nep-cna New Economics Papers
on China
Issue of 2009‒10‒10
five papers chosen by
Zheng Fang
Ohio State University

  1. Spillovers of the U.S. Subprime Financial Turmoil to Mainland China and Hong Kong SAR: Evidence from Stock Markets By Tao Sun; Xiaojing Zhang
  2. Microinsurance, Trust and Economic Development: Evidence from a Randomized Natural Field Experiment By Hongbin Cai; Yuyu Chen; Hanming Fang; Li-An Zhou
  3. Employment Effects of Growth Rebalancing in China By Kai Guo; Papa M'B. P. N'Diaye
  4. Broad Money Demand and Asset Substitution in China By Ge Wu
  5. Trade with China and Skill Upgrading: Evidence from Belgian Firm Level Data By Giordano Mion; Hylke Vandenbussche; Linke Zhu

  1. By: Tao Sun; Xiaojing Zhang
    Abstract: This paper focuses on evidence from stock markets as it investigates the spillovers from the United States to mainland China and Hong Kong SAR during the subprime crisis. Using both univariate and multivariate GARCH models, this paper finds that China's stock market is not immune to the financial crisis, as evidenced by the price and volatility spillovers from the United States. In addition, HK's equity returns have exhibited more significant price and volatility spillovers from the United States than China's returns, and past volatility shocks in the United States have a more persistent effect on future volatility in HK than in China, reflecting HK's role as an international financial center. Moreover, the impact of the volatility from the United States on China's stock markets has been more persistent than that from HK, due mainly to the United States as the origin of the subprime crisis. Finally, as expected, the conditional correlation between China and HK has outweighed their conditional correlations with the United States, echoing increasing financial integration between China and HK.
    Keywords: Asset prices , Capital markets , China, People's Republic of , Credit risk , Economic integration , Economic models , External shocks , Financial crisis , Financial sector , Hong Kong Special Administrative Region of China , Spillovers , Stock markets , Stock prices , United States ,
    Date: 2009–08–07
  2. By: Hongbin Cai; Yuyu Chen; Hanming Fang; Li-An Zhou
    Abstract: We report results from a large randomized natural field experiment conducted in southwestern China in the context of insurance for sows. Our study sheds light on two important questions about microinsurance. First, how does access to formal insurance affect farmers' production decisions? Second, what explains the low takeup rate of formal insurance, despite substantial premium subsidy from the government? We find that providing access to formal insurance significantly increases farmers' tendency to raise sows. We argue that this finding also suggests that farmers are not previously insured efficiently through informal mechanisms. We also provide several pieces of evidence suggesting that trust, or lack thereof, for government-sponsored insurance products is a significant barrier for farmers' willingness to participate in the insurance program.
    JEL: C93 O12 O16
    Date: 2009–10
  3. By: Kai Guo; Papa M'B. P. N'Diaye
    Abstract: This paper gauges the potential effects on employment of rebalancing China's exportoriented growth model toward domestic demand, particularly private consumption. Shifting to a private consumption-led growth likely means more demand for existing and new services as well as reorienting the production of tradable goods toward domestic markets. In China's case, this would also imply moving a large number of less skilled labor from the tradable sector to the nontradable sector. The paper shows that while rebalancing China's growth toward a domestic-demand-led economy would likely raise aggregate employment and employment opportunities in the longer term, there could be employment losses in the short run as the economy moves away from the tradable sector toward the nontradable sector. Mitigating these costs will require active labor market policies to cushion the employment impact in the transition, particularly in meeting the skills gap of associated with this transition.
    Keywords: Agricultural sector , China, People's Republic of , Cross country analysis , Demand , Economic growth , Economic models , Employment , Labor market policy , Manufacturing sector , Private consumption , Services sector ,
    Date: 2009–08–12
  4. By: Ge Wu
    Abstract: Recent changes to China's financial system, in particular ongoing interest rate liberalization, gradual movement toward a more flexible exchange rate regime, and rapid development of capital markets, have changed substantially the environment in which monetary policy operates. In light of these changes, we estimate an error correction model using a General-to-Specific methodology and confirm that a stable broad money demand function exists taking proper account of asset substitution, with an income elasticity of less than unity. Current inflation is found to have a significant negative impact on the real money demand. However, money demand does not appear very sensitive to interest rates, possibly reflecting their partial liberalization. Changes in the exchange rate also do not affect money demand significantly, but expectations of a further renminbi appreciation since 2005 appears to induce more money demand. Stock prices are statistically insignificant despite recent investors' interest in equity markets.
    Keywords: Capital markets , Central bank policy , China, People's Republic of , Demand for money , Economic models , Exchange rate regimes , Exchange rates , Financial assets , Financial systems , Interest rates , Monetary policy , Private investment ,
    Date: 2009–06–23
  5. By: Giordano Mion; Hylke Vandenbussche; Linke Zhu
    Abstract: We use Belgian ?rm level data over the period 1996-2006 to analyze the impact of imports from China and other low wage countries on ?rm growth, death, and skill upgrading. We distinguish the impact of imports into two di¡èerent channels: industry-level import competition and ?rm-level outsourcing. We ?nd that imports from China are much more important than imports from other low-wage countries. Industry-level import competition from China reduced ?rm employment and induced skill upgrading. Import competition from China alone can explain around 30 percent of the total skill upgrading in Belgian manufacturing during 1996- 2006. Our IV results con?rm the ambiguous role of outsourcing in ?rm employment growth, but we also ?nd that outsourcing to China will increase the relative employment of non-production workers and is bene?cial for ?rm survival.
    Keywords: import competition; outsourcing; China; skill upgrading
    JEL: F11 F14 F16
    Date: 2009

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