nep-cna New Economics Papers
on China
Issue of 2015‒02‒16
fourteen papers chosen by
Zheng Fang
Ohio State University

  1. An Evaluation of the Impact of the China (Shanghai) Pilot Free Trade Zone (SPFTZ) By Daqing Yao; John Whalley
  2. Minorities in Rural China: Poorer but Inherently Happier? By John Knight; Li Shi; Yuan Chang
  3. China's R&D explosion: Analyzing productivity effects across ownership types and over time By Boeing, Philipp; Mueller, Elisabeth; Sandner, Philipp
  4. Subjective Well-being and Social Evaluation in a Poor Country By John Knight; Ramani Gunatilaka
  5. Influence of age of child on differences in life satisfaction of males and females By Eiji Yamamura; Antonio R. Andrés
  6. Are Investment Promotion Agencies Doing the Thing Right? Evidence from China By Bin Ni
  7. How is credit scoring used to predict default in China? By Ha-Thu Nguyen
  8. China's Technology Subsidies - Much ado about nothing? By Böing, Philipp
  9. The Costs of Quid Pro Quo By McGrattan, Ellen R.; Holmes, Thomas J.; Prescott, Edward C.
  10. The Influence of Labor Intensive Export on China's Economy Growth By Emmanuel Olusegun Stober
  11. Urbanization in China, ca. 1100–1900 By XuYi; Bas van Leeuwen; Jan Luiten van Zanden
  12. Firm Performance and Trade with Low-Income Countries: Evidence from China By Schmerer, Hans-Jörg; Wang, Luhang
  13. Regional Disparity and Dynamic Development of China: a Multidimensional Index By Bin, Peng
  14. Corporate Preferences for Domestic Policy Instruments under a Sectoral Market Mechanism: A Case Study of Shanxi Province in China By Shuai Gao; Wenjia Cai; Wenling Liu; Can Wang; ZhongXiang Zhang

  1. By: Daqing Yao; John Whalley
    Abstract: In this paper we present evidence as to the effects of the China (Shanghai) Pilot Free Trade Zone (SPFTZ) on China’s capital controls. The start of the SPFTZ in September, 2013 was a trial to introduce a combination of exchange rate floating and capital account liberalization into China’s macro policy mix. We employ three methods to test the SPFTZ’s impact on capital controls: price spread tests between CNH and CNY, RMB yield gaps between onshore and offshore RMB markets, and Granger causalities among China’s money supply and the foreign interest rates. All these tests give consistent results suggesting that the impact of China’s capital controls is weaker since the SPFTZ.
    Date: 2015–01
  2. By: John Knight; Li Shi; Yuan Chang
    Abstract: This is a pioneering study of the determinants of the subjective well-being of ethnic minority people in rural China, using a specially designed sample survey relating to 2011.  The underlying hypothesis is that the lifestyle and attitudes of ethnic minorities contribute to their happiness.  Five related hypotheses are tested.  The minority group is equally happy as the Han group.  However, whereas minorities' much lower income reduces their happiness, this disadvantage is neutralised by their greater inherent capacity for happiness - much of it derived from personal relationships but not, it seems, from lesser materialism or concentrated living together.  There is evidence of considerable heterogeneity in happiness across various ethnic minorities.  Suggestions are made for further research, including analysis of the (positive) effects of lifestyle against the (negative) effects of perceived discrimination.  There is a deeper question with which the paper connects: if subjective well-being is accepted as a criterion for social evaluation, does economic development produce cultural change for the better or for the worse?
