nep-cna New Economics Papers
on China
Issue of 2015‒02‒05
thirteen papers chosen by
Zheng Fang
Ohio State University

  1. Trapped factors and China’s impact on global growth By Nicholas Bloom; Paul Romer; Stephen Terry; John Van Reenen
  2. Gone for good? Subsidies with export share requirements in China: 2002-2013 By Fabrice Defever; Alejandro Riaño
  3. Winners and losers from a commodities-for-manufactures trade boom By Francisco Costa; Jason Garred; João Paulo Pessoa
  4. Identifying the Flypaper Effect in the Presence of Spatial Dependence: Evidence from Education in China’s Counties By Yu, Yihua; Wang, Jing; Tian, Xi
  5. Service Sector Reform in China By Ryan Rutkowski
  6. Projecting Meat and Cereals Demand for China Based on a Meta-Analysis of Income Elasticities By Zhou, De; Yu, Xiaohua; Abler, David G.; Chen, Danhong
  7. The US-China-Europe Economic Reform Agenda By Nicholas Borst; Nicholas R. Lardy; Cullen S. Hendrix; Marcus Noland; Ryan Rutkowski
  8. Political Uncertainty and Household Savings. By Aaberge, Rolf; Liu, Kai; Zhu, Yu
  9. Political Connections, Discriminatory Credit Constraint and Business Cycle By Peng, Yuchao; Yan, Lili
  10. Does better rail access improve homeowners’ happiness?: evidence based on micro surveys in Beijing By Wenjie Wu
  11. Who gains from credit granted between firms? Evidence from inter-corporate loan announcements made in China By He, Qing; Lu, Liping; Ongena , Steven
  12. The ICT Landscape in Brazil, India, and China By Jean-Paul
  13. ‘Greater Chinese’ global production networks in the Middle East: the rise of the Jordanian garment industry By Shamel Azmeh; Khalid Nadvi

  1. By: Nicholas Bloom; Paul Romer; Stephen Terry; John Van Reenen
    Abstract: In a general equilibrium product-cycle model, lower trade barriers in-crease Southern purchasing power, which lifts long-run growth by increasing the profit from innovation. In the short run, factors of production must be reallocated inside firms, which lowers the opportunity cost of innovation, generating an additional “trapped factor” effect. Starting from a baseline OECD growth rate of 2% we find that trade integration with low-wage countries in the decade around China’s WTO accession could have increased long-run growth to 2.4%. There is an additional short-run trapped factors effect, raising growth to 2.7%. China accounts for about half of these growth increases.
    Keywords: Innovation; trade; China; endogenous growth
    JEL: C23 D8 D92 E22
    Date: 2014–03
  2. By: Fabrice Defever; Alejandro Riaño
    Abstract: This paper presents a simple model of subsidies with export share requirements (ESR) in a heterogeneous firm environment. A two-country general equilibrium version of the model with a single 100% ESR is calibrated using firm-level data from the 2002 wave of the Business Environment and Enterprise Performance Survey collected by the World Bank for China. The calibrated model is used to gauge the change in subsidies with ESR that is consistent with the fall in the share of ‘pure exporters’, firms exporting all their output, observed in China, from 25.7% in 2002 to 11.1% in 2013. Our results indicate that a 6.9% reduction in the ad-valorem subsidy rate available to firms that export all their output is consistent with the observed fall in their share of exporting firms. Expenditure in subsidies (as a share of value-added) falls by 66% and welfare in China increases by 1.76% while real income in the rest of the world falls by 0.59%.
    Keywords: Trade Policy; Export Subsidies; Export Share Requirements; China
    JEL: F12 F13 O47
    Date: 2014–07
  3. By: Francisco Costa; Jason Garred; João Paulo Pessoa
    Abstract: A recent boom in commodities-for-manufactures trade between China and other developing countries has led to much concern about the losers from rising import competition in manufacturing, but little attention on the winners from growing Chinese demand for commodities. Using census data for Brazil, we find that local labour markets more affected by Chinese import competition experienced slower growth in manufacturing wages and in-migration rates between 2000 and 2010, and greater rises in local wage inequality. However, in locations benefiting from rising Chinese demand, we observe higher wage growth, lower takeup of cash transfers and positive effects on job quality.
    Keywords: China; trade; commodities-for manufactures; wages; employment; informality
    JEL: F14 F16 O17 Q17
    Date: 2014–05
  4. By: Yu, Yihua; Wang, Jing; Tian, Xi
    Abstract: In the context of China without a median voter system, this study examines whether the “flypaper effect”, an unconditional lump-sum grant from the upper governments to the county governments increases spending in a greater proportion than an equivalent rise in local income, holds true in China. Using China’s county-level education data during 2007, the models have been estimated using a spatial econometric technique that accounts for spatial interaction behavior on public education expenditure across local governments. We find that, in the presence of spatial interdependence, there is no evidence of a “flypaper effect” when different spatial weighting schemes and the endogeneity problem of education grants are accounted for. Rather, the “anti-flypaper effect” is found. Important policy implications are drawn for China’s fiscal decentralization reform.
