nep-cna New Economics Papers
on China
Issue of 2006‒02‒26
thirteen papers chosen by
Zheng Fang
Fudan University

  1. China's Fiscal System: A Work in Progress By Richard Bird; Christine C.P.Wong
  2. Urban Social Exclusion in Transitional China By Bingqin Li
  3. Fiscal Decentralization and Economic Growth: A Comparative Study of China and India By Jorge Martinez-Vazquez; Mark Rider
  4. Globalization and SMEs: A Comment on Three Asian Experiences By Sumner La Croix
  5. The Role of Law in China's Economic Development By Donald Clarke; Peter Murrell; Susan Whiting
  6. Poverty and Inequality and Social Policy in China By Bingqin Li; David Piachaud
  7. The Effect of the One-Child Policy on Fertility in China: Identification Based on the Differences-in-Differences By Hongbin Li; Junsen Zhang; Yi Zhu
  8. Why Does Spousal Education Matter for Earnings? Assortative Mating or Cross-productivity By Chong Huang; Hongbin Li; Pak Wai Liu; Junsen Zhang
  9. On the Periphery of the Russo-Japanese War Part II By Ian Nish; David Steeds
  10. Economic Transformation, Population Growth and the Long-Run World Income Distribution By Marcos Chamon; Michael Kremer
  11. Mother's Education and Child Health: Is There a Nurturing Effect? By Yuyu Chen; Hongbin Li
  12. Family-Type Subsistence Incomes By Christos Koulovatianos; Carsten Schröder; Ulrich Schmidt
  13. Developing Family Development Accounts in Taipei: Policy innovation from income to assets By Li-Chen Cheng

  1. By: Richard Bird (Andrew Young School of Policy Studies); Christine C.P.Wong (University of Washington)
    Abstract: We argue in this paper that unless China begins to tackle more systematically the serious problems that have emerged in the finances of its various levels of sub-national government the problems to which the present unsatisfactory system give rise will over time increasingly distort resource allocation, increase distributional tensions, and slow down the impressive recent growth of the Chinese economy. Despite the lack of solid and reliable information on the size and nature of China’s real fiscal system, we show that the evidence available is generally consistent with this pessimistic reading. China’s fiscal and – in time – economic future thus rests to some extent on reforms to key aspects of its fiscal system, especially its intergovernmental finances. Moreover, a more consistent and purposive framework to this complex of problems seems needed. Given the scale and scope of China’s underlying public finance problems, the ‘reactive gradualism’ evidenced in recent ad hoc reforms to this or that piece of the fiscal system has, we suggest, run its course.
    Keywords: Chima. Sun-national government, Fiscal system, China's fiscal system
    Date: 2005–11–01
  2. By: Bingqin Li
    Abstract: This paper demonstrates that urban social exclusion in China does not only include restricted participation by the ¿underclass¿ in urban life, but also the deprivation of certain political, social and economic rights. In addition, the paper describes how the character of urban social exclusion has changed over time. The author also examines the social exclusion of rural workers living and working in urban areas. The paper concludes by arguing that urban social exclusion in China needs coordinated reforms that target the whole set of problems in the urban ¿underclass¿ lacking political rights, social protection and economic opportunities.
    Keywords: social exclusion, urban China, rural to urban migrants
    JEL: J43 R23 I30
    Date: 2004–03
  3. By: Jorge Martinez-Vazquez (Andrew Young School of Policy Studies); Mark Rider (Andrew Young School of Policy Studies)
    Abstract: Although there are obvious differences in the political systems of China and India, there are surprising similarities in their respective approaches to decentralization. Both countries face similar design issues with their intergovernmental systems, such as the lack of clear expenditure assignments, high transfer dependency, low revenue autonomy, and soft budget constraints. As a result, in both countries there is a lack of aggregate fiscal discipline among sub-national governments, and the quality of sub-national government service delivery is poor. Poor service delivery and the lack of fiscal discipline threaten the ability of both countries to sustain high rates of economic growth.
