development， the influence of air pollution regulations on economic development quality is a greater concern.
Using the unique PM2.5 concentration data at China's prefectural level over the period 2004—2013 and proxying economic development quality by labor productivity， this paper investigates how air pollution influences economic development quality and its influential channels and， in particular， how government regulations influence economic development quality by influencing air pollution abatement. Furthermore， to alleviate the potential problem of endogeneity， this paper chooses two variables， the air ventilation coefficient and government environmental regulations， as the instrumental variables (IV) for PM2.5 concentrations， which in turn allows us to estimate the influence of government regulations on air pollution and their subsequent influence on economic development quality in a unified econometric framework of two-stage OLS (2LS). The air ventilation coefficient is measured by the product of wind speed and atmospheric boundary layer height. In addition to serving as the IV of PM2.5 concentrations due to its high exogeneity and relevance， it controls the unique spatial spillover effects of the air pollution variable， which is conducive to the identification of the effects of the key variable of government regulations on air pollution in the first stage of 2SLS in this study. Additionally， the variable of government regulations is measured by the amount or proportion of environmental vocabulary in government work reports， which allows us to comprehensively measure the strength of environmental regulations promulgated by local government.
The results indicate that， on average， air pollution significantly lowers China's economic development quality; urbanization and human capital are important channels through which air pollution influences China's economic development quality; the negative impacts of air pollution on economic development quality are significantly higher in larger cities and become increasingly significant over time; and government regulations can effectively reduce air pollution， thereby increasing the quality of economic development in China. The results imply that the extensive growth model has caused severe air pollution and that air pollution has damaged economic development quality in China. Such a vicious circle can be solved only by passing and enforcing reasonable and effective government environmental regulations. In such a case， the input factors are able to continuously flow from the sectors of high energy consumption and pollution emission with low efficiency to those with high efficiency. The total factor efficiency and productivity then gradually increase， finally leading to the optimization of the economic structure and achieving the win-win target of high-quality environmental and economic development. This outcome is what supply-side structural reform aims to achieve in dealing with the pair of permanent relationships between environmental protection and economic development.
This paper contributes to the literature in the following three ways. First， instead of investigating how economic development affects the natural environment， as in most current research， this paper concentrates on the effects of environmental deterioration on economic development. Second， PM2.5 concentration data covering China's 286 prefectures over the period 2004—2013 are constructed. As far as we know， this is the largest historical PM2.5 concentration dataset from China used in economics. Finally， by means of the 2SLS strategy， this study alleviates the potential endogeneity problem and qualifies the effects of government environmental regulations on air pollution and their additional impact on economic development quality in a unified framework.
Keywords： Air Pollution; Economic Development Quality; Government Regulations; Prefectural Level PM2.5 Concentrations

Summary： Since the economic reform of the late 1970s， China has been transformed from a poor agricultural economy into a “world manufacturing hub” and the second largest economy in the world. At the same time， the consumption patterns of Chinese urban residents have changed enormously， from subsistence-based to taste-based. With the increase in disposable income and changes in the family structure， consumption and its structure have become important factors influencing the direction of the Chinese national macro-economy. Only by understanding the main factors affecting the various types of household consumption can policymakers make appropriate policies that affect consumption and hence the whole economy.
At present， academic studies of this issue tend to focus on the macroeconomic field， and research on consumption structure is still in its infancy. This paper aims to clarify the factors that influence the consumption structure， using micro-data to study the inherent logic of urban household consumption decision making. In terms of data and research methods， this paper uses CHIP data and the QUAIDS model.
According to the classification standard of the National Bureau of Statistics of the Chinese Government， this paper divides the consumption data in CHIP 1995， 2002 and 2013 into eight broad categories to analyze its changes， status and influencing factors. This paper finds that from 1995 to 2013， the urban household consumption structure underwent tremendous changes， with obvious differences in space， time and family type. Regarding spatial diversity， the regional differences changed from three pillars (east， west， middle) to two pillars (east and middle-west)， and the gap between the eastern and the central-western regions widened significantly. With respect to structure， the share of food consumption， facilities and services consumption in total consumption declined， but the share of housing consumption increased from 23% in 1995 to 38% in 2013. The rising share of housing consumption will squeeze out other consumption， reduce aggregate demand and increase the pressure on wages.
From the regression results of the QUAIDS model， it can be seen that the rise in the prices of consumer goods almost always leads to a decrease in their total share. Through this model， we can obtain the expenditure elasticity and Marshall price elasticity of urban residents' consumption in eight categories. This paper finds that the expenditure elasticity tends to the value of 1 in 1995—2013. This is in contrast to the tendency of most price elasticity from 1995 to 2013， which shows that the absolute value of consumer price elasticity gradually increased. This implies that the influence of disposable income on consumption structure was weakened， while the influence of market prices was strengthened.
