nep-cna New Economics Papers
on China
Issue of 2009‒04‒25
twelve papers chosen by
Zheng Fang
Ohio State University

  1. The Long Term Consequences of Famine on Survivors: Evidence from a Unique Natural Experiment using China's Great Famine By Xin Meng; Nancy Qian
  2. Including financial services in preferential trade agreements : lessons of international experience for China By Stephanou, Constantinos
  3. The evolution of Chinese entrepreneurial firms: Township-village enterprises revisited By Xu, Chenggang; Zhang, Xiaobo
  4. 2008 Stock Markets and the Race to the Bottom: “Stuck” in China By Tyler Rooker
  5. Public pension and household saving: Evidence from China By Feng, Jin; He, Lixin; Sato, Hiroshi
  6. Navigating the Trilemma: Capital Flows and Monetary Policy in China By Reuven Glick; Michael Hutchison
  7. Does the DiPasquale-Wheaton Model Explain the House Price Dynamics in China Cities? By Kenneth K. Chow; Matthew S. Yiu; Charles Ka Yui Leung; Dickson C. Tam
  8. Volatility Dependence across Asia-Pacific Onshore and Offshore Currency Forwards Markets By Roberta Colavecchio; Michael Funke
  9. Household decision making and the influence of spouses’ income, education, and communist party membership: A field experiment in rural China By Carlsson, Fredrik; Martinsson, Peter; Qin, Ping; Sutter, Matthias
  10. The external and domestic side of macroeconomic adjustment in China. By Roland Straub; Christian Thimann
  11. Oil price shocks and their short- and long-term effects on the Chinese economy By Tang, Weiqi; Wu, Libo; Zhang, ZhongXiang
  12. The role of the United States in the global economy and its evolution over time. By Stéphane Dées; Arthur Saint-Guilhem

  1. By: Xin Meng; Nancy Qian
    Abstract: This paper estimates the long run impact of famine on survivors in the context of China's Great Famine. To address problems of measurement error of famine exposure and potential endogeneity of famine intensity, we exploit a novel source of variation in regional intensity of famine derived from the unique institutional determinants of the Great Famine. To address attenuation bias caused by selection for survival, we estimate the impact on the upper quantiles of the distribution of outcomes. Our results indicate that in-utero and early childhood exposure to famine had large negative effects on adult height, weight, weight-for-height, educational attainment and labor supply.
    JEL: I1 J01 J1 O1
    Date: 2009–04
  2. By: Stephanou, Constantinos
    Abstract: The objective of this paper is to address the main considerations for China of including financial services in its preferential trade agreements. The paper briefly reviews China's financial liberalization process and the state of its domestic financial system, discusses the main considerations of including financial services in China's preferential trade agreements, compares and contrasts the different'architectural'approaches that have been used by countries to include financial services in such agreements, and identifies good practices in preparing for financial services negotiations. Particular emphasis is placed on lessons from Latin American preferential trade agreements, given their more frequent and extensive coverage of financial services compared with other regions.
    Keywords: Emerging Markets,Banks&Banking Reform,Trade Law,Trade and Services,
    Date: 2009–04–01
  3. By: Xu, Chenggang; Zhang, Xiaobo
    Abstract: "Township-village enterprises (TVEs) were a major engine of China's rapid rural industrialization in the past three decades. TVEs also played a key role in fostering entrepreneurship and served as a major stepping-stone for institutional changes when legal protections of private property rights were not in place and the state-owned enterprises (SOEs) were slow to react to changing market demand. As private ownership was gradually recognized legally, TVEs lost their edge in competing with private firms. In the past two decades, industrial clusters with a concentration of private entrepreneurial firms coordinated by local governments have emerged rapidly in many areas. The structures of such firms as TVEs and the subsequent clustering modes of production are an outcome of interaction with other local and macro environments. As the environment changes, a firm's organization and organizational structure may change as well." from authors' abstract
    Keywords: Cluster, Firm theory, Industrialization, Growth, Development strategies,
    Date: 2009
  4. By: Tyler Rooker (Goldsmiths, University of London)
    Abstract: Since late 2005, China’s two stock markets, in Shanghai (SSE) and Shenzhen (SZSE), have risen over 600% only to fall by close to 60% from a peak in late 2007. The race up and down is reflected in China’s macroeconomic indicators, but the real story lies with individuals investing in the market. In contrast to past studies of China’s stock markets, this paper argues that individual investors, and especially those investing less than 100,000 USD, are a critical part of the market. One postulate is that it is precisely these “micro” investors who, despite the general consensus that China’s stock markets are “policy markets”, keep the state from regulating the market. Put warrants, literally worthless paper in the days before the end of trading, continue to become sites for speculative trading. The 2007 stock market rose 97%, while the 2008 market has fallen over 50%: the non-tradable share reform, allowing large and small holders to trade previously non-tradable shares, is the current bane of the market. Yet the culprits in abnormal trading are not “individuals”, but the companies, often owned by local governments, that are the vanguard of China’s reform. This paper reviews these developments in detail, and suggests a potential new theory of China’s securities reform.
