This research analyses the ramifications of the COVID-19 pandemic on China's economy, examining the divergent epidemic prevention policies used by local governments. Empirical evidence highlights that the emergence of COVID-19 cases correlates with a 1.13% reduction in quarterly GDP growth. However, when a city's secretary maintains an informal ties with the provincial secretary, GDP growth remains resilient. Analyzing micro-level data, we observe that city secretaries with informal ties tend to enact flexible anti-contagion measures. This flexibility stems from a decreased likelihood of reprimand for virus transmission. Such shields exclusively manifests when incumbent provincial secretaries share informal ties with central leadership. This underscores the interplay of political networks in shaping localized economic responses.

Using an extensive panel of Chinese firms from the Annual Tax Survey and relying on labor unrest as shock to local social stability, we show that state-owned enterprises (SOEs) react to nearby labor unrest by creating additional employment at the expense of firm performance. Each SOE exposed to unrest hires 3% more employees, which is a sizeable aggregated effect. This effect is larger when labor unrest occurs in the same industry as the exposed SOEs, when local governments have sound fiscal budgets, and when governing mayors have stronger promotion incentives. SOEs obtain more fiscal benefits when they absorb additional labor. In contrast, non-SOEs do not react to labor unrest, and their performance is unaffected. Similar effects are detected when we use the population of Chinese listed firms. This paper provides evidence that SOEs internalize the goal of maintaining social stability and contribute to the growth of the non-state sector.

We investigate the power structure of the Chinese political system and explore its implications on corporate finance. With a large sample of firms from 1999-2007, we document large-scale ‘re-nationalization’—local governments re-establish controlling ownership stakes in previously privatized firms. We find that firms located in provinces with newly appointed, top-ranked Party leaders who do not belong to any of the three dominant political factions are more likely to be renationalized. With a number of instrument variables, including the political status of the top-ranked provincial party leaders, we find that re-nationalization leads to lower sales and labor productivity for the firms. We also find some evidence that re-nationalization temporarily lowers the unemployment rate in the region without any significant, long-term economic benefits.

This paper investigates the replacement and appointment of top executives in a business highly involved by the government and their consequences on firm performance and corporate governance. It provides a dynamic setting to test the value of political connection as prior studies do not discern government interests and incorporate ambiguous institutions and self-selection problems by cross-section test. Using data of China’s listed state-owned enterprises (SOEs), this paper finds that the state owner is more likely to replace top executives and appoint a politically-connected executive when SOEs encounter economic distress such as poor ROA, earnings loss, high financial risk, or political distress such as SEC regulation violation. It implies that the politically-connected executive may be considered helpful by the government in response to firm distress. Further, it is found that the political top executives improve firm performance following their appointments and reduce the frequency of executives’ illegal actions, by initiating modification of internal governance structures and mitigating manager’s discretion. And those firms do not have preferential access to resources or government assistances such as fiscal subsidies, tax benefits, or the credit market. All these findings support that political executives could serve as a disciplinary or monitoring mechanism in a political economy lack of external market for corporate control and legal protection for investors, instead of being only a form of bail-out. Their efficacy is based on their administrative power, regulatory expertise and accountability to the government interests. These results provide better understanding of government interests and their impact on corporate governance.