nep-cna New Economics Papers
on China
Issue of 2016‒06‒09
twenty papers chosen by
Zheng Fang
Ohio State University

  1. What drives China’s outward FDI? A regional analysis By You, Kefei
  2. Is China fudging its figures? Evidence from trading partner data By Fernald, John; Hsu, Eric; Spiegel, Mark M.
  3. Driving Factors of Rural-Urban Migration in China By Melo, Grace; Ames, Glenn
  4. The offshore renminbi exchange rate: Microstructure and links to the onshore market By Cheung, Yin-Wong; Rime, Dagfinn
  5. The structural behavior of China–US trade flows By Cheung, Yin-Wong; Chinn, Menzie D.; Qian, XingWang
  6. An adaptive approach to forecasting three key macroeconomic variables for transitional China By Niu, Linlin; Xu, Xiu; Chen, Ying
  7. China’s Pursuit of Environmentally Sustainable Development: Harnessing the New Engine of Technological Innovation By Wei Jin; ZhongXiang Zhang
  8. Is it worth issuing bonds in China? Evidence from stock market reactions By Klein, Paul-Olivier; Weill, Laurent
  9. Reserve requirements and the bank lending channel in China By Fungáčová, Zuzana; Nuutilainen, Riikka; Weill, Laurent
  10. The Effect of China’s Pork Reserve Program on Pork Price Volatility By Yu, Yi; Willis, David
  11. Bank capital, adjustment and ownership: Evidence from China By Molyneux, Philip; Liu, Hong; Jiang, Chunxia
  12. Investigating the “One Farm Household, Two Production systems” in Rural China: The Case of Vegetable and Fruit Farmers By Zhang, Man; Jin, Yanhong; Zheng, Fengtian
  13. Impact of Tenure Security and Trust on Land Rental Market Development in Rural China By Ma, Xianlei; Heerink, Nico; van Ierlan, Ekko; Lang, Hairu; Shi, Xiaoping
  14. Macroeconomic consequences of the real-financial nexus: Imbalances and spillovers between China and the U.S. By Pang, Ke; Siklos, Pierre L.
  15. Abatement costs of Emissions from Crop Residue Burning in major crop producing regions of China: Balancing food security with the environment By Hou, Lingling; Hoag, Dana; Keske, Catherine
  16. China’s Agricultural Exports and their Effects on other Exporters By Nguyen, Huong
  17. Consumer preference for supermarket food sampling in China By Chen, Lijun; Parcell, Joe L; Chen, Chao; James, Harvey S. Jr; Xu, Danning
  18. China’s emerging dairy markets and potential impacts on U.S. alfalfa and dairy product exports By Wang, Qingbin; Hansen, James; Xu, Fang
  19. College Students on the Job Market and the Screening of Prospective Employers: Evidence from a Randomized Experiment in China By Zhang, Jian; Li, Tao; Wang, Haigang
  20. Reconciling China’s official statistics on state ownership and control By Paul Hubbard

  1. 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
  2. By: Fernald, John; Hsu, Eric; Spiegel, Mark M.
    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.
    Keywords: China, GDP, principal components, structural break, forecasting
    JEL: C53 C82 E20 F17
    Date: 2015–10–15
  3. By: Melo, Grace; Ames, Glenn
    Abstract: This study employs panel data to analyze the economic factors that drive rural-urban migration and agricultural labor supply within China. The results indicate that higher wages in urban areas, especially in the construction sector, was associated with rural-urban migration and a decline in the agricultural labor supply. The rural-urban wage differential in construction reflects the housing boom in cities set off by rapid urbanization and government policies. Most importantly, our findings raise concerns about the negative impact of rural-urban migration on agriculture in China. Policies that impact labor supply, especially in times of rapid urban development and low diffusion of agricultural technology, are critical to Chinese economic development and stability.
