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The global crisis exposed weaknesses in the Hungarian financial system that pose risks to financial stability. Excessive risk-taking by banks and households had been masked by relatively stable exchange rates, the expected early adoption of the euro and unusually lax credit conditions in international markets. With credit becoming scarcer and dearer, the domestic economy was hit through multiple channels. The steep depreciation of the forint boosted households’ debt burden, while banks were hit by the drying up of liquidity, including in swap markets for Swiss francs. A major lesson learnt from the crisis is that the approach to household lending needs to change: a stronger protection for borrowers should be combined with a tighter regulation of lenders. Enhancing competition in the banking market would also impose discipline on lending behaviour. Financial supervision should be strengthened by enhancing the powers of the financial supervisor to avoid abusive practices and excessive risk taking. A better early-warning system needs to be created for the monitoring and assessment of systemic risks, in which a more formal Financial Stability Council should play a prominent role. This Working Paper relates to the 2010 OECD Economic Survey of Hungary (www.oecd.org/eco/surveys/hungary).

China has made impressive strides in education in recent decades, even though the accumulation of human capital has lagged behind that of physical capital. Going forward, access to and quality of education will be key to sustain economic convergence with the most advanced economies and to offset the drag exerted by population ageing. This will require addressing a number of problems. Access to pre-school education is still far from universal. Migrants’ children as well as rural and poor families are still at a major disadvantage at every step of the education ladder. The focus on rote learning and exams remains excessive. More bridges are needed between vocational and general education. Graduating students often struggle to find a job matching their expectations and employers do not always find the requisite skills. Despite a soaring number of Chinese patents, the quality of most patents is still low and innovation output is weak. Reforms are underway to address these problems but further progress is needed in various areas against the backdrop of rapidly evolving market demands and the development of the knowledge economy. Among the priorities are more and better oriented funding of education, giving greater opportunities to children with a socio-economic or physical disadvantage, reducing the role of after-school tutoring, focusing less on memorisation and more on creativity, enhancing the appeal of the teaching profession, improving students’ information on labour market prospects, developing workplace training, making greater use of online education potential, and more effectively nurturing research and innovation. This Working Paper relates to the 2015 OECD Economic Survey of China www.oecd.org/eco/surveys/economic-survey-china.htm

In China's bank-based financial system, in parallel with formal banking institutions, there is a flourishing informal financial market. Informal financial institutions contribute to meeting the ever increasing credit demand of China's private enterprises that seem to be neglected by the largely state-owned formal banking sector. Private firms would prefer to borrow at lower cost from the formal sector, but in lack of credit history or credit rating they may be rejected. Smaller firms in non-manufacturing sectors and with lower profitability have less chance to obtain formal credit. Formal and informal financial institutions co-exist in China and have different approaches to lending decisions to the private sector. This paper investigates the determinants of the size of formal and informal financing and the conditions of access to formal bank loans across private firms. The result of the empirical analysis suggests that loan officers at formal and informal financial institutions take into account different factors when extending loans. While formal banks focus on past performance of the firm, such as credit rating, previous tax payments and credit history, as well as the size of the firm and manufacturing activities, informal institutions put a relatively higher weight on current operations. The amount of receivables is a very important determinant of the size of the loan extended. Further, informal institutions exploit the information on earlier borrowing from the formal banking sector, suggesting that they may economise on the monitoring costs and that there may be a certain merit of co-existence of formal and informal finance. /// En Chine, dont le système financier est fondé principalement sur les banques, il existe, parallèlement aux institutions bancaires formelles, un secteur financier informel florissant. Les institutions financières informelles contribuent à satisfaire la demande de crédits toujours croissante des entreprises privées chinoises qui semblent être négligées par le secteur bancaire formel essentiellement détenu par l'État. Les entreprises privées préféreraient emprunter auprès du secteur formel à un coût plus faible, mais en l'absence de notation et de réputation, elles y ont un accès limité. Les plus petites entreprises, n'appartenant pas aux secteurs industriels et ayant une rentabilité plus faible, ont donc moins de chance d'obtenir du crédit du secteur formel. Les institutions financières formelles et informelles coexistent en Chine et ont des critères différents dans leurs décisions de crédit. Cet article étudie les facteurs qui déterminent la taille des financements formel et informel ainsi que les conditions d'accès aux crédits bancaires formels des entreprises. Le résultat de cette étude empirique suggère que les deux types d'institutions prennent en compte des facteurs différents quand elles accordent des prêts. Alors que les banques formelles se focalisent sur les performances passées de l'entreprise, sa notation, les impôts payés ou sa réputation, les établissements informels sont plutôt sensibles aux conditions d'exploitation présentes. Le montant des créances commerciales est un critère très important dans la détermination de la taille du prêt accordé. De plus, les établissements informels utilisent l'information sur les emprunts contractés auprès du secteur formel, ce qui suggère qu'ils font, ainsi, des économies de coûts de surveillance et que la coexistence des finances formelle et informelle présente des avantages.

