nep-cna New Economics Papers
on China
Issue of 2015‒04‒11
fourteen papers chosen by
Zheng Fang
Ohio State University

  1. The cleansing effect of minimum wages. Minimum wages, firm dynamics and aggregate productivity in China By MAYNERIS, Florian; PONCET, Sandra; ZHANG, Tao
  2. A structural investigation of the Chinese economy with a hybrid monetary policy rule By Ran Li; Jiao Wang
  3. The voices and protests of China's labour NGOs and their effort to promote migrant worker rights By Yamaguchi, Mami
  4. The Transformation of the Clothing Industry in China By Miao ZHANG; Xin Xin KONG; Santha Chenayah RAMU
  5. Executive Stock Option Pricing in China under Stochastic Volatility By Chong, Terence Tai Leung; Ding, Yue; Li, Yong
  6. China and Global Macroeconomic Interdependence By Rod Tyers
  8. China's Semiconductor Industry in Global Value Chains By Xin Xin KONG; Miao ZHANG; Santha Chenayah RAMU
  9. Tax evasion through trade intermediation : evidence from Chinese exporters By Liu,Xuepeng; Shi,Huimin; Ferrantino,Michael Joseph
  10. A closer look at the diffusion of ChinaGAP By Lei, Lei
  11. Did China Tire Safeguard Save U.S. Workers? By Sunghoon CHUNG; Joonhyung LEE; Thomas OSANG
  12. Exploring the Geography of China's Airport Networks during 1980s-2000s: A Hybrid Complex-Network Approach By Zhengbin Dong; Wenjie Wu
  13. The Making of an Economic Superpower―Unlocking China’s Secret of Rapid Industrialization By Wen, Yi
  14. Maintaining Financial Stability in the People's Republic of China during Financial Liberalization By Nicholas Borst; Nicholas Lardy

  1. By: MAYNERIS, Florian (Université catholique de Louvain, CORE & IRES, Belgium); PONCET, Sandra (Paris School of Economics (University of Paris 1), CEPII and FERDI); ZHANG, Tao (Shangai University of International Business and Economics)
    Abstract: We here consider how Chinese firms adjust to higher minimum wages and how these affect aggregate productivity, exploiting the 2004 minimum-wage reform in China. We find that higher city-level minimum wages reduced the survival probability of firms which were the most exposed to the reform. For the surviving firms, thanks to significant productivity gains, wage costs rose without any negative employment effect. At the city-level, our results show that higher minimum wages affected aggregate productivity growth via both productivity growth in incumbent firms and the net entry of more productive firms. Hence, in a fast-growing economy like China, there is a cleansing effect of labor-market standards.
    Keywords: minimum wages, firm-level performance, aggregate TFP, China
    JEL: O14 J38 O47
    Date: 2014–11–05
  2. By: Ran Li; Jiao Wang
    Abstract: In this paper, we aim to understand how monetary policy is conducted in China and what the main sources of fluctuations in China’s business cycle are. To this end, we extend a standard New Keynesian dynamic stochastic general equilibrium model with financial frictions and investment-specific technology shocks. We incorporate a hybrid form of monetary policy rule and employ a Bayesian estimation strategy using Chinese data. We find that the People’s Bank of China conducts monetary policy by adjusting the policy rate in response to inflation, output growth as well as real money growth. We also find that neutral technology shocks are the main drivers of the fluctuations in output and consumption while the investment-specific technology shock is the primary source of the variation in investment. This paper offers a new way of examining the rule of China’s monetary policy and indicates a structural break of the neutral technology development that may have caused the slowing down of GDP growth since 2010.
    Keywords: Monetary policy, business fluctuation, Bayesian estimation, dynamic stochastic general equilibrium model, China
    JEL: E32 E43 E52
    Date: 2015–04
  3. By: Yamaguchi, Mami
    Abstract: Labour NGOs in China are relatively new organizations that emerged in the 1990s and have spread during the 2000s. Migrant workers in China are weak both socially and economically and have been lacking ways of voicing grievances and protesting. Grassroots labour NGOs for migrant workers seem to be an efficient channel for their voices. This paper examines how labour NGOs emerged and how they function in the context of current Chinese society. This paper adopts the case study method to describe three NGOs in Beijing and Shenzhen. The paper shows that these NGOs are using different methods to resolve migrant worker problems. At the same time, they are voicing the migrants' grievances and protesting in their own ways.
    Keywords: China, Migrant labor, Labor, Non-governmental organizations, Migrant worker, Labour NGOs
    JEL: J83 Z13
    Date: 2015–03
  4. By: Miao ZHANG (Department of Development Studies, University of Malaya); Xin Xin KONG (Chinese Academy of Science and Technology for Development); Santha Chenayah RAMU (Department of Economics, University of Malaya)
    Abstract: This article examines the transformation of clothing manufacturing in China with a focus on institutional support, technological upgrading and global production chains. The evidence shows that reforms and integration into global production chains has rapidly expanded China’s exports but it has also driven the relocation abroad of Chinese clothing firms. Global integration has motivated clothing firms to upgrade through learning, adoption and innovation. Hence, despite improvements in technological capabilities the share of clothing value-added in manufacturing has gradually declined. Also, China has increasingly faced industrial structural change from clothing to the capital goods, real estate and high tech sectors.
