nep-cna New Economics Papers
on China
Issue of 2015‒10‒10
ten papers chosen by
Zheng Fang
Ohio State University

  1. Transition and capital misallocation : the Chinese case By Damien Cubizol
  2. The Impact of Rural-Urban Migration on the Health of the Left-behind Parents By Ao, Xiang; Jiang, Dawei; Zhao, Zhong
  3. Policy Shocks and Stock Market Returns: Evidence from Chinese Solar Panels By Meredith A. Crowley and Huasheng Song
  4. Labor Supply Responses to New Rural Social Pension Insurance in China: A Regression Discontinuity Approach By Chen, Zeyuan; Bengtsson, Tommy; Helgertz, Jonas
  5. The Rise of China's Shadow Banking System By Zheng Song; Kinda Hachem
  6. Targeted opportunities to address the climate-trade dilemma in China By Zhu Liu; Steven J. Davis; Kuishuang Feng; Klaus Hubacek; Sai Liang; Anadon, Laura Diaz; Bin Chen; Liu, Jingru; Yan, Jinyue; Dabo Guan
  7. Outward FDI and domestic input distortions: Evidence from Chinese firms By CHEN, Cheng; TIAN, Wei; YU, Miaojie
  8. Reserve requirements and the bank lending channel in China By Fungácová , Zuzana; Nuutilainen , Riikka; Weill , Laurent
  9. The Effect of Risk Sharing on Asset Prices: Natural Experiment from the Chinese Stock Market Liberalization By Chan, Marc K; Kwok, Simon
  10. Is China fudging its figures? Evidence from trading partner data By Fernald, John G.; Hsu, Eric; Spiegel, Mark M.

