nep-cna New Economics Papers
on China
Issue of 2015‒01‒31
eighteen papers chosen by
Zheng Fang
Ohio State University

  1. Breaking the "Iron Rice Bowl" and Precautionary Savings: Evidence from Chinese State-Owned Enterprises Reform By Zheng Liu ; Feng Huang ; Dongming Zhu ; Hui He
  2. Political uncertainty and household savings By Rolf Aaberge ; Kai Liu ; Yu Zhu
  3. Export management and incomplete VAT rebates to exporters: the case of China By Gourdon, Julien ; Hering, Laura ; Monjon, Stéphanie ; Poncet, Sandra
  4. The People’s Republic of China's Potential Growth Rate: The Long-Run Constraints By Felipe, Jesus ; Lanzafame, Matteo ; Zhuang, Juzhong
  5. Constructing Annual Employment and Compensation Matrices and Measuring Labor Input in China By Harry WU ; Ximing YUE ; George G. ZHANG
  6. Economic linkages between New Zealand and China By Ross Kendall
  7. China’s Development Trajectory: A Strategic Opening for Industrial Policy in the South By Daniel Poon
  8. Would more extensive out-migration of rural farmers expedite farm mechanization? Evidence from a changing Chinese agricultural sector By Luo, Tianyuan ; Escalante, Cesar
  9. Asia-Pacific Integration with China vs. the United States: Examining trade patterns under heterogeneous agricultural sectors By Heerman, Kari E.R. ; Arita, Shawn ; Gopinath, Munisamy
  10. The Declining Share of Agricultural Employment in the People’s Republic of China: How Fast? By Felipe, Jesus ; Dacuycuy, Connie ; Lanzafame, Matteo
  11. Import Demand for Milk in China: Dynamics and Market Integration By Dharmasena, Senarath ; Wang, Jing ; Bessler, David A.
  12. Assessing China's Potential Surge on Demand for Grain Sorghum By Wang, Haiyan ; Malaga, Jaime
  13. Urbanization, Food Production and Food Security in China By Huang, Jikun ; Yang, Jun ; Deng, Xiangzheng ; Wang, Jinxia ; Rozelle, Scott
  14. Employer Subsidized Meals and FAFH Consumption in Urban China By Teng, Zhijing ; Seale, James Jr. ; Bai, Junfei ; Wahl, Thomas I.
  15. The Comovement between Non-GM and GM Soybean Price in China: Evidence from Dalian Futures Market By Wang, Nanying ; Houston, Jack
  16. An intervention analysis on the relationship between futures prices of non-GM and GM contract soybeans in China By Wang, Nanying ; Houston, Jack
  17. The rise of China and labor market adjustments in Latin America By Artuc, Erhan ; Lederman, Daniel ; Rojas, Diego
  18. Psychic distance and FDI: the case of China By Katiuscia Vaccarini

  1. By: Zheng Liu (FRBSF ); Feng Huang (Shanghai University of Finance and Economics ); Dongming Zhu (Shanghai University of Finance and Economics ); Hui He (Shanghai University of Finance and Econo )
    Abstract: We use China's large-scale reform of state-owned enterprises (SOEs) in the late 1990s as a natural experiment to identify and quantify the importance of precautionary saving for wealth accumulation. Before the reform, SOE workers enjoyed the same job security as government employees. Since the reform, over 35 million SOE workers have been laid off, although government employees kept their "iron rice bowl." The change in unemployment risk for SOE workers relative to that of government employees before and after the reform provides a clean identification of income uncertainty that helps us estimate the importance of precautionary saving. In our estimation, we correct a self-selection bias in occupational choice and disentangle the effects of uncertainty from pessimistic outlook. We obtain evidence that precautionary savings account for at least one-third of the wealth accumulation for SOE workers between 1995 and 2002.
    Date: 2014
  2. By: Rolf Aaberge ; Kai Liu ; Yu Zhu (Statistics Norway )
    Abstract: Despite macroeconomic evidence pointing to a negative aggregate consumption response due to political uncertainty, few papers have used microeconomic panel data to analyze how households adjust their consumption after an uncertainty shock. We study household savings and expenditure adjustment from an unexpected, large-scale and rapidly evolving political shock that occurred largely in May 1989 in Beijing, China. Using monthly micro panel data from a sample of the Urban Household Survey, we present evidence that a surge in political uncertainty resulted in significant temporary increases in savings among urban households in China. Our estimates also suggest the channel through which increase in savings is achieved: the increase in savings is driven by reductions in semi-durable expenditure and frequency of major durable adjustment. The uncertainty effect is more pronounced among older, wealthier, and more socially advantaged households. We interpret our findings using existing models of precautionary behavior. By focusing on time variation in uncertainty, our identification strategy avoids many of the potential problems in empirical studies of precautionary savings such as self-selection and life-cycle effects. Our findings on the channel of adjustment also coincide with the predictions from models on consumer durables adjustment combined with income uncertainty.