    Keywords: Flypaper effect, Grants, Local government expenditure, Spatial econometrics
    JEL: C23 H71 H77 R12
    Date: 2013–06
  5. By: Ryan Rutkowski (Peterson Institute for International Economics)
    Abstract: Faced with slowing economic growth, Chinese policymakers now recognize that the service sector of the economy-transportation, communications, finance, and health care-could spur economic activity and employment. The catch is that China must reform these and other areas to accomplish this goal. Chinese leaders have outlined an ambitious agenda for reform, but myriad vested interests could slow or block their plans. This Policy Brief evaluates the steps taken so far and the difficulties that lie ahead in implementing them. If policymakers fail to reform and open up the service sector, they run the risk of seriously impairing China's growth prospects.
    Date: 2015–01
  6. By: Zhou, De; Yu, Xiaohua; Abler, David G.; Chen, Danhong
    Abstract: There are many projections for China’s food demand, and the projection results differ significantly from each other. Different values for income elasticities could be a major reason. This study projects meat and cereals demand for China based on a meta-analysis of the income elasticity estimates using a collection of 143 and 240 income elasticity estimates for cereals and meat products, respectively, from 36 primary studies. We find that income elasticities for most cereals (general cereals, rice, and coarse grains) and all meat products (general meat, pork, poultry, beef & mutton) tend to decline as per capita income increases, except for wheat, which increases. Taking this into account, differences between consumption projections based on time-varying income elasticities and values based on constant elasticities are substantial in quantities and increase over time.
    Keywords: projections, food demand, income elasticity, China, meta-analysis, Agricultural and Food Policy, Demand and Price Analysis, Food Consumption/Nutrition/Food Safety, D12, Q11,
    Date: 2014–05
  7. By: Nicholas Borst (Peterson Institute for International Economics); Nicholas R. Lardy (Peterson Institute for International Economics); Cullen S. Hendrix (Peterson Institute for International Economics); Marcus Noland (Peterson Institute for International Economics); Ryan Rutkowski (Peterson Institute for International Economics)
    Abstract: China's rise as an economic power in the last quarter century has posed a range of challenges for the rest of the world, especially in the aftermath of the global financial crisis of 2007–09. To elucidate the issues and deepen understanding between China and the United States, the Peterson Institute for International Economics sent a delegation of ten senior staff to participate in the third annual China-US Economists Symposium, held May 17–18, 2014, in Beijing. Among the subjects they addressed were the prospect of secular stagnation in the advanced economies, the decline of potential GDP growth in China, China's credit boom, and the country's overall reform agenda. Also discussed were the controversial role of the International Monetary Fund as a crisis manager and the governance issues that remain a challenge for the Fund and its constituents 70 years after its establishment at Bretton Woods. The China-US Economists Symposium was also attended by high-profile Chinese economists and policymakers drawn from the membership of the China Finance Forty Forum (CF40), a think tank located in Beijing. Members of Brussels-based think tank Bruegel also joined the event this year. The theme of the conference was "Reform: Challenges and Opportunities," focusing on the difficult structural reforms facing China, Europe, and the United States. Other issues at the conference included the prospect of long-term stagnation in both emerging and advanced economies, the declining importance of state-owned enterprises in the Chinese economy, global coordination on financial reform, efforts by central banks to tackle inflation and asset bubbles, and the effectiveness of the G-20 in response to the global economic downturn. Through vigorous debate and exchange of ideas, the conference participants came away with a better understanding of the challenges facing the United States, China, and Europe and new approaches that policymakers can consider in addressing these challenges. With this volume, the Peterson Institute is pleased to share the conference papers contributed by the Peterson Institute participants.
    Date: 2014–05
  8. By: Aaberge, Rolf (SSB); Liu, Kai (Dept. of Economics, Norwegian School of Economics and Business Administration); Zhu, Yu (University of Dundee)
    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, we present evidence that a surge in political uncertainty resulted in significant temporary increases in savings among urban households in China. Households responded mainly by reducing 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.
    Keywords: China; household savings; political uncertainty.
    JEL: D91 E21 J30
    Date: 2014–12–04
  9. By: Peng, Yuchao; Yan, Lili
    Abstract: This paper builds a banking DSGE model based on endogenous loan to value ratios, taking the different relationship between different types of enterprises and banks into account. Due to the political connections between the bank and enterprises, loan to value ratio for favored enterprises (e.g. state-owned enterprises) is endogenously higher than that for non-favored enterprises (e.g. private enterprises), which is called discriminatory credit constraint in this paper. Compared to non-discriminatory credit constraint, we find that discriminatory credit constraint can further amplify the impact of negative technology shocks on output, and reduce the effectiveness of expansionary monetary policy. Empirical evidence from China industrial firms’ data supports our conclusion.