    Keywords: Internal migration, agricultural labor, Agricultural and Food Policy, Labor and Human Capital, O15, R23, J43,
    Date: 2016–05–23
  4. By: Cheung, Yin-Wong; Rime, Dagfinn
    Abstract: The offshore renminbi (CNH) exchange rate is the exchange rate of the Chinese currency transacted outside China. We study the CNH exchange rate dynamics and its links with onshore exchange rates. Using a specialized microstructure dataset, we find that CNH is significantly affected by its order flow and limit-order imbalance. The offshore CNH exchange rate has an increasing impact on the onshore rate, and significant predictive power for the official RMB central parity rate. The CNH order flow also affects the onshore RMB exchange rate and the central parity rate. The interactions between variables are likely to be time-varying. Publication keywords: foreign exchange market microstructure, order flow, limit-order imbalance, CNH, CNY, central parity rate
    JEL: F31 F33 G14 G15 G21 G28
    Date: 2014–09–28
  5. By: Cheung, Yin-Wong; Chinn, Menzie D.; Qian, XingWang
    Abstract: We examine Chinese-US trade flows over the 1994-2012 period, and find that, in line with the conventional wisdom, the value of China’s exports to the US responds negatively to real renminbi (RMB) appreciation, while import responds positively. Further, the combined empirical price effects on exports and imports imply an increase in the real value of the RMB will reduce China’s trade balance. The use of alternative exchange rate measures and data on different trade classifications yields additional insights. Firms more subject to market forces exhibit greater price sensitivity. The price elasticity is larger for ordinary exports than for processing exports. Finally, accounting for endogeneity and measurement error matters. Hence, the purging the real exchange rate of the portion responding to policy, or using the deviation of the real exchange rate from the equilibrium level yields a stronger measured effect than when using the unadjusted bilateral exchange rate. Publication keywords: import, export, elasticity, real exchange rate, processing trade
    JEL: F12 F41
    Date: 2014–12–05
  6. By: Niu, Linlin; Xu, Xiu; Chen, Ying
    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
  7. By: Wei Jin (School of Economics, UNSW Business School, The University of New South Wales and School of Public Policy and Management, Zhejiang University); ZhongXiang Zhang (College of Management and Economics, Tianjin University)
    Abstract: Whether China continues its business-as-usual investment-driven, environment-polluting growth pattern or adopts an investment and innovation-driven, environmentally sustainable development holds important implications for both national and global environmental governance. Building on a Ramsey-Cass-Koopmans growth model that features endogenous technological change induced by R&D and knowledge stock accumulation, this paper presents an exposition, both analytically and numerically, of the mechanism underlining China’s economic transition from an investment-driven, pollution-intensive to an investment and innovation-driven, environmentally sustainable growth path. We show that if R&D technological innovation is incorporated into China’s growth mechanism, then at some tipping point in time when marginal welfare gain of R&D for knowledge accumulation becomes equalized with that of investment for physical asset deployment, China’s economy will launch capital investment and R&D simultaneously and make a transition to a sustainable growth path along which consumption, capital investment, and R&D have a balanced share of 5: 4: 1, consumption, capital stock, and knowledge stock all grow at a rate of 4.9%, and environmental quality improves at a rate of 2.5%. In contrast, if R&D technological innovation is not harnessed as a new growth engine, then China’s economy will follow its business-as-usual investment-driven growth path along which standalone accumulation of dirty physical capital stock will lead to an more than 200-fold increase in environmental pollution.
    Keywords: Endogenous Technological Change, Sustainable Development, Economic Growth Model, China’s Economic Transition
    JEL: Q55 Q58 Q43 Q48 O13 O31 O33 O44 F18
    Date: 2016–03
  8. 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
  9. By: Fungáčová, Zuzana; Nuutilainen, Riikka; Weill, Laurent
    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
  10. By: Yu, Yi; Willis, David
    Abstract: China introduced a systematic pork reserve program in 2009 to decrease pork price volatility. The price stabilization effectiveness of the reserve program is unknown. Two econometric procedures are used to analyze the effectiveness of the program in reducing pork price volatility. The first approach is an autoregressive conditionally heteroskedastic (ARCH) regression model estimated using monthly national average wholesale pork price data for January 2000 to July 2015. Price volatility is modeled as the difference in monthly price in consecutive months. The ARCH procedure controls for domestic production, consumer income and seasonality. A difference in difference (DD) regression procedure, compliments the ARCH procedure, to further investigate the relationship between the reserve policy and price volatility. Two DD analyses are conducted. The first analysis measures monthly price volatility in terms of absolute differences, and the second in absolute percentage change differences. Both the ARCH and DD approaches find that pork price volatility increased, not decreased, after the introduction of the reserve program.
