nep-cna New Economics Papers
on China
Issue of 2007‒11‒10
four papers chosen by
Zheng Fang
Ohio State University

  1. Identifying the Shocks Driving Inflation in China By Pierre L. Siklos; Yang Zhang
  2. The Impacts of Renminbi Appreciation on Trades Flows and Reserve Accumulation in a Monetary Trade Model By Li Wang; John Whalley
  3. Aging of a giant: a stochastic population forecast for China, 2001-2050 By Qiang Li; Mieke Reuser; Cornelia Kraus; Juha Alho
  4. Evaluating the Impure Chinese VAT Relative to a Pure Form in a Simple Monetary Trade Model with an Endogenous Trade Surplus By John Whalley; Li Wang

  1. By: Pierre L. Siklos (Wilfrid Laurier University and Viessmann Research Centre Waterloo, Canada and The Rimini Centre for Economics Analysis, Italy.); Yang Zhang (University of Ottawa, Canada)
    Abstract: The time profile of inflation in China resembles the one experienced in major industrial countries. Given the uncertainty surrounding the sources of economic shocks, this paper compares results from three sets of alternative identification conditions, namely the standard Blanchard-Quah approach, the approach of Cover, Enders, and Hueng (2006), as well as the model considered by Bordo, Landon-Lane and Redish (2004). Our principal finding is that inflation in China has been primarily driven by monetary factors. While aggregate supply factors may have pushed inflation to cross the threshold leading to deflation, monetary policy is primarily responsible for Chinese inflationary outcomes.
    JEL: E31 E32 C32 C52
    Date: 2007–07
  2. By: Li Wang; John Whalley
    Abstract: Given the rapidly growing reserves in Asia (China, Japan, Korea, Taiwan) and the pressures from trading partners to revalue, there is a need to examine commercial policy in more than a pure barter model. Here we evaluate the joint impacts of exchange rate appreciation on trade flows and country surpluses using a general equilibrium trade model with a simple monetary structure in which the trade surplus is endogenously determined in the exchange rate setting country and the exchange rate is exogenous. We illustrate its application to the Chinese case using calibration to 2005 data. Our results, while elasticity dependent, suggest that the impacts of Renminbi (RMB) revaluation on the surplus are proportionally larger than on trade flows, and that changes in trade flows can be substantial. Different treatments of China's processing trade have small impact on changes in China's trade flow under RMB appreciation, but significant impacts on the change in the surplus. Results are elasticity dependent; larger substitution elasticities in preferences yield larger effects on trade flows and the surplus.
    JEL: E5 F3 F43
    Date: 2007–11
  3. By: Qiang Li (Max Planck Institute for Demographic Research, Rostock, Germany); Mieke Reuser (Max Planck Institute for Demographic Research, Rostock, Germany); Cornelia Kraus (Max Planck Institute for Demographic Research, Rostock, Germany); Juha Alho
    Abstract: This paper presents a stochastic population forecast for China with a special emphasis on population aging. Stochastic forecasting methods have the advantage of producing a projection of the future population including a probabilistic prediction interval. The socalled scaled model for error was used to quantify the uncertainty attached to the population predictions in this study. Data scarcity was a major problem in the specification of the expected error of the population forecast. Therefore, the error structures estimated for European countries were employed with some modifications taking the large size and heterogeneity of the Chinese population into account. The stochastic forecast confirms the expectation of extremely rapid population aging during the first half of the 21st century in China. The old age dependency ratio (OADR) will increase with certainty. By mid-century, with 80% probability, the OADR will lie between 0.41 and 0.56, with the median of the predictive distribution being 0.48, nearly five-fold its current value of 0.1. In particular, the oldest-old population will grow faster than any other age group. This development has major implications for China: to smoothly adjust current birth control policies to less restrictive ones, strengthen the family support system, and improve the social security system for the elderly.
    Keywords: China
    JEL: J1 Z0
    Date: 2007–10
  4. By: John Whalley; Li Wang
    Abstract: China's VAT while seemingly conventional has two major impurities. One is that a separate export rebate system exists where rebate rates are linked from rates paid on creditable inputs. The other is the use of an income base for which there is no crediting of taxes on capital good, rather than the more conventional consumption base with expensing of investment expenditures. Here we argue that in a conventional competitive model both impurities would typically involve a welfare loss, but if we use a numerical calibrated equilibrium model with a monetary structure capturing by these Chinese features in which the trade surplus is endogenously determined and the exchange rate is exogenously set, things are different. These impurities effectively act as added taxes on domestic production (lowed export rebate rates, taxes on a larger VAT base) and tax exporting. Tax exporting reduces exports which lowers the surplus and accumulation of foreign currency. In a static model, a reduced surplus is welfare improving. Using 2002 data, we thus find that China's impure VAT system yields welfare gains in contrast to what a conventional model would show. These results are important since there are arguments being made inside and outside China for changes to be made and move closer to a pure VAT. Our results suggest that unless there are wider changes first in macro-structure, such changes may not be welfare preferred.
    JEL: H2 O11
    Date: 2007–11

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