nep-cna New Economics Papers
on China
Issue of 2015‒06‒13
nine papers chosen by
Zheng Fang
Ohio State University

  1. Trends and Cycles in China's Macroeconomy By Chun Chang; Kaiji Chen; Daniel F. Waggoner; Tao Zha
  2. Take-off, Persistence, and Sustainability : The Demographic Factor of Chinese Growth By Cai Fang, Lu Yang
  3. Corporate Leverage in China: Why has It Increased Fast in Recent Years and Where do the Risks Lie? By Wenlang Zhang; Gaofeng Han; Brian Ng; Steven Chan
  4. What Determines M&A Legal and Financial Advisors’ Competitiveness in an International Financial Centre: Using China’s Going Out Policy as a Natural Experiment By Michael, Bryane; Wojick, Dariusz; Arner, Douglas W.; Tong, Wilson; Lin, Chen; Zhou, Simon
  5. China’s ODI: How much goes where after round-tripping and offshoring? By Le Xia; Carlos Casanova Allende
  6. Is the Price Elasticity of Demand for Coal in China Increasing? By Paul J. Burke; Hua Liao
  7. Understanding China's Lewis Turning Point: The Role of Regional Heterogeneity By Annie Wei; Fung Kwan
  8. Pro-employment budgeting in China : linking employment to national and local budgets By Zhang, Ying; Li, Xiangwei; Zhang, Yutian
  9. Who damages whom? Chinese firms' outward investment and the international reputation of China's economic system. By Marisa Siddivò