    Keywords: China, Culture, Ethic minorities, Happiness function, Lifestyle, Subjective well-being
    JEL: I31 J15 Z10
    Date: 2014–06–20
  3. By: Boeing, Philipp; Mueller, Elisabeth; Sandner, Philipp
    Abstract: In the past years Chinese firms increased their spending on R&D substantially and worked on achieving a higher quality level of R&D. We analyze whether different R&D activities show a positive influence on total factor productivity (TFP) for firms of different ownership types and across two time periods. Our panel dataset with annual information allows us to study listed firms over the two time periods 2001-2006 and 2007-2011. Privately owned enterprises (POEs) not only obtain higher returns from own R&D than majority and minority state-owned enterprises (SOEs), they are also able to increase their leading position. Overall strong increases in the size of patent stocks are related to a decreasingly positive or even vanishing influence on TFP. POEs not only produce R&D of the highest quality but are also the only ownership type profiting from higher quality. Up to now research collaborations allow almost no benefit with the only exception stemming from domestic collaborations with individuals. Our comprehensive analysis depicts strengths but also weaknesses of the corporate sector in China. We derive implications for the further development of economic policies.
    Keywords: productivity,R&D,China,ownership type,patents
    JEL: O32 O33
    Date: 2015
  4. By: John Knight; Ramani Gunatilaka
    Abstract: The empirical literature on the economics of happiness has grown rapidly, and much has been learned about the determinants of subjective well-being.  Less attention has been paid to its normative implications.  Taking China as a case study, this paper first summarises empirical results on the determinants of subjective well-being and then considers whether that evidence can be used for social evaluation.  Different criteria for social evaluation give very different answers: on the one hand, real income per capita and the human development index have risen rapidly in recent years but, on the other hand, subjective well-being appears not to have risen at all.  Ultimately a value judement is required: arguments are presented for and against including subjective well-being, either alone or with other criteria, in the social welfare function.
    Keywords: Capabilities, China, Happiness, Human development, Social evaluation, Subjective well-being
    JEL: D03 D63 O15
    Date: 2014–01–21
  5. By: Eiji Yamamura; Antonio R. Andrés
    Abstract: Using individual-level data for China, Korea, and Japan for 2006, this research examines how life satisfaction for married males and females in East Asian countries is influenced by the age of their children. Our results show (1) the life satisfaction of females who have a child younger than 12 years old is lower than that of females with no children. (2) The greater the marginal effect of child’s age on the life satisfaction, the more developed a nation’s economic condition.
    Keywords: Life satisfaction, child, East Asian countries, ordered probit.
    JEL: D19 J13 J16
    Date: 2015–01–02
  6. By: Bin Ni (PhD Candidate, Graduate School of Economics, Osaka University)
    Abstract: This paper tries to verify how the establishment of investment promotion agencies (IPAs) affects the decisions of foreign firms regarding their subsequent investment by combining firm-level data from the World Bankfs Enterprise Survey with city-level information on (IPAs) in China. After correcting for potential endogeneity problems, the result confirms the IPAsf role in promoting incremental foreign direct investment (FDI) into China. Furthermore, it is shown that Hong Kong, Macau, and Taiwan (HMT) firms are less sensitive to IPAsf efforts in making further investment than are non-HMT foreign firms. In addition, IPAs are found to be more successful in enhancing foreign firmsf investment in high-tech than in low-tech industries.
    Keywords: China, investment promotion agency, firm-level data, sample selection
    JEL: F21 F23
    Date: 2013–04
  7. By: Ha-Thu Nguyen
    Abstract: In this paper, we carry out a review of literature for both traditional and sophisticated credit assessment techniques, with a particular focus on credit scoring which is broadly used as a costeffective credit risk management tool. The objective of the paper is to present a set-up of an application credit-scoring model and to estimate such a model using an auto loan data-set of one of the largest automobile manufacturers in China. The logistic regression approach, which is widely used in credit scoring, is employed to construct our scorecard. A detailed step-by-step development process is provided, as are discussions about specific modeling issues. The paper finally shows that “married”, “house owner”, “female”, age in years, “working in public institutions, foreign, or joint venture companies”, down payment rate, and maximum months on book of current accounts negatively impact the probability of default.
    Keywords: Credit Risk, Credit Scoring, Auto Loans, Logistic Regression.