    Keywords: China, clothing, global integration, production networks, technological upgrading
    JEL: L62 L22 L14 O31
    Date: 2015–02
  5. By: Chong, Terence Tai Leung; Ding, Yue; Li, Yong
    Abstract: In this paper, on the basis of stochastic volatility (SV) models, we extend the approach of option pricing for executive stock options (ESOs) under FAS 123. Based on this extension, a sample of Chinese listed companies’ ESOs are priced. We analyze the effect of the some important financial variables on the implementation of ESOs. It is found that in China, firms with higher market risk and larger size are likely to have a higher ESO proportion in their executive incentive plans. The effects of the book-to market ratio, stock price volatility, executive shareholding proportion, and the leverage ratio are also examined.
    Keywords: Bayesian analysis; Executive stock options; FAS 123; Option pricing; SV models.
    JEL: G3
    Date: 2015–02–27
  6. By: Rod Tyers
    Abstract: China is transitioning toward more inward-focussed growth, causing adverse changes in the product and financial terms of trade in the advanced economies. At the same time, international financial markets tussle between tightening forces associated with the US recovery on the one hand and unconventional monetary expansion in Europe and Japan on the other. The way these shocks interact is examined in this paper using a global macro model with national portfolio rebalancing and asset differentiation and a representation of unconventional monetary policy. Results are found to be sensitive to the contributions of productivity and capital accumulation to China’s growth. When these are offered in realistic combination, the combined shocks are deflationary in the US and China, implying that contractionary US monetary policy is not imminent. Monetary responses in the US and China then combine with price targeting regimes in the EU and Japan to expand liquidity globally, amplifying impacts on financial markets and the global distribution of real investment.
    Keywords: Global performance, US recovery, China’s transition, macro interdependence, financial integration
    Date: 2015–04
  7. By: Pami Dua (Departments of Economics, Delhi School of Economics, University of Delhi, India); Divya Tuteja (Departments of Economics, Delhi School of Economics, University of Delhi, India)
    Abstract: We study the impact of recent crisis episodes viz. the global recession of 2008-09 and the Eurozone debt crisis of 2010-12 on the Emerging Market Economies (EMEs) of China and India. Macroeconomic indicators suggest that both China and India were impacted by the crises. We focus on the trade channel of transmission of the crises i.e. on exports from China and India to the U.S. and Euro Area respectively. This study finds that the exports from China and India to both the destinations were affected as a result of the crisis episodes with major exporting sectors of the two economies displaying negative rates of growth. Further, Markovswitching autoregressive models are utilized to examine the regimes in the growth rate of total value of exports to the U.S. and Eurozone. We find presence of slowdown and pickup regimes in the export growth rates. Furthermore, Markov-switching regression results suggest that the economic activity levels in the U.S. and the Eurozone significantly and positively affect the exports to these destinations from China and India across high as well as low export growth rate regimes. As a result, a dampening of the economic activity in the U.S. and Eurozone in the wake of the crises led to a reduction in the rate of growth of exports from China and India due to a fall in the demand for exports.
    Keywords: Global Recession, Eurozone Debt crisis, China, India, Exports, Trade Channel
    JEL: C22 F14 G01
    Date: 2015–04
  8. By: Xin Xin KONG (Chinese Academy of Science and Technology for Development); Miao ZHANG (Department of Development Studies, University of Malaya); Santha Chenayah RAMU (Department of Economics, University of Malaya)
    Abstract: This article examines how global production networks have benefited technological upgrading in the semiconductor industry in China. The evidence shows that trade has impacted positively on technological capabilities. The empirical evidence show that 93 percent of firms were engaged in incremental innovation activities, while 87 percent in new product development in 2012. The mean R&D intensity was 6.3 percent. State-owned enterprises showed the lowest mean of 5.3 percent. The mean share of R&D personnel in workforce was 28.2 percent. Government support (90 percent) and collaboration with universities and research institutes (87 percent) has been pertinent in firms’ participation in R&D activities.
    Keywords: China, innovation, integrated circuit, semiconductors, technological capabilities
    JEL: L62 L22 L14 O31
    Date: 2015–02
  9. By: Liu,Xuepeng; Shi,Huimin; Ferrantino,Michael Joseph
    Abstract: Many production firms use intermediary trading firms to export indirectly. This paper uses Chinese export data at the transaction level to investigate the tax evasion motive through indirect trade. The paper provides strong evidence that, under China's partial export value-added tax rebate policy, production firms can effectively evade value-added taxes by underreporting their selling prices to domestic intermediary trading firms, especially when they sell differentiated products. Even for a moderate level of underreporting, the revenue loss is close to one billion U.S. dollars. The paper also finds that such underreporting behavior through domestic intermediaries may be associated with cross-border evasion through underreporting export values to foreign partners. In addition, the results indicate that the evasion motive is stronger for larger transactions.