Finally， the survey data are divided along three dimensions： the age of the head of the household， the number of adults in the household and the number of children. By further examining the expenditure elasticity of households， this paper finds that the consumption patterns of residents in different family demographic structures are quite different. If income increases， older households are more likely to spend more on health care expenses; families with more adults spend more on food expenses; and families with more children spend more on food， clothing and living expenses. This finding is in accordance with the needs of households with different age structures. As urban China ages and the country is characterized by “living with the elderly” and decreased numbers of children， medical spending will continue to increase， while housing consumption will decline due to changes in the population structure.
Therefore， we can conclude that as more people are educated and the scale of middle class increases， health care， education， tourism， facilities， transportation and communications will become the new driving force for consumption growth. Some problems exist in current urban residents' consumption： the regional imbalance has intensified， and the consumption structure is more influenced than before by market prices.
Keywords： Consumption Structure; QUAIDS Model; Price Elasticity; Expenditure Elasticity

Summary： The relationship between rising inequality， rising household indebtedness and the subprime crisis of 2007 has not yet been adequately analyzed. Most literature emphasizes the causality of the credit boom and crisis while ignoring the impact of inequality on financial stability. Without rising inequality， however， we cannot explain why households default on their mortgages and why households need to be indebted， as the household sector as a whole is a net savings sector.
For example， in 2006， the household sector in the United States had total assets of nearly MYM70 trillion， which obviously exceeded its MYM13 trillion liabilities， including less than MYM2 trillion in subprime mortgages. For household total assets， MYM6.7 trillion were deposits and more than MYM13 trillion were financial assets with high liquidity， such as mutual fund shares， bonds and stocks.
Another body of literature， however， uses the DSGE model to analyze the relationships between inequality， credit booms and crisis， but the housing market is not included in this model. Most importantly， other stylized facts existed in the subprime crisis that need to be explained in one theoretical frame， such as decreasing interest rates in the financial market， the decreasing savings rate of the household sector， the increasing financial assets to savings ratio and financial liabilities to investment ratio， wealth inequality that is higher than income inequality and a debt concentration among families with lower income.
This paper analyzes the mechanism by which exogenous rising inequality and endogenous credit booms threaten financial stability and even cause financial crisis， while also explains the stylized facts of the subprime crisis in one theoretical frame. We then build an overlapping-generations model in which income-heterogeneous individuals belong to either a young or an old generation. There are three markets in this model： (1) a goods market， in which goods are produced by individuals of the young generation who acquire wages determined by different exogenous endowment factors and are consumed by individuals of both the young and old generations; (2) a housing market that spans generations， in which the old generation sell houses to the young generation and then uses the proceeds to consume goods or pay back liabilities incurred in the young period; and (3) a credit market within the same generation， in which individuals with net savings supply credit to those with net investments.
Based on this overlapping-generations model， we then consider two economic growth patterns： the equal growth pattern， in which income inequality does not change as the economy grows， and the unequal growth pattern， in which income inequality rises during growth. We find the same stylized facts as those found in subprime crisis： (1) in the unequal growth pattern， the Gini coefficient of financial assets is higher than the Gini coefficient of income， while financial liability is concentrated among the lower-income population; (2) although housing prices rise in both growth patterns， only in the unequal growth pattern do both the interest rate and the savings rate decrease during growth; (3) in the unequal growth pattern， rising inequality results in an endogenous credit boom in which both the financial liabilities to investments ratio and financial assets to savings ratio increase; and (4) when we introduce a stochastic aggregate shock in the goods market， the distribution of the default rate among individuals who are indebted in the young period exhibits a tail risk： the default rate of the lowest-income population is significantly higher than that of the other groups.
Our analysis provides two policy suggestions for maintaining financial stability： (1) as housing prices and the indebtedness of the household sector rise， we should monitor risk indicators for families with different incomes rather than the average risk level of the household sector; and (2) preventing rising inequality is not only meaningful for social stability， but also a long-term， effective way to maintain financial stability. The subprime crisis serves as a grave warning for China because the Chinese household sector has been undergoing a similarly rising indebtedness path since 2015， and as some researchers point out， inequality in China is on the rise.
Keywords： Inequality; Credit Boom; Financial Crisis

Summary： Economic development is always accompanied by structural change in the economy： the agriculture employment share decreases， the service sector employment share increases and the manufacturing employment share exhibits a hump-shaped pattern. To analyze structural change， it is important to consider two aspects： demand and supply side factors. From the demand side， the role of consumption and international trade on structural change are well explored in the literature. However， the role of investment is mostly ignored. We show that the investment rate exhibits another hump-shaped pattern， which can directly affect the manufacturing sector because the production of capital goods is skewed toward manufactured goods. From the supply side， previous studies attribute structural change to different production functions among different sectors. However， structural change can also occur if there is technological change within a sector. Thus， technological change in the agriculture sector (agriculture modernization) can be a key driver of modern economic growth.
