nep-cna New Economics Papers
on China
Issue of 2008‒07‒20
eight papers chosen by
Zheng Fang
Ohio State University

  1. Banking In China: Are New Tigers Supplanting the Mammoths? By Giovanni Ferri
  2. Competition Policy, Corporate Saving and China's Current Account Surplus By Rod Tyers
  4. Dense Communication and R&D in Knowledge-based Industrial Clusters: Comparative Study of Small & Medium-sized Firms in Korea and China By Nobuaki Hamaguchi; Yoshihiro Kameyama
  5. Investors’ behaviour in the Chinese Stock Exchanges: Empirical Evidence in a Systemic Approach By Lucarelli, Caterina; Palomba, Giulio
  6. Testing for Energy Market Integration in China By Hengyun Ma; Les Oxley; John Gibson
  7. The External Wealth of China: An Investigation from the International Balance Sheet Perspective By Andrew Sheng; Allen Ng

  1. By: Giovanni Ferri (University of Bari, Italy, Hong Kong Institute for Monetary Research)
    Abstract: "New Tigers" (including city commercial banks) outperform state-owned commercial banks burdened with non-performing loans from unprofitable state-owned enterprises. We study whether this is due solely to superior corporate governance (multiple shareholders versus total government ownership) or also to the favorable environment (the New Tigers target affluent China, while state-owned commercial banks operate nationwide). Using a field survey on 20 city commercial banks from three provinces at different levels of economic development, we find better performance at those in the East and worse performance at those controlled by state-owned enterprises. Geography and policy do matter, and reform of state-owned commercial banks is necessary to bring better banking to China.
    Keywords: China, State Ownership of Banks, Corporate Governance, Geography and Performance
    JEL: G21 G30 G38
    Date: 2008–05
  2. By: Rod Tyers
    Abstract: China’s industrial reforms have left many key industries dominated by single or small numbers of firms, most of which remain state owned. Until recently, these firms have not been required to pay dividends to the state and the recent surge in China’s growth has made them very profitable, with their economic profits adding 20% of GDP to corporate saving. This bolsters the overall saving-investment gap and hence China’s controversial current account surplus. In other countries, oligopolistic industries tend to be taxed more heavily and they are commonly subjected to price regulation. This study offers an economy-wide analysis of approaches to oligopoly rents in China. The results suggest that, while policy changes targeting national saving, including increased corporate taxation, expansionary fiscal policy and SOE privatisation all help to control the external imbalance, they tend also to turn demand inward, inducing higher oligopoly rents and slower growth. Competition policy, embodying both price cap regulation and free entry, proves more effective both in controlling the external imbalance and in fostering continued growth.
    JEL: D43 D58 F32 L13 L43 L51
    Date: 2008–07
  3. By: Michael Geiger
    Abstract: China’s monetary policy applies to two sets of monetary policy instruments: (i) instruments of the Central Bank (CB), the People’s Bank of China (PBC); and (ii) non-Central Bank (NCB) policy instruments. Additionally, the PBC’s instruments include: (i) price-based indirect; and (ii) quantity-based direct instruments. The simultaneous usage of these instruments leads to various distortions that ultimately prevent the interest rate channel of monetary transmission from functioning. Moreover, the strong influence of quantity-based direct instruments and non-central bank policy instruments bring into question the approach of indirect monetary policy in general.
    Date: 2008
  4. By: Nobuaki Hamaguchi (Research Institute for Economics and Business Administration, Kobe University); Yoshihiro Kameyama (The International Centre for the Study of East Asian Development (ICSEAD))
    Abstract: This paper presents an analysis of the effects of dense communication of industry-university-government cooperation on enhancing in-house (a company's own) R&D activities in Korean and Chinese knowledge-based industrial clusters: the Seoul Digital Industrial Complex, Daedeok Valley, and the Zhongguancun Science Park. Our unique survey data enable us to examine firms' communication behaviors, i.e., communication frequency, participants, and purposes, related to the choice of communication mode. Results of this study demonstrate that agglomeration might impart least two influences on an individual firm: agglomeration stimulates more in-house R&D through exchange of ideas; and it reduces in-house R&D by promoting its outsourcing.
    Keywords: agglomeration, communication externalities, industrial cluster, Seoul Digital Industrial Complex, Daedeok Valley, Zhongguancun Science Park
    JEL: O32 R11 O40
    Date: 2007–10