    Keywords: Economic Theory&Research,Debt Markets,Trade Policy,Markets and Market Access,Emerging Markets
    Date: 2015–04–06
  10. By: Lei, Lei
    Abstract: To enhance Chinese agricultural production, improve food quality, build consumer trust, and encourage the export of agricultural products, the Chinese government designed the Chinese version of Good Agricultural Practice (ChinaGAP) based on the main principles of the GlobalGAP combining the current Chinese agricultural production situation. This paper studies the characteristics of the ChinaGAP and focusing on the diffusion of the standard using qualitative analysis. Relevant policy recommendations are given based on the Chinese agricultural production status. Previous studies mainly focused on the role of the government. However this paper makes specific suggestions to particular stakeholders in the standard making and diffusion process.
    Keywords: China, Agriculture, Agricultural products, Agricultural policy, Sustainable development, ChinaGAP, Government supports, Policy diffusion, Sustainable agricultural production
    JEL: O38 Q01 Q18
    Date: 2015–03
  11. By: Sunghoon CHUNG (Korea Development Institute); Joonhyung LEE (Fogelman College of Business and Economics, The University of Memphis); Thomas OSANG (Department of Economics, Southern Methodest University)
    Abstract: While the impact of globalization on income inequality has received a lot of attention, little is known about its effect on the gender wage gap (GWG). This study argues that there is a systematic differece in GWG between exporting firms and non-exporters. By the virtue of being exposed to higher competition, exporters require greater commitment and flexibility from their employees. If commitment is not easily observable and women are precieved as less committed workers than men, exporters will statistically discriminate against female employees and will exhibit a higher GWG than non-exporters. We test this hyphesis using matched employer-employee data from the Norwegian manufacturing sector from 1996 to 2010. Our identification strategy relies on an exogeneous shock, namely, the legislative changes that increased the lenght of the parental leave that is available only to fathers. We argue that these changes have narrowed the perceived commitment gap between the genders and show that the initially higher GWG observved in exporting firms relative to non-exporters has gone down after the changes took place.
    Keywords: China Tire Safeguard, Temporary Trade Barriers, Trade Diversion Synthetic Control Method
    JEL: F13 F14 F16
    Date: 2015–03
  12. By: Zhengbin Dong; Wenjie Wu
    Abstract: Air networks are normal examples of transportation systems among ubiquitous big data networks in dynamic nature. This is particularly the case in developing countries with rapid airport network expansions. This paper explores the structure and evolution of the trunk airport network of China (ANC) in major years during 1980s-2000s. We generalise the complex network approach developed in existing studies and further test for statistical properties of weighted network characteristics by using pair-wise traffic flows. We find that ANC is a small-world network in which (i) the number of airflight connections and (ii) the number of shortest paths going through a given airport city meet the densification law, however, its degree distribution does not follow power-law statistics like other countries' airport networks. The spatiotemporal decomposition of network metric plots and the visualization maps leads to a rich harvest of stylized ANC structures: (i) national hub-and-spoke patterns surrounding mega-cities; (ii) regional broker patterns surrounding Kunming and Urumqi, and (iii) local heterogeneous disparity patterns in isolated geographical cities, such as Lhasa, Lijiang, Huangshan, etc. These findings have important implications towards understanding the geo-political and economic forces at stake in shaping China's urban systems.
    Keywords: Airport system, complex network, regional development, China
    JEL: O18 R12 P25
    Date: 2015–03
  13. By: Wen, Yi (Federal Reserve Bank of St. Louis)
    Abstract: The rise of China is no doubt the most important event in world economic history since the Industrial Revolution. The institutional theory of development based on a dichotomy of extractive vs. inclusive political institutions cannot explain China’s rise. This article argues that only a radical reinterpretation of the history of the Industrial Revolution and the rise of the West (as incorrectly portrayed by the institutional theory) can fully explain China’s growth miracle and why the determined rise of China is unstoppable. Conversely, China’s spectacular and rapid transformation from an impoverished agrarian society to a formidable industrial superpower sheds considerable light on the fundamental flaws of neoliberalism and the Washington Consensus and provides more-accurate reevaluations of historical episodes such as Latin America’s lost decade and plagued debt crisis, 19th century Europe’s great escape from the Malthusian trap, and the Industrial Revolution itself.
    Keywords: Industrial Revolution; the Rise of China; the Great Divergence; Market Fundamentalism; Neoliberalism; Big Push; Import Substitution Industrialization; Shock Therapy; Washington Consensus; New Structuralism; New Stage Theory.
    JEL: B00 N00 O1 O2 O3 O4 O5
    Date: 2015–03–01
  14. By: Nicholas Borst (Federal Reserve Bank of San Francisco); Nicholas Lardy (Peterson Institute for International Economics)
    Abstract: The banking system of the People's Republic of China (PRC) is now the largest in the world, and its capital markets are rapidly approaching the size of those in the advanced economies. This paper traces the evolution of the PRC's financial system away from a traditional bank-dominated and state-directed financial system toward a more complex, market-based system and analyzes the optimal sequence of financial reforms needed to manage the new risks accompanying this evolution.
    Keywords: financial development, government policy and regulation
    JEL: G18 G21
    Date: 2015–03

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