nep-cna New Economics Papers
on China
Issue of 2008‒04‒15
twelve papers chosen by
Zheng Fang
Ohio State University

  1. The Nexus of Income and Size Distribution of Chinese Cities, 1984 - 2003 By Chun- Yu Ho; Dan Li
  2. Manufacturing In China Today: Employment And Labor Compensation By Judith Banister
  3. The Financial Social Accounting Matrix for China, 2002, and Its Application to a Multiplier Analysis By Li, Jia
  4. Has the Chinese economy become more sensitive to interest rates? Studying credit demand in China By Koivu, Tuuli
  5. American and European Financial Shocks: Implications for Chinese Economic Performance By Rod Tyers; Iain Bain
  6. The Debt-adjusted Real Exchange Rate for China By Frait, Jan; Komárek, Luboš
  7. Is FDI into China Crowding Out the FDI into the European Union? By Laura Resmini; Iulia Siedschlag
  8. Improving corporate governance where the State is the controlling block holder: Evidence from China By Berkman, Henk; Cole, Rebel; Fu , Lawrence
  9. Migrants as second-class workers in urban China? A decomposition analysis By Sylvie Démurger; Marc Gurgand; Li Shi; Yue Ximing
  10. China, Japan and the Quest for Leadership in East Asia By Dirk Nabers
  11. The Contribution of Restructuring and Reallocation to China's Productivity and Growth By Haiyan Deng; Robert H. McGuckin; John C. Haltiwanger; Xu Jianyi; Liu Yaodong; Liu Yuqi
  12. Political connections and minority-shareholder protection: Evidence from securities-market regulation in China By Berkman, Henk; Cole, Rebel; Fu, Lawrence

  1. By: Chun- Yu Ho (Department of Economics, Boston University); Dan Li (Department of Economics, Boston University)
    Abstract: We estimate the distribution dynamics of city income and size in China during 1984-2003 using stochastic kernel. Our results show that intra-distribution mobility are significant in both income and size and provide evidences on China experienced internal brain drain.
    Keywords: City Income, City Size, Distribution Dynamics, Kernel Density, China
    JEL: O15 O18 R11
    Date: 2007–09
  2. By: Judith Banister (The Conference Board)
    Abstract: China is now the global manufacturing workshop. There is strong interest throughout the world in understanding what makes China so competitive in manufacturing. Clearly one component of that competitiveness is the low cost of labor in China’s manufacturing sector. This report analyzes and evaluates the most complete recent data on China manufacturing employment and labor compensation, which come from China’s First National Economic Census.
    Date: 2007–10
  3. By: Li, Jia
    Abstract: This study aims to shed light on the linkage between real side and financial side of Chinese economy. Utilizing a financial social accounting matrix (F-SAM) for China, 2002, newly constructed for this purpose, the current study provides a consistent accounting system for Chinese economy. The F-SAM allows a close examination on the structural characteristics of Chinese economy from the perspective of flows of funds. The study goes further to multiplier analysis. The main findings are: first, real side and financial side of Chinese economy are intertwined with each other; secondly, the development of a modern financial system contributes to the growth of Chinese economy; thirdly, financial sector, in place of government, has come to play a central role in resource mobilization and allocation, although government maintains interventions through capital transfer to non-financial enterprises; fourthly, bank deposits and loans are single significant financial instruments in China’s resources mobilization and allocation processes.
    Keywords: financial social accounting matrix; China; multiplier analysis
    JEL: C63 C02 P34
    Date: 2008–03
  4. By: Koivu, Tuuli (BOFIT)
    Abstract: Chinese authorities have traditionally relied mainly on administrative and quantitative measures in conducting monetary policy, with interest rates playing a less prominent role. Additional support for this view resides in a number of earlier studies that have found that the impact of interest rates on the real economy has been miniscule. However, taking into account numerous reforms in the financial sector and more widely in the Chinese economy, interest rates may have gained some influence in the last few years. It is important to study the effectiveness of interest rates also in light of future reforms of the monetary policy tools in China. Whereas administrative policy measures were effective in guiding the behaviour of state-owned enterprises, the authorities may need to increase the use of more market-oriented monetary policy tools as the share of the economy in private and foreign ownership grows. We use a vector error correction model to study, within a credit demand framework, whether the impact of interest rates in China has become stronger over the last decade. Our results suggest that loan demand has indeed become more dependent on interest rates, albeit the channel from interest rate to the real economy is still weak.