  1. By: Damien Cubizol (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon Saint-Etienne, Ecully, F-69130, France; Université Lyon 2, Lyon, F-69007, France)
    Abstract: This paper addresses the allocation puzzle of capital flows and privatization in emerging countries in transition. It demonstrates that the allocation of household savings to State-Owned Enterprises (SOEs), and not to the increasing share of private firms, solves both the allocation puzzle of capital flows and the drop in consumption in China. The contribution is to explain these two elements in a dynamic general equilibrium model with TFP growth that differentiates FDI and financial capital. In addition to other frictions, public banks and SOEs have the crucial role in capital misallocation by misdirecting household savings. It modifies firms’ labor and capital intensiveness, creates shifts in savings accumulation, and households satisfy the large cheap labor demand coupled with low returns on their savings. With a calibration adapted to the Chinese case and deterministic shocks, the model also matches to a large extent the data for a variety of stylized facts over the last 30 years.
    Keywords: Financial capital flows, FDI, China's transition, privatization, global imbalances, consumption, credit and capital markets frictions, TFP growth
    JEL: E20 F21 F32 P30
    Date: 2015
  2. By: Ao, Xiang (Renmin University of China); Jiang, Dawei (Renmin University of China); Zhao, Zhong (Renmin University of China)
    Abstract: Since the reform and opening up in 1978, China has begun a period of rapid industrialization and urbanization. Along with an increasing number of rural people migrating to urban area for jobs, there are a considerable number of elderly parents left behind in the rural area. The impact of migration of the adult children on the health of their left-behind parents is ambiguous. On the one hand, the additional income from the children's jobs can allow their parents to afford better health care and nutrition; on the other hand, the migration necessarily reduces the amount of time the children have to take care of their parents. This paper uses the Rural Urban Migration in China data to empirically investigate the effect of adult children's migration on the health of the left-behind parents. Based on a linear probability model with instrumental variable correction, we find that having one additional adult child migrated to an urban area increases the probability of the left-behind elderly parents being in poor health condition by about 8%. Furthermore, parents having only one child, from low-income households, or aged above 60 years are affected more. Our results point out that the parents with only one child is the most vulnerable group and highlight the importance of establishing a formal care system for the rural elderly to complement the traditional family care in rural China.
    Keywords: left-behind parents, health, rural-urban migration, China
    JEL: O15 J14 I15
    Date: 2015–09
  3. By: Meredith A. Crowley and Huasheng Song
    Abstract: We examine the stock market performance of publicly-listed Chinese firms in the solar panel industry over 2012 and 2013 in response to announcements of new import restrictions by the European Union and domestic policy changes by the Chinese government. Using daily stock market prices from the Shanghai-Shenzhen, New York and Hong Kong markets, we calculate abnormal returns to several policy changes affecting solar panels produced in China. We find, consistent with the Melitz (2003) model, that larger, more export-oriented firms experienced larger stock market losses in the wake of European trade restriction announcements. We further show that European trade policy had a larger negative effect on Chinese private sector firms relative to state owned enterprises. Finally, we use a two stage least squares estimation technique to show that firms listed on US markets are more responsive to news events than those listed in China and Hong Kong.
    Keywords: Chinese exports, antidumping, solar panels, event study
    JEL: F12 F13 G10 G14
    Date: 2015–09–30
  4. By: Chen, Zeyuan (Lund University); Bengtsson, Tommy (Lund University); Helgertz, Jonas (Lund University)
    Abstract: Transitioning into retirement is an under-researched phenomenon in developing countries. Largely, this is linked to a predominance of contexts where – in particular – the rural population remains outside the coverage of any formal pension system. In 2008, China introduced the New Rural Social Pension (NRSP), a program which by now covers the majority of the Chinese rural elderly. This paper examines the effects of the NRSP on the labor supply of the elderly in rural China. As pension benefit eligibility at the time of its implementation is conditional on age, a regression discontinuity design is applied to investigate the casual effect of the receipt of pension benefits on labor supply. Furthermore, as the NRSP is neither means-tested nor conditions on retirement, it induces a pure income effect on employment. Using data from the China Health and Retirement Longitudinal Study, a nationally representative data set, we find that the receipt of pension benefits increases the probability of retirement among the rural elderly by around 15%.
    Keywords: China, New Rural Social Pension, labor supply, regression discontinuity, retirement
    JEL: H55 J26
    Date: 2015–09
  5. By: Zheng Song (The University of chicago); Kinda Hachem (University of Chicago)
    Abstract: Shadow banking in China has grown very rapidly during the past decade. This paper studies the causes and impending consequences. We begin by documenting important differences in the cross-section of Chinese banks to isolate the regulatory triggers for shadow banking. We then build a model that rationalizes the facts and use it to conduct policy experiments. We find that asymmetric competition between banks is both a short-run stabilizer and a long-run risk, with new regulations potentially exacerbating the tipping point.
    Date: 2015
  6. By: Zhu Liu; Steven J. Davis; Kuishuang Feng; Klaus Hubacek; Sai Liang; Anadon, Laura Diaz; Bin Chen; Liu, Jingru; Yan, Jinyue; Dabo Guan
  7. By: CHEN, Cheng; TIAN, Wei; YU, Miaojie
    Abstract: This paper studies how discriminations against private enterprises (i.e., non-state-owned enterprises or non-SOEs) in the domestic market affect firms’ investment and production strategies abroad. We first document three puzzling empirical findings using data on Chinese multinational corporations (MNCs). First, private MNCs are less productive than state-owned MNCs. Second, SOEs are less likely to undertake FDI. Third, relative size of state-owned MNCs (compared with non-exporting or non-multinational firms) is larger than that of private MNCs. A theoretical model is built to rationalize these facts. The key economic force is that distortions in the domestic input market incentivize private firms to invest and produce abroad, which results in less tougher self-selection into FDI for those firms (i.e., selection reversal). Compared with state-owned MNCs, private MNCs allocate output disproportionately more in the foreign market, and their size increases disproportionately when they become MNCs. All such theoretical predictions are supported by the data on Chinese MNCs.
    Keywords: Outward FDI, Multinational Firms, Institutional Distortion, State-owned Enterprises
    JEL: F13 O11 P51
    Date: 2015–09–01
  8. By: Fungácová , Zuzana (BOFIT); Nuutilainen , Riikka (BOFIT); Weill , Laurent (BOFIT)
    Abstract: This paper examines how reserve requirements influence the transmission of monetary policy through the bank lending channel in China while also taking into account the role of bank ownership. The implementation of Chinese monetary policy is characterized by the reliance on the reserve requirements as a regular policy tool with frequent adjustments. Using a large dataset of 170 Chinese banks for the period 2004–2013, we analyze the reaction of loan supply to changes in reserve requirements. We find no evidence of the bank lending channel through the use of reserve requirements. We observe, nonetheless, that changes in reserve requirements influence loan growth of banks. The same findings hold true for other monetary policy instruments. Further, we show that the bank ownership format influences transmission of monetary policy.
    Keywords: Chinese banks; bank lending channel; bank ownership
    JEL: E52 G21 P52
    Date: 2015–09–21
  9. By: Chan, Marc K; Kwok, Simon
    Abstract: In a recent stock market reform, over half of the stocks listed in the Shanghai Stock Exchange became purchasable by foreign investors. Theory predicts that the price revaluation of an investible stock should be positively associated with the reduction in systematic risk. Using the policy as a natural experiment, we test this implication using a difference-in-differences estimator and a sample of 786 stocks in the Shanghai market. We find that risk-sharing explains over 40 percent of the price revaluation of investible stocks during the eight-month window between reform announcement and implementation. The results support the efficiency of the Chinese stock market, to the extent that the reduction of systematic risk is priced into those stocks that are affected by the liberalization.
    Keywords: Abatement; Cap and Trade; Emission Markets; Environmental Policy; Emission Taxes; Permit Trading
    Date: 2015–10
  10. By: Fernald, John G. (Federal Reserve Bank of San Francisco); Hsu, Eric (Federal Reserve Bank of San Francisco); Spiegel, Mark M. (Federal Reserve Bank of San Francisco)
    Abstract: How reliable are China’s GDP and other data? We address this question by using trading-partner exports to China as an independent measure of its economic activity from 2000-2014. We find that the information content of Chinese GDP improves markedly after 2008. We also consider a number of plausible, non-GDP indicators of economic activity that have been identified as alternative Chinese output measures. We find that activity factors based on the first principal component of sets of indicators are substantially more informative than GDP alone. The index that best matches activity in-sample uses four indicators: electricity, rail freight, an index of raw materials supply, and retail sales. Adding GDP to this group only modestly improves in-sample performance. Moreover, out of sample, a single activity factor without GDP proves the most reliable measure of economic activity.
    Date: 2015–09–21

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.