nep-cna New Economics Papers
on China
Issue of 2016‒03‒23
twenty papers chosen by
Zheng Fang
Ohio State University

  1. Economic Growth and Convergence, Applied Especially to China By Robert J. Barro
  2. Hong Kong - Shanghai Connect / Hong Kong - Beijing Disconnect (?), Scaling the Great Wall of Chinese Securities Trading Costs By Ravi Kashyap
  3. The Potential Benefits of Agricultural Adaptation to Warming in China in the Long Run By Jikun Huang; Kaixing Huang; Jinxia Wang
  4. Estimating the impact of monetary policy on inequality in China By Sánchez-Fung, José R.
  5. What drives China’s outward FDI? A regional analysis By You, Kefei
  6. The China Shock: Learning from Labor Market Adjustment to Large Changes in Trade By David H. Autor; David Dorn; Gordon H. Hanson
  7. Time allocation and performance: the case of Chinese entrepreneurs By Talavera, Oleksandr; Xiong, Lin; Weir, Charlie
  8. China’s Economic Diplomacy and the Politics-Trade Nexus By Fuchs, Andreas
  9. Is it worth issuing bonds in China? Evidence from stock market reactions By Klein, Paul-Olivier; Weill, Laurent
  10. Quantifying the Effects of Financialisation and Leverage in China By Sun, Lixin
  11. Fringe Benefits and Import Competition By Tempesti, Tommaso
  12. Controlling SO2 emissions in China: A panel data analysis of the 11th Five-Year Plan By Teng Ma; Kenji Takeuchi
  13. Anti-Western conspiracy thinking and expectations of collusion: Evidence from Russia and China By Libman, Alexander; Vollan, Björn
  14. Mandatory Retirement and the Consumption Puzzle: Prices Decline or Quantities Decline? By Yingying Dong; Dennis Yang
  15. Foreigners Knocking on the Door: Trade in China During the Treaty Port Era By Wolfgang Keller; Javier Andres Santiago; Carol H. Shiue
  16. Improving Energy Efficiency and Reducing Emissions through Intelligent Railway Station Buildings By Asian Development Bank (ADB); Asian Development Bank (ADB); Asian Development Bank (ADB); Asian Development Bank (ADB)
  17. Liquidity Regulation and Unintended Financial Transformation in China By Kinda Cheryl Hachem; Zheng Michael Song
  18. Meta-analysis of Chinese business cycle correlation By Fidrmuc, Jarko; Korhonen, Iikka
  19. What We Learn from China's Rising Shadow Banking: Exploring the Nexus of Monetary Tightening and Banks' Role in Entrusted Lending By Kaiji Chen; Jue Ren; Tao Zha
  20. Contractions in Chinese fertility and savings: long run domestic and global implications By Jane Golley; Rod Tyers; Yixiao Zhou

  1. By: Robert J. Barro
    Abstract: From the perspective of conditional convergence, China’s GDP growth rate since 1990 has been surprisingly high. However, China cannot deviate forever from the global historical experience, and the per capita growth rate is likely to fall soon from around 8% per year to a range of 3 4%. China can be viewed as a middle-income convergence-success story, grouped with Costa Rica, Indonesia, Peru, Thailand, and Uruguay. Upper-income convergence successes comprise Chile, Hong Kong, Ireland, Malaysia, Poland, Singapore, South Korea, and Taiwan. China’s transition from middle- to upper-income status should not be hindered by a middle-income trap, which seems not to exist. The cross-country dispersion of the log of per capita GDP shows no trend since 1870 for 25 countries with long-term data. This group excludes emerging-market countries such as China and India. For 34 countries with data since 1896, there is clear evidence of declining dispersion starting around 1980. This pattern reflects especially the incorporation of China and India into the world market economy.
