nep-cna New Economics Papers
on China
Issue of 2014‒07‒13
eight papers chosen by
Zheng Fang
Ohio State University

  1. Taxation under Autocracy: Theory and Evidence from Late Imperial China By Qiang Chen; Yijiang Wang; Chun-lei Yang
  2. The domestic segment of global supply chains in China under state capitalism By Tang, Heiwai; Wang, Fei; Wang, Zhi
  3. Do Employers Prefer Undocumented Workers? Evidence from China's Hukou System By Kuhn, Peter J.; Shen, Kailing
  4. The Quality of China’s GDP Statistics By Carsten A. Holz
  5. Capital’s long march west: saving and investment frictions in Chinese regions By Samuel Cudré
  6. Decoding the Growth-Nutrition Nexus in China: Inequality, Uncertainty and Food Insecurity By Jing You; Katsushi S. Imai; Raghav Gaiha
  7. A provincial view of global imbalances: regional capital flows in China By Samuel Cudré; Mathias Hoffmann
  8. China’s Monetary Policy and Interest Rate Liberalization: Lessons from International Experiences By Wei Liao; Sampawende J.-A. Tapsoba

  1. By: Qiang Chen (School of Economics, Shandong University); Yijiang Wang (CK Graduate School of Business); Chun-lei Yang (RCHSS, Academia Sinica)
    Abstract: We model a game to show that the taxation level in an autocracy reflects the state¡¯s coercive power relative to people¡¯s capacity for violence. The model also specifies the mechanisms through which various factors affect relative state power. The model predicts that taxation level increases with state coercion level, efficiency of coercion technology, cost of rebelling, and likely labor incomes. Data from late imperial China are used to test the hypotheses, and the findings are entirely consistent with the predictions of the theory.
    Keywords: Taxation, Autocracy, State power, Rebellion, Imperial China
    JEL: D74 H20 N45 O11
    Date: 2014–06
  2. By: Tang, Heiwai; Wang, Fei; Wang, Zhi
    Abstract: This paper proposes methods to incorporate firm heterogeneity in the standard input-output table-based approach to portray the domestic segment of global value chains in a country. The analysis uses Chinese firm census data for the manufacturing and service sectors, along with constrained optimization techniques. The conventional input-output table is split into sub-accounts, which are used to estimate direct and indirect domestic value added in exports of different types of firms. The analysis finds that in China, state-owned enterprises and small and medium domestic private enterprises have much higher shares of indirect exports and ratios of value-added exports to gross exports compared with foreign-invested and large domestic private firms. Based on input-output tables for 2007 and 2010, the paper finds increasing value-added export ratios for all firm types, particularly for state-owned enterprises. It also finds that state-owned enterprises are consistently more upstream while small and medium domestic private enterprises are consistently more downstream within industries. These findings suggest that state-owned enterprises still play an important role in shaping China's exports.
    Keywords: Economic Theory&Research,Free Trade,Microfinance,Trade Policy,Investment and Investment Climate
    Date: 2014–06–01
  3. By: Kuhn, Peter J. (University of California, Santa Barbara); Shen, Kailing (Xiamen University)
    Abstract: We study urban Chinese employers' preferences between workers with and without a local residence permit (hukou) using callback information from an Internet job board serving private sector employers. We find that employers prefer migrant workers to locals who are identically matched to the job's requirements; these preferences are especially strong at low skill levels. We argue that migrants' higher work hours and effort help to account for employers' preferences, and present evidence that efficiency wage and intertemporal labor substitution effects might explain these hours/effort gaps.
    Keywords: temporary migration, China, hukou, undocumented migrants
    JEL: O15 R23
    Date: 2014–06
  4. By: Carsten A. Holz (Hong Kong University of Science & Technology)
    Abstract: Since the 1998 “wind of falsification and embellishment,” Chinese official statistics on gross domestic product (GDP) have repeatedly come under scrutiny. This paper evaluates the quality of China’s GDP statistics in four stages. First, it reviews past and ongoing suspicions of the quality of GDP data and examines the evidence. Second, it documents the institutional framework for data compilation and concludes on the implications for data quality. Third, it asks how the Chinese National Bureau of Statistics could possibly go about credibly falsifying GDP data without being found out. Fourth, it examines if the first- and second-digit distributions of official GDP data conform to established data regularities (Benford’s Law). The findings are that the supposed evidence for GDP data falsification is not compelling, that the National Bureau of Statistics has much institutional scope for falsifying GDP data, and that certain manipulations of nominal and real data would be virtually undetectable. Official GDP data, however, exhibit few statistical anomalies (conform to Benford’s Law) and the National Bureau of Statistics thus either makes no significant use of its scope to falsify data, or is aware of statistical data regularities when it falsifies data.
    Keywords: accuracy of national statistics, national income accounting, compilation of GDP and sectoral value added, national statistical system, Benford's Law
    JEL: C82 R1 P27 O53
    Date: 2014–06
  5. By: Samuel Cudré
