Determinants of Corporate Investment in China: Evidence From Cross-Country Firm Level Data

Abstract

At head of title: Asia and Pacific Department. Title from PDF title page (IMF Web site, viewed March 20, 2012). "March 2012." This paper analyzes the evolution of investment in China, its main features, and its key determinants. In recent years, manufacturing, real estate, and infrastructure have been the main drivers of investment. Investment remains largely concentrated in coastal areas, but there has been a shift to greater investments inland in recent years. The empirical analysis of the determinants of investment indicates that financial variables, such as interest rates, the exchange rate, and the depth of the domestic capital market are important determinants of corporate investment. The results suggest in particular that financial sector reform, including that which deregulates and raises real interest rates as well as appreciates the real effective exchange rate, would lower investment and help rebalance growth away from exports and investment toward private consumption. Cover; Contents; I. Introduction; II. Evolution of Investment; A. Who is investing?; B. Which sectors are enterprises investing in?; C. Which regions are enterprises investing in?; D. How is investment financed?; E. Implications for corporate savings; III. Cost of Capital; IV. Empirical Determinants of Investments; Tables; Table 1. Determinants of Corporate Investment (Evidence from Firm Level Data); Table 2. Determinant of Investment (Evidence from Aggregate Data); V. Conclusion; References; Appendix: Data Definition; Table A1. Distribution of Firms.