  1. By: Chun Chang; Kaiji Chen; Daniel F. Waggoner; Tao Zha
    Abstract: We make four contributions in this paper. First, we provide a core of macroeconomic time series usable for systematic research on China. Second, we document, through various empirical methods, the robust findings about striking patterns of trend and cycle. Third, we build a theoretical model that accounts for these facts. Fourth, the model's mechanism and assumptions are corroborated by institutional details, disaggregated data, and banking time series, all of which are distinctive of Chinese characteristics. We argue that preferential credit policy for promoting heavy industries accounts for the unusual cyclical patterns as well as the post-1990s economic transition featured by the persistently rising investment rate, the declining labor income share, and a growing foreign surplus. The departure of our theoretical model from standard ones offers a constructive framework for studying China's modern macroeconomy.
    JEL: E2 F4 G1 H81
    Date: 2015–06
  2. By: Cai Fang, Lu Yang
    Abstract: With the reduction of the working-age population and the increase of the population dependency ratio as the main characteristics of the demographic dividend having disappeared, China’s potential growth rate decreases. And our results suggest that demographic dividend contributed to nearly one forth of the economic growth in China in the past three decades, while TFP growth explains another one third with the remainder mainly due to capital accumulation, explaining nearly half. China’s potential growth rate will slow down—from nearly 10 per cent in the past 30 years to 7.5 per cent on average during 2011-2015—due to the diminished demographic dividend, but reform measures are conductive to clearing the institutional barriers to the supply of factors and productivity, thereby slowing the declining trend of potential growth rate. The aggregate reform dividend (e.g., relax family planning policy, postpone the retirement age, improvement of education and training, tax cut, and improvement of TFP) could reach to 1-2 percentage points on average during 2016-2050.
    Keywords: potential growth rate, Demographic dividend, reform dividend, total factor productivity
    JEL: O47 J21 C53
    Date: 2015–04
  3. By: Wenlang Zhang (CITIC Securities Company Limited); Gaofeng Han (Hong Kong Monetary Authority); Brian Ng (Hong Kong Monetary Authority); Steven Chan (Hong Kong Monetary Authority)
    Abstract: Our analysis based on firm-level data indicates that China¡¦s corporate sector does not appear to be over-leveraged in aggregate despite rapid credit growth following the global financial crisis. However, some industries, particularly real estate developers and firms in industries with substantial over-capacity, have continued to increase leverage. By ownership, it is mainly state-owned enterprises (SOEs) that have increased leverage, while private enterprises have deleveraged in recent years. Using a corporate finance model, our research shows that SOEs¡¦ leveraging has been mainly driven by implicit government support amid lower funding costs than private enterprises. If SOEs, particularly the real estate developers and firms in overcapacity industries, had borrowed without such support, their leverage would have been much lower. Moreover, some SOEs did not use credit obtained via formal financing channels to expand their businesses, but instead conducted credit intermediation. Leveraging driven by government support has resulted in a weakening in fund-use efficiency and a deterioration in corporate debt-servicing capacity. Meanwhile, non-financial corporate credit intermediation activities not only add risks to banks¡¦ asset quality but also mislead policy makers. Specifically, headline figures of credit expansion would overstate credit allocated to the real economy and understate credit allocated to the financial sector. Our analysis suggests that, if corporate credit intermediation activities are taken into account, the credit intermediation chain would be longer than indicated by the headline figures. This also suggests quantity indicators, such as credit growth, may have become less informative of China¡¦s monetary conditions.
    Date: 2015–04
  4. By: Michael, Bryane; Wojick, Dariusz; Arner, Douglas W.; Tong, Wilson; Lin, Chen; Zhou, Simon
    Abstract: Roughly 60% of all publically announced advisors to China’s “Going Out” M&A transactions from 2000 to 2014 were from international financial centres (representing over 70% of deal value). Why did advisors, located so far away from both acquirer and target, manage to dominate the M&A advisory market in the early stages of the “Going Out” policy? What can we learn from the smaller advisors located outside of these financial centres who managed to capture a growing share of this business in “Going Out’s” more recent stages? In this paper, we hypothesize the existence of a “legal complexity externality” that had the effect of increasing a financial centre’s ability to attract international business. We look at the way Going Out advisors have responded to advisory opportunities using what management theorists call “blue ocean strategy.” We show that relationships across geography changed, as large global advisors lost their share of advisory business to advisors outside of international financial centres due to the interplay of these legal complexity externalities and blue ocean strategies. As cities helps foster changes in the law governing Going Out transactions – and as financial and legal advisors adapted their strategies to compete – cities gained or lost Going Out business. We provide 5 recommendations to existing and aspiring international financial centres looking to capture a larger share of global M&A and other investment advisory business.
    Keywords: law schools,international financial centre,mergers and aquisitions,Going Out Policy,legal complexity externality,professional services
    JEL: K40 G34
    Date: 2015
  5. By: Le Xia; Carlos Casanova Allende
    Abstract: In this paper we recalculate China\'s Outbound Foreign Direct Investments (ODI) in a way which accounts for round-tripping and offshoring. Our estimates show that China\'s ODI flows and stocks may have been overestimated and may be more diversified that previously thought.
    Keywords: Asia, China, Economic Analysis, Regional Analysis, Working Paper
    JEL: F21 F23
    Date: 2015–06
  6. By: Paul J. Burke (Crawford School of Public Policy, The Australian National University, Canberra, ACT, Australia); Hua Liao (Center for Energy and Environmental Policy Research, Beijing Institute of Technology, Beijing, China)
    Abstract: ChinaÕs dependence on coal is a major contributor to local and global environmental problems. In this paper we estimate the price elasticity of demand for coal in China using a panel of province-level data for the period 1998Ð2012. We find evidence that provincial coal demand has become increasingly price elastic. As of 2012 we estimate that this elasticity was in the range Ð0.3 to Ð0.7 when responses over two years are considered. The results imply that ChinaÕs coal market is becoming more suited to price-based approaches to reducing emissions. Our estimates suggest that the elimination of coal consumption subsidies could reduce national coal use and related emissions by around 2%.
    Keywords: coal; price elasticity; demand; China; provincial
    JEL: O13 Q41 P28 Q48
    Date: 2015–06
  7. By: Annie Wei (Crawford School of Public Policy, The Australian National University); Fung Kwan (Department of Economics, University of Macau)
    Abstract: The question of whether China has reached the Lewis turning point (LTP) has recently been intensively debated in the literature. Partly, this is due to the profound policy implication of the turning point posited by Lewis (1954) and Ranis and Fei (1961), while it is also closely related to the growing concern of ChinaÕs growth sustainability. Various empirical approaches and criteria have been applied in the literature and greatly contributed to the diverse findings on the questions of ChinaÕs LTP. In this paper, we carefully review the approaches applied in the existing studies and revisit the question by applying the wage-productivity approach which is most closely to the theoretical definition of LTP and the core criterion recommended by Minami (1968). Moreover, we examine the regional heterogeneity of ChinaÕs LTP which has long been neglected in the literature but shall have significant policy implications to ChinaÕs regional economic development. Our results show that in ChinaÕs Eastern provinces, the marginal product of labour has increased rapidly and outpaced agricultural incomes by 2002 for the earliest and 2008 for the latest. In Central China, most provinces included in the sample of our study have passed the LTP by the mid to late 2000s except for Jiangxi province. In contrast, half of the examined provinces in Western China have not yet passed the turning point. The regional heterogeneity of the LTP can be explained by diverse levels of economic development of ChinaÕs regions. It also indicates that China should adopt heterogeneous industrial policies across regions.
    JEL: O1 O4 O5
    Date: 2014–07
  8. By: Zhang, Ying; Li, Xiangwei; Zhang, Yutian
    Abstract: A series of case studies has been launched to better understand how to efficiently link employment objectives to budget allocations and expenditures. This Working Paper is the first of the series. The experience of China is interesting for three main reasons: the employment strategy promotes an employment-friendly economic development model; since 2002; a system to finance employment policies has been efficiently functioning; and the 2008 Employment Promotion Law established an employment fund with linkages to the national and local budgets. Fascinating lessons emerge from this experience.
    Keywords: promotion of employment, public finance, employment policy, national plan, regional plan, China, promotion de l'emploi, finances publiques, politique de l'emploi, plan national, plan régional, Chine, fomento del empleo, hacienda pública, política de empleo, plan nacional, plan regional, China
    Date: 2015
  9. By: Marisa Siddivò (Università degli studi di Napoli l'Orientale)
    Abstract: "A group of "princelings", children of China's political elite, has quietly urged the Communist Party leadership to release jailed Nobel laureate Liu Xiaobo on parole to improve the country's international image". The news revealed by the Reuters press agency, if confirmed, adds a key element to the inside élite's debate on the country's reputation and its link with the high failure rate of overseas direct investments (ODI). Starting from December 2012, the Chinese perspective on its own outward investment experience has indeed undergone a change. Two elements, in particular, have prompted this change: a preliminary estimate of the "failure rate" of Chinese multinational investment and the gradual but relentless erosion of the country's firm belief that developing countries would have extended a warm welcome to Chinese investments. The origin of the troubles faced by ODI has indeed become a top issue for State party officials, enterprise CEOs and economists as well. The emergence of divergent perspectives suggests that the block of interests that has often been identified behind Chinese investment is less homogeneous than it appears.
    Keywords: China; ODI; failure rate
    Date: 2015–06

This nep-cna issue is ©2015 by Zheng Fang. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.