    Keywords: China, India, Fiscal Decentralization, Economic Growth, Intergovernmental fiscal
    Date: 2005–10–01
  4. By: Sumner La Croix (Department of Economics, University of Hawaii at Manoa)
    Abstract: This paper briefly discusses three case studies (Choi and Tcha 2005; Lin 2005; Motohashi 2005) of responses by small and medium-size manufacturing enterprises (SMEs) in Korea, Taiwan, and Japan to the rising tide of imports from China in their product markets. They find vastly different responses in each country, with some firms relocating plants to mainland China; others exiting affected product markets; and some maintaining home country production by moving up the product ladder and using new production technologies. This paper conjectures that outmoded production technologies may underpin the exit of Japanese SMEs from these product markets; considers the impact that potential impact of Chinese imports on Korea’s attachment to a market economy; and finds that Taiwan’s SME investments in mainland China have substantial political as well as economic roots. The long-run response by Northeast Asian SMEs to Chinese competition will, in all three countries, be closely tied to SME development (via in-house or cooperative R&D) or acquisition of rights to new products and technologies. I conclude that a better understanding of the public and private institutions structuring SME contracting vis-a-vis R&D projects and technology acquisition is vital to each country’s development of effective policy responses to the meteoric rise of China.
    Keywords: Globalization, SMEs, creative destruction, exports, imports, entry, exit
    Date: 2006
  5. By: Donald Clarke; Peter Murrell (Department of Economics, University of Maryland); Susan Whiting
    Abstract: This paper surveys China's legal system in the economic reform era. We analyze the role of law in the economy, assessing whether China's formal legal system contributed to those expectations of stable and predictable rights of property and contract that are prerequisites for growth. The paper begins by detailing legal developments. The relationship between legal and economic development was bidirectional - a coevolutionary process. We then examine three spheres of activity - property rights, agreements to trade, and corporate governance - asking whether law plays an important role, how that role has changed, and what the current problems are. Common themes arise. First, there have been profound changes, with law playing an increasingly important role. Second, formal legal institutions have not made a critical contribution to China's remarkable economic success. This latter conclusion leaves open the question of which mechanisms generated the necessary expectations of reasonable returns from decentralized economic activity. We briefly reflect on mechanisms other than law that might have produced such expectations, for example, the role of local Communist Party officials. However, lack of empirical information suggests this is a topic for future research.
    Keywords: China, institutions, law, property rights, contracts, corporate governance
    JEL: P20 P26 P30 P37 N45 K00 K20 K40
    Date: 2006–02
  6. By: Bingqin Li; David Piachaud
    Abstract: Despite prolonged economic growth, poverty has become a more notable and noted feature of Chinese society. The paper examines three phases of development since the foundation of the People's Republic: the central planning era (1949 -1978); the pro-urban growth model (1978 - 1999); and more recent changes (1999 - 2004). For each phase the nature of the economic and social policies are described and the effects on poverty and inequality are examined. The limitations of a social policy that is subservient to the economic strategy are considered. The alternative of a model of social development based on the livelihood approach is analysed and its potential to reduce poverty and inequality are considered.
    Keywords: poverty, inequality, social policy, China, livelihoods, social development
    JEL: I3
    Date: 2004–11
  7. By: Hongbin Li; Junsen Zhang; Yi Zhu
    Abstract: This paper measures the effect of China's one-child policy on fertility by exploring the natural experiment that has been created by China's unique affirmative birth control policy, which is possibly the largest social experiment in human history. Because the one-child policy only applied to Han Chinese, but not to ethnic minorities, we construct a differences-in-differences estimator to identify the effect of the policy on fertility. Such a natural experiment is a rare opportunity, whether for the analysis of the effect on fertility or for the analysis of economics in general. Using two rounds of the Chinese Population Census, we find that the one-child policy has had a large effect on fertility. The average effect on the post-treatment cohorts on the probability of having a second child is as large as -11 percentage points. We also find that the magnitude is larger in urban areas and for more educated women. Our robustness tests suggest that our differences-in-differences estimates of the effect of the one-child policy are not very likely to be driven by other policy or socio-economic changes that have affected the Han and the minorities differently.
    JEL: J13 J15 J18 O10
    Date: 2005–08
  8. By: Chong Huang; Hongbin Li; Pak Wai Liu; Junsen Zhang
    Abstract: In interpreting the positive relationship between spousal education and one's earnings, economists have two major hypotheses: cross-productivity between couples and assortative mating. However, no prior empirical study has been able to separate the two effects. This paper empirically disentangles the two effects by using twins data that we collected from urban China. We have two major innovations: we use twins data to control for the unobserved mating effect in our estimations, and we estimate both current and wedding-time earnings equations. Arguably, the cross-productivity effect takes time to be realized and thus is relatively unimportant at the time of the wedding. Any effect of spousal education on wedding-time earnings should more likely be the mating effect. We find that both cross-productivity and mating are important in explaining the current earnings. Although the mating effect exists for both husbands and wives, the cross-productivity effect only runs from Chinese husbands to wives. We further show that the cross-productivity effect is realized by increasing the hourly wage rate rather than working hours.
