nep-cna New Economics Papers
on China
Issue of 2006‒04‒29
ten papers chosen by
Zheng Fang
Fudan University

  1. The Relative Sophistication of Chinese Exports By Peter K. Schott
  2. Contribution of ICT to the Chinese Economic Growth By Heshmati, Almas; Yang, Wanshan
  3. The Impact of Bank and Non-Bank Financial Institutions on Local Economic Growth in China By Xiaoqiang Cheng; Hans Degryse
  4. Are Domestic Investors Better Informed than Foreign Investors? : Evidence from the Perfectly Segmented Market in China By Chan, Kalok; Menkveld, Albert J,; Yang, Zhishu
  5. A Spatial Investigation of ƒÐ-Convergence in China By Kuan-Pin Lin; Zhi-He Long; Mei Wu
  6. Chinese Exchange Rate Regimes and the Optimal Basket Weights for the Rest of East Asia By Etsuro Shioji
  7. Migration in towns in China, a tale of three provinces : evidence from preliminary tabulations of 2000 census By Shi, Anqing
  8. Information Asymmetry and Asset Prices: Evidence from the China Foreign share discount By Chan, Kalok; Menkveld, Albert J.; Yang, Zhishu
  9. Addressing China ' s growing water shortages and associated social and environmental consequences By Shalizi, Zmarak
  10. What Determines Technological Spillovers of Foreign Direct Investment: Evidence from China By Galina Hale; Cheryl Long

