nep-cna New Economics Papers
on China
Issue of 2016‒02‒12
eleven papers chosen by
Zheng Fang
Ohio State University

  1. Is It Worth Issuing Bonds in China? Evidence from Stock Market Reactions By Paul-Olivier Klein; Laurent Weill
  2. The implications of liquidity expansion in China for the US dollar By Kang, Wensheng; Ratti, Ronald A.; Vespignani, Joaquin L.
  3. Catch-up with Generative State: Lessons from Chinese Telecom Equipment Industry By Ulas Emiroglu
  4. Corruption Charges Against Executives and Stock Value of Chinese State Owned Enterprises By Kam Ki Tang; Haishan Yuan
  5. A Simple Model of the Chinese Hukou System and Some Ongoing Reforms By Laixun Zhao
  6. The China Shock: Learning from Labor Market Adjustment to Large Changes in Trade By Autor, David; Dorn, David; Hanson, Gordon
  7. Is Sino-African trade exacerbating resource dependence in Africa? By Habiyaremye, Alexis
  8. Effects of China’s Rural Insurance Scheme on Objective Measures of Health By Slawa Rokicki; Katherine Donato
  9. What we learn from China's rising shadow banking: exploring the nexus of monetary tightening and banks' role in entrusted lending By Chen, Kaiji; Ren, Jue; Zha, Tao
  10. Foreigners Knocking on the Door: Trade in China During the Treaty Port Era By Andres Santiago, Javier; Keller, Wolfgang; Shiue, Carol Hua
  11. A Bayesian Approach to Excess Volatility, Short-term Underreaction and Long-term Overreaction During Financial Crises By Xu Guo; Michael McAleer; Wing-Keung Wong; Lixing Zhu

  1. By: Paul-Olivier Klein (LaRGE Research Center, Université de Strasbourg); Laurent Weill (LaRGE Research Center, Université de Strasbourg)
    Abstract: There has been a considerable expansion of corporate bond markets in China in the recent years. The objective of this study is to examine the stock market reaction following bond issuance by Chinese companies. In addition to analyzing for positive or negative reactions to bond issues, we consider the influences of ownership and management characteristics on the stock market reaction. Applying an event-study methodology to a sample of 481 bond issues of 347 Chinese companies over the period 2009–2013, the univariate results show that Chinese bond issues typically generate a positive stock market reaction. The reaction is only significantly positive, however, in the case of central state-owned companies (as opposed to those owned by local or provincial governments). The multivariate results indicate that insider ownership influences stock market reaction to a bond issue, while management characteristics have no discernable impact.
    Keywords: China, Emerging Markets, Corporate Bonds, Event Study.
    JEL: G14 P34
    Date: 2016
  2. By: Kang, Wensheng (Kent State University); Ratti, Ronald A. (Western Sydney University); Vespignani, Joaquin L. (University of Tasmania)
    Abstract: The value of the US dollar is of major importance to the world economy. Global liquidity has grown sharply in recent years with growing importance of China’s money supply to global liquidity. We develop out-of-sample forecasts of the US dollar exchange rate value using US and non-US global data on inflation, output, interest rates, and liquidity on the US, China and non-US/non-China liquidity. Monetary model forecasts significantly outperform a random walk forecast in terms of MSFE at horizons over 12 to 30 months ahead. A monetary model with sticky prices performs best. Rolling sample analysis indicates changes over time in the influence of variables in forecasting the US dollar. China’s liquidity has a distinct, significant and changing influence on the US dollar exchange rate. Post global financial crisis, increases in the growth rate in China’s M2 forecast a significantly higher value for the US dollar 12 months and 18 months ahead and significantly lower values for the US dollar 24 and 30 months.
    JEL: E41 E51 F31 F41
    Date: 2016–01–01
  3. By: Ulas Emiroglu (TEKPOL, Science and Technology Policy Studies, Middle East Technical University)
    Abstract: Neoliberal catch-up policies are definitely useless to create suitable environment for latecomers in order to close the gap with forerunners. This paper investigates an alternative policy to the neoliberal development policies in the scope of the high-technology industrial catch-up of the latecomers with guidance of the state and the state-led development policies. By this approach, the state’s active and interventionist role is suggested in all phases of the catch-up. It is a triple system of state, foreign investment, and national industry-capital, and this system has a dynamic and interactive relation with each other. Telecom equipment industry of China is chosen as a case study for this research. The suggested model is managed by the state and “transfer of modern technologies via JVs between MNCs and national companies”, “funding of industrial activities by state-owned banks and markets” and “re-organizing or creating competitive SOEs (State-owned enterprises) in these industries” are the major characteristics of the model. This system is named in this paper as “generative state” in which the state creates and sets up all related institutions and processes which are necessary to development and catch-up in a continuous manner. On the contrary to “passive and regulative role of state” in neoliberal policy suggestions, state actively manages all these phases with state-owned instruments. General finding of the study is noteworthy, China succeeded significant catch-up in a high tech industry- telecom equipment industry in 21st century with state-led policies of “state capitalism”.