    Keywords: China; monetary policy
    JEL: E52 P24
    Date: 2008–04–03
  5. By: Rod Tyers; Iain Bain
    Abstract: With exports almost half of its GDP and most of these directed to Europe and North America, negative financial shocks in those regions might be expected to retard China's growth. Yet mitigating factors include the temporary flight of North American and European savings into Chinese investment and some associated real exchange rate realignments. These issues are explored using a dynamic model of the global economy. A rise in American and European financial intermediation costs is shown to retard neither China's GDP nor its import growth in the short run. Should the Chinese government act to prevent the effects of the investment surge, through tighter inward capital controls or increased reserve accumulation, the associated losses would be compensated by a trade advantage since its real exchange rate would appreciate less against North America than those of other trading partners. The results therefore suggest that, so long as the financial shocks are restricted to North America and Western Europe, China's growth and the imports on which its trading partners rely are unlikely to be significantly hindered.
    JEL: C68 E17 F21 F17 F43 F47 O5
    Date: 2008–04
  6. By: Frait, Jan (Czech National Bank); Komárek, Luboš (Czech National Bank)
    Abstract: The paper aims to enrich the debate on the overvaluation/undervaluation of China yuan Renminbi (CNY) against USD and JPY by applying the concept of the Debt-Adjusted Real Exchange Rate (DARER). This approach is offering to monetary policy makers another indicator for more responsive management of this important economic variable. The general motivation for constructing DARER is the fact that long-term current account surplus (deficits) is linked with capital outflows (inflows), which often leads to real undervaluation (overvaluation) of domestic currency. DARER can signal to the authorities that the real exchange rate is becoming unsustainable in the medium term. Based on the DARER approach we also introduce three indicators of exchange rate misalignment.
    Keywords: Exchange rate ; current account ; misalignment ; China ; DARER
    JEL: E58 F31 F32 F37
    Date: 2008
  7. By: Laura Resmini (University of Valle d’Aosta, Aosta, and ISLA, University “Luigi Bocconi”, Milan, Italy); Iulia Siedschlag (Economic and Social Research Institute (ESRI))
    Abstract: We estimate an augmented gravity model to analyse the effects of FDI into China originating in OECD countries on FDI into EU and other countries over the period 1990-2004. Our results suggest that on average, ceteris paribus, over the analysed period, FDI inflows into China have been complementary to FDI inflows into EU15 countries but they have substituted FDI into the new EU countries in Central and Eastern Europe. In particular, small economies such as Bulgaria and the Baltic countries have been affected negatively by the surge in the FDI into China. This FDI diversion appears in the case of efficiency-seeking FDI.
    Keywords: Foreign direct investment, China, European Union
    Date: 2008–03
  8. By: Berkman, Henk; Cole, Rebel; Fu , Lawrence
    Abstract: We examine changes in market values and accounting returns for a sample of publicly traded Chinese firms around announcements of block-share transfers among government agencies (“State Bureaucrats”), market-oriented State-owned enterprises (“MOSOEs”) and private investors (“Private Entities”). We provide evidence that transfers from State Bureaucrats to Private Entities result in larger increases in market value and accounting returns than transfers to MOSOEs. We also find that CEO turnover occurs more quickly when shares are transferred to Private Entities. Moreover, we find that the changes in firm value and accounting returns, as well as the likelihood of CEO turnover, are all functions of the incentives and managerial expertise of the new block holder. We conclude that corporate governance can be improved at State-controlled firms by improving the incentives and managerial expertise of controlling block holders, and that this is better accomplished by transferring ownership to private investors rather than by shuffling ownership among Statecontrolled entities.
    Keywords: block-holder identity; China; partial corporate control; partial privatization; privatization; State ownership; SOE.