  1. By: Peter K. Schott
    Abstract: This paper examines the relative "sophistication" of China's exports to the United States along two dimensions. First, I compare China's export bundle to those of the relatively skill- and capital-abundant members of the OECD as well as to similarly endowed U.S. trading partners. Second, I examine prices within product categories to determine if China's varieties command a premium relative to its level of development.
    JEL: F1 F2 F4
    Date: 2006–04
  2. By: Heshmati, Almas (Ratio); Yang, Wanshan
    Abstract: The view about systematic irrationality of investors and managers in investment with reference to information and communication technology (ICT) with no effects on productivity growth is called productivity paradox. Research suggests that ICT return in developed nations is significant and positive, but not in developing countries. This paper challenges the above conclusion by examining the contribution of ICT to the Chinese economic growth. We investigate the relationship between TFP growth and ICT capital and provide estimation of the returns to ICT investment. The contribution of ICT to economic growth has not been studied earlier for the developing countries like China. The empirical results suggest that China has reaped the benefits of ICT investment. The policy implications for the Chinese ICT investment and development are also discussed. The results add to our understanding of how ICT affects growth in the context of economic development.
    Keywords: Productivity paradox; ICT; economic development; TFP growth; China
    JEL: D24 E22 O47
    Date: 2006–04–25
  3. By: Xiaoqiang Cheng; Hans Degryse
    Abstract: This paper shows that banking development spurs growth, even in a country with a high growth rate such as China. Employing data of 27 Chinese provinces over the period 1995-2003, we study whether the financial development of two different types of institutions – banks and non-bank financial institutions – have a (significantly different) impact on local economic growth. Our findings show that banks outperform non-bank financial institutions. Only banking development exerts a statistically and economically significant positive impact on local economic growth. This effect becomes more pronounced when the financial sector is less concentrated.
    Keywords: growth, financial development, Chinese provinces, banks
    JEL: E44 G21
    Date: 2006
  4. By: Chan, Kalok (Vrije Universiteit Amsterdam, Faculteit der Economische Wetenschappen en Econometrie (Free University Amsterdam, Faculty of Economics Sciences, Business Administration and Economitrics); Menkveld, Albert J,; Yang, Zhishu
    Abstract: This paper uses the perfect market segmentation setting in China's stock market to examine whether foreign investors are at informational disadvantage relative to domestic investors. We analyze the price discovery roles of the A- (domestic investors) and B-share (foreign investors) markets in China using a new database of transactions data. Before Feb 19, 2001, the A-share market leads the B-share market in price discovery - the signed volume and quote revision of the A-share market have strong predictive ability for B-share quote returns, but not vice versa. After Feb 19, 2001, because some domestic investors are allowed to invest on the B-share market, we also find evidence for a reverse causality from the B-share to the A-share market. Nevertheless, the Hasbrouck (1995) information share analysis reveals that A-shares continue to dominate price discovery.
    Keywords: Market microstructure; Informational role; Segmented markets; Chinese stock markets
    JEL: F21 D82
    Date: 2006
  5. By: Kuan-Pin Lin; Zhi-He Long; Mei Wu
    Abstract: Using techniques of spatial econometrics, this paper investigates ƒÐ-convergence of provincial real per capita gross domestic product (GDP) in China. The empirical evidence concludes that spatial dependence across regions is strong enough to distort the traditional measure of ƒÐ-convergence. This study focuses on the variation of per capita GDP that is dependent on the development processes of neighboring provinces and cities. This refinement of the conditional ƒÐ-convergence model specification allows for analysis of spatial dependence in the mean and variance. The corrected measure of ƒÐ-convergence in China indicates a lower level of dispersion in the economic development process. This implies a smaller divergence in real per capita GDP, although convergence across regions is still a challenging goal to achieve in the 2000s. </span></td></tr>
    Keywords: ƒÐ-Convergence, Moran's index, spatial dependence, spatial lag
    JEL: C23 O18 O53 R11
    Date: 2006–03
  6. By: Etsuro Shioji
    Abstract: China has recently announced its intention to fundamentally reform its currency regime in the future. This paper studies how the country's choice of its exchange rate regime interacts with the rest of East Asia's choice. For that purpose, I build a four country new open economy macroeconomic model that consists of East Asia, China, Japan and the US. It is assumed that both East Asia and China peg their respective currencies to certain weighted averages of the Japanese yen and the US dollar. Each side takes the other's choice as given and chooses its own basket weight. The game is characterized by strategic complementarity. It is shown that the currency in which the traded goods prices are quoted plays an important role. The paper considers two alternative cases, the standard producer currency pricing (PCP) case and the vehicle currency pricing (VCP) case in which all the prices of traded goods are preset in the units of US dollars. In the PCP case, trade volume is the important determinant of the equilibrium basket weights, and the balances of trade are inconsequential. However, in the VCP case, trade balances between the four economies are shown to play an important role. Under VCP, and starting from realistic initial trade balances, the equilibrium basket weights far exceed what are implied by Japan's presence in international trade.
    Date: 2006–04
  7. By: Shi, Anqing
    Abstract: There is a concern that the growth of towns in China has been stalled recently and with it, the creation of nonfarm jobs in rural industries. The author uses the 2000 census tabulations to look at this issue by examining in-migration in towns in three provinces in China-Zhejiang, Henan, and Sichuan-their educational attainment, original place, and occupational composition. In addition to the diversified patterns of town in-migrants revealed in the three provinces, the author finds that town in-migrants generally possess a higher level of educational attainment than the local population in towns, especially in the less developed western and central regions. This inf low of human capital could foster development in towns. There is also evidence that as economic opportunity increases in towns, such as in richer coastal province of Zhejiang, better educated people in rural areas are likely to shift their jobs from the farm to the nonfarm sector in towns nearby, instead of leaving the countryside to migrate to other provinces. This could reduce migration pressure on big cities. Finally, the labor market in towns in the less developed west and central regions is more flexible in accommodating in-migrants, whereas in the developed province of Zhejiang the labor market is segregated between migrants and the local population.
    Keywords: Anthropology,Town Water Supply and Sanitation,Labor Markets,Voluntary and Involuntary Resettlement,Human Migrations & Resettlements
    Date: 2006–04–01
  8. By: Chan, Kalok (Vrije Universiteit Amsterdam, Faculteit der Economische Wetenschappen en Econometrie (Free University Amsterdam, Faculty of Economics Sciences, Business Administration and Economitrics); Menkveld, Albert J.; Yang, Zhishu
    Abstract: We examine the effect of information asymmetry on equity prices in the local A- and foreign Bshare market in China. We construct measures of information asymmetry based on market microstructure models, and find that they explain a significant portion of cross-sectional variation in B-share discounts, even after controlling for other factors. On a univariate basis, the price impact measure and the adverse selection component of the bid-ask spread in the A- and B-share markets explains 44% and 46% of the variation in B-share discounts. On a multivariate basis, both measures are far more statistically significant than any of the control variables. We also examine the behavior of B-share discounts after the B-share market was partially opened up to domestic investors after March 2001. Not only do we observe that B-share discounts decline from an average of 72% to 43%, but we also find that the differences in the adverse selection components across the markets shrink.
    Keywords: Information asymmetry; Asset prices; Microstructure; Market segmentation; Spread decomposition; PIN; China
    JEL: G1 G15 G14 G12
    Date: 2006
  9. By: Shalizi, Zmarak
    Abstract: China has experienced a wide-scale and rapid transformation from an agricultural based economy to the manufacturing workshop of the world. The associated relocatio n of the population from relatively low density rural areas to very high density urban areas is having a significant impact on the quantity and quality of water available as inputs into the production and consumption process, as well as the ability of the water system to absorb and neutralize the waste byproducts deposited into it. Water shortages are most severe in the north of the country, where surface water diversion is excessive and groundwater is being depleted. In addition, the quality of water is deteriorating because of pollution, thereby aggravating existing water shortages. The biggest challenge ahead will be for national and local governments to craft policies and rules within China ' s complex cultural and legal administrative system that provide incentives for users to increase efficiency of water use, and for polluters to clean up the water they use and return clean water to stream flows. Using a standard public economics framework, water requirements for public goods-such as ecosystem needs-should be set aside first, before allocating property rights in water (to enable water markets to function and generate efficient allocation signals). Even then, water markets will have to be regulated to ensure public goods, such as public health, are not compromised. Until water markets are implemented, staying the course on increasing water and wastewater prices administratively and encouraging water conservation are necessary to reduce the wasting of current scarce water resources, as well as the new water supplies to be provided in the future.
    Keywords: Water Supply and Sanitation Governance and Institutions,Town Water Supply and Sanitation,Water and Industry,Water Conservation,Water Use
    Date: 2006–04–01
  10. By: Galina Hale (Economic Growth Center, Yale University); Cheryl Long (Colgate University)
    Abstract: Using the World Bank survey of 1500 firms in five Chinese cities, we study whether the presence of foreign firms produces technology spillovers on domestic firms operating in the same city and industry. We find positive spillovers for more backward firms. We analyze the channels of such spillovers and find that the transfer of technology occurs through movement of high-skilled workers from FDI firms to domestic firms as well as through network externalities among high-skilled workers. Moreover, these two channels fully account for the spillover effects we find, which demonstrate the importance of well-functioning labor market in facilitating FDI spillovers. Insofar as our results can be generalized to other countries, they reconcile conflicting evidence found in other studies.
    Keywords: Foreign direct investment, technological spillovers, labor mobility, network externalities, China
    JEL: F2 O1 O3 J2 J6

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.