  5. By: Lucarelli, Caterina; Palomba, Giulio
    Abstract: This paper investigates the Chinese mainland Stock Exchanges and their following interconnecting features: savers’ attitude towards stock investments, investors’ trading behaviour and stock returns explanations. We evaluate the effectiveness of the recent efforts made by the Chinese authorities to improve the level of legal protections for shareholders and the opening-up of the Chinese Stock Markets to foreign investors. The whole analysis is carried out through a system of simultaneous equations. The main results are that Chinese shareholders and stock markets are mostly driven by emotional behaviour. Stock market returns are barely influenced by the overall Chinese economic booming, but reveal the presence of speculative influences. Investors’ behaviour, as well as general trading activities, hardly seems to be affected by the legal framework introduced by the national Authorities.
    Keywords: Chinese Stock Exchanges; shareholders’ rights; corporate governance; investors’ behaviour; system of simultaneous equations.
    JEL: F30 G18 C30
    Date: 2007–11–01
  6. By: Hengyun Ma; Les Oxley (University of Canterbury); John Gibson
    Abstract: The paper investigates energy market integration in China by employing univariate, and panel-based unit root tests and Granger causality tests applied to a new, energy price data set. We identify price series that converge either to absolute or relative price parity. In addition we estimate the rates (speed) at which relative prices converge to their long-run values, and the direction of causality. The results show that gasoline and diesel markets are very well integrated as a whole; that once some geographically isolated regions are excluded, we can regard the coal market as integrated; however, the electricity markets is not well integrated. The estimated intercept terms are all very small and close to zero, such that most of the relative price series can be regarded as convergent to absolute price parity. The convergence rates vary little and are relatively short when compared internationally. A rich set of causal relationships are established many showing bi-directional causality between regional centres.
    Keywords: China; Energy; Market integration; Price convergence; Time series tests
    JEL: D24 O33 Q41
    Date: 2008–06–20
  7. By: Andrew Sheng (Tsinghua University); Allen Ng (Bank Negara Malaysia)
    Abstract: International financial integration has accelerated at an unprecedented pace in recent years. External holdings of financial assets and liabilities for both industrial and emerging countries have grown rapidly since the mid-1990s, many times exceeding their respective national income, and traditional surveillance methods using flow data are increasingly incapable of satisfactorily explaining the recent major global economic developments. Using Lane and Milesi-Ferretti's (2006) rich data-set of external positions for 145 countries from 1970 to 2004, this paper selects several issues to highlight the usefulness of balance sheet analysis as a tool for historical understanding and to examine how it can help in an analysis of possible future vulnerabilities. Starting from a global overview, the study looks at China from a comparative angle vis-¨¤-vis the world and the rest of Asia, and finally focuses on the evolution of the external position of China. Although the investigations are preliminary in nature, this paper demonstrates how China has emerged as an important net creditor in an increasingly integrated world and suggests that as China becomes more important globally as a net creditor, the balance sheet analysis of trends and a clearer focus on real total rates of return on external assets, and their risk management, have become increasingly more important over time. It is hoped that this paper will stimulate more academic and policy analysis in this growing area of policy importance.
    Date: 2008–01
  8. By: Genberg, Hans; He, Dong; Leung, Frank
    Abstract: This paper reviews the performance of the Hong Kong dollar Linked Exchange Rate system since the introduction of the three refinements to it in May 2005. It presents an analytical framework which argues that, in a fully credible exchange rate target zone regime, the spot exchange rate normally stays inside the band but does not have a natural tendency to converge towards the centre of the zone. While a certain level of interest rate differential between the Hong Kong dollar and the US dollar may persist, it should not grow significantly larger than what is implied by the width of the Convertibility Zone. Judged against this framework, the developments since May 2005 point to increased credibility of the refined Linked Exchange Rate system.
    Keywords: Hong Kong dollar linked exchange rate system
    JEL: E58 F31
    Date: 2007–06

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