nep-cna New Economics Papers
on China
Issue of 2007‒12‒01
fourteen papers chosen by
Zheng Fang
Ohio State University

  1. China currency dispute: is a rise in the yuan inevitable, necessary or desirable? By Tatom, John
  2. China: Export Market Prospects and Alberta's Agriculture Sector By Cheryl Davie; Michele Veeman
  3. Property Tax in Urban China By Dan Li; Shunfeng Song
  4. FDI Spillovers in the Chinese Manufacturing Sector: Evidence of firm heterogeneity By Abraham, Filip; Konings, Jozef; Slootmaekers, Veerle
  5. Strategic Partnering with Chinese Companies: Hidden Motives and Treasures By Duysters, Geert; Saebi, Tina; Dong, Qinqin
  6. How are Wages set in Beijing? By Jose De Sousa; Sandra Poncet
  7. Do Multinationals' R&D Activities Stimulate Indigenous Entrepreneurship? Evidence from China's "Silicon Valley" By Hongbin Cai; Yasuyuki Todo; Li-An Zhou
  8. Fiscal Decentralization, Chinese Style: Good for Health Outcomes? By Uchimura, Hiroko; Jütting, Johannes P.
  9. Non-Performing Loans and Productivity in Chinese Banks: 1997-2006 By Matthews, Kent; Guo, Jianguang; Zhang, Nina
  10. China and India in International Trade: from Laggards to Leaders? By Francoise Lemoine; Deniz Unal-Kesenci
  11. Wages, Prices, and Living Standards in China,1738-1925: in comparison with Europe, Japan, and India By Robert Allen; Jean-Pascal Bassino; Debin Ma; Christine Moll-Murata; Jan Luiten van Zanden
  12. Pass-through of Exchange Rates and Competition Between Floaters and Fixers By Paul R. Bergin; Robert C. Feenstra
  13. Urban Poor in China: A Case Study of Changsha By Erqian Zhu; Shunfeng Song
  14. IMF Quotas at Year 2030 By Agnes Benassy-Quere; Sophie Bereau; Yvan Decreux; Christophe Gouel; Sandra Poncet

  1. By: Tatom, John
    Abstract: China-bashing has become a popular media and political sport. This is largely due to the U.S. trade imbalance and the belief, by some, that China is responsible for it because it manipulates its currency to hold down the dollar prices of its goods, unfairly creating a trade advantage that has contributed to the loss of U.S. businesses and jobs. This paper reviews the problem of the large trade imbalance that the United States has with China and its relationship to Chinese exchange rate policy. It examines the link between a Chinese renminbi appreciation and the trade balance and also whether a generalized dollar decline could solve the global or Chinese U.S. trade imbalance. The consensus view explained here is that a renminbi appreciation is not likely to fix either the trade imbalance with China or overall. Though these perceived benefits of a managed float are small or non-existent, perhaps they should be pursued anyway because of small costs or even benefits for China. Section IV looks at the costs of a managed float in terms of the benefits of the earlier peg. Opponents of a fixed dollar/yuan exchange rate ignore the costs of a managed float for China, especially with limits on currency convertibility. These costs are outlined here in order to provide an economic basis for the earlier fixed rate and China’s reluctance to appreciate. Finally it is suggested that the necessary convertibility on capital account, toward which China is moving, could easily result in yuan depreciation under a floating rate regime. This is hardly the end that China critics have in mind and it is not one that would improve U.S. or other trade imbalances with China.
    Keywords: exchange rate policy; China; currency manipulation; current account imbalance.
