nep-cna New Economics Papers
on China
Issue of 2015‒04‒25
eleven papers chosen by
Zheng Fang
Ohio State University

  1. Local Government Debt and Economic Growth in China By Yanrui Wu
  2. An Increase in the Retirement Age in China: The Regional Economic Effects By Anping Chen; Nicolaas Groenewold
  3. An adaptive approach to forecasting three key macroeconomic variables for transitional China By Niu, Linlin; Xua , Xiu; Chen , Ying
  4. Banking structure, marketization and small business development: Regional evidence from China By Hasan, Iftekhar; Kobeissi , Nada; Wang, Haizhi; Zhou , Mingming
  5. Ethnic Complementarities after the Opening of China: How Chinese Graduate Students Affected the Productivity of Their Advisors By George J. Borjas; Kirk B. Doran; Ying Shen
  6. China and Global Macroeconomic Interdependence By Rod Tyers
  7. Financial Integration and China's Global Impact By Rod Tyers
  8. Benefit Incidence with Incentive Effects, Measurement Errors and Latent Heterogeneity: A Case Study for China By Martin Ravallion; Shaohua Chen
  9. Agglomeration Economies in China: Locations and Effects By Chao Li; John Gibson
  10. Global experiences with special economic zones : focus on China and Africa By Zeng,Zhihua
  11. Institutional Monitoring, Coordination and Acquisition Decision in Chinese Public Listed Companies By Peng, Fei; Kang, Lili; Yang, Xiaocong

  1. By: Yanrui Wu (Business School, University of Western Australia)
    Abstract: China’s local government debt (LGD) has recently become the focus of economic policy debates. However, information about LGD and its impact on economic growth in the Chinese economy is scarce. This paper attempts to present an empirical investigation of the impact of China’s LGD on economic growth. It is probably the first of its kind to focus on China and thus contributes to the general literature on the relationship between government debt and economic growth. The paper first provides an assessment of LGD in China’s regional economies, using recently released auditing statistics and other available secondary information. It then applies conventional growth analysis methods to examine the impact of LGD on regional growth in China. Various scenario and sensitivity analyses are also conducted, to accommodate the inadequacy and potentially poor quality of debt statistics.
    Date: 2015
  2. By: Anping Chen (School of Economics, Jinan University,Guangzhou, China); Nicolaas Groenewold (Business School, University of Western Australia)
    Abstract: China’s pension system is in need of comprehensive reform in that it is fragmented in its coverage and significantly under-funded. Attempts to improve the coverage will likely exacerbate the financial strains. Thus it is urgent to improve the financial sustainability of the system and one policy which has been proposed is to increase the retirement age. There have been similar proposals in many other countries and they are in line with improved health and life-expectancy. In China’s case the partial coverage of the system is related to industry structure with much the best coverage being for government and SOE employees. Since this structure differs considerably across the regions in China, it is likely that a change in retirement age will have significantly different effects across China’s regions. Inter-regional disparities are already very substantial in China and it will be important to know whether changes in pension arrangements will widen or narrow these disparities. It is the object of the research reported in this paper to throw light on this question. To do this we construct a small theoretical model having some Chinese characteristics. The model has two regions (coast and interior), two sectors (formal and informal) two types of labour (skilled and unskilled), two levels of government (central and regional) and captures some features of the Chinese tax-expenditure system. Pension coverage is limited to skilled workers in the formal sector and pensions are assumed to be paid by regional governments. We linearise the model and solve it numerically using parameter values derived from average Chinese data for the period 2008-2013. We run two experiments, both involving a shocks designed to mimic an increase in the retirement age from 60 to 61. The first assumes that the regional governments use the extra net revenue resulting which results from the increase in retirement age for the provision of a government- provided consumption good while in the second case it is assumed that the government uses the revenue to reduce pension premia (or increase pension payments). In both cases the increase in retirement age increases the supply of skilled workers and depresses the relative skilled wage in both regions but by more in the interior than in the coast. Output of each good increases in each region but formal-sector output increases by more (since only the formal sector uses skilled labour); the income of skilled households falls but that of unskilled households rises; welfare increases in both regions for both household types but by more for unskilled than skilled and by more in the interior than in the coast. In addition, the welfare disparity between the coast and the interior is reduced. The results are similar in sign across the two experiments but the magnitude of the effects is generally larger in the second, i.e., where the regional governments use the additional net revenue to increase pension payments or reduce pension premia rather than simply producing more government output.