    Keywords: China; household savings; uncertainty
    JEL: D91 J3 E21
    Date: 2014–12
  3. By: Gourdon, Julien ; Hering, Laura ; Monjon, Stéphanie ; Poncet, Sandra
    Abstract: Compared to most countries, China’s value-added tax (VAT) system is not neutral and makes it less advantageous to export a product than to sell it domestically, as export - ers may not receive a complete refund on the domestic VAT they have paid on their inputs. However, the large and frequent changes to the VAT refunds which are offered to exporters have been led China to be accused of providing its firms with an unfair advantage in global trade. We use city-specific export-quantity data at the HS6-product level over the 2003-12 period to assess how changes in these VAT rebates have affected Chinese export performance. Our identification strategy relies on triple difference estimates that exploit an eligibility rule which disqualifies processing trade with sup - plied materials from these rebates. We find that changes in VAT rebates have significant export repercussions: eligible export quantity for a given city-HS6 pair rises by 6.5% following a one percentage-point increase in the VAT rebate. This magnitude yields a better understanding of the strong resistance of Chinese exports during the global recession, in which export rebates increased substantially.
    Keywords: VAT System; export tax; export performance; China;
    JEL: F10 F14 O14
    Date: 2014–12
  4. By: Felipe, Jesus (Asian Development Bank ); Lanzafame, Matteo (Università degli Studi di Messina ); Zhuang, Juzhong (Asian Development Bank )
    Abstract: We estimate the People’s Republic of China’s (PRC’s potential growth rate in 2012 at 8.7% and at 9.2% for the average of 2008–2012, about the same as the average actual growth rate for this period. This rate is the natural growth rate, that is, the rate consistent with a constant unemployment rate and stable inflation. The PRC’s natural growth rate displays a downward trend since 2006, when it peaked at 11.1%. Probably the Great Recession has been an important factor, although we argue that there are other factors. We show that the PRC’s potential growth rate is not demand constrained, in particular by the balance of payments. The PRC’s potential growth rate is determined by the supply side of the economy, in particular by: (i) changes in the structure of the economy, in particular in the share of industrial employment; (ii) the working-age population; (iii) the share of net exports in gross domestic product (GDP); (iv) export growth; (v) the share of foreign direct investment (FDI) in GDP; and (vi) human capital accumulation.
    Keywords: balance of payments constrained growth rate; Kalman filter; natural growth rate; Okun’s Law; People’s Republic of China; potential growth rate
    JEL: O14 O47 O53
    Date: 2014–11–01
  5. By: Harry WU ; Ximing YUE ; George G. ZHANG
    Abstract: This paper documents the procedures in constructing China's employment and compensation metrics and measuring labor input in the Chinese economy. We begin with discussions of major conceptual, coverage, and classification problems in the official labor statistics and then propose strategies to solve the problems using a labor indexing methodology. This methodology allows the human capital attributes of any employed person weighted by their specific costs and the sum of the costs is controlled by the national income accounts. It guides our basic data work to adjust breaks, fill gaps, and restore consistencies in annual statistics and in benchmark marginal matrices. We use the iterative proportional filling (IPF) approach to obtain full-dimensioned employment and compensation matrices for benchmarks and, based on which, we then construct the matrices in time series. We show that China's total (cost-weighted) labor input grew by 4.1% per annum in 1980-2010, of which changes in quality and in hours worked made almost equal contributions. We also find that nearly half of the 2% quality improvement was attributable to changes in the industrial structure, followed by changes in education attainment and age structure.
    Date: 2015–01
  6. By: Ross Kendall (Reserve Bank of New Zealand )
    Abstract: Over the past several decades, China’s share of global output and trade – and of trade with New Zealand – has increased rapidly. This note outlines some of the ways in which the emergence of China has influenced, and may influence in the future, New Zealand’s economy.