    JEL: F41 E58
    Date: 2007–07–18
  2. By: Cheryl Davie (Western Centre for Economic Research, School of Business, University of Alberta); Michele Veeman (Western Centre for Economic Research, School of Business, University of Alberta)
    Abstract: The emergence of China as one of the world’s largest potential markets has led to this nation becoming the focus of increasing attention for economists, marketers and politicians. Reflecting anticipations of China’s expected role as the world’s future largest market for food, this paper focuses on the identification of opportunities and constraints to Alberta’s expansion of agricultural-based exports to China. The analysis is based on: collection and assessment of data relating to China’s importation of these agri-food products during the five year period from 2001 to 2005; analysis based on export values and market shares of Alberta and major competitors; overviews of some relevant literature; and insights from interviews with a small number of selected, knowledgeable North American exporters.
    Keywords: Farm produce--Alberta--Marketing, Produce trade--Alberta, Alberta--Commerce--China, China--Commerce--Alberta
    JEL: Q17
    Date: 2007–05
  3. By: Dan Li (First Independent Bank of Nevada, Reno, NV); Shunfeng Song (Department of Economics, University of Nevada, Reno)
    Abstract: This paper examines the urban housing sector of China and proposes a property tax reform. Over the past decade, housing price in urban China has been increasing dramatically because of strong demand for self-use, investment and speculation. The booming housing market, however, has brought several challenges for further development, such as housing affordability, inequality, and possible housing bubble. One strategy is to reform the current property tax system. Specifically, this paper proposes that China significantly reduces taxes in circulation but levies property tax during possession. Doing so will increase housing affordability because of lower transaction costs, reduce speculation because of higher cost of holding, stabilize fiscal system because of more sustainable tax revenues, and improve the efficiency and fairness of the property tax system because of the implementation of “ability-to-pay” and “who use who pay” principles.
    Keywords: Property tax; China
    JEL: R23 R21 H20
    Date: 2007–11
  4. By: Abraham, Filip; Konings, Jozef; Slootmaekers, Veerle
    Abstract: We use a new longitudinal data set of more than 15,000 Chinese manufacturing plants to show that the direct and indirect effects of foreign direct investment on measured firm level productivity depend on a number of firm specific features and institutional factors. We find that domestic firms engaged in a joint-venture with a foreign partner are on average more productive, as well as exporting plants and plants located in special economic zones. In addition, domestic firms benefit from horizontal spillovers from foreign firms on average. However, these spillovers depend on the structure and origin of ownership as well as on specific characteristics of the special economic zones. First, spillovers are less likely to occur from fully foreign owned firms than from joint-ventures. Second, spillovers from foreign direct investment originating from oversees Chinese (Hong Kong, Macau and Taiwan) are stronger than from the rest of the world. Third, spillovers are higher in the special economic zone aimed at attracting foreign capital to fasten the development of China’s own high tech industries.
    Keywords: China; firm heterogeneity; Productivity; Spillovers
    JEL: F21 L2
    Date: 2007–11
  5. By: Duysters, Geert (UNU-MERIT); Saebi, Tina (UNU-MERIT); Dong, Qinqin (Wuhan University of Technology)
    Abstract: In this paper we aim to investigate the key drivers of international alliance formation from the perspective of Chinese companies. Our results indicate that Chinese companies enter into alliances with Western companies mainly to get accesses to international markets and to develop their technological and managerial competences further. Therefore we can say that Chinese companies particularly value task-related criteria when selecting Western partners. Nevertheless we also find that Chinese companies also include 'soft' factors such trust, compatibility or reputation in their partner selection process. We therefore conclude that in searching for Western partners, Chinese companies try to find a combination of 'hard' competencies such as technology and other resources as well as more 'soft' attributes such as trust, mutual understanding and commitment.
    Keywords: Strategic alliances, China, Innovation, Internationalization
    JEL: F23 L24 O31
    Date: 2007
  6. By: Jose De Sousa; Sandra Poncet
    Abstract: Over the last fifteen years, China’s export performance has been phenomenal but some observers assert that this situation is temporary due to rising labor costs. However, large migration across provinces may increase competition on the labor market of export-intensive provinces and allow firms to keep low wages for many years. This paper attempts to shed some light on this debate over wage dynamics in China. We investigate the respective importance of the upward push of world demand and the downward pressure of migration. This investigation is conducted on a sample of 29 Chinese provinces between 1997 and 2004. We find, holding other factors fixed, that provincial wages increase by about 17 percent per year, due to common trends possibly like total factor productivity growth and national increase in prices. Our results show that besides this general trend, market access and internal migration have statistically and economically significant effects on the provincial wage level but of much less importance. We estimate that on average over the 7 year period of our sample, more intense internal migration has slowed down wage growth by 2 percent per year. The wage increasing impact of market access is three times smaller in magnitude.