    Keywords: State-led, catch-up, China, telecom, telecom equipment
    Date: 2015–12
  4. By: Kam Ki Tang (School of Economics, The University of Queensland); Haishan Yuan (School of Economics, The University of Queensland)
    Abstract: This paper examines whether the removal of politically connected executives from their positions will have any impacts, positive or negative, on their firms’ stock values. It focuses on the prosecution of executives of state owned enterprises in China during the anti-corruption campaign since 2013. Using the event study approach and the Fama-French three factor model, we analyze how announcements of prosecutions, which are expected to eventually result in the removal of the executives in question, affect the market returns of the affiliated firms over a 15-day window surrounding the announce- ments. A number of robustness tests are conducted. All empirical results suggest that the stock value of firms did not react to the news announcements. A number of possible explanations for this finding are offered. Creation-Date: 2016-01-02
    Keywords: Anti-corruption, Stock Value, Political Connections, Entrenched Executives, China
    JEL: F35 F13
  5. By: Laixun Zhao (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)
    Abstract: We model the Chinese Hukou (household registration) system, from the Mao era when it was strictly enforced to the early reform era (Deng Xiaoping era) when peasants were allowed to migrate to cities for work only. We document some stylized characteristics of Hukou control, and based on which build a rigorous model of the dual labor market generated by it. The model can explain the fact that rural migrant workers not only made important contributions to China's export boom, but also reversed the Chinese trade pattern—from exporting primary products to manufactured goods, because they are the labor force in "the manufacturing center of the world". Reform recovers some of the deadweight losses from Mao's strict Hukou control, but the gains from reform are unevenly distributed. We also apply the model to examine various policies and some ongoing reforms such as Special Economic Zones, export-tax refund, urbanization, one-child policy, etc.
    Keywords: Chinese institutions, Discrimination, Hukou, Rural-Urban migration, Earnings inequality, Trade policy, Special economic zones, Urbanization
    JEL: F1 J4 P2 P3
    Date: 2016–02
  6. By: Autor, David; Dorn, David; Hanson, Gordon
    Abstract: Abstract China’s emergence as a great economic power has induced an epochal shift in patterns of world trade. Simultaneously, it has challenged much of the received empirical wisdom about how labor markets adjust to trade shocks. Alongside the heralded consumer benefits of expanded trade are substantial adjustment costs and distributional consequences. These impacts are most visible in the local labor markets in which the industries exposed to foreign competition are concentrated. Adjustment in local labor markets is remarkably slow, with wages and labor-force participation rates remaining depressed and unemployment rates remaining elevated for at least a full decade after the China trade shock commences. Exposed workers experience greater job churning and reduced lifetime income. At the national level, employment has fallen in U.S. industries more exposed to import competition, as expected, but offsetting employment gains in other industries have yet to materialize. Better understanding when and where trade is costly, and how and why it may be beneficial, are key items on the research agenda for trade and labor economists.
    Keywords: China; International Trade; Labor Markets
    JEL: F16 H55 J23 J31 J63
    Date: 2016–01
  7. By: Habiyaremye, Alexis (Department of Economics, Antalya International University)
    Abstract: Over the past decade, trade between China and Africa has rapidly expanded and has led to strong growth rates in Africa mainly buoyed by natural resource export. The boom in trade has partly been made possible by the use of resource-for-infrastructure swap agreements (the so-called "Angola-mode deals"), in which Chinese companies finance and build infrastructure in Africa in exchange for access to natural resources. The concomitant increase in resource export to China has however raised serious concerns that these trade arrangements may reinforce Africa's resource dependence rather than reduce it. In this article we use a dynamic panel data model to examine whether the Angola-mode deals have reinforced resource dependence and impeded export diversification in African countries. Our results indicate that by helping African countries reduce existing infrastructure bottlenecks, resources-for-infrastructure swap deals enabled them to increase their diversification capacity.
