NADS Held 12th "New Political Economy" Series of Lectures

On the afternoon of October 9, 2018, the 12th "New Political Economics Frontier" series of lectures hosted by the Center for Research on Government-Enterprise Relationship and Industrial Development of the National Academy of Development and Strategy was held in the No. 116 lecture hall of the Guoxue Building. Professor Song Zheng from the Department of Economics of the Chinese University of Hong Kong gave a wonderful lecture entitled "Conglomerate Formation in China". The lecture was chaired by Professor Nie Huihua, Deputy Dean of NADS and served as a commentator.

In this article, Professor Song Yu and his collaborators focused on explaining the miracle of China's economic development. They believe that under the conditions of "weakening economic system and enhancing national capability", the existing research and understanding is not comprehensive enough to understand how to obtain rapid economic development in the past 40 years, and concept of "Conglomerate Formation" can provide a new explanation for this issue. 

Through the analysis of the Chinese Enterprise Registration Information Database (2015), Professor Song Zheng’s team found that there are two “galaxies” in the Chinese economy. Among them, the “galaxy 1” is the largest connective network with the existence of common corporate shareholders as the relavant condition. The “Galaxy 2” is the largest connective network with the existence of common natural person shareholders as the relavant condition. When these two “galaxies” are combined, the number of enterprises accounts for less than one-fifth of the total number of enterprises, but the total capital accounts for two-thirds of the total capital of all enterprises. The growth of these two "galaxies" is a very important driving force for China's economic growth.

By conducting a network analysis of the “galaxy 1”, it can be divided into several “Conglomerate Formation”. In 2015, there were 413 such conglomerate formations. These conglomerate formations have the following characteristics: the number of enterprises within the group is significantly positively correlated with the capital size of the core enterprises; the average capital and average financing costs of the enterprises within the group have nothing to do with the size of the formation; the average number of enterprises in the conglomerate formation is growing rapidly, but the number of conglomerate formations did not increase significantly. Professor Song Zheng believes that these characteristics may imply the existence of resource flows within the conglomerate formations, which can partially replace the market for solving market imperfections, and providing special and informal institutional guarantees for the development of private enterprises. At the same time, he also pointed out that through model deduction, conglomerate formations can not reduce the level of resource mismatch as low as in a complete market economy, and China still needs to further deepen its reform in the future.

Professor Nie Huihua commented that Professor Song Zheng’s team provided an interesting perspective and explanation for the mystery of China’s economic growth. More than 100 teachers and students from various universities participated in the lecture and had in-depth exchanges with Professor Song Zheng on relevant issues.