    JEL: G3 C51 C52
    Date: 2015
  8. By: Böing, Philipp
    Abstract: This study investigates the allocation and effect of technology subsidies on R&D activities and technology acquisitions of Chinese domestic firms. We exploit novel firm data which includes information on subsidies, R&D, patents, trade, and balance sheet indicators. Conditional difference-in-difference estimation confirms that the innovation policy of China s government follows a picking-the-winner strategy. Technology subsidies are allocated to minority state-owned and privately owned firms which have high-tech inventions, high profitability, and compete with foreign firms in domestic industries. However, we find almost no evidence which confirms that technology subsidies incentivize an increase in R&D intensity or technology acquisition. There is weak evidence for a positive effect of consecutive treatments.
    JEL: O38 O32 O30
    Date: 2014
  9. By: McGrattan, Ellen R. (Federal Reserve Bank of Minneapolis); Holmes, Thomas J. (Federal Reserve Bank of Minneapolis); Prescott, Edward C. (Federal Reserve Bank of Minneapolis)
    Abstract: To gain access to its markets, the Chinese government sometimes requires high-technology foreign firms to transfer partial property rights to their technology. Because the Chinese market is large and potentially lucrative, major multinationals typically agree to this quid pro quo policy, often through joint ventures with Chinese firms. We use a quantitative macroeconomic model to analyze the effects of this policy on firm investment incentives, Chinese technology goals, and overall international technology and investment flows. We find that: •China has a very strong incentive to use the policy and would continue to use it even if advanced countries imposed identical policy restrictions on access to their domestic markets. •The policy discourages innovation investment by foreign firms. We estimate that, by 2010, China’s quid pro quo had reduced advanced country stocks of knowledge by about 5 percent relative to what they would have been had China not imposed the policy. China’s economy is thus big enough that its policies have global consequences for investment and growth. •Despite this disincentive, direct investment into China by advanced country firms does take place, and the resulting technology transfers accumulate in China. We estimate that as of 2010, more than half of all technology owned by Chinese firms was obtained from foreign firms. At this point, U.S. policy options on China’s quid pro quo requirement are limited and possibly counterproductive. Nonetheless, as China’s technology advances, the incentives underlying its policy may change and it will have greater motivation to protect its own technology property rights, and respect others’.
    Date: 2015–01–29
  10. By: Emmanuel Olusegun Stober (Bucharest University of Economic Studies)
    Abstract: This paper examines the sources of China’s economic growth, emphasizing the role of factor endowment. After evaluating the determinants of gross domestic product growth, it goes further to decompose the total export with Cobb–Douglas production function, which revealed increasing return to scale of 0.75 for labor intensive exports and 0.31 capital intensive exports. Revealed comparative advantage results reported that labor intensive export exerts a major impact on China’s development. They claim that margins for these goods are large. Thus, a drop in export arising from decrease in labor intensive export will cause a gap in China’s gross domestic product.
    Keywords: Factor endowment, GDP growth, Labor intensive export, Revealed Comparative Advantage, China’s economic development
    JEL: F43 J48 O10
    Date: 2014–04
  11. By: XuYi; Bas van Leeuwen; Jan Luiten van Zanden
    Abstract: This paper presents new estimates of the development of the urban population andthe urbanization ratio for the period spanning the Song and late Qing dynasties. Urbanizationis viewed, as in much of the economic historical literature on the topic, as an indirectindicator of economic development and structural change. The development of the urbansystem can therefore tell us a lot about long-term trends in the Chinese economy between1100 and 1900. During the Song the level of urbanization was high, also by internationalstandards – the capital cities of the Song were probably the largest cities in the world. This remained so until the late Ming, but during the Qing there was a downward trend in the levelof urbanization from 11–12% to 7% in the late 18th century, a level at which it remained untilthe early 1900s. In our paper we analyse the role that socio–political and economic causesplayed in this decline, such as the changing character of the Chinese state, the limited impactof overseas trade on the urban system, and the apparent absence of the dynamic economiceffects that were characteristic for the European urban system.
    Keywords: China, Urbanization, Song Dynasty, Ming dynasty, Qing dynasty, cities, commercialization.
