Special Deals from Special Investors, with Chang-Tai Hsieh

Harvard Fairbank Center for Chinese Studies

Speaker: Chang-Tai Hsieh, Phyllis and Irwin Winkelried Professor of Economics and PCL Faculty Scholar, The University of Chicago Booth School of Business We use administrative registration records with information on the owners of all Chinese firms to document the importance of “connected” investors, defined as state-owned firms or private owners with equity ties with state-owned firms, in the businesses of private owners. We document a hierarchy of private owners: the largest private owners have direct investments from state-owned firms, the next largest private owners have equity investments from private owners that themselves have equity ties with state owners, and the smallest private owners do not have any ties with state owners. The network of connected private owners has expanded over the last two decades. The share of registered capital of connected private owners increased by almost 20 percentage points between 2000 and 2019, driven by two trends. First, state-owned firms have increased their investments in joint ventures with private owners. Second, private owners with equity ties to state owners also increasingly invest in joint ventures with other (smaller) private owners. The expansion in the “span” of connected owners from these investments with private owners may have increased the aggregate output of the private sector by 4.2% a year between 2000 and 2019. Chang-Tai Hsieh conducts research on growth and development. His published papers include “The Life-Cycle of Plants in India and Mexico,” in the Quarterly Journal of Economics; “Misallocation and Manufacturing TFP in China and India,” in the Quarterly Journal of Economics; “Relative Prices and Relative Prosperity,” in the American Economic Review; “Can Free Entry be Inefficient? Fixed Commissions and Social Waste in the Real Estate Industry,” in the Journal of Political Economy; “What Explains the Industrial Revolution in East Asia? Evidence from the Factor Markets,” in the American Economic Review; “The Allocation of Talent and US Economic Growth,” in Econometrica; “How Destructive is Innovation?” in Econometrica; and “Special Deals with Chinese Characteristics,” in the NBER Macroeconomics Annual. Hsieh has been a visiting scholar at the Federal Reserve Banks of San Francisco, New York, and Minneapolis, as well as the World Bank’s Development Economics Group and the Economic Planning Agency in Japan. He is a Research Associate for the National Bureau of Economic Research, a Senior Fellow at the Bureau for Research in Economic Analysis of Development, and a member of the Steering Group of the International Growth Center in London. He is the recipient of an Alfred P. Sloan Foundation Research Fellowship, an Elected Member of Academia Sinica, and the recipient of the Sun Ye-Fang award for research on the Chinese economy.