nep-cna New Economics Papers
on China
Issue of 2014‒07‒21
seven papers chosen by
Zheng Fang
Ohio State University

  1. Examining Determinants of Foreign Wage Premiums in China By Theresa M. Greaney; Yao Li
  2. Testing the Predictability of Consumption Growth: Evidence from China By Liping Gao; Hyeongwoo Kim
  3. Energy Prices, Subsidies and Resource Tax Reform in China By ZhongXiang Zhang
  4. One currency, two markets: the renminbi’s growing influence in Asia-Pacific By Chang Shu; Dong He; Xiaoqiang Cheng
  5. Offshoring and Directed Technical Change By Daron Acemoglu; Gino Gancia; Fabrizio Zilibotti
  6. Going beyond tradition: Carbon policy in a high-growth economy: The case of China By Lucas Bretschger; Lin Zhang
  7. Dollar Hegemony and China’s Economy By Kai Liu

  1. By: Theresa M. Greaney (Department of Economics, University of Hawaii at Manoa); Yao Li (School of Management and Economics, University of Electronic Science and Technology of China)
    Abstract: We estimate foreign ownership wage premiums for every 3-digit manufacturing industry in China and discover a wide range of premiums both for so-called “foreign†ownership and for overseas Chinese ownership of firms. Foreign ownership generates larger and more prevalent wage premiums than overseas Chinese ownership of firms, but both types of foreign ownership produce wage premiums that respond similarly in hypothesis testing of determinants. Using the number of computers per worker as an indicator of a firm’s technology level, we find support in 76-78% of industries for the hypothesis that foreign firms pay higher wages to reduce the risk of worker turnover and the accompanying technology leakage to domestic rivals. However, this determinant explains only 5-6% of the foreign wage premium, on average. We find the most intensive support for the “fair wage†hypothesis that foreign firms pay higher wages because they are more profitable than domestic firms and workers in more profitable firms expect to be paid more, otherwise they will shirk. This hypothesis explains an average of 8-9% of the foreign wage premiums, with support for the hypothesis found in 72-75% of the industries using firm’s total profits per worker as the added wage determinant. Intangible assets and training costs were found to be much weaker individual determinants of foreign wage premiums. When we consider the best combination of explanatory variables to include in each industry’s wage regression, we find support for our combined hypotheses in the vast majority of industries, but we still find large residual wage premiums attached to foreign ownership in China.
    Keywords: FDI, foreign ownership, wages, China
    JEL: F16 F23 J31
    Date: 2014–06
  2. By: Liping Gao; Hyeongwoo Kim
    Abstract: Chow (1985, 2010, 2011) reports indirect evidence for the permanent income hypothesis using time series observations in China. We revisit this issue by addressing direct evidence of the predictability of consumption growth in China during the post-economic reform regime (1978-2009) as well as the postwar US data for comparison. Our in-sample analysis provides strong evidence against the PIH for both countries. Out-of-sample forecast exercises show that consumption changes are highly predictable.
    Keywords: Permanent Income Hypothesis; Consumption; Out-of-Sample Predictability; Diebold-Mariano-West Statistic
    JEL: E21 E27
    Date: 2014–07
  3. By: ZhongXiang Zhang (School of Economics, Fudan University)
    Abstract: The Chinese leadership in November 2013 determined to embark upon a new wave of comprehensive reforms in China. This is clearly reflected by the key decision of the Third Plenum of the 18th Central Committee of Communist Party of China to assign the market a decisive role in allocating resources. To have the market to play that role, getting the energy prices right is crucial because it sends clear signals to both producers and consumers of energy. While the overall trend of ChinaÕs energy pricing reform since 1984 has been moving away from the pricing completely set by the central government in the centrally planned economy towards a more market-oriented pricing mechanism, the pace and scale of the reform differ across energy types. This paper discusses the evolution of price reforms for coal, petroleum products, natural gas and electricity in China, provides some analysis of these energy price reforms, and suggests few areas of reforms could take place in order to have the market to play a decisive role in allocating resources and to help ChinaÕs transition to a low-carbon economy.
    Keywords: energy prices, tiered prices, differentiated tariffs, subsidies, coal, electricity, natural gas, petroleum products, resource taxes, desulfurization and denitrification state-owned enterprises, China
    JEL: H23 H71 O13 O53 Q41 Q43 Q48 Q53 Q58