    Abstract: While China has been pivotal in discussions and academic research on global imbalances, little is known about macroeconomic external imbalances among Chinese regions and the factors driving them. We use aggregate regional data and estimate provincial total factor productivity growth over 1984-2010. We observe that provinces that caught up relatively to national TFP had capital outflows while those that fell behind had capital inflows: there seems to be a capital allocation puzzle at the regional level inside China. We follow up by identifying the drivers of this pattern using the methodology developed in Gourinchas and Jeanne (2013) to compute regional investment and saving wedges. By relating those frictions with TFP catch-up parameters, we find an investment and a saving puzzle: regions that caught up relative to the rest of China seem to have lower investment rate (higher investment tax) and higher saving (lower saving tax) relative to the prediction of the neoclassical model. We exploit Chinese cross-regional variation in key characteristics suggested by the literature and find robust explanatory variables of the wedges: factors related to the ownership type, the level of integration into the world economy and the economic structure are highly correlated with the identified frictions.
    Keywords: China, Chinese provinces, wedges, frictions, saving, investment, regional capital flows, global imbalances, capital allocation puzzle
    JEL: F21 F36 F40 F43
    Date: 2014–06
  6. By: Jing You (School of Agricultural Economics and Rural Development Renmin University of China, China); Katsushi S. Imai (School of Social Sciences, University of Manchester (UK) and RIEB, Kobe University (Japan)); Raghav Gaiha (Faculty of Management Studies, University of Delhi, India and Statistics and Studies for Development (SSD), Strategy and Knowledge Management Department, International Fund for Agricultural Development (IFAD), Italy)
    Abstract: Income and consumption growth in China has led to remarkable income poverty reduction, which is not paralleled by better nutrition. This study uses the household data in both rural and urban China over the period 1989-2009 to investigate the relationship between income growth and nutrient intake, with emphasis on rising nutrition inequality and various uncertainties facing households' livelihood in terms of rising and volatile prices of foods. A point of departure of the present study is to model (i) heterogeneity in the effect of household income and nutritional intake and (ii) the endogenoity of household income to provide a robust estimate of the effect of income on nutrition at different levels of nutritional intake. To do this, we combine recent seminal works by Canay (2011) and Lee (2007) to estimate the quantile instrumental variable (IV) panel model. We find that income growth, especially increases in crop income, can raise nutrient intake for the malnourished rural households, while business and wage income tend to increase urban households' nutrient intake and help narrow nutrition inequality. Uncertainties yield various nutritional outcomes, depending on specific food commodities.
    Keywords: Food security, Nutrition, Inequality, Instrumental quantile regression, China
    JEL: I10 I31 Q18 O53
    Date: 2014–06
  7. By: Samuel Cudré; Mathias Hoffmann
    Abstract: We model capital flows among Chinese provinces using a theory-based variance decomposition that allows us to gauge the importance of various channels of external adjustments at the regional level: variation in intertemporal prices—domestic and international interest rates and the real exchange rate—and intertemporal variation in quantities (cash flows of output, investment and government spending). We find that our simple framework can account for around 85 percent of the variation in regional capital flows over the 1985-2010 period. Our results suggest that the relative importance of private and state-owned enterprises, a province’s level of integration into the world economy and its sectoral composition play an important role for external adjustment vis-à-vis the rest of China and the world. Specifically, we find strong empirical support for the view that differential access of private and state-owned enterprises to finance is a key driver of China’s surpluses. We discuss implications of our results for global imbalances in capital flows.
    Keywords: China, Chinese provinces, capital flows, current account, global imbalances, external adjustment, present-value models, regional business cycles
    JEL: F30 F32 F40
    Date: 2014–06
  8. By: Wei Liao; Sampawende J.-A. Tapsoba
    Abstract: China has been moving to a more market oriented financial system, which has implications for the monetary policy environment. The paper investigates the stability of the money demand function (MDF) in light of progress in financial sector reforms that, for example, have resulted in significant financial innovation (so-called shadow banking) and more liberalized interest rates. The analysis of international experience suggests that rapid development of the financial system often leads to structural shifts in the MDF. For example, financial innovation and liberalization alter the sensitivity of money balances to income and the interest rate. For China, we find that the stable long-run relationship between money demand, output, and interest rates that existed between 2002 and 2008 disappears after 2008. This coincides with the period of rapid financial innovation, especially the growth in off-balance sheet and nonbank financial intermediation. The results suggest that usefulness of M2 as an intermediate monetary target has declined with financial innovation and reform. A result that underscores the importance of moving toward increased reliance on more price-based targets such as interest rates.
    Keywords: Monetary policy;China;Interest rates;Demand for money;Financial sector;Banks;Cross country analysis;Financial Liberalization, Financial Innovation, and Money Demand Function
    Date: 2014–05–01

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