nep-cna New Economics Papers
on China
Issue of 2009‒01‒24
eleven papers chosen by
Zheng Fang
Ohio State University

  1. Business surveys and inflation forecasting in China By Kaaresvirta, Juuso; Mehrotra, Aaron
  2. What Lies behind Rising Earnings Inequality in Urban China? Regression-based Decompositions By Deng Quheng; Li Shi
  3. How vertically specialized is Chinese trade? By Dean, Judith; Fung , K.C.; Wang, Zhi
  4. The Contribution of Social Networks to Income Inequality in Rural China: A Regression-Based Decomposition and Cross-Regional Comparison By Ming Lu; Jianzhi Zhao
  5. China's new labour contract law: No harm to employment? By Chen, Yu-Fu; Funke, Michael
  6. Happiness in the Dual Society of Urban China: Hukou Identity, Horizontal Inequality and Heterogeneous By Shiqing Jiang; Ming Lu; Hiroshi Sato
  7. Are optimistic expectations keeping the Chinese happy? By Paul Frijters; Amy Y.C. Liu; Xin Meng
  8. Growth of Villages in China, 1990-2002 By Hiroshi Sato
  9. Do better institutions improve bank efficiency? Evidence from a transitional economy By Hasan, Iftekhar; Wang, Haizhi; Zhou, Mingming
  10. Formal and Informal Sectors in China and India: An Accounting-Based Approach By Codrina Rada
  11. An Empirical Analysis of Income Inequality between a Minority and the Majority in Urban China: The Case of Ningxia Hui Autonomous Region By Li Shi; Ding Sai