    Keywords: Wage; China; immigration; economic geography
    JEL: F12 F15 R11 R12
    Date: 2007–07
  7. By: Hongbin Cai; Yasuyuki Todo; Li-An Zhou
    Abstract: Using a unique firm-level dataset from China's "Silicon Valley," we investigate how multinational enterprises (MNEs) affect local entrepreneurship and R&D activities upon entry. We find that R&D activities of MNEs in an industry stimulate entry of domestic firms into the same industry and enhance R&D activities of newly entering domestic firms. By contrast, MNEs' production activities or domestic firms' R&D activities do not have such effect. Since MNEs are technologically more advanced than domestic firms, our findings suggest that diffusion of MNEs' advanced knowledge to potential indigenous entrepreneurs through MNEs' R&D stimulates entry of domestic firms.
    JEL: F23 L26 O33
    Date: 2007–11
  8. By: Uchimura, Hiroko; Jütting, Johannes P.
    Abstract: This study analyzes the effect of fiscal decentralization on health outcomes in China using a panel data set with nationwide county-level data. We find that counties in more fiscal decentralized provinces have lower infant mortality rates compared with those counties in which the provincial government retains the main spending authority, if certain conditions are met. Spending responsibilities at the local level need to be matched with county government’s own fiscal capacity. For those local governments that have only limited revenues, their ability to spend on local public goods such as health care depends crucially upon intergovernmental transfers. The findings of this study thereby support the common assertion that fiscal decentralization can indeed lead to more efficient production of local public goods, but also highlights the necessary conditions to make this happen.
    Date: 2007
  9. By: Matthews, Kent (Cardiff Business School); Guo, Jianguang; Zhang, Nina
    Abstract: This study examines the productivity growth of the nationwide banks of China over the ten years to 2006. Using a bootstrap method for the Malmquist index estimates of productivity growth are constructed with appropriate confidence intervals. The paper adjusts for the quality of the output by accounting for the non-performing loans on the balance sheets and test for the robustness of the results by examining alternative sets of outputs. The productivity growth of the state-owned banks is compared with the Joint-stock banks and it determinants evaluated. The paper finds that average productivity of the Chinese banks improved modestly over this period. Adjusting for the quality of loans, by treating NPLs as an undesirable output, the average productivity growth of the state-owned banks was zero or negative while productivity of the Joint-Stock banks was markedly higher.
    Keywords: Bank Efficiency; Productivity; Malmquist index; Bootstrapping
    JEL: D24 G21
    Date: 2007–11
  10. By: Francoise Lemoine; Deniz Unal-Kesenci
    Abstract: China and India are demographic giants which have become big economic powers before getting rich. Their rise in international trade has created two symmetric shocks, on the supply of manufactured goods and the demand of primary goods, contributing to a reversal in world relative prices. They have kept traditional specialisation in textiles but have developed new outward-oriented sectors linked to new technology. Foreign firms, through offshoring and outsourcing, have played a critical part in turning China into a global export platform for electronic products, and India into a global centre for ICT services. Beyond the question of their technological catch-up, the challenge is now their quality upgrading, especially for China. In the two countries, there is a debate about the necessary changes to make long term growth sustainable. Their successful integration in world trade has not solved the problem of their overall oversupply of labour, but has accentuated the shortage of highly-skilled personnel.