    Keywords: Africa, China, trade, resource export, resource dependence, Angola-mode, infrastructure, natural resources, export diversification
    JEL: F40 O13 O33 O55 Q32
    Date: 2015–11–23
  8. By: Slawa Rokicki; Katherine Donato
    Abstract: In 2003, the Chinese government established the New Cooperative Medical Scheme (NCMS) with the goal of improving health for the country’s 800 million mostly uninsured rural residents. Using new data on objective health measures, we analyzed the program’s effectiveness in improving health for enrollees. Using longitudinal data from the China Health and Nutritional Survey from 2000 to 2009 (12 080 observations across four waves), we analyzed the impact of the NCMS on objective measures of health such as blood pressure, HbA1c, and cholesterol, as well as use of preventive care. In order to overcome inherent selection bias where less healthy people are more likely to enroll in the voluntary health insurance scheme, we used intent-to-treat and instrumental variable analysis strategies, and offered evidence that these approaches can mitigate this bias. For every additional year of NCMS coverage, the probability of seeking preventive health care increased by 0.6 percentage points (95% CI 0.1-1.0). However, we did not find evidence that the NCMS resulted in consistent improvements in objective measures of health. Sub-group analysis suggested that lower-income communities benefited more from the program, implying that the program may have resulted in some lessening of the wealth-based disparity in health. The NCMS does not appear to significantly improve objective measures of health. This is consistent with evaluations of health insurance programs in other countries, but in contrast to some previously reported improvements in self-reported health resulting from the NCMS.
    Keywords: China, Health insurance, Biomarkers, Objective health
    JEL: I13 I15
    Date: 2016–02
  9. By: Chen, Kaiji (Emory University); Ren, Jue (Emory University); Zha, Tao (Federal Reserve Bank of Atlanta)
    Abstract: We argue that China's rising shadow banking was inextricably linked to potential balance-sheet risks in the banking system. We substantiate this argument with three didactic findings: (1) commercial banks in general were prone to engage in channeling risky entrusted loans; (2) shadow banking through entrusted lending masked small banks' exposure to balance-sheet risks; and (3) two well-intended regulations and institutional asymmetry between large and small banks combined to give small banks an incentive to exploit regulatory arbitrage by bringing off-balance-sheet risks into the balance sheet. We reveal these findings by constructing a comprehensive transaction-based loan dataset, providing robust empirical evidence, and developing a theoretical framework to explain the linkages between monetary policy, shadow banking, and traditional banking (the banking system) in China.
    Keywords: Regulatory arbitrage; asset pricing; institutional asymmetry; entrusted loans; risk taking; shadow loans; bank loans; nonloan investment; nonbank trustees; small banks; large banks; balance sheet; optimal decisions
    JEL: E02 E5 G11 G12 G28
    Date: 2016–01–01
  10. By: Andres Santiago, Javier; Keller, Wolfgang; Shiue, Carol Hua
    Abstract: We employ a new, commodity-level dataset on the flow of goods between fifteen major treaty ports to estimate a general-equilibrium trade model for China around the year 1900. The distribution of welfare effects depends critically on each port’s productivity, China’s economic geography because it affects trade costs, and the extent of regional diversity in production because this affects the potential gains from trade. We utilize this framework to quantify the size and distribution of welfare effects resulting from new technology and lower trade costs that came with the treaty ports. Findings show that domestic markets resulted in ripple effects which transmitted the effect of the international trade opening beyond the foreign concessions. However, because differences in relative productivity across regions were relatively low, the welfare gains from domestic trade improvements were limited.
    Keywords: 19th century China; domestic trade; economic integration; welfare gains
    JEL: F1 N15 O1
    Date: 2016–01
  11. By: Xu Guo (Nanjing University of Aeronautics and Astronautics); Michael McAleer (National Tsing Hua University, Taiwan; Erasmus University Rotterdam, the Netherlands; Complutense University of Madrid, Spain); Wing-Keung Wong (Hong Kong Baptist University, Hong Kong, PR China); Lixing Zhu (Hong Kong Baptist University, Hong Kong, PR China)
    Abstract: In this paper, we introduce a new Bayesian approach to explain some market anomalies during financial crises and subsequent recovery. We assume that the earnings shock of an asset follows a random walk model with and without drift to incorporate the impact of financial crises. We further assume the earning shock follows an exponential family distribution to take care of symmetric as well as asymmetric information. By using this model setting, we develop some properties on the expected earnings shock and its volatility, and establish properties of investor behavior on the stock price and its volatility during financial crises and subsequent recovery. Thereafter, we develop properties to explain excess volatility, short-term underreaction, long-term overreaction, and their magnitude effects during financial crises and subsequent recovery.
    Keywords: Bayesian model; representative and conservative heuristics; excess volatility; underreaction; overreaction; magnitude effects; financial crises
    JEL: C11 G01 G11
    Date: 2016–01–15

This nep-cna issue is ©2016 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.