The goal of this paper is to incorporate these two factors into a general model of structural change. Our theoretical model highlights the importance of agricultural modernization as a central mechanism that triggers the transition from a traditional economy to modern growth. When agriculture relies on traditional technology， which is labor-intensive and does not improve over time， the agriculture sector has to employ a large portion of the labor force to meet the subsistence level of food consumption. Nevertheless， some modern agriculture technology uses reproducible capital as a key input， and its efficiency persistently improves along with other modern sectors at an exogenous rate. After passing a certain threshold， the modern technology becomes superior to the traditional technology and is gradually adopted for agriculture production. This modernization is an endogenous choice by farmers and affects the demand for capital goods (investment) in two ways. First， the adoption of modern technology requires capital inputs， which directly cause investment demand to rise. Second， it releases excess workers to other sectors. These workers have to accumulate capital goods to move and settle down. Both channels increase the demand for physical capital that is produced mostly by the manufacturing sector. As a result， agriculture modernization causes both the investment rate and manufacturing employment to increase (industrialization). When the majority of workers in the traditional agriculture sector have moved into other sectors， agriculture modernization is complete and the investment demand for manufactured goods peaks and begins to shrink， which causes the manufacturing employment share to drop (deindustrialization).
Based on the above theoretical model， this paper empirically examines the relationship between structural change and economic growth， using a panel of data from 34 countries from 1950 to 2005. The data source is the 10-sector database from the Groningen Growth and Development Centre. Using fixed effect， random effect and instrument variable models， we confirm two propositions from the theoretical model： 1) the stronger the agriculture technology adoption， the higher the investment rate. This relation disappears once manufacturing employment has passed its peak. 2) The strength of agriculture technological change has no direct effect on the manufacturing employment share. It has an indirect effect on the manufacturing employment share through the investment rate.
This paper contributes to the literature in three ways. First， we provide a unified framework to explain the hump-shaped pattern of manufacturing employment shares by incorporating agriculture modernization， which is a novel explanation for structural change. Second， we emphasize the role of capital accumulation in understanding structural change. We argue that agriculture modernization first affects the investment rate and then affects manufacturing employment. Finally， using numerical simulation and regression analysis， we empirically confirm two implications of our theoretical model.
Keywords： Agricultural Modernization; Structural Change; Hump-shaped Pattern

Summary： China's economy has achieved great success over the past three decades， which is mostly attributed to the opening-up policy and competition among local governments. Past economic development was characterized by extensive growth， driven by the expansion of the quantity of inputs to increase the quantity of outputs with limited technological improvement. However， with the growing economic scale， the rise in labor costs and the increasing scarcity of resources， the methods of the past are unable to sustain steady growth in the economy. Although modern economic theories state that technological improvement measured by total factor productivity (TFP) is the only key to the stable growth of the economy in the long run， the literature finds that Chinese firms have lower TFP and resource allocation efficiency compared to developed countries (Hsieh & Klenow， 2009). Excessive competition between local governments and protective policies on behalf of state-owned enterprises (SOEs) are the main factors that disrupt the increase of TFP and distort resource allocation (Young， 2000; Poncet， 2003; Lardy， 2014; Wei et al.， 2017).
With the diverse social functions of employment and stability， SOEs have long been an important means by which central and local governments participate in the market， which has resulted in a market-oriented reform of SOEs that is far from complete. A large number of inefficient SOEs still operate with low loans rates and high subsidies even though they have sustained long-term losses. This non-marketization mechanism impedes the free flow of the factors of production， resulting in a serious resource mismatch among industries， regions and enterprises (Hsieh & Klenow， 2009; Nie & Jia， 2011). We believe that to maintain sustainable economic growth and improve resource allocation efficiency， it is essential to reduce local protection and market segmentation.
In view of the background of SOEs reform and the restructuring of the supply side， we explore how SOEs' reliance on local government affects the improvement of resource allocation efficiency using Chinese firm-level data from the 1998—2007 period and 2013. We find that resource allocation played a waning role in boosting TFP in China. In addition， cities and industries that rely heavily on SOEs exhibited significantly smaller improvement in resource allocation efficiency. The results are robust to a variety of tests， including a change in the methods used to estimate the dependent variable， the use of the marketization index from Fan & Wang (2004) as an alternative measurement of reliance on SOEs and the deletion of SOEs controlled by the central government. We also introduce whether a city was selected as an allocation to establish new firms during the First Five-year Plan period as an instrumental variable， and use the quasi-natural experiment of the revocation of the department of textile and chemical industries with difference-in-differences (DD) and difference-in-differences-in-differences (DDD) methods to eliminate potential concerns about endogeneity. Our results are robust. Furthermore， using firm-level data， we explore the mechanism by which local governments' reliance on SOEs affects the improvement of resource allocation efficiency. We arrive at three conclusions： it is more difficult for non-SOEs with higher productivity to obtain resources to expand the scales， new firms need higher TFP to enter the market and SOEs are less likely to exit the market. In the end， we estimate the output and employment gains and find that if resources were allocated effectively， the gross output value would increase by 9.7% and the total employment would increase by 11.2%.