    JEL: G38 G34 G32
    Date: 2007–10–17
  9. By: Sylvie Démurger; Marc Gurgand; Li Shi; Yue Ximing
    Abstract: In urban China, urban resident annual earnings are 1.3 times larger than long term rural migrant earnings as observed in a nationally representative sample in 2002. Using microsimulation, we decompose this difference into four sources, with particular attention to path dependence and statistical distribution of the estimated effects: (1) different allocation to sectors that pay different wages (sectoral effect); (2) hourly wage disparities across the two populations within sectors (wage effect); (3) different working times within sectors (hours effect); (4) different population structures (population effect). Although sector allocation is extremely contrasted, with very few migrants in the public sector and very few urban residents working as self-employed, this has no clear impact on differential earnings. Indeed, the sectoral effect is not robust to the path followed for the decomposition. We show that the migrant population has a comparative advantage in the private sector: increasing its participation into the public sector would not necessarily improve its average earnings. The second main finding is that the population effect is robust and significantly more important than wage or hours effects. This implies that the main source of disparity between the two populations is pre-market (education opportunities) rather than on-market.
    Date: 2008
  10. By: Dirk Nabers (GIGA Institute of Asian Studies)
    Abstract: The leadership of powerful states in processes of regional institutionalization is a significant, though still widely ignored topic in the field of International Relations (IR). This study asks about the theoretical conditions of effective leadership in international institution- building, using China’s and Japan’s roles in East Asian regionalism as an empirical test case. It addresses the question of what actually happens when states perform the role of leader. Specifically, it focuses on the process of negotiating leadership claims, and different hypotheses are presented as to the requirements of effective leadership in international affairs. The findings point to the fact that leadership is effective and sustainable when foreign elites acknowledge the leader’s vision of international order and internalize it as their own. Leadership roles are often disputed and are constituted of shared ideas about self, other, and the world, relying on the intersubjective internalization of ideas, norms, and identities.
    Keywords: Leadership, China, Japan, ASEAN+3, East Asian Summit (EAS)
    JEL: F15
    Date: 2008–02
  11. By: Haiyan Deng (The Conference Board); Robert H. McGuckin (The Conference Board); John C. Haltiwanger (University of Maryland); Xu Jianyi (NBS); Liu Yaodong (NBS); Liu Yuqi (NBS)
    Abstract: China has exhibited very rapid measured aggregate productivity growth. At the same time, the structure of its markets and the structure of businesses have been changing at an equally rapid rate. In this paper, we measure the extent of restructuring and the reallocation of resources (including the reallocation of jobs) and then quantify the contribution of the reallocation and restructuring to the aggregate productivity growth of China's industrial structure. Our gross job flow analysis illustrates that reallocation and restructuring took many forms including shedding of jobs by government controlled enterprises and the increasing share of employment for FDI joint ventures. However, the analysis shows that it is not just shifts between firm types that are important but also reallocation and restructuring within firm types. For example, we find a high pace of job reallocation within SOEs and FDI joint ventures over and above what is needed to accommodate the net changes for these firm types (as high as 28 and 22 percent, respectively). We find evidence that the restructuring and reallocation contributed significantly to the high productivity growth. For example, our analysis shows that more than half of the labor productivity growth in 2001 is due to reallocation and restructuring. In that year, the industrial sector exhibited a labor productivity growth rate of around 22 percent which in the absence of reallocation and restructuring would have been around 10 percent.
    Date: 2007–12
  12. By: Berkman, Henk; Cole, Rebel; Fu, Lawrence
    Abstract: We examine the wealth effects of three regulatory changes designed to improve minorityshareholder protection in the Chinese stock markets. Using the value of a firm’s related-party transactions as an inverse proxy for the quality of corporate governance, we find that firms with weaker governance experienced significantly larger abnormal returns around announcements of the new regulations than did firms with stronger governance. This evidence indicates that securities-market regulation can be effective in protecting minority shareholders from expropriation in a country with weak judicial enforcement. We also find that firms with strong ties to the government did not benefit from the new regulations, suggesting that minority shareholders did not expect regulators to enforce the new rules on firms where block holders have strong political connections.
    Keywords: China; convergence; enforcement; expropriation; political connections; investor protection; minority shareholder; regulation; tunneling
    JEL: G38 G34 G32
    Date: 2008–03–31

This nep-cna issue is ©2008 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.
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