    Keywords: Pork Price Stabilization, Reserve Policy, ARCH, Difference in Difference, China, Agricultural and Food Policy, Demand and Price Analysis, Q11, Q18,
    Date: 2016
  11. By: Molyneux, Philip; Liu, Hong; Jiang, Chunxia
    Abstract: We investigate ownership effects on capital and adjustments speed to the target capital ratio in China from 2000 to 2012 and find that state-owned banks hold higher levels of capital than banks of other ownership types. Foreign banks are more highly capitalized than local non-state banks but under-capitalized compared with the bigger non-state banks with nationwide presence. Foreign banks adjust risk-weighted capital towards their optimal targets at a slower speed than domestic banks, while foreign minority ownership results in a faster adjustment process. Capital is positively influenced by profitability, asset diversification and liquidity risk, but negatively influenced by bank market power. Capital ratios typically co-move with the business cycle although this relationship is reversed during the crisis period due to active government intervention. Our results are robust to various modelling specifications and have important policy implications. Publication keywords: banking, capital, adjustment, ownership, China
    JEL: G21 G28 C32
    Date: 2014–09–15
  12. By: Zhang, Man; Jin, Yanhong; Zheng, Fengtian
    Abstract: Food safety receives an escalating attention since the 2008 milk scandal in China. Chinese government faces a great challenge to safeguard the safety of food supply chain due to the significant fermentation of producers and weak institutional resources to monitor and enforce food safety standards. Chinese farm households often practice two separate production systems for the same crop for the market and self-consumption separately and, thus the so called “One Farm Household, Two Production Systems” (OFH-TPS) gain the popularity in the recent years. This study provides both a theoretical framework to model the OFH-TPS decision and an empirical analysis to identify factors affecting the OFH-TPS decision using household survey data. We find that information asymmetry of product quality and measures to reduce the asymmetry such as product inspections and certifications play an important role in the OFH-TPS decision. In particular, product inspections conducted by industry associations, agricultural cooperatives, or farmer themselves curb the adoption of the TFH-TPS, whereas government inspection has no statistically significant effect. Farmers who sell green foods are less likely but organic farmers are more likely to adopt the OFH-TPS, which echoes the expectation based on the theoretical model. We also find that training of pesticide applications reduce the adoption of the OFH-TPS, but the perceived adverse effects of pesticide applications have no statistical effects. Furthermore, farmers who uses highly toxic and banned pesticides and/or who perceive poor food safety of the local markets are more likely to adopt the OFH-TPS. This study provides rich policy implications. First, calling the engagement of private sector to safeguard food safety and improving the efficacy of government inspection are critical to improve food safety. Second, education on pesticide applications is critical, especially among retailers of pesticides.
    Keywords: food safety, “one household, two production systems”, non-separable model, inspection, certification, Agricultural and Food Policy, Farm Management, Food Consumption/Nutrition/Food Safety,
    Date: 2016
  13. By: Ma, Xianlei; Heerink, Nico; van Ierlan, Ekko; Lang, Hairu; Shi, Xiaoping
    Abstract: This paper examines the impact of actual and perceived land tenure security and trust on the leasing of land, using detailed household-level data collected in two different regions in China. Wirth regard to actual tenure security, we find that possession of land certificates increases the probability that a household rents in additional land, the size of the leased land, and the probability of using formal contracts; absence of land reallocations in recent years positively affects the likelihood of using informal contracts. Perceptions of tenure security matter for the land renting decisions of households with high actual tenure security. Higher perceived security positively affects the probability that a household rents in additional land as well as the size of the leased land. As regards trust, we find that higher kinship trust induces households to use informal contracts, while higher trust towards known people induces households to use formal contracts.
    Keywords: Agricultural and Food Policy, Land Economics/Use,
    Date: 2015
  14. By: Pang, Ke; Siklos, Pierre L.
    Abstract: ​Relying on quarterly data since 1998 we estimate, for China and the U.S., small scale econometric models that economize on the number of variables employed and yet are rich enough to provide useful insights about spillover effects between the two countries under different maintained assumptions about the exogeneity of the macroeconomic relationship between them. We conclude that inflation in China responds to credit shocks. Indeed, the monetary transmission mechanism in China resembles that of the US even if the channels through which monetary policy affects their respective economies differ. We also find that the monetary policy stance of the PBOC was helpful in mitigating the impact of the global financial crisis of 2008-9. Finally, spillovers from the US to China are significant and originate from both through the real and financial sectors of the US economy. Publication keywords: spillovers, monetary policy in China, dynamic factor models, credit
    JEL: E58 E52 C32
    Date: 2015–01–18
  15. By: Hou, Lingling; Hoag, Dana; Keske, Catherine
    Abstract: This paper estimates the shadow price of CO2 from burning crop residue in the Chinese agricultural sector and explores the policy implications for decision makers. Using a parametric translog directional distance function, we evaluate the technical efficiency and shadow prices of CO2 reduction for 7 major maize provinces in China from 1996-2013. Our results show that crop yield, cost of total inputs, and percentage of burnt crop residue account for 30%, 10% and 20% of the inefficiency, respectively. The shadow price of CO2 from burning crop residue is estimated to range from 0-1.368 yuan/ha (or US$210.5/t) with an average of 0.496yuan/kg (or US$76/t). Further analysis indicates that the average efficiency will increase by 9% if conservation practices are adopted by assuming 10% decrease in yield and 50% decrease in burnt crop residue under conservation practices compared to conventional practices. The shadow prices in these two cases imply that the whole society will benefit if the government spends less than 201 yuan/ha to promote adoption of conservation practices. This government offset would compensate farmers for yield reductions in favor of implementing conservation practices that would substantially reduce CO2 emissions.