  1. By: Kaaresvirta, Juuso (BOFIT); Mehrotra, Aaron (BOFIT)
    Abstract: We use business survey data collected by the People’s Bank of China for inflation forecasting. Some survey indicators lead to enhanced forecasting performance relative to the univariate benchmark model, especially for a period of moderate inflation. However, the estimated models do not do a good job of tracking the recent pickup in Chinese inflation, due to increases in food prices.
    Keywords: inflation forecasting; business surveys; China
    JEL: C53 E31
    Date: 2009–01–13
  2. By: Deng Quheng; Li Shi
    Abstract: Coupled with advances in enterprise reform and changes in the wage structure, earnings inequality in urban China has been increasing, and this has contributed significantly to rising income inequality. Using urban household survey data from the 1988, 1995 and 2002 waves of the China Household Income Project, in this paper, we decompose earnings inequality in urban China by using the regression-based decomposition methods developed by Fields (1998), Morduch and Sicular (2002) and Shorrocks (1999). The decomposition results indicate that the effects of gender and membership of the Communist Party of China on earnings inequality have changed little. While work experience had a reduced effect on earnings inequality, the effects of education and occupation have increased. The contributions of ownership status and industry to earnings inequality have increased. Regional effects have been the largest recent contributor to earnings inequality.
    Keywords: earnings inequality, regression-based decompositions, urban China
    JEL: D31 J31 O53
    Date: 2009–01
  3. By: Dean, Judith (BOFIT); Fung , K.C. (BOFIT); Wang, Zhi (BOFIT)
    Abstract: Two recent phenomena have transformed the nature of world trade: the explosive growth of Chinese trade, and the growth of vertically specialized trade due to international production fragmentation. While vertical specialization may explain much of the growth and unique features of Chinese trade, few papers have quantitatively assessed these two phenomena together. In part, this is because it is difficult to measure just how vertically specialized Chinese trade is. The unique features of China's extensive processing trade cause both the identification of imported intermediate goods, and their allocation across sectors, to depend upon the Chinese trade regime. In this paper, we estimate the vertical specialization of Chinese exports, addressing these two challenges. Using two Chinese benchmark input-output tables, and a detailed Chinese trade dataset which distinguishes processing trade from other forms of trade, we develop a new method of identifying intermediate goods imported into China. Vertical specialization is then estimated using two methods. The first method uses the Hummels, Ishii and Yi (2001) measure, the official benchmark IO tables, and incorporates our identification correction. The second method follows the first, but also incorporates the Koopman, Wang and Wei (2008) method of splitting the benchmark IO tables into separate tables for processing and normal exports, in order to address the allocation problem. Results show strong evidence of an Asian network of intermediate suppliers to China, and the two methods provide a range of estimates for the foreign content of Chinese exports. In 2002 aggregate exports ranges between 25% and 46%, with some individual sectors are as high as 52%-95%. Across destinations, under both methods, the vertical specialization of Chinese exports declines with the level of development of the trading partner.
    Keywords: China; fragmentation; vertical specialization; trade growth
    JEL: F10 F14
    Date: 2009–01–13
  4. By: Ming Lu; Jianzhi Zhao
    Abstract: This study aims to quantify the contribution of social networks, i.e., guanxi,to income inequality in rural households in China. One purpose is to understand how this influence varies across regions with different levels of marketization and economic development. Employing household survey data in rural China, we find that social networks contribute 12.1%-13.4% to income inequality among households in rural China, ranking fourth after village identifiers, nonfarm employment, and education. We also find that social networks exert a greater impact on income and a greater contribution to income inequality in Eastern China, compared with Middle-Western China where economic development is relatively slower. Our findings challenge the conventional understanding that social capital is the capital of the poor. In other words,the rich get richer in richer regions through social networks.
    Keywords: Social Network, Income Inequality, Marketization, Regression-Based Decomposition
    JEL: O15 Z13 P36
    Date: 2009–01
  5. By: Chen, Yu-Fu (BOFIT); Funke, Michael (BOFIT)
    Abstract: In January 2008, China adopted a new labour contract law. This new law represents the most significant reform to the legislation on employment relations in mainland China in more than a decade. The paper provides a theoretical framework on the inter-linkages between labour market regulation, option value and the choice and timing of employment. All in all, the paper demonstrates that the Labour Contract Law in its own right will have only small impacts upon employment in the fast-growing Chinese economy. Rather, induced increasing unit labour costs represent the real issue and may reduce employment.
    Keywords: China; labour contract law; real options; employment
    JEL: C61 D81 D92 J23
    Date: 2009–01–13
  6. By: Shiqing Jiang; Ming Lu; Hiroshi Sato
    Abstract: This paper studies the impact of income inequality on the subjective well-being of different social groups in urban China. We classify urban social groups according to their hukou status: rural migrants, gbornh urban residents, and gacquiredh urban residents who once changed their hukou identity from rural to urban. We focus on how the horizontal inequality-income disparity between migrants and urban residents-affects individual happiness. The main results are as follows. First, migrants suffer from unhappiness when the horizontal inequality increases, but urban residents show a much smaller aversion to the horizontal inequality. Second, migrants will not be happier if their relative incomes within their migrant group increase, while urban residents do become happier when their incomes increase within their groupfs income distribution. Third, gacquiredh urban residents have traits of both migrants and gbornh urban residents. They have an aversion to the horizontal inequality like migrants, and they also favor higher relative income among urban residents. Fourth, gbornh urban residents have lower happiness scores when they are old. People who are Communist Party members strongly dislike the horizontal inequality. Our findings suggest that migrants, gacquiredh urban residents, elderly people and Party members from gbornh urban residents are the potential proponents of social integration policies in urban China.
    Keywords: Horizontal inequality, Happiness, Hukou identity, Migration, Social integration
    JEL: I31 O15 R23
    Date: 2009–01
  7. By: Paul Frijters (QUT); Amy Y.C. Liu (ANU); Xin Meng (ANU)
    Abstract: In this paper we study the e¤ect of optimistic income expectations on life satisfaction amongst the Chinese population. Using a large scale household survey conducted in 2002 we find that the level of optimism about the future is particularly strong in the countryside and amongst rural-to-urban migrants. The importance of these expectations for life satisfaction is particularly pronounced in the urban areas, though also highly significant for the rural area. If expectations were to reverse from positive to negative, we calculate that this would have doubled the proportion of unhappy people and reduced proportion of very happy people by 48%. We perform several robustness checks to see if the results are driven by variations in precautionary savings or reverse causality.
    Keywords: Expectations; Happiness; Consumption and Savings; China; Political Economy
    JEL: C35 D63 D91 P2
    Date: 2008–11–24
  8. By: Hiroshi Sato
    Abstract: This paper examines the economic and noneconomic determinants of growth disparity among Chinese villages between 1990 and 2002. By estimating a growth equation, first, we confirm a significant positive effect of the initial level of human capital, as well as the initial condition of physical infrastructure. Second, social capital measured by the degree of stable social relations at the village level is also a significant growth-promoting factor. The policy implications of our findings are that public policy promoting social stability in rural areas should be strengthened, as well as increasing financial support for rural education and infrastructure construction, especially in lower income regions.
    Keywords: regional disparity, growth regression, social capital, rural China
    JEL: D31 O18 R11
    Date: 2009–01
  9. By: Hasan, Iftekhar (BOFIT); Wang, Haizhi (BOFIT); Zhou, Mingming (BOFIT)
    Abstract: The pace of transition in China over the last two decades has led to great variation across the country in terms of institutional and financial development. In this paper, using a panel of Chinese provinces during the period 1993–2006, we empirically investigate the determinants of the efficiency of the banking sector from an institutional perspective. The most important institutional developments in China are the emergence and gradual dominance of the market economy, financial deepening, the growth of a private sector, the establishment of secure property rights, and rule of law. We find that institutional variables play an important role in affecting banking efficiencies, and that banks tend to operate more efficiently in those regions with a greater private sector presence and more property rights awareness, while the role of financial deepening and rule of law is less straightforward.
    Keywords: institutional development; bank efficiency; Chinese banks
    JEL: G21 O43
    Date: 2009–01–13
  10. By: Codrina Rada
    Abstract: This paper discusses the estimation of a social accounting matrix that distinguishes between formal and informal activities for China and India for 2000 and 1998-99 respectively. Wage shares for the formal/informal employment for China and net domestic product shares for the formal/informal sectors for India are being applied as weights to the input-output tables and flow of funds tables provided by official statistics. While some estimation techniques used in this paper remain vulnerable to criticism, the proposed methodology is a first step towards an integrated approach to account for the dualism of many economies in the developing world. The results are important data input for any policy-driven CGE model for developing countries.
    Keywords: informal sector, social accounting matrix, comparative economic systems, China, India
    JEL: E01 E26 P44
    Date: 2009–02
  11. By: Li Shi; Ding Sai
    Abstract: Based on the urban survey data of Ningxia Hui Autonomous Region in 2006, this paper studies the impact of ethnic characteristics on the income determination mechanism in the same economic region. Using the decomposition methods of Blinder and Oaxaca, Fields, and Morduch and Sicular, we analyze income gap between employed Hui and Han as well as income inequality within the two ethnic groups. The main conclusions are, first, that there is almost no income gap between Han and Hui in Ningxia. But different ethnic characteristics have effects on the income determination mechanism. Ethnic factors such as religion and social capital have no obvious effect on the income determination.
    Keywords: Minority, Majority, Income Inequality
    JEL: D33 J15
    Date: 2009–01

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