This paper has important political implications for the current reform of SOEs and for structural upgrading. Competition among local governments has promoted economic growth in the past， but its effects are diminishing. To guarantee China a prosperous and healthy economic growth， it is time to solve the problems of over-competition among regions， market segmentation and inefficient resource allocation and to establish an integrated market in which factors and products can flow freely.
Keywords： SOEs; Resource Allocation; Supply Side

Summary： Empirical evidence shows that competition policy plays an important role in adjusting the economic structure， enhancing efficiency and promoting economic growth. Since the enactment of the Anti-Monopoly Law of China in 2008， the number of patents granted by foreign enterprises in China has continued to increase. However， patent licensing is accompanied by severe anti-competition issues. For example， in 2015， the National Development and Reform Commission of China fined Qualcomm RMB6.08 billion for abusive patent licensing practices and imposed several corrective measures on the company. This paper focuses on how competition policy affects firms' licensing strategies among foreign innovators in particular and how the policy ultimately impacts both domestic and global welfare. We expect to shed light on the theoretical foundation of the recent lenient competition policy in China.
To capture the features of China's mixed economy， we follow the literature on mixed oligopoly， in which a domestic welfare-maximizing public firm， a domestic private firm and a foreign private firm compete in a Cournot-Nash quantity game in a single market. Each private firm maximizes its own profit， and the profit of the foreign firms is shifted out of the domestic country. We assume that the foreign firm creates a process innovation that reduces its production cost. The foreign firm decides whether to retain the cost advantage (no license) or to license to its rivals by means of a single fixed fee or a per-unit royalty， comparing the cost advantage and the licensing revenue. Our paper makes three contributions to the recent work. First， the previous licensing literature routinely focuses on a domestic market， but this paper explores cross-national licensing by a foreign firm. Second， we adopt a mixed oligopoly model containing both public and private firms， which captures the features of China's mixed economy. Third， we consider price discrimination in licensing fees and its impacts on both domestic and global welfare.
Our findings show that competition policy and the size of innovation affect foreign firms' licensing decisions. If a government implements a strict competition policy that does not allow discriminatory licensing fees， the foreign innovator will adopt licensing by means of royalties. Optimal licensing with royalties is associated with an equal royalty rate for both licensees (equal to the maximum cost reduction)， whereas optimal licensing by fixed fee requires discriminatory fees， whereby the public firm is willing to pay a much larger fixed fee than is a domestic private firm. However， if the competition policy is lenient， allowing for discriminatory licensing fees， the foreign innovator is able to extract higher rent from patent licensing with fixed fees. The fixed fee does not increase the marginal cost of production and thus does not reduce the level of total output， resulting in higher production and licensing revenue. In addition， the foreign innovator's preference for licensing by a fixed fee becomes stronger as the innovation size becomes larger. Furthermore， competition policy has opposite impacts on domestic welfare and global welfare. Discriminatory licensing fees increase the foreign innovator's profit， which is shifted out of the domestic country and reduces domestic welfare; however， discriminatory fees encourage licensing by fixed fee and improve production efficiency and global welfare. Therefore， there may be intrinsic inconsistency between the objectives of domestic welfare maximization and global welfare maximization in cross-national licensing.
The policy implication is that it is necessary to better understand cross-border licensing practices and to contribute to the development of competition policies that target discriminatory licensing fees. Thus， if a government permits discrimination in patent licensing fees， such an easing of policy may not be driven by national interests， but could be the result of altruistic considerations of global interests. In fact， China has recently adopted a lenient competition policy， and there has been little antitrust enforcement against firms for discriminatory licensing fees. We believe that in addition to the high enforcement cost， a lenient competition policy is probably caused by social efficiency and global welfare considerations， enabling China to better conform to the new international rules of competition neutrality and thus to become actively and deeply integrated into the global economy.
Keywords： Competition Policy; Patent Licensing; Discriminative Fee; Social Welfare

Summary： Since 2008， the Chinese government has implemented a series of macroeconomic policies to avoid economic recession and to promote structural changes in the economy. While these policies have alleviated the short-run difficulties in the Chinese economy， they have increased economic policy uncertainty. However， China has experienced rapid increases in R&D and patent applications in the last 10 years， with innovation becoming the driving force for the continued high growth of the Chinese economy. These two observations raise the question of how economic policy uncertainty may impact innovation， of which little is known in the economic literature. It is thus important for both economic theory and business practice to study how economic policy uncertainty in China affects the innovative activities of domestic firms.