    JEL: O11 O4 O47
    Date: 2016–01
  2. By: Ravi Kashyap
    Abstract: We utilize a fundamentally different model of trading costs to look at the effect of the opening of the Hong Kong Shanghai Connect that links the stock exchanges in the two cities, arguably the biggest event in international business and finance since Christopher Columbus set sail for India. We design a novel methodology that compensates for the lack of data on trading costs in China. We estimate trading costs across similar positions on the dual listed set of securities in Hong Kong and China, hoping to provide useful pieces of information to help scale 'The Great Wall of Chinese Securities Trading Costs'. We then compare actual and estimated trading costs on a sample of real orders across the Hong Kong securities in the dual listed pair to establish the accuracy of our measurements. The primary question we seek to address is 'Which market would be better to trade to gain exposure to the same (or similar) set of securities or sectors?' We find that trading costs on Shanghai, which might have been lower than Hong Kong, might have become higher leading up to the Connect. What remains to be seen is whether this increase in trading costs is a temporary equilibrium due to the frenzy to gain exposure to Chinese securities or whether this phenomenon will persist once the two markets start becoming more and more tightly coupled. It would be interesting to see if this pioneering policy will lead to securities exchanges across the globe linking up one another, creating a trade anything, anywhere and anytime marketplace. Looking beyond mere trading costs, such studies can be used to gather some evidence on what effect the mode of governance and other aspects of life in one country have on another country, once they start joining up their financial markets.
    Date: 2016–03
  3. By: Jikun Huang (Center for Chinese Agricultural Policy at Chinese Academy of Sciences, Institute of Geographical Sciences and Natural Resources Research); Kaixing Huang (School of Economics, University of Adelaide); Jinxia Wang (School of Advanced Agricultural Sciences, Peking University)
    Abstract: Understanding to what extent agriculture can adapt to climate change and the determinants of farmers' adaptation capability are of paramount importance from a policy perspective, especially for developing countries where agricultural production is potentially most vulnerable to climate change. Based on a panel of household survey data from a large sample in rural China, the present article adopts a panel approach to estimate the potential benefits of adaptation and to identify the determinants of farmers' adaptation capability. Empirical modeling results suggest that, under the most likely climate change scenario, the potential impacts of warming on agricultural profits will be rather mild (8.4 percent) by the end of this century if adaptations are taken into account. In addition, for all potential warming scenarios, adaptations are expected to consistently offset about 50 percent of the potential damages caused by global warming. Finally, households with higher labor and capital intensities are better placed to adapt to global warming.
    Keywords: climate change impact, agriculture, adaptation capability
    JEL: Q15 Q51 Q54
    Date: 2016–03
  4. By: Sánchez-Fung, José R.
    Abstract: ​The paper estimates the impact of monetary policy on income inequality in China. The empirical modelling finds that a battery of monetary indicators, including a monetary overhang measure derived from a money demand equation, and the change in the unemployment rate lead to increases in the Gini coefficient. However, only unemployment is statistically significant. The lack of significance of the monetary indicators is robust to alternative specifications with variability in nominal aggregate demand instead of unemployment.
    Keywords: monetary policy, inequality, inflation, unemployment, China
    JEL: E52 D31
    Date: 2015–05–13
  5. By: You, Kefei
    Abstract: Our study examines home drivers of China’s regional outward FDI. We propose a theoretical framework that incorporates an extended Investment Development Path (IDP) theory, home locational constraints, policy incentives and geographic factors. Empirically, we employ the Bayesian Averaging Maximum Likelihood Estimates method to address model uncertainty. All proposed theories (except for geographic aspects) are found to provide important perspectives explaining China’s regional outward FDI. Our results highlight the importance of government policies but do not support the original IDP hypothesis that outward investment is automatically generated as income grows. Our findings have implications for both regional and central-government policy.
    Keywords: China, regional outward FDI, home determinants, extended IDP theory, home locational constraints, government policies, Bayesian
    JEL: F21 R11 C11 C23
    Date: 2015–05–05
  6. By: David H. Autor; David Dorn; Gordon H. Hanson
    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.
    JEL: F14 J23 J31
    Date: 2016–01
  7. By: Talavera, Oleksandr; Xiong, Lin; Weir, Charlie
    Abstract: This paper analyses the effect of time allocation on the financial performance of entrepreneurial firms. We apply the Lewbel (2012) estimator to a pooled dataset of Chinese private manufacturing firms that are managed by their owners. Time is allocated between management, networking and study activities. After accounting for endogeneity, we find an inverted U-shaped relationship between management hours and firm performance and between networking and firm performance. However, no relationship between time spent studying and firm performance is observed. We also find that the managing hours-performance relationship is particularly strong for companies managed by entrepreneurs who own more than 75% of share, for companies that are managed by owners with previous experience, for male entrepreneurs and for smaller sized firms.