    Keywords: shadow prices, greenhouse gases, conservation tillage, distance function, China, Agricultural and Food Policy, Environmental Economics and Policy, Production Economics,
    Date: 2016
  16. By: Nguyen, Huong
    Abstract: This paper critically investigates the impact of China’s agricultural exports on its competitors in third markets in a global context for the 1993-2012 period. We estimate a gravity equation using 6-digit HS classification data of China and 25 major exporters to the top 50 markets. Using instruments for China’s bilateral exports we find that China’s agricultural exports have both complementary and displacement effects on different exporter groups in different third markets. All exporters are negatively affected by China’s exports in Latin American markets while most exporters are positively affected in Asian markets on both intensive and extensive margin. The greatest losers are African and Latin American exporters while the winner is US exporters in most markets. China’s exports have complementary effects on almost exporters in African market on the intensive margin but OECD and Asian market on the extensive margin. Asian exporters are promoted by China’s exports in Asian market on both intensive and extensive margin. OECD exporters are also much more adversely affected in Latin American and even OECD markets on the intensive margin; and in African, Latin American markets on the extensive margin.
    Keywords: China, agricultural exports, gravity model, effects, intensive margin, extensive margin, third markets, International Development, International Relations/Trade,
    Date: 2016–05–25
  17. By: Chen, Lijun; Parcell, Joe L; Chen, Chao; James, Harvey S. Jr; Xu, Danning
    Keywords: Sampling, Supermarket, Preference, Trust, Consumer/Household Economics, Food Consumption/Nutrition/Food Safety, Food Security and Poverty, Marketing,
    Date: 2016–05–25
  18. By: Wang, Qingbin; Hansen, James; Xu, Fang
    Abstract: China has rapidly emerged as a large milk producer and dairy product importer and there is a growing need for information on China’s dairy market and trade behavior. This study uses the most recently available data to examine the trends of China’s dairy production, demand, and imports and to assess the potential impacts on U.S. exports of alfalfa and dairy products. While the empirical results suggest that China is very likely to remain as a large importer of alfalfa, powder milk, whey, cheese, and many other dairy products for meeting its growing domestic demand, China’s emerging demand for these imports is expected to bring more opportunities for the U.S. dairy industry. On the other hand, the United States is facing more competitions from other alfalfa and dairy product exporters and more studies are needed for developing effective programs to enhance U.S. competitiveness in the Chinese markets.
    Keywords: China’s dairy market, U.S. dairy exports, alfalfa, powder milk, whey, projection, Livestock Production/Industries, Marketing,
    Date: 2016
  19. By: Zhang, Jian; Li, Tao; Wang, Haigang
    Abstract: In this paper, relying on an experiment, we find that among all the student characteristics, only gender plays a significant role in determining the probability obtaining an onsite interview. Other things being equal, male students are much more likely to be invited for a job interview. In addition, the other characteristics of a female applicant, for example, excellence in academic performance, student leadership and strong English skill, cannot mitigate the female disadvantage.
    Keywords: Gender, College Student Characteristics, Screening of Prospect Employers, Randomization of Resume, China, International Development, Labor and Human Capital, J71,
    Date: 2016
  20. By: Paul Hubbard (Crawford School of Public Policy)
    Abstract: China’s National Bureau of Statistics releases data for China’s industrial sector, fixed asset investment and real estate investment both according to the enterprise’s official registration status, and according to whether the controller of the enterprise is the state. For most applications data for ‘state owned and state-holding companies’ based on the control concept is appropriate, as this includes coverage of SOEs’ listed- and unlisted-subsidiaries. These data show that less than a third of Chinese industrial output, fixed asset investment, and less than twenty per cent of Chinese real estate investment is carried on by companies that are controlled by the state. A broader definition to cover all state ownership would include enterprises that are not ‘state controlled’ but nevertheless include state capital or investment from SOEs. This would capture some additional proportion of the limited liability companies, joint-ventures and shareholding corporations that are in mixed ownership.
    Keywords: China state owned Enterprises, industrial output, fixed asset investment, real estate investment, Chinese economic statistics
    JEL: E01 L32 H83 C82
    Date: 2016–05

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.