    Date: 2014–06
  4. By: Chang Shu; Dong He; Xiaoqiang Cheng
    Abstract: This study presents evidence of the renminbi’s growing influence in the Asia-Pacific region. The CNH market – the offshore renminbi foreign exchange market in Hong Kong SAR – is found to exert an effect on Asian currencies that is distinct from that of the onshore (CNY) market. Changes in the RMB/USD rates in both markets have a statistically and economically significant impact on changes in Asian currency rates against the US dollar, even after controlling for other major currency moves and the transmission of China’s monetary policy to the region. The continuing growth of the offshore renminbi market suggests that the influence of the CNH market is rising, but how long the independent impact will last will likely depend on China’s progress in liberalising its capital account. The findings also suggest that China’s regional influence is increasingly transmitted through financial channels.
    Keywords: renminbi internationalisation, renminbi impact, offshore markets
    Date: 2014–03
  5. By: Daron Acemoglu; Gino Gancia; Fabrizio Zilibotti
    Abstract: We study the short- and long-run implications of offshoring on innovation, technology adoption, wage and income inequality in a Ricardian model with directed technical change. In our model, profit maximization determines both the extent of offshoring and the direction of technological progress. A fall in the cost of offshoring induces technical change with an ambiguous factor bias. When the initial offshoring cost is high, an increase in offshoring opportunities triggers a transition with falling real wages for unskilled workers in the West, skill-biased technical change and rising skill premia worldwide. When the offshoring cost is sufficiently low, instead, further increases in offshoring opportunities induce technical change biased in favor of the unskilled workers and may lower the skill premium. Although offshoring improves the welfare of workers in the East, it may benefit or harm unskilled workers in the West depending on parameters, the level of offshoring and the equilibrium growth rate.
    Keywords: China, directed technical change, offshoring, productivity growth, skill premium
    JEL: F43 O31 O33
    Date: 2014–06
  6. By: Lucas Bretschger (ETH Zurich, Switzerland); Lin Zhang (ETH Zurich, Switzerland)
    Abstract: There is widespread concern that an international agreement on stringent climate policies will not be reached because it would imply too high costs for fast growing economies like China. To quantify these costs we develop a general equilibrium model with fully endogenous growth. The framework includes disaggregated industrial and energy sectors, endogenous innovation, and sector-specific investments. We find that the implementation of Chinese government carbon policies until 2020 causes a welfare reduction of 0.3 percent. For the long run up to 2050 we show that welfare costs of internationally coordinated emission reduction targets lie between 3 and 8 percent. Assuming faster energy technology development, stronger induced innovation, and rising energy prices in the reference case reduces welfare losses significantly. We argue that increased urbanization raises the costs of carbon policies due to altered consumption patterns.
    Keywords: Carbon policy; China; Endogenous growth; Induced innova- tion; Urbanization.
    JEL: Q54 O41 O53 C68
    Date: 2014–07
  7. By: Kai Liu
    Abstract: This paper models the US dollar as a global currency and focuses on the effects of US money supply shock upon China’s economy. The special roles of US dollar as a global currency and the special institutional arrangements of China are investigated. Given a positive US money supply shock, both the inflation and real GDP of China will be below their steady state levels in the medium term; while for the US there is no inflation pressure. Welfare calculation shows that a positive 10% US money supply shock will result in a positive 1.25% welfare gain for China, a positive 0.06% welfare gain for US, but a 0.21% welfare loss for the rest of the world. Given that the US dollar’s hegemony is not weakened, the regime with liberalized capital accounts and an exchange rate peg to the US dollar for China is best for the Chinese households under the US money supply shock. However, when the US dollar is no longer the global reserve currency but instead a supranational reserve currency replaces it, then for China this regime is the worst kind of reform, no matter whether or not the dollar standard in international trade is maintained.
    Keywords: US dollar, global currency, capital control, exchange rate, business cycle
    JEL: E32 E42 E51 F31 F41 F44
    Date: 2014–06–04

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