    Date: 2014–12
  7. By: Daniel Poon
    Abstract: A revival in South-South economic relations has raised the possibility of a shift in global power with profound implications for economic progress and poverty reduction in the developing world. This discussion paper delves behind the headline numbers to examine the underlying factors driving South- South relations and areas of strategic developmental cooperation. For now, South-South economic flows are being driven by China and its ability to deploy an unorthodox growth model that tilts the economy in favour of investment, which is crucial to its ambitious climb up the industrial value chain. Five key sectors (food, fertilizer, cement, steel and machinery) outlined by Arthur Lewis are used to assess China’s economic trajectory, which clearly remains a work in progress, but shows signs of indigenous technological capabilities taking root – particularly in medium technology capital goods industries. The gap between China’s industrial ambitions and its current capabilities provides a strategic opening for other developing countries to bargain for enhanced opportunities for domestic investment, learning, technical change and structural transformation. At the same time, China’s “real-time” formulation and practice of industrial policy processes are a source of inspiration for other developing countries searching for an alternative growth path. In a post-crisis setting, such demonstrations act as a useful template for re-thinking development priorities and to gradually begin re-casting economic policies within a national framework more conducive to catch-up and self-sustaining growth..
    Date: 2014
  8. By: Luo, Tianyuan ; Escalante, Cesar
    Abstract: Changes in agricultural population can significantly influence the progress of mechanization, which provides efficient momentum to the further development of agriculture. We examine the effect of the declining agricultural population on mechanization and determine the variables that have decisive power over mechanical adoption decisions. This analysis of a panel data of top six out-migration provinces in China under a fixed effect model, we find that the overly fast and unusual decline in agricultural population actually slowed down the progress of mechanization, and the many years of large scale out-migration encouraged by government actually jeopardized sustainable agricultural development. Results underscore the need for considerable attention on the growth of annual farm incomes and agricultural products import that could have substantial effects on agricultural mechanization decisions.
    Keywords: agricultural population, mechanization, farm exit, import, Consumer/Household Economics, Labor and Human Capital, Research and Development/Tech Change/Emerging Technologies,
    Date: 2015
  9. By: Heerman, Kari E.R. ; Arita, Shawn ; Gopinath, Munisamy
    Abstract: This article compares the effects on global agricultural trade patterns of Asia-Pacific regional economic integration led by the United States versus that by China. Our analysis employs a Eaton-Kortum type model in which agricultural producers have access to technology with heterogeneous productivity. Unlike the standard Eaton-Kortum model, product specific-productivity is linked to a country’s land and climate characteristics and trade costs are product-specific. We derive a structural relationship between the probability a country has comparative advantage in a given export market for an individual agricultural product and the bilateral costs of trading that product controlling for the product-specific unit costs of production from a general equilibrium framework. We specify the relationship as a random coefficients logit model to estimate a country-specific distribution of trade costs and productivity across agricultural products. We use these estimated distributions to explore the set of bilateral relationships from which Asia-Pacific integration is likely to generate the largest shifts in agricultural trade patterns.
    Keywords: Asia-Pacific integration, agricultural trade, free trade agreements, Agricultural and Food Policy, International Relations/Trade,
    Date: 2015–11
  10. By: Felipe, Jesus (Asian Development Bank ); Dacuycuy, Connie (Ateneo de Manila University ); Lanzafame, Matteo (Università degli Studi di Messina )
    Abstract: From 1962 to 2013, the People’s Republic of China’s (PRC’s)agricultural employment share declined from 82% to 31%. The transfer of workers out of low-productivity agriculture is a fundamental pillar of the PRC’s aspirations to progress and eventually become a high-income economy. We hypothesize that the drivers of this decline have been the increase in income per capita, industrial value added, foreign direct investment, and domestic credit. We use an Autoregressive Distributed Lag Model to test the strong exogeneity of the regressors so that we can use it for forecasting. Results indicate that the share of employment in agriculture in the PRC will decline to about 24% by 2020, the end of the 13th Five-Year Plan (2016–2020). We also estimate that the PRC’s employment share will reach 5%, the share observed in today’s rich economies, by 2042–2048.