In this paper， we first present a theoretical model to explore the impact of economic policy uncertainty on firm innovation. Building on Bloom (2007)， we formulate the firm's problem to maximize the expected returns under economic policy uncertainty and analyze the firm's dynamic optimization problem using the Bellman equation. Based on the theoretical analysis， we propose that economic policy uncertainty impacts innovation through an “incentive effect” and a “selection effect”. Uncertainty means that there are future opportunities for firms to increase returns. As economic policy uncertainty rises， firms may achieve higher returns through innovative activities， which is what we call the “incentive effect”. Furthermore， in the presence of heterogeneous firms， which are constrained by the conditions of their operations (including their own characteristics and environmental factors)， the firms will choose different innovation activities to maximize long-term returns in response to policy uncertainty. More capable firms may take advantage of the opportunities under uncertainty to engage in more innovative activities， whereas less capable firms may be unable to do so and may lose out. We call this the “selection effect”.
We then conduct an empirical analysis using the China Economic Policy Uncertainty Index constructed by Baker et al. (2016) and the data on innovation by China's listed companies. We find that contrary to the previous result that economic policy uncertainty reduces firms' investment activities， economic policy uncertainty positively impacts R&D inputs and patent application numbers by the listed companies. Moreover， this relationship between economic policy uncertainty and innovative activities is influenced by factors such as government subsidies， financial constraints， the nature of firm ownership and industry characteristics. Our results are consistent with the “incentive effect” and “selection effect” of economic policy uncertainty on firm innovation.
This paper contributes to and broadens the research areas related to innovation and economic policy uncertainty. We offer a theoretical explanation for the relationship between economic policy uncertainty and innovation by proposing the “incentive effect” and “selection effect” of policy uncertainty on innovation. Our empirical study provides evidence for understanding this relationship in developing countries. Our results have implications for innovation policy.
More generally， our results have the following policy implications. First， while we find that economic policy uncertainty positively impacts firms' innovation inputs and outputs， such uncertainty may also have negative effects， such as reducing firms' investment activities. Therefore， when the government adjusts economic policy to reduce economic fluctuation or to boost innovation， it will need to balance the various effects of policy uncertainty on different economic activities. Second， because economic policy uncertainty can have a selection effect on innovation， the government can encourage firms' innovative activities by improving their economic environment. Finally， with appropriate economic policy， the selection effect of policy uncertainty can help improve resource allocation both within and across industries， with the aim of optimizing the industrial structure.
Keywords： Economic Policy Uncertainty; Innovation; R&D; Patent

Summary： The banking system's risk accumulation is now serious， with the “three superimposed” state of all kinds of contradictions and risk exposure in China. We need to comb the theory and explore its generation， evolution mechanism and possible countermeasures. This paper analyzes the formation and evolution of the “factional” network and the systemic risk of the banking system and then quantifies and analyzes the systemic risk situation of listed banks in China from the perspectives of the credit and information channels. We also study the “social digestion” mechanism of China's banking industry and its game effect.
The “latency” of systemic risk and the accumulation process are far more important than the factors triggering a crisis or the crisis itself. The basic dynamic mechanism is the following： the optimistic expectation of micro-subject profit， risk accumulation， an external shock and bank risk factor alienation and feedback. A bank failure then falls into the evolution of bank systemic risk and leads the banking system and the economy as a whole into a systemic crisis， mainly through the credit and information channels and their interactive feedback network， inter-bank risk spillovers and common shocks and the economic mechanism and macroeconomic policy of the cyclical effects.
China's central bank (government) restructuring， capital injection and rescue behavior and policies block the risk of infection and maintain the financial market's functions and stability when bank risk happens， which is the “bank soft budget constraints” on the banking system that provide the risk of the “social digestion” mechanism to avoid a financial crisis in the short term. In the long term， however， the bank's soft budget constraints brought about by credit expansion and asset price bubbles enhance the fragility of the banking system. A three-step dynamic game analysis of the central bank (government) and state-owned banks shows that credit expansion and soft budget constraints exist in a kind of cooperative equilibrium when the central bank (government) and other banks pursue their expectations of maximized income. The result is that the base money is overweight， money is created excessively and credit is inflated. The reverse feedback effect often guides the financial crisis and enhances moral hazard， spawning asset bubbles that lead to systemic risk and a banking crisis in the long term. This paper constructs a SVAR model and makes use of data from the second quarter of 2003 to the first quarter of 2013. The empirical research results show that housing prices and credit fluctuation have a significant influence on systemic risk， and the latter has a stronger influence.
