High‐Speed Rail Service and the Issuance of Municipal Corporate Bonds

• Published date: 01 July 2022
• Author: Liansheng Zheng,Juncheng Li,Zhihua Zhao
• Date: 01 July 2022
• DOI: http://doi.org/10.1111/cwe.12434

©2022 Institute of World Economics and Politics, Chinese Academy of Social Sciences

China & World Economy / 230–254, Vol. 30, No. 4, 2022

230

*Liansheng Zheng, Senior Fellow, Institute of Finance and Banking, Chinese Academy of Social Science,

China. Email: zhengls2013@163.com; Juncheng Li (corresponding author), Assistant Research Fellow,

Institute of Finance and Banking, Chinese Academy of Social Science, China. Email: ljc_ifb@163.com;

Zhihua Zhao, PhD Candidate, School of Finance, Central University of Finance and Economics, China. Email:

cufezzh1994@163.com. The authors are grateful for support from two projects of the National Social Science

Foundation of China (Nos. 15AJY017 and 16BJY183).

High-Speed Rail Service and the Issuance of

Municipal Corporate Bonds

Liansheng Zheng, Juncheng Li, Zhihua Zhao*

Abstract

This study uses the difference-in-differences method to test the impact of a high-speed

rail (HSR) service on the issuance of municipal corporate bonds (MCB) based on panel

data for prefecture-level cities in China from 2003 to 2016. The study has three fi ndings.

First, HSR increased the scale of the issuance of MCB signifi cantly. After conducting a

series of robustness tests, the above conclusion remained robust. Second, HSR affected

the issuance of MCB by increasing the city’s financing demands and improving the

c ity’s financing capacity. Third, the effect of HSR on the issuance of MCB varied

from city to city. Specifi cally, the promotion of the opening of HSR to the issuance of

MCB was concentrated in remote and fast growing cities. High-speed rail can also

effectively reduce the cost and shrink credit spreads of the MCB. This paper shows that

it is necessary to further optimize the layout of HSR, release and exploit the fi nancial

resource reallocation effect of HSR, and provide fi nancial support to the high-quality

development of cities.

Keywords: financing capacity, financing demands, high-speed rail service, municipal

corporate bonds

JEL codes: G19, R41, R53

I. Introduction

According to the Lawrence et al. (2019), the total operating distance covered by the

Chinese high-speed railway (HSR) was nearly 30,000 km in 2018, which accounted

for more than 60 percent of the to tal distance covered by HSRs in the world and far

surpassed the total operating distance covered by all other countries. In China, cities

are more closely connected than before with the development of Chinese HSR. The

©2022 Institute of World Economics and Politics, Chinese Academy of Social Sciences

HSR and the Issuance of MCB 231

total operating distance covered increased from 40 million to 1 billion km from 2007

to 2018. High-speed railways have a profound impact on employment, wages, and

economic growth by reshaping the economic spatial layout of cities and improving

their accessibility. They also play an important role in the economic behavior of

microeconomic entities and enterprises (Albalate and Bel, 2012; Chen, 2012). There

have been enormous changes in China with the development of HSR in the past

decade, including the formation of the “intra-city effect,” the “one-hour life circle,” and

the “urban development zone.”1

It is clear that there will be mo re development opportunities in cities with HSR.

However, it is not known whether the ability of cities to obtain development resources

will be enhanced or not, especially the fi nancial resources on which urban development

relies. At the beginning of the Chinese Medium to Long-Term Railway Network Plan

(National Development and Reform Commission, 2016), the important principle of

balancing economic and social benefi ts, as well as effi ciency and fairness, was clearly

put forward. It involves increasing cities’ accessibility along the HSR, improving the

mobility of factors, and allocating various production factors optimally. Research has

found that cities with HSR are more attractive to high-level talent and have an increasing

number and scale of enterprises after expanding market size (Guo and Ke, 2020).

Researchers have also investigated the im pact of HSR on various factors, including land,

te chnology, and funding (Yao et al., 2020). However, whether the HSR will infl uence

urban fi nancial resource allocation or not, and how it works, have not been studied in

depth.

In this context, the present paper studies the relationship between HSR and the

issuance of municipal corporate bonds (MCB). First, we sort out the possible paths

by which HSR could affect the issuance of MCB. Then, we test the impact of the

HSR on the issuance of MCB with data for prefecture-level cities in China from

2003 to 2016. The results show that the HSR can increase the scales of issuance of

MCB signifi cantly. The key mechanism through which HSR infl uences the issuance

of MCB is increasing cities’ financing demands and improving cities’ financing

capacities. High-speed rail can effectively reduce the cost and shrink the credit

spreads of MCB. We also fi nd that the effect of HSR on the issuance of MCB varies

from city to city. Specifi cally, the issuance of MCB is promoted by HSR, principally

in remote and high-growth cities. A series of robustness tests support these fi ndings.

1“Intra-city effect” refers to the effect and linkages that occur in adjacent areas or on a larger scale. “One-hour

life circle” refers to the core of the main city, within the one-hour traffi c access, forming an area with obvious

gathering effect and competitive advantages. “Urban development zone” is an economic territorial pattern

formed by the combination of the territorial division of labor and economic territorial movement.