    Keywords: agricultural employment; People’s Republic of China; structural transformation
    JEL: O13 O53 Q10
    Date: 2014–11–01
  11. By: Dharmasena, Senarath ; Wang, Jing ; Bessler, David A.
    Abstract: The consumption of milk in China has been increasing over past two decades. Currently, China does not produce enough milk to meet this increase in demand. Consequently a large volume of milk is imported. In this study, import demand for milk in China is explored using demand systems approach formulated through a vector error correction model (VECM). Additionally, import market integration is explored using contemporaneous causality structures developed through artificial intelligence and Direct Acyclic Graphs (DAGs) applied to innovations of VECM. Objectives of this study are to (1) Develop a VECM and test price homogeneity in the cointegration space; (2) Estimate almost ideal demand system model where prices are expressed in relative prices; (3) Calculate Chinese import demand elasticities for milk; and (4) Model import market integration using DAGs. Annual import volume (lbs) and total value ($US) of milk imported to China from Australia, New Zealand, United States and rest of the world, from 1992–2013 are collected from UN COMTRADE database. Calculated milk import demand elasticities shed light on the sensitivity of milk imports to changes in milk price of exporting country. Causality structure based off of innovations of VECM will allow us identify import market integration patterns. Preliminary results from causality structures reveal that the import share from the rest of the world is endogenous, while that of the United States, Australia and New Zealand was found to be weakly exogenous.
    Keywords: China milk demand, Directed acyclic graphs, dynamics, import demand, Agricultural and Food Policy, International Relations/Trade, F14, C81,
    Date: 2015–01
  12. By: Wang, Haiyan ; Malaga, Jaime
    Abstract: China is one of the world's fastest growing economies showing an impressive growth on consumption of animal protein which has resulted on a rapidly increasing derived demand for feed grains. Corn is the key feed crop for China, however, the government policies have boosted domestic corn prices above international levels. Some important facts signal that China is becoming a large market of feed grain where sorghum is a close and cheaper substitute for corn. This paper used a derived demand model to estimate the parameters of China’s sorghum feed domestic consumption. Results of this paper will be an important reference for international sorghum trading countries, especially for United States, which is one of the largest sorghum producing and exporting countries.
    Keywords: China, Sorghum, Demand, Feed, Demand and Price Analysis, International Relations/Trade,
    Date: 2016
  13. By: Huang, Jikun ; Yang, Jun ; Deng, Xiangzheng ; Wang, Jinxia ; Rozelle, Scott
    Keywords: Community/Rural/Urban Development, Food Security and Poverty, International Development,
    Date: 2015
  14. By: Teng, Zhijing ; Seale, James Jr. ; Bai, Junfei ; Wahl, Thomas I.
    Abstract: This study investigates factors influencing household decisions on food away from home (FAFH) consumption with special interest given to the effects of employer subsidized meals on FAFH consumption. Using data from a new urban food consumption survey and collected by the Center for Chinese Agriculture Policy from 2009 to 2012 in 10 cities, a double-hurdle model is utilized to estimate the demand for FAFH as a whole and by type of facility (restaurant, fast-food outlet, and other facilities). The key findings suggest that households with at least one member receiving subsidized meals are more likely to participate in the FAFH market, but these households spend less when they dine out than their counterparts without employer subsidized meals.
    Keywords: Subsidized meal, Food-away-from-home, Urban China, Double-hurdle model, Consumer/Household Economics, Food Consumption/Nutrition/Food Safety, D12,
    Date: 2015
  15. By: Wang, Nanying ; Houston, Jack
    Abstract: The price variability of agricultural commodities reached record levels in 2008, and again more recently in 2010, raising concerns about this increased price volatility would be temporal or structural. The Chinese soybean futures market is the second largest in the world, after the CME group, in terms of trading volume. There are two soybean futures contracts in China: non-GM and GM. Due to its dominant market share of trading volume, the non-GM contract is the representative of China’s soybean markets (He and Wang, 2011). However, with the emergence of the GM soybean contract in 2004, the components of non-GM futures price volatility might have changed. This study examines the volatility determinants as well as seasonality of non-GM and GM soybean futures prices traded in Dalian Commodity Exchange from 2005 to 2014. Also, we test the comovement between these two soybeans markets. We analyze the volatility by incorporating changes in important economic variables into the Dynamic Conditional Correlation-Generalized Autoregressive Conditional Heteroskedastic (DCC-GARCH) model. This research provides statistical evidence that the futures prices of soybeans in China are being influenced by the increasing consumption of soybeans, the import quantity of soybean, the trading volume in futures market and weather. We also find spillover effect from non-GM to GM in soybean markets. A better understanding of the volatility determinants provides important additional information for various market participants, including commodity traders, hedgers, arbitrageurs, exchanges and regulatory agencies.