    Keywords: Time allocation, owner manager businesses, China
    JEL: L26 M21 O53
    Date: 2016–02–29
  8. By: Fuchs, Andreas
    Abstract: This article reviews the literature on the linkages between political tensions, economic diplomacy and international trade in the light of China’s rise in the global economy. The existing scholarly work suggests that economic diplomacy should be more pivotal in economic exchange with China than with Western market economies. In an econometric test, I analyze how diplomatic tensions, measured through foreign dignitaries’ meetings with the Dalai Lama, affect the likelihood of an official visit from a Chinese leader. The results show that the likelihood of the Chinese leadership traveling to a country is 13.6 percent lower if the country’s government receives the Dalai Lama in a given year but increases in the following year, supposedly to restore ties. This finding underlines that economic diplomacy is an important channel linking political climate and economic exchange between nations.
    Keywords: economic diplomacy; international trade; embassies; political climate; state visits; leadership travel; emerging economies; China; Dalai Lama; Tibet
    Date: 2016–03–08
  9. By: Klein, Paul-Olivier; Weill, Laurent
    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: 2015–12–15
  10. By: Sun, Lixin
    Abstract: This paper attempts to examine the effects of financialisation and leverage on China’s economic growth and income inequality. The empirical results suggest that the effects of the financialisation indicators are ambiguous and weak; however the leverage indicators do have negative impacts. We find that the ratio of non-financial private debt to GDP has significantly negative impact on China’s growth, whereas the effects of the ratio of public debt to GDP are insignificant. Moreover, at the disaggregated level of non-financial private debt, it is the higher non-financial corporate debt level rather than the household debt level that remarkably undermines China’s economic growth. Finally, we find that the rise in the household debt level could significantly reduce the income inequality, and the ratio of M2 to GDP is positively related with the income inequality in China.
    Keywords: Leverage; Financialisation; Economic Growth; Income Inequality; China’s Economy
    JEL: G10 H63 O53
    Date: 2015–12
  11. By: Tempesti, Tommaso
    Abstract: In the United States fringe benefits are now more than 30% of compensation. While many studies have focused on the impact of trade with developing countries on U.S. wages, not much attention has been given to the impact of such trade on other components of compensation. But if trade affects the share of benefits in compensation, the studies which focus on wages and ignore fringe benefits likely give us biased estimates of the effect of trade on workers’ total compensation and consumption. I use data about individual workers’ fringe benefits from the NLSY79. I focus on workers who worked in manufacturing in 1991 and I follow them up to 2006. I then combine this individual level dataset with a measure of exposure to Chinese imports at the industry level and with an instrument for it, as in Autor et al. (2014). I estimate the effect of Chinese import competition on fringe benefits to be positive and economically and statistically significant. The results are robust to the inclusion of several individual and industry level control variables. Differently from previous studies, my results suggest a more optimistic view of the effect of trade with China on U.S. workers’ overall compensation.
    Keywords: Fringe Benefits; Trade Flows; Compensation
    JEL: F16 I13 J32
    Date: 2015–12–30
  12. By: Teng Ma (Graduate School of Economics, Kobe University); Kenji Takeuchi (Graduate School of Economics, Kobe University)
    Abstract: We investigate the impact of policy measures to reduce SO2 emissions during 11th Five-Year Plan of China (2006-2010). By using a provincial-level panel data set, we find that installation of the flue-gas desulfurization equipment and closure of small coal- fired power plants contributed to a statistically significant reduction in SO2 emissions. While estimation results suggest that these two policy measures played an important role in reducing SO 2 emissions in China during this period, the size of the estimated coefficients shows that the effects might have been weaker than those predicted by ex-ante cost-benefit analysis.
    Keywords: SO2; Air pollution; Panel data; China; 11th Five-Year Plan.
    JEL: L94 P28 Q53 Q56
    Date: 2016–03
  13. By: Libman, Alexander; Vollan, Björn
    Abstract: Anti-Western conspiracies are frequently used by Governments to strengthen their power. We investigate the impact of conspiracy thinking on expectations of collusion among individuals in Russia and China. For this purpose, we conduct a novel laboratory experiment to measure expectations of collusion and several survey items related to conspiracy thinking. Our survey results indicate that anti-Western conspiracy thinking is widespread in both countries and correlates with distrust. We find a significant effect of anti-Western conspiracy thinking in China: Anti-Western conspiracy thinking correlates with lower expectations of collusion. We explain this result by stronger ingroup feeling emanating from the anti-Western sentiment. Our paper provides a first step in analyzing the economic implications of conspiracy thinking for society.