    Date: 2015–02
  12. By: Schmerer, Hans-Jörg; Wang, Luhang
    Abstract: Krugman's (1979, 1980) monoplistic competition model of trade showed that countries with more similar per-capita GDP trade more with each other. Does this mean that developing countries shift trade towards developed countries as a result of high economic growth? The results reported in this paper challenge the link between per-capita GDP and trade predicted by the force of gravity. The matched customs-manufacturing firm data used in this study reveal a rising low-income country trade share around and after China's accession to the World Trade Organization. Based on this stylized fact we analyze the link between firm performance and different export strategies. We find strong evidence for sequential sorting into different export-modes. i) only the most productive firms export to low-income countries, ii) export to low-income countries is coupled to export to high-income countries, iii) younger firms solely export to export markets with higher potential, and iv) low-income markets are served additionally by older firms. Moreover, we find that entry into simultaneous exports to low- and high-income destinations is associated with a higher productivity compared to the average productivity measured by incumbents' firm performance.
    JEL: F10 O11 F15
    Date: 2014
  13. By: Bin, Peng
    Abstract: This paper investigates the evolution of regional socio-economic disparity in China during the period 1998-2010. A new composite index of development (CIRD) is developed to capture the five main dimensions of regional development: macroeconomic conditions, science and innovation performance, environmental sustainability, human capital accumulation, and public facilities provision. The investigation benchmarks 30 (out of 31) Chinese regions according to such multidimensional index of development and thus improves the understanding of the evolution of regional disparity in China in terms of the various dimensions of socio-economic development. Finally, on the basis of stochastic kernel density estimation, the paper reveals the existence of a triple-clubs pattern of convergence in the period under scrutiny, thereby informing both the literature on regional convergence and the current strategy of balancing the uneven process of growth in China.
    Keywords: regional disparity, multidimensional index of development, stochastic kernel, distribution dynamics, Chinese regions
    JEL: O18 P48 R58
    Date: 2015–02
  14. By: Shuai Gao (State Key Joint Laboratory of Environment Simulation and Pollution Control (SKLESPC) and School of Environment, Tsinghua University, Beijing, China); Wenjia Cai (Ministry of Education Key Laboratory for Earth System Modeling, Center for Earth System Science, Tsinghua University, China); Wenling Liu (State Key Joint Laboratory of Environment Simulation and Pollution Control (SKLESPC), and School of Environment, Tsinghua University, Beijing, China); Can Wang (State Key Joint Laboratory of Environment Simulation and Pollution Control, School of Environment, Tsinghua University, Ministry of Education Key Laboratory for Earth System Modeling, Center for Earth System Science, Tsinghua University, China); ZhongXiang Zhang (Department of Public Economics, School of Economics, Fudan University, China)
    Abstract: Understanding companies’ preferences for various domestic policy instruments is crucial to designing and planning Sectoral Market Mechanism (SMM) in China. Based on a detailed overview of domestic policy instruments under SMM, this paper evaluates corporate preferences for diverse domestic policy instruments and identifies potential influencing factors through econometric analysis. The data were collected from 113 respondents in all 11 prefecture-level cities of Shanxi province, China. Regarding policy instruments under the system of government receiving tradable units, corporate energy saving potential, learning capacity and companies’ characteristics have shown significant influences on companies’ preferences. Dissemination and the popularization of knowledge are also important to help companies learn how to improve energy efficiency. In terms of policy measures with voluntary installation-level targets, corporate competition level, organizational size and ownership are the main factors influencing companies’ preferences. Reducing inequality in the distribution of responsibility is especially important to gain companies’ support. Under the policy with mandatory installation-level targets, it suggests that policymakers should focus on status of energy use management and internationalization orientation. Policy instruments familiar to companies that are able to relieve corporate financial pressures might be good options to gain higher acceptance. Moreover, our results show that it is very important to choose an issuance frequency of one to three years under sectoral crediting.
    Keywords: Sectoral Market Mechanism, Domestic Policy Instruments, Policy Preference, Company, China
    JEL: D22 O13 P28 Q43 Q48 Q53 Q58
    Date: 2014–10

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