    Keywords: China, DCC-GARCH Model, time-varying correlation, macroeconomic, Agricultural Finance, Food Consumption/Nutrition/Food Safety, O53, Q14,
    Date: 2015
  16. By: Wang, Nanying ; Houston, Jack
    Abstract: China adopted a mandatory labeling policy of Genetically Modified (GM) food products in 2002. The strategy of separating trading was intended by Chinese regulators to protect domestic non-GMO production, provide non-GM soybean growers a higher selling price, and facilitate marketing. On December 22, 2004, the Dalian Commodity Exchange (DCE) introduced a separate futures contract for No. 2 soybeans, which includes GM soybeans. With this change, the No. 1 soybean futures contract defaulted to a non-GM contract. Parcell (2001) defines the difference between the prices of non-GM and GM soybean futures contract soybeans as the price premium for non-GM soybeans. An intervention analysis is used to test the effects of the events on the price premium for non-GM soybeans in each sub-period. We investigate the impacts of three events—two contract specification changes in 2005 and 2010 and one grain law implementation in 2012—focusing on both the direction and size of their impacts. In conclusion the contract specification change from the DCE for the soybean futures contract did affect the price premium between the GM and non-GM soybean futures contracts. Therefore, these two cases of changes can be considered as successful interventions. Hence, there appeared to be informational efficiency in the market. It is also found the law issue has permanently increased the price premium for non-GM soybeans. Studying the market response linkages between the two soybean futures markets is helpful for understanding whether the newly opened GM soybean futures market transmits price information effectively.
    Keywords: China soybeans, GMO, non-GMO, Intervention analysis, Impulse response function, Agricultural Finance, Financial Economics, O53, Q14,
    Date: 2015
  17. By: Artuc, Erhan ; Lederman, Daniel ; Rojas, Diego
    Abstract: This paper assesses the impact of the rise of China on the trade of Latin American and Caribbean economies. The study proposes an index to measure the impact on trade, which suggests sizable effects, especially in Argentina, Brazil, Chile, Honduras, Mexico, and Paraguay. The paper uses the index and a model of labor mobility, to calculate the impact of China's growth on labor markets in Argentina, Brazil, and Mexico. The resulting evidence suggests that the rise of China has had positive effects on agriculture and mining in Argentina and Brazil, which offset negative impacts on manufacturing industries, thus leaving total employment and real wages virtually unchanged in the long run. In contrast, the estimated impacts of China's rise on Mexico imply that the sizable shock to manufacturing was not offset by the positive shocks on mining and agriculture, reducing employment in the long run. The paper also discusses the effect of China on the degree of informality in these three economies and contrasts short-run and long-run effects on employment and wages across industries.
    Keywords: Economic Theory&Research,Labor Markets,Labor Policies,Markets and Market Access,Trade Policy
    Date: 2015–01–01
  18. By: Katiuscia Vaccarini (University of Macerata )
    Abstract: The purpose of this paper is to investigate whether and to what extent psychic distance (PD) is considered by scholars as specific determinant of inbound and outbound foreign direct investments (FDI) in China. The finding of this study, which is a systematic literature review show that PD as a variable of FDI determinants seems to be under-investigated. The difficulty in quantifying the variable in international business might be one of the reasons. Nevertheless, the literature does raise awareness on distance issues and its multi-dimensions since it first appeared. Besides, the most applicable indexes elaborated by international business scholars are based on Hofstede’s work, whose results are used both in psychology and management studies, pinpointing its interdisciplinary nature. This paper aims to systematize the limited and fragmented literature about non-tangible perceptions of distance between home and host economies this paper contributes in raising awareness . However, as part of a wider European Union project the ultimate results of the paper have not been leaked yet. This study provides useful insights and practical implications for international scholars regarding a more comprehensive review of PD, for managers in terms of raising awareness on PD and of the foreign environment (opportunities and difficulties which they are experiencing in the market context) as well as setting up and strengthening long-term cooperation between Europe and China and finally, policy makers on the issue of trade and investment flows between Europe and China, key barriers which affect companies and which require action at political and institutional level in order to ensure that opportunities are fully exploited.
    Keywords: psychic distance, China, FDI, determinants of FDI.
    Date: 2014–12

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