    Keywords: conspiracy thinking, Russia, China, trust, collusion experiments
    JEL: C91 D83 O17
    Date: 2015–04–29
  14. By: Yingying Dong (University of California, Irvine); Dennis Yang (University of virginia)
    Abstract: This paper investigates household consumption changes at retirement by utilizing a comprehensive, diary-based household survey from China. The survey contains both consumption quantity and price information, which permits separating quantity changes from price changes. The mandatory retirement policy in China provides a quasi-experimental setting for identification of the true causal effects of fully anticipated retirement. Using regression discontinuity models, we show that food expenditure declines at retirement, particularly among the low-education group, and that the decline is driven by price declines instead of quantity declines. Shopping time for food increases at retirement, consistent with the price and quantity changes.
    Keywords: Retirement-consumption puzzle, Manadatory retirement, regression discontinuity, consumption vs. expenditure, time use, home production
    JEL: J26 C21
    Date: 2016–02
  15. By: Wolfgang Keller; Javier Andres Santiago; Carol H. Shiue
    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.
    JEL: F11 F15 N15 O1
    Date: 2016–01
  16. By: Asian Development Bank (ADB); Asian Development Bank (ADB) (East Asia Department, ADB); Asian Development Bank (ADB) (East Asia Department, ADB); Asian Development Bank (ADB)
    Abstract: Buildings in the People’s Republic of China (PRC) consume 21% of the total energy produced in the country. This study analyzes and proposes feasible energy-saving and emission-reducing solutions for domestic railway stations in the PRC. The use of intelligent building controls support reduction of energy consumption, minimization or elimination of energy wastes, and cost savings. Strong institutional mechanisms and railway building management methods and policies also promote technological innovation. Moreover, these are necessary to balance the interests of multiple parties to be able to achieve energy efficiency in railway station buildings in the PRC.
    Keywords: prc railway stations, intelligent railway stations, energy efficiency, energy consumption, emissions reduction, energy savings, policy recommendations, energy assessment, railway station design, adb ta 7916, china railway corporation, case studies
    Date: 2015–09
  17. By: Kinda Cheryl Hachem; Zheng Michael Song
    Abstract: China increased bank liquidity standards in the late 2000s. The interbank market became tighter and more volatile and credit soared, contrary to expectations. To explain this, we argue that shadow banking developed among Chinaʼs small and medium-sized banks to evade the higher liquidity standards. The shadow banks, which were not subject to interest rate ceilings on traditional bank deposits, then poached deposits from big commercial banks. In response, big banks used their substantial interbank market power to restrict credit to the shadow banks and increased their lending to non-financials. A calibration of our unified framework generates a quantitatively important credit boom and higher and more volatile interbank interest rates as unintended consequences of higher liquidity standards.
    JEL: E44 G28
    Date: 2016–01
  18. By: Fidrmuc, Jarko; Korhonen, Iikka
    Abstract: We summarize previous research on China’s business cycle correlation with other countries with the help of meta-analysis techniques. We survey 71 related papers along with all the characteristics of the estimations as well as those of the authors. We confirm that especially Pacific Rim countries have relatively high business cycle correlation with China. However, it appears that many characteristics of the studies and authors do influence the reported degree of business cycle synchronization. For instance, Chinese-language papers report higher correlation coefficients. Despite of this, we do not detect a robust publication bias in the papers.
    Keywords: business cycle synchronization, meta-analysis, China
    JEL: E32 F44
    Date: 2015–03–04
  19. By: Kaiji Chen; Jue Ren; Tao Zha
    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.
    JEL: E02 E5 G11 G12 G28
    Date: 2016–01
  20. By: Jane Golley; Rod Tyers; Yixiao Zhou
    Abstract: Following three decades of rapid but unbalanced economic growth, China's reform and policy agenda are set to rebalance the economy toward consumption while maintaining a rate of GDP growth near seven per cent. Among the headwinds it faces is a demographic contraction that brings slower, and possibly negative, labour force growth and relatively rapid ageing. While the lower saving rates that result from consumption-oriented policies and rising aged dependency may contribute to a rebalancing of the economy, in the long run they will reduce both GDP growth and per capita income. Moreover, while an effective transition from the one-child policy to a two-child policy would help sustain growth and eventually mitigate the aged dependency problem, it would set real per capita income on a still lower path. These conundrums are examined using a global economic and demographic model, which embodies the main channels through which fertility and saving rates impact on economic performance. The results quantify the associated trade-offs and show that continuing demographic and saving contractions in China would alter the trajectory of the global economy as well.
    Keywords: China, demography, imbalances, spill-overs, global effects
    JEL: F42 F43 F47
    Date: 2016–03

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