The deposit insurance system may undermine the market constraints due to the current conditions of China's political economy and legal environment， and the government's economic growth impulse has made the “soft budget constraints” of the four major national banks and the other systemically important banks difficult to eliminate. Therefore， China should attach great importance to the potential drawbacks of the deposit insurance system. It should improve the basic construction of the financial system， strengthen the rules about accounting and information disclosure and improve the incentive structure to reduce moral hazard. China should then make full use of the deposit insurance system to protect the banking system. At the same time， we must strengthen the coordination of prudential supervision and monetary policy and reform the systemically important banks' governance model to eliminate “insider control” and the moral hazard of trusted agents.
The main innovations of this paper are as follows. (1) It analyzes the network path of the dynamic accumulation of banking system risk from the macro-micro correlation perspective through the credit and information channels. (2) It then uses the dynamic game analysis method to explore the “mystery of China's financial systemic risk” on the basis of micro-analysis and to analyze the internal and external “social digestion” mechanism of systemic risk and its long-term effect on China's banking industry.
Keywords： Bank Systemic Risk; Netting Evolution; Macro Pressure Testing; Social-digestion; The Mystery of Financial Systemic Risk in China

Summary： The Chinese government is committed to administrative approval reform to promote mass entrepreneurship. Therefore， a natural question arises： does administrative approval reform improve the firm entry rate in China? To our knowledge， there is little literature that answers this question.
The shortage of research on this topic may be attributed to two reasons. Theoretically， there are two competing views of deregulation， referred to as “public interest” and “public choice”. The first emphasizes that government regulation can help correct market failure (Pigou， 1929)， and thus deregulation reform may not be conductive to firm entry. In contrast， public choice theory regards regulation as socially inefficient and the cause of misallocation (Stigler， 1971; Shleifer & Vishny， 1993); thus， deregulation reform helps to increase the firm entry rate. Empirically， the identification difficulty lies in the systematic absence of statistics about firms below the designated size in China， which prevents us from directly measuring firm entry.
We find a feasible identification strategy. We prove that under certain conditions， the firm entry rate based on the threshold can be used to identify the influence of reform. Specifically， when administrative approval reform reduces the cost of firms， it not only benefits the market entry of new firms， but also increases the output of incumbent firms and thus the entry rate of firms over the designated size.
Empirically， we take the foundation of Administrative Approval Centers (AACs) to proxy the reform and empirically quantify the net effect of administrative approval reform on firm entry， as setting up an AAC is generally accepted as a representative instrument of reform. Although a nationalized administrative approval reform was launched in 2001， the foundation of the AACs was not an “one-size-fits-all” change but a gradual implementation across time and space. Hence， it can reflect the differences in the reform nationwide and could be considered a quasi-natural experiment in evaluating the effect of administrative approval reform.
We collect data from 333 prefecture-level and 2，852 county-level AACs. There are five indicators： whether an AAC of the corresponding level was founded， the year of the AAC foundation for the prefectures and counties with an AAC， the number of stationed government departments， the approval items and the service windows in the AAC.
With the firm entry rate in each prefecture calculated from the Chinese Industrial Census from 1998 to 2007， our regression results show that the foundation of a prefecture-level AAC increases the firm entry rate from 2% to 25%. In our baseline results， the establishment of a prefecture-level AAC could increase the firm entry rate by 3%， which is significant. The augmenting effect is more remarkable for small-scale enterprises and private enterprises. It still exists after we expand the sample from 1998—2007 to 1998—2013 and control for the entrepreneurship environment， the increase in national openness， government incentives to attract investment and government cadre rearrangement. Furthermore， we eliminate possibly endogenous observations and find that the conclusion does not change. We also adopt two instrumental variables， the establishment rate of prefecture-level AACs in other cities in the province and the distance from the first city to establish a prefecture-level AAC in the province， and our discoveries still prove solid. Finally， we find that cross-sectoral coordination is the underlying reason for the higher firm entry rate， in line with the original intention of AAC foundation.
Our paper supports public choice theory. Under public choice theory， deregulation reform is associated with increased firm entry， and evidence from India (Alfaro & Chari， 2014)， Mexico (Kaplan et al.， 2011; Bruhn， 2011) and Portugal (Branstetter et al.， 2014) is consistent with it. In addition， our paper seeks to contribute to the emerging Administrative Approval Reform study in China.
Future research could focus on two points. One is the effect of Administrative Approval Reform on the behavior of local governments. The other is the effect of e-government on local governments， as this has become a direction for further reform.
