nep-cna New Economics Papers
on China
Issue of 2009‒04‒05
seven papers chosen by
Zheng Fang
Ohio State University

  1. Financial constraints in China: firm-level evidence By Poncet, Sandra; Steingress, Walter; VANDENBUSSCHE, Hylke
  2. Urban Trends and Policy in China By Lamia Kamal-Chaoui; Edward Leeman; Zhang Rufei
  3. The „Chinese style reforms” and the Hungarian „Goulash Communism” By Maria Csanadi
  4. Assessing the vulnerability of emerging Asia to external demand shocks: the role of China By Daniela Marconi; Laura Painelli
  5. China's financial conundrum and global imbalances By Ronald McKinnon; Gunther Schnabl
  6. IS U.S. MONEY CAUSING CHINA'S OUTPUT? By Johansson, Anders C.
  7. Global crisis and its implications on the political transformation in China By Maria Csanadi; Hairong Lai; Ferenc Gyuris

  1. By: Poncet, Sandra; Steingress, Walter; VANDENBUSSCHE, Hylke (UniversitŽ catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))
    Abstract: This paper uses a unique micro-level data-set on Chinese firms to test for the existence of a "political-pecking order" in the allocation of credit. Our findings are threefold. Firstly, private Chinese firms are credit constrained while State-owned firms and foreign-owned firms in China are not; Secondly, the geographical and sectoral presence of foreign capital alleviates credit constraints faced by private Chinese firms. Thirdly, geographical and sectoral presence of state firms aggravates financial constraints for private Chinese firms (Òcrowding outÓ). Therefore it seems that ongoing restructuring of the state-owned sector and further liberalization of foreign capital inflows in China can help to circumvent financial constraints and can boost the investment of private firms.
    Keywords: investment-cashflow sensitivity, China, firm level data, foreign direct investment.
    JEL: E22 G32
    Date: 2008–12
  2. By: Lamia Kamal-Chaoui; Edward Leeman; Zhang Rufei
    Abstract: China has become the world’s largest urban nation, with over 600 million urban citizens today. Projections indicate that this level may reach 900 million in 2030. The way this urbanisation process is managed will have important policy implications for China and beyond. This paper provides an introduction to urban trends and policies in China. It describes urban growth trends, where and in what kinds of cities growth is occurring, how China’s cities are governed, and how public policy has influenced the extent, pace, and spatial distribution of urbanisation. As China continues to integrate with the globalising economy, its competitiveness will increasingly be driven by the capacities of its metropolitan regions to improve the productivity of enterprises in ever-widening supply chains. The report concludes with a description of some of the key policy challenges facing central and local urban governments in this global context, including: 1) institutional constraints to markets and factor mobility; 2) environmental challenges; 3) ensuring equity and helping vulnerable groups; and 4) metropolitan governance.
    Date: 2009–03–25
  3. By: Maria Csanadi (Institute of Economics - Hungarian Academy of Sciences)
    Abstract: Similarities and differences will be demonstrated between Chinese and Hungarian party-state systems. We define the role of reforms in the self-reproduction of both party-states. We shall demonstrate how different patterns of power distribution lead to the implementation of different reforms. We shall describe how these different reforms have created the Hungarian “Goulash communism” and the “Chinese style” reforms. We shall also explain the conditions that have lead “Goulash communism” to political transformation first in Hungary accompanied by economic crisis, and “Chinese style reforms” to economic transformation first in China, accompanied by macroeconomic growth.
    Keywords: reforms, transformation, party-state systems, goulash communism, Chinese style reforms
    JEL: B52 D85 N10 P2 P3 P41 P52
    Date: 2009–03
  4. By: Daniela Marconi (Bank of Italy); Laura Painelli (Bank of Italy)
    Abstract: The paper assesses the vulnerability of China to external shocks via the indirect negative effect of a slow-down in exports on domestic demand for investment. In the last decade China has increased its dependence on external demand, particularly from the advanced countries; at the same time it has become a primary destination market for goods produced in the rest of emerging Asia. Since 2001 investment expenditures have represented a key driver of Chinese GDP growth; as a very large share of activity in the manufacturing sector is export oriented, we expect fixed capital investment in this sector to be highly related to exports. Overcoming serious shortcomings in available data, we estimate an investment equation for the period 1993-2006 and find an elasticity of investment to exports in the manufacturing sector in the range between 0.9 and 1. Taking into account the dominant contribution of capital accumulation to Chinese GDP growth, we conclude that the growth effects of an external demand shock could become significant when taking into account the domestic investment channel.
    Keywords: exports, investment, elasticity
    JEL: F14 E22 N6
    Date: 2009–02
  5. By: Ronald McKinnon; Gunther Schnabl