    Keywords: China; India; foreign trade; technology; terms of trade
    JEL: F14 F15
    Date: 2007–11
  11. By: Robert Allen; Jean-Pascal Bassino; Debin Ma; Christine Moll-Murata; Jan Luiten van Zanden
    Abstract: The paper develops data on the history of wages and prices in China from thr eighteenth century to the twentieth. These data are used to coompare Beijing, Canton, Suzhou and Shanghai to leading cities in Europe, India, and Japan in terms of nominal wages, the cost of living, and the standard of living. In the eighteenth century, the real income of building workers in Asia was similar to that of workers in the backward parts of Europe and far behind that of workers in the leading economies of northwestern Europe. Industrialization led to rising real wages in Europe and Japan. Real wages declined in China in the eighteenth and early nineteenth centuries and rose slowly in the late nineteenth and early twentieth. There was little cumulative changae in the standard of living or workers in Beijing, Canton, and lower Yangzi cities for two hundred years. The income disparities of the early twentieth century were due to long run stagnation in China combined development in Japan and Europe.
    Keywords: Great Divergence, Preindustrial Real Wages, England, Europe, China, Japan, India
    JEL: N33 N35
    Date: 2007
  12. By: Paul R. Bergin; Robert C. Feenstra
    Abstract: This paper studies how a rise in China's share of U.S. imports could lower pass-through of exchange rates to U.S. import prices. We develop a theoretical model with variable markups showing that the presence of exports from a country with a fixed exchange rate could alter the competitive environment in the U.S. market. In particular, this encourages exporters from other countries to lower markups in response to a U.S. depreciation, thereby moderating the pass-through to import prices. Free entry is found to further moderate the pass-through, in that a U.S. depreciation encourages entry of exporters whose costs are shielded by the fixed exchange rate, which further intensifies the competitive pressure on other exporters. The model predicts that certain conditions are necessary to facilitate this 'China explanation' for falling pass-through, including a 'North America bias' in U.S. preferences. The model also produces a log-linear structural equation for pass-through regressions indicating how to include the China share. Panel regressions over 1993–1999 support the prediction that a high China share in imports lowers pass-through to U.S. import prices.
    JEL: F4
    Date: 2007–11
  13. By: Erqian Zhu (Department of Resource Economics, University of Nevada, Reno); Shunfeng Song (Department of Economics, University of Nevada, Reno)
    Abstract: Since the late 1970s, many state-owned enterprise employees have been laid off and more and more rural people have migrated to urban areas. In this massive laying-off and migration process, many laid-off workers and migrants have become urban poor. Using data collected from a survey on 1641 relatively low-income households in Changsha in January 2007, this paper compares migrant workers with their city counterpart regarding income, employment, education, and social support. Based on qualitative and regression analysis, we found that worker’s age, Hukou status, education, enterprise ownership, and contract length are significantly affecting the annual income. There exists a big gap in the coverage of social security between urban and migrant workers. This paper provides some policy recommendations.
    Keywords: Urban poor; Hukou; Laid-off workers; Migrant workers; Income determinants; Social insurance
    JEL: R23 I30
    Date: 2007–11
  14. By: Agnes Benassy-Quere; Sophie Bereau; Yvan Decreux; Christophe Gouel; Sandra Poncet
    Abstract: We simulate IMF quota shares at the 2030 horizon for 49 countries or zones, based on longrun projections for GDP, trade and foreign direct investment. Several formulas are simulated and the impact of excluding intra-Eurozone flows is studied. We find that substituting population for GDP is the only way of significantly raising the quota share of Sub-Saharan African countries. The US and Chinese shares are higher with uncompressed formulas relying heavily on GDP. In all cases, China doubles or triples its quota share from 2001 (our base year) to 2030 while the US one is roughly stable. Conversely, the Eurozone’s quota share is bound to decline by around 6 percentage points and removing intra-Eurozone flows leads to an additional drop by 3 to 4 percentage points.
    Keywords: Long-run projections; quotas shares; International Monetary Fund
    JEL: F33
    Date: 2007–07

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