Keywords： Administrative Approval Reform; Administrative Approval Center; Firm Entry Rate

Summary： It is well known that the Chinese manufacturing industry competes in the international market with relatively traditional production technology and lower labor costs. However， the situation is gradually changing. With the aging of the population and growing labor costs， the advantage of the manufacturing industry with respect to low labor costs no longer exists. Chinese entrepreneurs are fully aware of the potential shortcomings of the original development path and are actively upgrading their production technology， such as through the large-scale upgrading of the production line in plants. The recent wave of large-scale “machine replacements” in the manufacturing industry in the Pearl River Delta directly reflects this phenomenon.
The production line is one of the observable objects that most directly reflect the manufacturing technology. Technological advances in plant production lines are biased， having different effects on various skill groups. By reshaping jobs and competition mechanisms， manufacturing technological innovation has profoundly affected labor participation and income distribution among different groups in the labor market. Recently， China's labor market has witnessed several structural changes. Women have become increasingly favored in the manufacturing sector， and the share of female employment has increased and the gender wage gap has narrowed.
The literature shows that women have comparative advantages in cognitive skills， while men have comparative advantages in motor skills. Based on the literature， we speculate that compared with the old lines， the advanced production line， as a form of skill-based technology innovation， tends to reduce both the physical exertion required and the need for motor skills， but increases the need for cognitive skills. The growing rewards of cognitive skills eventually narrow the wage gap between men and women.
This paper attempts to examine empirically how the upgrading of manufacturing industry lines impacts the gender payoff convergence. It thus provides evidence on the effect of the labor market under the condition of large-scale upgrading of the production line in China. This research is based on data from the Manufacturing Employer-Employee Matching Survey (2016) conducted in Nanhai District， Guangdong Province， China. This survey covered nearly 145 companies and more than 3，000 employees and reflected the living environment， the business conditions and the current difficulties of transformation in the manufacturing industries in the Chinese frontier developed regions. In this paper， a variety of analytical methods， including the treatment effect model， Oaxaca-Blinder decomposition and quantile decomposition， are used to guarantee the robustness of the results. We find that (1) while the upgrading of the production line brings more wage premiums to both men and women workers， women have a higher return. Therefore， the optimization and upgrading of the production line can reduce the gender wage gap effect. (2) The upgrading of the production line has a limited effect on reducing the gender wage gap for low-skilled workers， although it sufficiently narrows the gender wage gap for highly skilled workers. (3) Based on the mean and quantile decomposition， the gender wage gap is mainly due to higher skill returns rather than better male skill endowments. Production line upgrading significantly reduces internal gender discrimination within enterprises. At the top of the wage pyramid， the upgrading of the production line plays an even greater role in narrowing the wage gap.
This article provides a new perspective on the gender wage structure in the current labor market in China. It also provides a new policy insight into the reality of gender inequality from a technical innovation perspective. In the context of the upgrading of the production line， it is important and meaningful to encourage women to develop cognitive skills so as to improve gender equity. To our knowledge， no Chinese literature has directly associated the upgrading of the production line with the gender wage gap. In addition， the employer-employee data we use in this paper are relatively new and easy to control for unobservable heterogeneity， which can also be considered a contribution.
Keywords： Production Line Upgrading; Gender Wage Gap; Skill Return

Summary： Although China's economy has achieved sustained and rapid growth since the country's reform and opening up， due to the incompleteness of the gradual reform and the continued existence of local protectionism and various policy barriers， products and factors cannot flow freely across regions and across sectors. A large number of studies have found that various forms of policy distortions are prevalent in China's domestic and export markets. These policies distort the allocation of resources and ultimately lead to a loss of aggregate productivity and consumer welfare.
In fact， even without any policy intervention， market imperfection itself may lead to distortions， that is， market distortions. Although there is a large amount of literature on policy distortion and resource allocation efficiency in China， there is almost no literature on the effect of market distortions on China's resource allocation efficiency or the effect of trade liberalization on market distortion. This problem not only has theoretical significance， but also leads to policy formulation. If market distortions exist in the domestic market before opening and trade liberalization can reduce the degree of market distortion， then trade liberalization policy can simply improve the efficiency of the allocation of resources， without the need for complex industrial policy; if trade liberalization has no effect on the degree of market distortion， or even leads to distortion deterioration， then a liberalization policy alone is not desirable.