    Date: 2008–05
  5. By: Feng, Jin (BOFIT); He, Lixin (BOFIT); Sato, Hiroshi (BOFIT)
    Abstract: We relate household saving to pension reform, to explain the high household saving rates in urban China from a new perspective. We use the exogenous – policy induced - variation in pension wealth to explicitly estimate the impact of pension wealth on household saving, and obtain a significant offset effect of pension wealth on household saving. Our estima-tions show that pension reform boosted the household saving rate in 1999 by about 6 per-centage points for cohort aged 25-29 and by about 3 percentage points for cohort aged 50-59. Our results also indicate that declining pension wealth reduces expenditure on educa-tion and health more than on other consumption items.
    Keywords: pensions; pension reform; household savings rate; China
    JEL: H31 H55 P35
    Date: 2009–04–20
  6. By: Reuven Glick (Federal Reserve Bank of San Francisco); Michael Hutchison (University of California, Santa Cruz)
    Abstract: In recent years China has faced an increasing trilemma¡Xhow to pursue an independent domestic monetary policy and limit exchange rate flexibility, while at the same time facing large and growing international capital flows. This paper analyzes the impact of the trilemma on China's monetary policy as the country liberalizes its goods and financial markets and integrates with the world economy. It shows how China has sought to insulate its reserve money from the effects of balance of payments inflows by sterilizing through the issuance of central bank liabilities. However, we report empirical results indicating that sterilization dropped precipitously in 2006 in the face of the ongoing massive buildup of international reserves, leading to a surge in reserve money growth. We estimate a vector error correction model linking the surge in China's reserve money to broad money, real GDP, and the price level. We use this model to explore the inflationary implications of different policy scenarios. Under a scenario of continued rapid reserve money growth (consistent with limited sterilization of foreign exchange reserve accumulation) and strong economic growth, the model predicts a rapid increase in inflation. A model simulation using an extension of the framework that incorporates recent increases in bank reserve requirements also implies a rapid rise in inflation. By contrast, model simulations incorporating a sharp slowdown in economic growth lead to less inflation pressure even with a substantial buildup in international reserves.
    Date: 2008–12
  7. By: Kenneth K. Chow (Hong Kong Institute for Monetary Research); Matthew S. Yiu (Hong Kong Institute for Monetary Research); Charles Ka Yui Leung (City University of Hong Kong); Dickson C. Tam (China International Capital Corporation Limited)
    Abstract: The "overheating" of the Chinese housing market in recent years has caught the attention of policy makers, the research community, as well as the general public. Leung and Wang (2007) shows that the qualitative features of the aggregate Chinese housing market are well captured by the DiPasquale-Wheaton (1992) model. This paper estimates a version of the DiPasquale-Wheaton (1994) model with four major Chinese cities: Beijing, Tianjin, Shanghai and Chongqing. It examines the factors which affect the housing price and construction. Policy implications and future research directions are also discussed.
    Keywords: Housing Market Dynamics, Cross-city Difference, Panel Data Method
    JEL: C33 E30 R00
    Date: 2008–11
  8. By: Roberta Colavecchio (Hamburg University); Michael Funke (Hamburg University)
    Abstract: This paper estimates switching autoregressive conditional heteroskedasticity (SWARCH) time series models for weekly returns of nine Asian forward exchange rates. We find two regimes with different volatility levels, whereby each regime displays considerable persistence. Our analysis provides evidence that the knock-on effects from China¡¦s currency forwards markets upon other Asian countries have been modest, in that little evidence exists for co-dependence of volatility regimes.