    Abstract: China's financial conundrum arises from two sources: (1) its large trade (saving) surplus results in a currency mismatch because it is an immature creditor that cannot lend in its own currency. Instead foreign currency claims (largely dollars) build up within domestic financial institutions. And (2), economists - both American and Chinese - mistakenly attribute the surpluses to an undervalued renminbi. To placate the United States, the result is a gradual appreciation of the renminbi against the dollar of 6 percent or more per year. This predictable appreciation since 2004, and the fall in US interest rates since mid 2007, not only attracts hot money inflows but inhibits private capital outflows from financing (compensating?) China's huge trade surplus. This one-way bet in the foreign exchange markets can no longer be offset by relatively low interest rates in China compared to the United States, as had been the case in 2005-06. Thus, the People's Bank of China (PBC) now must intervene heavily to prevent the renminbi from ratcheting upwards - and so becomes the country's sole international financial intermediary. Despite massive efforts by the PBC to sterilise the monetary consequences of the reserve buildup, inflation in China is increasing, with excess liquidity that spills over into the world economy. China has been transformed from a deflationary force on American and European price levels into an inflationary one. Because of the currency mismatch, floating the RMB is neither feasible nor desirable - and a higher RMB would not reduce China's trade surplus. Instead, monetary control and normal private-sector finance for the trade surplus require a return to a credibly fixed nominal yuan/dollar rate similar to that which existed between 1995 and 2004. But for any newly reset yuan/dollar rate to be credible as a monetary anchor, foreign "China bashing" to get the RMB up must end. Currency stabilisation would allow the PBC to regain monetary control and quash inflation. Only then can the Chinese government take decisive steps to reduce the trade (saving) surplus by tax cuts, increased social expenditures, and higher dividend payouts. But as long as the economy remains overheated, the government hesitates to take these trade-surplus-reducing measures because of their near-term inflationary consequences. This is part of a series of BIS Working Papers (273 to 278) collecting papers presented at the BIS's Seventh Annual Conference on "Whither monetary policy? Monetary policy challenges in the decade ahead" in Luzern, Switzerland, on 26-27 June 2008. The event brought together senior representatives of central banks and academic institutions to exchange views on this topic. BIS Paper 45 contains the opening address of William R White (BIS), the contributions of the policy panel on "Beyond price stability - the challenges ahead" and speeches by Edmund Phelps (Columbia University) and Martin Wolf (Financial Times). The participants in the policy panel discussion chaired by Malcolm D Knight (BIS) were Martin Feldstein (Harvard University), Stanley Fischer (Bank of Israel), Mark Carney (Bank of Canada) and Jean-Pierre Landau (Banque de France). This Working Paper includes comments by Michael Mussa.
    Keywords: Global Imbalances, Chinese Exchange Rate Regime
    Date: 2009–03
  6. By: Johansson, Anders C. (China Economic Research Center)
    Abstract: This paper tries to answer the long-standing question of whether money causes output. Instead of focusing on domestic monetary policy and output, we analyze U.S. monetary policy and its possible effects on real output in China. Our results indicate that U.S. money supply Granger causes China’s real output, but that an alternative monetary instrument, the Federal Fund Rate, does not. Furthermore, there is a significant cointegrating relationship between U.S. money and China’s output, which means that there is a long-run relationship between them. Impulse response functions and variance decompositions also support the results, showing that shocks in the U.S. money supply have an effect on China’s real output. The results have important implications for policy makers in China that focus on maintaining a high and stable economic growth. They also have implications for U.S. policy makers. A number of countries around the world still fix their currencies against the U.S. dollar, which means that U.S. monetary policy has effects not only domestically but also in these countries.
    Keywords: China; United States; Monetary policy; Output; Causality; VECM
    JEL: C32 E40 E51 E52 E58
    Date: 2009–03–15
  7. By: Maria Csanadi (Institute of Economics - Hungarian Academy of Sciences); Hairong Lai (Center for Comparative Politics and Economics - Beijing); Ferenc Gyuris (Department of Regional Science - Eötvös Loránd University, Budapest)
    Abstract: This paper analyzes the impact of global financial and economic crisis on the process of system transformation in China. First, it details the direct impact of global growth on macroeconomic development and its indirect impact on economic transformation. Second, it analyzes the direct impact of global crisis on macroeconomic decline and its indirect impact on the prospects of political transformation. The paper builds on the basic principles and ideas of the Interactive Party-State model to introduce the concept of transformation dynamics. This concept implies the direction and speed of change of the retreating party-state sphere and the emergence of the field outside of it during the process of transformation. Using this concept a statistical survey was carried out on the economic transformation of the Chinese party-state. Results reveal the disparities of the dynamics of transformation in time, in space, and at different levels of aggregation between 1999 and 2004. A dominant type of transformation dynamics is revealed during this period and the shift of dominant type within that period, sensitive to the trend of certain economic indicators. Based on those findings, the paper projects the dominance of another type of transformation dynamics as a result of the consequences of global crisis. It also outlines the possible impact of this dynamics on the premises of political transformation.
    Keywords: system transformation, China, economic transformation, political transformation, spatial disparities in system transformation
    JEL: B52 D85 N10 P2 P3 P41 P52
    Date: 2009–03

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