The impressive emergence of China’s economy is set to lose some momentum as the country catches up with more advanced economies and its rapid ageing also weighs on it. However, China can still reap the “reform dividend”, especially with measures to keep up the sustained growth of productivity. Reforms that enhance competition in product markets are among those that can potentially bring about significant productivity gains. China has been lowering the burden on start-ups and simplifying administrative procedures for a while already, achieving significant progress, though more procedures could go online and a one-stop shop is still to be implemented across the country. State ownership remains dominant in most network industries and there are many SOEs even in commercially-oriented industries such as retail or catering. SOEs enjoy implicit government guarantees and are the main beneficiaries of administrative monopolies, i.e. exclusive rights granted by regulations. In addition, they also benefit from various subsidies, sometimes leading to low-level, repetitious investment, excess capacity and waste of public money. A more level playing field would bring about efficiency-enhancing competition by private and foreign firms. Some network industries such as electricity and gas have recently accelerated their opening up and competition is developing in some segments. Digitalisation is a promising candidate to lift China’s long-term growth potential. Competition, in particular competitive pressure from foreign counterparts when there are few domestic players could be an important source of efficiency gains in digital services. China has been a frontrunner in business digitalisation for a while already, but the outbreak accelerated also the provision of e-government services. While strengthening of IPR protection and promoting innovative ways of financing are welcome steps to nurture innovative industries, generous tax exemptions – which by OECD standards do not constitute good tax policy - reduce the availability of public funds for other priority areas.

The shrinking number of workers due to smaller young cohorts entering the labour market and large-scale outward migration are undermining Bulgaria’s growth prospects, the sustainability of its social institutions and society more widely. Bulgaria needs to provide more support for families and make staying in the country more attractive by raising productivity, fostering the creation of more good-quality formal jobs and reinforcing the social safety net. Bulgarian women have high activity rates, a high share in management jobs and a low wage gap with men, but all this translates into high opportunity costs for educated women of having children. Policies, including access to affordable quality childcare countrywide, more egalitarian burden sharing with men and greater incentives to get back to work, would help reduce those costs. Women from disadvantaged backgrounds should be offered a career path through upgrading skills and lifelong learning. Inactivity rates among the working age population should be addressed by reforms to the social welfare system that would improve activation and through targeted measures. Vulnerable groups, including ethnic minorities, are disadvantaged in multiple ways and need tailored measures to escape poverty, acquire skills and integrate into the labour market.

China’s regions have been experiencing impressive growth over the past decades, but their potentials could be better exploited by creating a single product and labour market. Local protectionism increases transaction costs and hinders competition, thereby taking a toll on productivity. Administrative monopolies have long thrived and are hard to dismantle. Restrictions on the hukou and the fragmented pension system limit labour mobility. Local regulations aim at, among other things, securing the collection of local taxes, without which cities could not afford to offer the same public services to migrants as to urbanites. Hence, dismantling local regulations and creating a single product and labour market needs to go hand-in-hand with the reform of inter-governmental finances. Recent measures on both the product and labour market front appear to aim at making up for the slow progress over the past decade or so. There are signs that these efforts are helping China’s regions at various levels to converge toward each other. Disparities are shrinking faster across provinces, compared to within provinces. Integration of product and labour markets will boost productivity over the medium-to long term by reducing transaction costs, but could potentially widen regional disparities, which are already relatively high. This will necessitate enhanced transfers and re-centralisation of the financing of spending in some key categories such as education and health. Policies to help catching up of laggard regions by better connectivity through infrastructure investment are bearing fruit, but such investments should be subject to rigorous cost-benefit criteria to enhance capital allocation efficiency and should take into account externalities. Notwithstanding significant disparities along multiple dimensions across provinces, inequalities, be it in terms of income, wealth or education, are actually most striking along the rural-urban dimension. The rural revitalisation strategy, a novel element of the 19th Party Congress outcomes, is expected to address this issue. The other recent strategy of nurturing the formation of city groups will also likely benefit rural areas in-between those cities.This Working Paper relates to the 2019 OECD Economic Survey of China (http://www.oecd.org/economy/china-economic-snapshot/).

