nep-cna New Economics Papers
on China
Issue of 2008‒03‒01
five papers chosen by
Zheng Fang
Ohio State University

  1. Foreign direct investment, access to finance, and innovation activity in Chinese enterprises By Sourafel Girma; Yundan Gong; Holger Görg
  2. Banking reform in China: Driven by international standards and Chinese specifics By Kudrna, Zdenek
  3. Real interest rate parity: evidence from East Asian economies relative to China By Liew , Venus Khim-Sen; Ling, Tai-Hu
  4. Migrant opportunity and the educational attainment of youth in rural China By Giles, John; de Brauw, Alan
  5. Is Foreign Direct Investment Good for Growth? Evidence from Sectoral Analysis of China and Vietnam By Tam B. Vu; Byron Gangnes; Ilan Noy

  1. By: Sourafel Girma; Yundan Gong; Holger Görg
    Abstract: This paper investigates the link between inward FDI and innovation activity in China, using a very comprehensive and recent firm level database. We pay particular attention to the impact of domestic access to finance. Our results show that firms with foreign capital participation or those with good access to domestic bank loans innovate more than others do. We also find that inward FDI at the sectoral level is positively associated with domestic innovative activity only if firms engage in own R&D or if they have good access to domestic finance. However, access to finance only plays a role for private or collectively owned firms, less so for state-owned enterprises. Furthermore, we distinguish the effect of sector level inward FDI into technology transfer and FDI affecting domestic credit opportunities and find that the latter is of very little significance for SOEs and is also independent of their access to finance. By contrast, it is an important channel through which FDI affects the innovation of domestic private and collectively owned enterprises.
    Keywords: FDI, finance, China
    JEL: O31 F23 G32
    Date: 2008–02
  2. By: Kudrna, Zdenek
    Abstract: This paper reviews the progress of banking reforms in China over the last five years. The stated goal of reform is to “transform major banks into internationally competitive joint‐stock commercial banks with appropriate corporate governance structures, adequate capital, stringent internal controls, safe and sound business operations, quality services as well as desirable profitability.” The reform strategy relies on three pillars – extensive publicly financed bailouts, implementation of the international best practices in bank governance and regulation and listing of major banks at the Hong Kong stock exchange. This strategy has been successful in stabilizing the three major banks. However, our review of academic and commercial research indicates that there is no evidence that the stabilization is sustainable. Prudential indicators of the largest banks are comparable to international averages, but this is an outcome of large bail outs and ongoing credit boom rather than fundamental change in banker’s incentives. Reforms of bank governance and regulatory framework need more time to proliferate throughout the banking and regulatory hierarchies. However, time alone would not solve the problem as the reform design retains important departures from international standards. These standards are implemented in a selective manner; those aspects that help to concentrate key powers in the center are implemented rather vigorously, whereas principles that require independence of banks’ boards and regulators are ignored. Thus the largest Chinese banks remain under the firm state control and can be used as development policy tools for the better or the worse.
    Keywords: China; banks; reform; international standards
    JEL: G28 G21 P34
    Date: 2007–10
  3. By: Liew , Venus Khim-Sen; Ling, Tai-Hu
    Abstract: This study examines the real interest rate parity (RIP) hypothesis in the case of East Asian economies by taking China as foreign counterpart. Results obtained from panel unit root tests are in line with previous findings that are supportive of the hypothesis. The estimated half-life of the RIP deviations is 3.21 quarters, indicating RIP holds strongly in this region with respect to China. This implies that the choices and effectiveness of the monetary and fiscal policies in the East Asian economies will be very much influenced by the external factors originating from China, in additional to Japan and US as identified in other studies. Furthermore, judging from the another finding of this study that East Asian economies is more integrated with Japan than China, China has yet to further liberalize its financial system before it can overtake Japan as leading financial centre or as anchor country for common currency area in this region.
    Keywords: Real interest rate parity;East Asia; panel unit root test
    JEL: C23 F41 F36
    Date: 2008
  4. By: Giles, John; de Brauw, Alan
    Abstract: This paper investigates how reductions of barriers to migration affect the decision of middle school graduates to attend high school in rural China. Change in the cost of migration is identified using exogenous variation across counties in the timing of national identity card distribution, which made it easier for rural migrants to register as temporary residents in urban destinations. The analysis first shows that timing of identification card distribution is unrelated to local rainfall shocks affecting migration decisions, and that timing is not related to proxies reflecting time-varying changes in village policy or administrative capacity. The findings show a robust negative relationship between migrant opportunity and high school enrollment. The mechanisms behind the negative relationship are suggested by observed increases in subsequent local and migrant non-agricultural employment of high school age young adults as the size of the current village migr ant network increases.
    Keywords: Access to Finance,Population Policies,Education For All,Tertiary Education,Secondary Education
    Date: 2008–02–01
  5. By: Tam B. Vu (College of Business and Economics, University of Hawaii at Hilo); Byron Gangnes (Department of Economics, University of Hawaii at Manoa); Ilan Noy (Department of Economics, University of Hawaii at Manoa)
    Abstract: We estimate the impact of FDI on growth using sectoral data for FDI inflows to China and Vietnam. Previous empirical studies, using either cross-country growth regressions or firm-level micro-econometric analysis, fail to reach a consensus. Our paper is the first to use sectoral FDI inflow data to evaluate the sector-specific impact of FDI on growth. Our results show that, for the two developing-transition economies we examine, FDI has a statistically-significant positive effect on economic growth operating directly and through its interaction with labor. Intriguingly, we find the effects seem to be very different across economic sectors, with almost all the beneficial impact limited to industrial sector. Other sectors appear to gain very little growth benefit from sector-specific FDI.
    Date: 2007–07–01

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