    Keywords: China, Renminbi, Asia, Forward Exchange Rates, Non-Deliverable Forward Market, SWARCH Models
    JEL: C22 F31 F36
    Date: 2009–02
  9. By: Carlsson, Fredrik (Department of Economics, School of Business, Economics and Law, Göteborg University); Martinsson, Peter (Department of Economics, School of Business, Economics and Law, Göteborg University); Qin, Ping (Department of Economics, School of Business, Economics and Law, Göteborg University); Sutter, Matthias (Department of Public Finance, University of Innsbruck)
    Abstract: We study household decision making in a high-stakes experiment with a random sample of households in rural China. Spouses have to choose between risky lotteries, first separately and then jointly. We find that spouses’ individual risk preferences are more similar the richer the household and the higher the wife’s relative income contribution. A couple’s joint decision is typically determined by the husband, but women who contribute relatively more to the household income, women in high-income households, women with more education than their husbands, and women with communist party membership have a stronger influence on the joint decision.<p>
    Keywords: Household decision making; Risk; Field experiment; China
    JEL: C91 C92 C93 D10
    Date: 2009–04–20
  10. By: Roland Straub (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Christian Thimann (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.)
    Abstract: This paper sheds new light on the external and domestic dimension of China’s exchange rate policy. It presents an open economy model to analyse both dimensions of macroeconomic adjustment in China under both flexible and fixed exchange rate regimes. The model-based results indicate that persistent current account surpluses in China cannot be rationalized, under general circumstances, by the occurrence of permanent technology or labour supply shocks. As a result, the understanding of the macroeconomic adjustment process in China requires to mimic the effects of potential inefficiencies, which induce the subdued response of domestic absorption to permanent income shocks causing thereby the observed positive unconditional correlation of trade balance and output. The paper argues that these inefficiencies can be potentially seen as a by-product of the fixed exchange rate regime, and can be approximated by a stochastic tax on domestic consumption or time varying transaction cost technology related to money holdings. Our results indicate that a fixed exchange regime with financial market distortions, as defined above, might induce negative effects on GDP growth in the medium-term compared to a more flexible exchange rate regime. JEL Classification: E32, E62.
    Keywords: DSGE modelling, China, current account.
    Date: 2009–03
  11. By: Tang, Weiqi; Wu, Libo; Zhang, ZhongXiang
    Abstract: A considerable body of economic literature shows the adverse economic impacts of oil-price shocks for the developed economies. However, there has been a lack of empirical study of this kind on China and other developing countries. This paper attempts to fill this gap by answering how and to what extent oil-price shocks impact China’s economy, emphasizing on the price transmission mechanisms. To that end, we develop a structural vector auto-regressive model. Our results show that an oil-price increase negatively affects output and investment, but positively affects inflation rate and interest rate. However, with the differentiated price control policies for materials and intermediates on the one hand and final products on the other hand in China, the impact on real economy, represented by real output and real investment, lasts much longer than that to price/monetary variables. Our decomposition results also show that the short-term impact, namely output decrease induced by the cut of capacity-utilization rate, is greater in the first one to two years, but the portion of the long-term impact, defined as the impact realized through an investment change, increases steadily and exceeds that of short-term impact at the end of the second year. Afterwards, the long-term impact dominates, and maintains for quite some time.
    Keywords: Structural vector auto-regressive model; Unit root test; Error-correction model; Oil-price shocks; Price transmission mechanisms; Investment; Output; Producer/consumer price index; Census X-12 approach; China
    JEL: Q41 O53 Q48 E22 O13 E23 P22 Q43
    Date: 2009–03
  12. By: Stéphane Dées (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Arthur Saint-Guilhem (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.)
    Abstract: This paper aims at assessing the role of the United States in the global economy and its evolution over time. The emergence of large economic players, like China, is likely to have weakened the role of the U.S. economy as a driver of global growth. Based on a Global VAR modelling approach, this paper shows first that the transmission of U.S. cyclical developments to the rest of the world tends to fluctuate over time but remains large overall. Second, although the size of the spillovers might have decreased in the most recent periods, the effects of changes in U.S. economic activity seem to have become more persistent. Actually, the increasing economic integration at the world level is likely to have fostered second-round and third-market effects, making U.S. cyclical developments more global. Finally, the slightly decreasing role of the U.S. has been accompanied by an increasing importance of third players. Regional integration might have played a significant role by giving more weights to non-U.S. trade partners in the sensitivity of the various economies to their international environment. JEL Classification: E32, E37, F41.
    Keywords: International transmission of shocks, Business cycle, Global VAR (GVAR).
    Date: 2009–03

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