In accordance with the literature， this paper uses the ratio of market equilibrium welfare and social optimal welfare to measure the degree of market distortion. First， we build a general equilibrium model to achieve market equilibrium welfare and social optimal welfare under closed and open circumstances， respectively， and to determine how the market equilibrium welfare and optimum social welfare ratio (i.e.， the market distortion degree) change from autarky to trade. It is found that first， market distortions exist under autarky， which is embodied in the fact that the number of successful entrants is too large and the cutoff marginal cost is too high， resulting in many low-productivity firms that should quit the market to survive. In addition， high-productivity firms produce too little and low-productivity firms produce too much. The combined action of cutoff marginal cost distortion， variety distortion and output distortion therefore leads to a market equilibrium welfare lower than the optimal social welfare. Second， the two types of trade liberalization lead to a rise in the market equilibrium welfare， but the efficiency of the allocation of resources does not improve. Furthermore， after analyzing how the market expands when the three sources of market distortion (output distortion， cutoff marginal cost distortions and variety distortion) change， we find that both the cutoff marginal cost distortions and variety distortion remain unchanged， but the output distortion of heterogeneous firms changes differently with the expansion of market size. These heterogeneous changes cancel each other out， which is why market distortions do not change in market expansion. Third， with the increase of the average productivity in an economy， consumer welfare rises， but market distortions deteriorate.
Based on data from Chinese manufacturing micro enterprises， we then indirectly get the demand structure of Chinese consumers through the relationship between firms' productivity and markup. It is found that the demand structure of Chinese consumers is consistent with the demand structure of the Behrens model. Therefore， the conclusions obtained by the general equilibrium model in this paper are also applicable to China.
The policy implications of this paper are as follows. First， industrial policy and trade policy should be under unified use. If policymakers first adopt appropriate industrial policies in the domestic market to slow down or even eliminate prior market distortions， the magnification in consumer welfare will be larger than in the distortion existence case. Second， with the increase of the average productivity of an economy， the importance of industrial policy is strengthened. Market distortion deterioration occurs despite a rise in consumer welfare. Thus， the government should not be blinded by rising welfare. Instead， we should take active measures to correct market distortions so that welfare can rise to an appropriate level.
Keywords： Firm Heterogeneity; Trade Liberalization; Market Distortion

Summary： By introducing the value-added service mechanism and endogenizing the probability of innovation failure caused by expropriation behavior， this article expands the classic venture capital model in which the relationship between venture capital and enterprise innovation and the moderate mechanism of venture capital heterogeneity on innovation has been investigated. The model's result is tested through the “matching method and difference-in-differences estimation”， based on data from pre-IPO companies from the Shenzhen small board and gem board 2004—2013. The result shows that China's venture capital significantly reduces the innovation capability of small and medium-sized enterprises (SMEs) as a group. Venture capital's influence on enterprise innovation is like a U curve， first increasing and then gradually decreasing. The peak point usually appears in the previous year or the year in which the company goes to IPO， as the expropriation effect of venture capital is stronger and the added value service is still close to the IPO. Various forms of venture capital have different innovation effects： joint investment launched by venture capital with a higher reputation enhances enterprises' innovation instead of impeding it; venture capital with a high reputation and joint investment has a certain positive effect on innovation efficiency but a negative effect on the company's patent application; and venture capital with a low reputation and individual investment hinders enterprise innovation， both for patent applications and innovation efficiency.
This article makes the following contributions to the literature. First， unlike studies that investigate the relationship between venture capital and enterprise innovation only from the perspective of the value-added service mechanism， it revisits this issue by expanding the classic venture capital model and considering the interaction of value-added service and expropriation behavior. Second， the article analyzes the moderating mechanism of venture capital heterogeneity on innovation， especially considering the reputation of venture capital and the involvement of joint investment. Third， the empirical result is estimated through the “matching method and difference-in-differences estimation” technique， where full sample regression and propensity score matching are both applied for sample matching. The former alleviates bias caused by the lack of counterfactual sample data， while the latter effectively deals with the endogeneity problem caused by sample selection bias. Difference-in-differences estimation is then used to mitigate undesirable impacts on the empirical estimate resulting from potential bias caused by unobservable factors.
The estimate result of this article demonstrates the existence of the expropriation effect of venture capital on enterprise innovation. To enhance enterprises' innovation capability， government should first enhance legislation relevant to intellectual property， specifically through the improvement of law enforcement， such as the perfection of relevant lawsuits and the judicial forensics process， which can strengthen intellectual property protection for SMEs and weaken the additional gains generated by the expropriation behavior of venture capital on enterprises. Second， government should strive to set up a standardized venture capital market and propel high-quality enterprises to become bigger and stronger. Such enterprises should be encouraged to take the lead in constituting joint investment groups and to invest in SMEs. Policy design should be designed to simultaneously guide venture capital to start-ups as early as possible and to form a community of common destiny to weaken innovation expropriation. Third， regulatory authorities should intensify their supervision and management of venture capital， especially during the period after filing their investment in enterprises that will go to an IPO. It is also important for regulatory authorities to make use of big data mining techniques to set up an efficient information diffusion mechanism and to construct a “complaint index” for enterprises involved with venture capital， aiming at evaluating the existence and the degree of the expropriation behavior of shareholding venture capital firms and releasing relevant information in time.
Keywords： Venture Capital; Value-added and Expropriation; Innovation Effect