    Keywords: Discriminatory Credit Constraint, Political Connections, Financial Accelerator
    JEL: E32 E52 G21
    Date: 2015–01
  10. By: Wenjie Wu
    Abstract: Development of urban transport infrastructures is a key policy focus---particularly in countries like China which have experienced fast urbanisation over the past decade. While existing studies provide marginal values for rail access on the real estate market, little is known about the consequences of local public goods improvements for homeowners’ subjective wellbeing using reported happiness data. This paper uses a difference-in-difference method to empirically measure the impact of rail access on homeowners’ happiness. My identification strategy takes advantage of micro happiness survey data conducted before-and-after the opening of new rail stations in 2008 Beijing. I deal with the potential concern about the endogeneity in sorting effects by focusing on “stayers” and using non-market (fang gai) housings with pre-determined locations. I find the significantly heterogeneity in the effects from better rail access on homeowners’ happiness with respect to different dimensions of residential environment. The welfare estimates suggest that better rail access provided substantial benefits to homeowners’ happiness, but these benefits have strong social-spatial differentiations. These findings add to the evidence that transport improvement has an important role to play in influencing local residents’ subjective wellbeing.
    Keywords: happiness; transport improvement; geographical Information system; wellbeing; China
    JEL: D60 H41 R41
    Date: 2013–04
  11. By: He, Qing (BOFIT); Lu, Liping (BOFIT); Ongena , Steven (BOFIT)
    Abstract: Who gains from inter-corporate credit? To answer this question we investigate the reactions of the stock prices of both the issuing and receiving firms to the announcements of 719 inter-corporate loans that took place between 2005 and 2012 in China. We find that the average abnormal return for the issuers of inter-corporate loans is significantly negative, whereas the corresponding return for those firms receiving credit is positive. Investors may worry that issuing firms may have run out of other worthwhile projects to finance, while at the same time they may view credit-receiving firms as being certified as worthy borrowers. The issuance of intra-group loans, especially those with higher interest rates, is associated with lower returns overall since such loans may signal a spreading of financial distress to the rest of the group. After issuing inter-corporate loans, firms are also found to have lower accounting performance, which confirms the aforementioned signaling interpretation.
    Keywords: entrusted loan; inter-corporate loan; credit misallocation; certification
    JEL: G14 G21 G30
    Date: 2015–01–17
  12. By: Jean-Paul
    Abstract: The Information Society Unit at IPTS (European Commission) has been investigating the Information and Communication Technologies (ICT) sector and ICT R&D in Asia for several years. This research exercise led to three reports, written by national experts, on China, India and Taiwan, each one including a dataset and a technical annex. This report offers a synthesis on three out of the four BRIC countries (Brazil, India, Russia, China). The report describes, for each of the three countries (Brazil, India, China), its ICT sector, and gives a company level assessment. It also analyses Indian ICT R&D strategies, and assesses the innovation model. In 2010, BRIC countries accounted for 13% of global demand, with spending of about €328 billion in ICT (EITO, 2011). Therefore, they are becoming major players as producers of ICT goods and services. China has become the world’s largest producer of ICT products (exports of ICT increased fourfold between 2004 and 2008). This impressive growth of the ICT market is translated into R&D expenditures and output. Innovative capability in Asia has grown, the dynamics in terms of catching up are strong. Asian countries are increasingly present in the ICT R&D global landscape.
    Keywords: ICT, landscape, Brazil, India, China
    Date: 2014–12
  13. By: Shamel Azmeh; Khalid Nadvi
    Abstract: The expansion of ‘Greater Chinese’ capital from mainland China, Hong Kong and Taiwan into other parts of the developing world is increasingly noted. It is especially prominent in sub-Saharan Africa where Greater Chinese investments, firms and workers are found across a wide range of activities, from the extractive commodity sectors, to infrastructure projects, agriculture and manufacturing. One region where Greater Chinese investment is less well studied is the Middle East. This article focuses on the case of Jordan. Jordan has rapidly emerged as an important supplier of apparel to the United States, a consequence of a distinct preferential trade agreement. The article charts the ways in which this preferential trade agreement has stimulated the shifts of Greater Chinese garment manufacturers to Jordan. Using a global production networks (GPN) framework, and drawing on primary and secondary evidence, it assesses the dynamics behind Greater Chinese investments into Jordan; it also explores the ways in which Greater Chinese garment producers operating in Jordan organize their supply chains and are linked into the global garments GPNs. Finally, it considers the relationship between such capital flows and the influx of Asian migrant workers into the Jordanian export garment sector.
    JEL: J50
    Date: 2013–11

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