    JEL: J31 O15 P20
    Date: 2006–01
  9. By: Ian Nish; David Steeds
    Abstract: Steeds: David Davies, a young member of a prominent Welsh commercial/industrial family, spent the period between October 1904 and January 1905 in Japan, Korea and North China. His diary of the journey presents interesting background on conditions in Japan during what were crucial months in the Russo-Japanese war. Nish: SUEMATSU Kencho, a senior Japanese politician, was sent to Europe at the start of the Russo-Japanese war in order to improve the image of Japan in European countries and dispel the idea of the Yellow Peril. He became the main publicist for the Japanese war effort, lecturing, writing articles and publishing books. He stayed on after the Portsmouth Peace Treaty, returning to Japan in February 1906.
    Keywords: Davies, Russo-Japanese war, Korea, North China, Ainu, Dr Batchelor, Red Cross, Rendel, KOMURA Jutaro, Chefoo, Suematsu, Colonel Akashi, Yellow Peril, Kaneko, HAYASHI Tadasu, Japan Society of London, Takakusa, Tomoeda, TAKAHASHI Korekiyo, Prince Arisugawa, Stead.
    Date: 2005–05
  10. By: Marcos Chamon; Michael Kremer
    Abstract: This paper considers the long-run evolution of the world economy in a model in which countries' opportunities to develop depend on their trade with advanced economies. Trade opportunities in turn depend on the relative population of the advanced and developing world. As developing countries become advanced, they further improve the trade prospects for the remaining developing countries. As long as the population growth differential between developing and advanced countries is not too large, the rate at which countries transition to prosperity accelerates over time. However, if population growth differentials are large relative to the transition rate, the world economy converges to widespread prosperity if and only if the proportion of the world population in advanced countries is above a critical level. In our baseline calibration the world economy is below that critical level, but further declines in population growth in the developing world or rapid growth in China would bring it above that threshold. Even then, the share of the world population living in developing countries would decrease very slowly. Substantial narrowing of population growth differentials, increases in the transition rate or the rapid development of India could bring the world economy to a trajectory of accelerating development.
    JEL: J11 F43 O41
    Date: 2006–02
  11. By: Yuyu Chen; Hongbin Li
    Abstract: In this paper, we examine the effect of maternal education on the health of young children by using a large sample of adopted children from China. As adopted children are genetically unrelated to the nurturing parents, the educational effect on them is most likely to be the nurturing effect. We find that the mother's education is an important determinant of the health of adopted children even after we control for income, the number of siblings, health environments, and other socioeconomic variables. Moreover, the effect of the mother's education on the adoptee sample is similar to that on the own birth sample, which suggests that the main effect of the mother's education on child health is in post-natal nurturing. Our work provides new evidence to the general literature that examines the determinants of health and that examines the intergenerational immobility of socioeconomic status.
    JEL: I12 I21 O15
    Date: 2006–02
  12. By: Christos Koulovatianos; Carsten Schröder; Ulrich Schmidt
    Abstract: Different family types may have a fixed flow of consumption costs, related to subsistence needs. We use a survey method in order to identify and estimate such a fixed component of spending for different families. Our method involves making direct questions about the linkup between aggregate disposable family income and well-being for different family types. Conducting our survey in six countries, Germany, France, Cyprus, China, India and Botswana, we provide evidence that fixed costs of consumption are embedded in welfare evaluations of respondents. More precisely, we find that the formalized relationship between welfare-retaining aggregate family incomes across different family types, suggested by Donaldson and Pendakur (2005) and termed “Generalized Absolute Equivalence Scale Exactness,” is prevalent and robust in our data. We use this relationship to identify subsistence needs of different family types and to calculate income inequality.
    JEL: I31 I32 C42 D31 D12 D63
    Date: 2006–02
  13. By: Li-Chen Cheng
    Abstract: In July 2000, the Taipei City Government launched an anti-poverty program, Taipei Family Development Accounts, which drew heavily on Sherraden¿s asset-based welfare theory, and was to provide matched savings accounts for low-income families in the City. This paper presents the ¿income to assets¿ policy shift process and a research summary on the participants to date.
    Keywords: family development accounts (Taipei), poverty, assets-building
    JEL: D14 I38
    Date: 2004–03

This nep-cna issue is ©2006 by Zheng Fang. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.