    Date: 2015
  3. By: Niu, Linlin (BOFIT); Xua , Xiu (BOFIT); Chen , Ying (BOFIT)
    Abstract: We propose the use of a local autoregressive (LAR) model for adaptive estimation and forecasting of three of China’s key macroeconomic variables: GDP growth, inflation and the 7-day interbank lending rate. The approach takes into account possible structural changes in the data-generating process to select a local homogeneous interval for model estimation, and is particularly well-suited to a transition economy experiencing ongoing shifts in policy and structural adjustment. Our results indicate that the proposed method outperforms alternative models and forecast methods, especially for forecast horizons of 3 to 12 months. Our 1-quarter ahead adaptive forecasts even match the performance of the well-known CMRC Langrun survey forecast. The selected homogeneous intervals indicate gradual changes in growth of industrial production driven by constant evolution of the real economy in China, as well as abrupt changes in interestrate and inflation dynamics that capture monetary policy shifts.
    Keywords: Chinese economy; local parametric models; forecasting
    JEL: E43 E47
    Date: 2015–04–10
  4. By: Hasan, Iftekhar (BOFIT); Kobeissi , Nada (BOFIT); Wang, Haizhi (BOFIT); Zhou , Mingming (BOFIT)
    Abstract: This paper provides an empirical examination of the regional banking structures in China and their effects on entrepreneurial activity. Using a panel of 27 provinces and four directly controlled municipalities from 1997 through 2008, we find that the presence of large banking institutions negatively correlates with small business development in local markets and that this negative relation is driven mainly by participation of large banks in the short-term loan market. Rural banking institutions, in contrast, are found to promote regional entrepreneurial activity. Moreover, large state banks facilitate small business development in concentrated markets. When we interact measures of banking financing by state banks and rural banking institutions with a set of provincial level marketization indexes, we find that extensive marketization, factor market development, and sophistication of legal frameworks mitigate the negative effect of large state banks on small business development. In provinces with advanced market development, efficient factor markets, and favorable institutional settings, the positive effect of rural banking institutions on small business growth is even stronger. Finally, we present evidence that banks do a better job of promoting regional entrepreneurship when it occurs in conjunction with policies to foster innovation activity and assure protection of intellectual property rights.
    Keywords: banking structure; marketization; small business development; China
    JEL: G21 O16 P23 P25
    Date: 2015–03–27
  5. By: George J. Borjas; Kirk B. Doran; Ying Shen
    Abstract: The largest and most important flow of scientific talent in the world is the migration of international students to the doctoral programs offered by universities in industrialized countries. This paper uses the opening of China in 1978 to estimate the causal effect of this flow on the productivity of their professors in mathematics departments across the United States. Our identification strategy relies on both the suddenness of the opening of China and on a key feature of scientific production: intra-ethnic collaboration. The new Chinese students were more likely to be mentored by American professors with Chinese heritage. The increased access that the Chinese-American advisors had to a new pool of considerable talent led to a substantial increase in their productivity. Despite these sizable intra-ethnic knowledge spillovers, the relatively fixed size of doctoral mathematics programs (and the resulting crowdout of American students) implied that comparable non-Chinese advisors experienced a decline in the number of students they mentored and a concurrent decline in their research productivity. In fact, the productivity gains accruing to Chinese-American advisors were almost exactly offset by the losses suffered by the non-Chinese advisors. Finally, it is unlikely that the gains from the supply shock will be more evident in the next generation, as the Chinese students begin to contribute to mathematical knowledge. The rate of publication and the quality of the output of the Chinese students is comparable to that of the American students in their cohort.
    JEL: D83 J24 J61 O31
    Date: 2015–04
  6. By: Rod Tyers (Business School, University of Western Australia)
    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.
    Date: 2015
  7. By: Rod Tyers (Business School, University of Western Australia, and Research School of Economics Australian National University, and Centre for Applied Macroeconomic Analysis Crawford School of Government Australian National University)
    Abstract: Product and financial market integration determine the global implications of China’s recent growth surge and its on-going transition from export led growth. These alter China’s structural imbalance (its excess product supply and excess saving), which in turn shifts the international terms of trade, changing asset yields causing deflationary and then inflationary pressures abroad. The effects are here quantified using a global macro model with national portfolio rebalancing, in which asset differentiation is used to index financial integration. The growth surge is found to have conferred on the advanced economies gains in their terms of trade, incompletely offset by structural unemployment. By contrast, the global effects of the transition are shown to reverse some of these impacts and to be amplified by further financial integration, particularly for the US.