With persisting slower growth worldwide and in China, over-capacity in some heavy industry sectors, declining profitability, and intensifying competition from other, lower-cost emerging economies, corporate behaviour in China needs to change and focus more on efficiency and sustainability. This need is further intensified by mounting environmental pressures and China’s ambition for greener and more sustainable growth. A larger proportion of firms, including state-owned enterprises, should step up innovation efforts and improve corporate governance practices. To this end, supportive policies are needed, fostering an environment that is more conducive to innovation and entrepreneurship, and facilitating resource reallocation through the exit of unviable firms. At the same time, fraudulent corporate practices must be halted and State assets need to be better managed. Reforms are under way or envisaged that will help improve corporate performance and, more broadly, deliver more resilient and environmentally sustainable growth and continuing progress in living standards. This Working Paper relates to the 2017 OECD Economic Survey of China (www.oecd.org/eco/surveys/economic-survey-china.htm).

The global economic and financial crisis exacerbated the need for fiscal consolidation in many OECD countries. Drawing lessons from past episodes of fiscal consolidation, this study investigates the economic environments, political settings and policy measures conducive to fiscal consolidation and debt stabilisation using probit, duration, truncated regression and bivariate Heckman selection methods. The empirical analysis builds on the earlier literature and extends it to include new aspects that may be of importance for consolidating governments. The empirical analysis confirms previous findings that the presence of fiscal rules – expenditure or budget balance rules – is associated with a greater probability of stabilising debt. Crucial in determining the causal link behind the association, the results also reveal an independent role for such rules over and above the impact of preferences for fiscal prudence. Also, while the analysis confirms that spending-driven adjustments visà- vis revenue-driven ones are more likely to stabilise debt, it also reveals that large consolidations need multiple instruments for consolidation to succeed. Sub-national governments, in particular state-level governments can contribute to the success of central government consolidation, if they co-operate. To ensure that state-level governments do co-operate, having the right regulatory framework with the extension of fiscal rules to sub-central government levels is important.

China has surpassed the United States in patent applications and has become world leader. Strong patenting activity, however, did not lead to strong productivity growth. The delinking of patenting activity from productivity growth could be explained by quality and relevance issues. Although the number of patents has been soaring, few are genuine inventions. Relatively low utilisation rates of patents point to a low degree of relevance. This paper uses a representative survey of Chinese patenting firms to provide a detailed picture of the patenting landscape along the dimensions of geographical areas, detailed industrial sectors, traditional and modern industries as defined by the Chinese government, firm age, size and ownership. It also overviews government subsidies across firms. Transport equipment makers hold most patents per firm, followed by electronics manufacturers. State-owned firms spend more on R&D per patent, but hold fewer patents per researcher than private or foreign-invested firms. High patenting performance and government support are not necessarily linked to high utilisation of patents. Smaller, younger and private firms expect a higher return on their patents and so do exterior design patent holders. Furthermore, the paper examines what drives patenting activity. Higher R&D spending by the firm and higher share of researchers in its workforce tend to be associated with higher patents per employee. Smaller and older firms tend to patent more, and government support also appears to matter. Exterior design patents are associated with different firm characteristics: R&D intensity is lower and government support matters less. Most firms consider IPR protection insufficient and the share of firms having experienced patent infringement is the greatest among the largest firms. Many of them do not do anything once their rights are infringed as they do not expect effective remedy. Instead of patenting, which may not provide sufficient protection from imitators, they adopt other strategies like reaping the first mover advantage to market their goods or sign confidentiality agreements with their staff or contracts on commercial secrets. This Working Paper relates to the 2019 Economic Survey of China (http://www.oecd.org/economy/china-economic-snapshot/).