Exploring the Financial Landscape of China: Political Connections, Geopolitical Uncertainty and Renminbi Internationalization

Research output: ThesisDoctoral ThesisCollection of Articles

Abstract

As globalization continues to impact economic landscapes, the Chinese financial markets stand at a unique intersection that is critical to both firms and the broader global economic architecture. This research engages deeply with three central themes shaping this transformation: the role of political affiliations in corporate finance, the resilience of the corporate bond market amid geopolitical fluctuations, and the ascending prominence of the Renminbi (RMB) in international dealings. The study delineates how political connections have a demonstrable impact on corporate financial strategies, particularly in a market that is increasingly opening up to international influences. It also elucidates that the Chinese corporate bond market shows remarkable resilience to external geopolitical pressures, underscoring the effectiveness of the country's risk management frameworks. As an integral finding, the research identifies the emergent trend of RMB-denominated bonds, signaling a transition towards broader internationalization of the Chinese currency. However, the study also identifies challenges confronting the Chinese debt market, particularly issues related to credit risk and a lack of market transparency. These challenges have constrained the Chinese financial market from gaining international traction and competing with other dominant economies. By elucidating these issues, the study adds significant substance to the scholarly dialogue on China's evolving role in shaping global financial interactions. In the inaugural essay, the inquiry is directed towards ascertaining the role of political affiliations in shaping the financial decision-making processes of Chinese corporations, specifically with regard to the reduction of debt financing costs. Given the increased prevalence of politically connected firms, largely attributable to personal networks, the essay seeks to evaluate whether the benefits of these connections have attenuated amidst China's ongoing financial liberalization initiatives.
The second essay investigates the impact of policy uncertainties, such as geopolitical risks, on China's corporate bond market performance, examining credit spreads and liquidity. It aims to offer insights into how borrowing costs and market liquidity respond to policy changes.
The third essay analyzes the effects of the Renminbi's inclusion in the IMF's Special Drawing Rights basket on offshore RMB-denominated bonds, specifically Dim-Sum bonds. It examines how this 2015 inclusion has boosted demand for RMB assets. The IMF's decision serves as an independent endorsement of the RMB's international credibility, and has notably increased the currency's offshore market popularity.
Original languageEnglish
QualificationDoctor of Philosophy
Supervisors/Advisors
  • Colak, Gonul, Degree supervisor
  • Liljeblom, Eva, Thesis supervisor
Award date24.11.2023
Place of PublicationHelsinki
Publisher
Print ISBNs978-952-232-508-2
Electronic ISBNs978-952-232-509-9
Publication statusPublished - 2023
MoE publication typeG5 Doctoral dissertation (article)

Keywords

  • 512 Business and Management
  • political connections
  • uncertainty
  • emerging market
  • currency
  • China
  • debt security
  • internationalization

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