nep-cna New Economics Papers
on China
Issue of 2006‒12‒01
five papers chosen by
Zheng Fang
Ohio State University

  1. Foreign Direct Investment (FDI) Flows and Sustained Growth: A Case Study of India and China By U. Arabi
  2. Evaluating China’s integration in world trade with a gravity model based benchmark By Matthieu Bussière; Bernd Schnatz
  3. Hot Money Inflows in China : How the People's Bank of China Took up the Challenge By Vincent Bouvatier
  4. Chinese Trade Expansion and Development and Growth in Today's World By Henry Wan Jr.
  5. A Signaling Model of Quality and Export: with application to dumping By C. Simon Fan; Yifan Hu

  1. By: U. Arabi
    Date: 2005–06
  2. By: Matthieu Bussière (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany); Bernd Schnatz (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany)
    Abstract: The rapid transition of China from a closed agricultural society to an industrial powerhouse has been associated with a rapid increase in the share of China in world trade. As the world is taking the full measure of this phenomenon, tensions have been arising ranging from holding China partly responsible for global imbalances to complaints about the “excessive” competitiveness of Chinese products. Without a quantifiable benchmark, however, such claims are difficult to judge. This paper therefore provides an assessment of China’s “natural” place in the world economy based on a new set of trade integration indicators. These indicators are used as a benchmark in order to examine whether China’s share in international trade is consistent with fundamentals such as economic size, location and other relevant factors. They constitute a better measure of trade integration that incorporates many more factors than traditional openness ratios. Results show that the model tracks international trade well and confirm that China is already well integrated in world markets, particularly with North America, several Latin American and East Asian emerging markets and most euro area countries. JEL Classification: C23, F15, F14.
    Keywords: Gravity Model, Panel Data, Trade, China.
    Date: 2006–11
  3. By: Vincent Bouvatier (CES - Centre d'économie de la Sorbonne - [CNRS : UMR8174] - [Université Panthéon-Sorbonne - Paris I])
    Abstract: This paper investigates hot money inflows in China. The financial liberalization comes into effect and the effectiveness of capital controls tends to diminish over time. As a result, China is fuelled by hot money inflows. The US interest rate cut since 2001 and expectations of exchange rate adjustments are the main factors explaining these capital inflows. This study use the Bernanke and Blinder (1988) model extended to an open economy to examine implications of hot money inflows for the Chinese economy. A Vector Error Correction Model (VECM) on monthly data from March 1995 to March 2005 is estimated to investigate the recent upsurge in foreign reserves and shows that the interaction between domestic credit and foreign reserves was stable and consistent with monetary stability. Granger causality tests are implemented to show how the People's Bank of China (PBC) achieved this result.
    Keywords: Hot money inflows, domestic credit, VECM, Granger causality.
    Date: 2006–11–03
  4. By: Henry Wan Jr.
    Abstract: The current Chinese trade expansion brings benefit to many parties, both outside and inside the Chinese Mainland. It also poses huge challenges to others, in foreign countries, also in China. The event is important for its own sake, but also what it implies when rapid growth happens to countries large in population and size (including India, Russia, Brazil). It has to be understood in context. Conventional wisdom in economics and popular explanations cannot explain Chinese growth, let alone its implications. Only with suitable adaptations of what the economic discipline has to offer, can one assess the nature of what we observe and the policy measures needed for today. Like other episodes after Industrial Revolution, the late industrialization in China also relies on outside technology, often gained through trade and foreign investment. Because of the de-colonization after 1945, such growth can succeed even with scanty domestic resource. Like other East Asian economies, participation in cross border supply chains along its neighbors offers China an effective entrée. What makes China different from the other East Asian economies is size. The presence of a huge labor reserve keeps wage down, profit up, attracts foreign investment coming with technology, but may also lead to deteriorated terms of trade and income inequality at home, de-industrialization and the loss of development opportunities abroad, also resource shortage and environment damage, some of these are irreversible in nature. Over all, the development is the result of efficiency gain, which is basically desirable. It takes international cooperation to steer such development toward mutually beneficial paths. It is also desirable for China to accelerate job creation at home and avoid irreversible environment harm. These are well recognized by Chinese decision makers. More can be done.
    Date: 2005–06
  5. By: C. Simon Fan; Yifan Hu
    Abstract: Extending the literature on quality and trade and supported by the empirical evidence obtained from China, this paper demonstrates that in a developing country, a firm’s export to developed countries has a potential signaling effect on domestic consumers’ perception of its product quality. The model analyzes the signaling and imitating strategies of different types of firms in their decisions to export, and characterizes the conditions for the separating, pooling, and hybrid equilibria. Next, the analysis shows that the strategic exporting of low-quality producers under informational asymmetry can result in dumping. Moreover, the model shows that the implementation of antidumping measures of foreign countries can lead to a Pareto improvement for the firms and consumers of the home country under some circumstances.
    JEL: D82 F10 F13 L15 O12
    Date: 2006–06

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