    Date: 2015
  8. By: Martin Ravallion; Shaohua Chen
    Abstract: In what is probably the largest cash transfer program in the world today China’s Dibao program aims to fill all poverty gaps. In theory, the program creates a poverty trap, with 100% benefit withdrawal rate (BWR). But is that what we see in practice? The paper proposes an econometric method of estimating the mean BWR allowing for incentive effects, measurement errors and correlated latent heterogeneity. Under the method’s identifying assumptions, a feasible instrumental variables estimator corrects for incentive effects and measurement errors, and provides a bound for the true value when there is correlated incidence heterogeneity. The results suggest that past methods of assessing benefit incidence using either nominal official rates or raw tabulations from survey data are deceptive. The actual BWR appears to be much lower than the formal rate, and is also lower than the rate implied by optimal income tax models for poverty reduction. The paper discusses likely reasons based on qualitative observations from field work. The program’s local implementation appears to matter far more than incentives implied by its formal rules.
    JEL: H22 I32 I38 O12
    Date: 2015–04
  9. By: Chao Li (University of Waikato); John Gibson (University of Waikato)
    Abstract: The nature and location of urbanization economies and their effects on productivity per worker in China are examined. Unlike previous studies, more accurate resident-based measures of urban scale from the 2010 census are used. The size of urbanization economies is similar to those in other countries and they occur only in bigger cities and not in smaller towns, and operate only through tertiary sector activity. Efforts by government to disperse urbanization, through land use and migration restrictions and by stimulating construction and manufacturing in China’s counties, are unlikely to create beneficial agglomeration effects.
    Keywords: agglomeration; cities; population; productivity; urbanization; China
    JEL: R12 O15
    Date: 2014–04–01
  10. By: Zeng,Zhihua
    Abstract: This study briefly summarizes the development experiences of special economic zones in China and Africa, the lessons that Africa can learn from China, and the preliminary results of the Chinese investments in special economic zones in Africa. The study makes recommendations on how to unleash the power of special economic zones and industrial zones in Africa through strategically leveraging the Chinese experiences. The success factors of Chinese special economic zones include the strong and long-term commitment of the government, a conducive business environment in the zones, strategic locations, technology upgrading and skills training, and strong linkages with the local economy. However, the Chinese experiences highlight some pitfalls to avoid, such as the ?mushroom approach? and high-level overlaps at the later stage, environmental degradation, and the unbalance between industrial development and social dimensions. This calls for a bigger role for the market. Sub-Sahara Africa's experience with traditional economic zones has been relatively poor, except in a few countries, such as Mauritius. The key challenges include the poor regulatory and institutional framework, lack of effective strategic planning, weak governance and implementation capacity, and inadequate infrastructure, among others. Since 2006, China has implemented special economic zone projects globally, including in four countries in Sub-Saharan Africa. It is still too early to conduct a full assessment of these projects; however, the evidence shows that some zones have begun to attract investments and make important contributions to the local economy. The main challenges include access to land, regulatory barriers, resettlement and coordination issues, and lack of external infrastructure.
    Keywords: Debt Markets,Environmental Economics&Policies,ICT Policy and Strategies,Banks&Banking Reform,Emerging Markets
    Date: 2015–04–14
  11. By: Peng, Fei; Kang, Lili; Yang, Xiaocong
    Abstract: This paper endeavors to explore the roles that institutional investors play in acquisition decision of Chinese Public Listed Companies (PLCs). Acquisition decision is assumed as a cost-benefit analysis process of shareholders as strategic alliances. Using micro data in the Chinese stock market during 2003-2008, we find that institutional investors including Qualified Foreign Institutional Investors (QFII), Social Security Funds (SSF), Security Firms (SF) and Security Investment Funds (SIF), as well as tradable share (TS) concentration affect a PLC’s acquisition likelihood rather than its annual acquisition size. SSF, SIF and TS concentration can increase acquisition likelihood while QFII decrease it. This paper suggests a strategic alliance model in which institutional investors choose whether to coordinate with controlling shareholder and management. Our paper contributes to the published literature in three ways. First, we offer a conceptual framework to understand the coordination process of acquisition decision in China. Second, we identify which institutional investors could benefit from their monitoring on corporate acquisition through better post-acquisition performance and which could not. Third, we investigate whether institutional investors effectively monitor acquisiton decision or just pick cherry.
    Keywords: Corporate Governance; Institutional Monitoring; Acquisition Decision; Coordination
    JEL: G23 G34 P11
    Date: 2014–06

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