nep-cna New Economics Papers
on China
Issue of 2016‒07‒30
ten papers chosen by
Zheng Fang
Ohio State University

  1. Firm Response to Competitive Shocks: Evidence from China’s Minimum Wage Policy By Harald Hau; Yi Huang; Gewei Wang
  2. Energy Saving Potential of Natural Ventilation in China: The Impact of Ambient Air Pollution By Chen, Yujiao; Malkawi, Ali; Liu, Zhu; Freeman, Richard Barry; Tong, Zheming
  3. Offshore RMB markets in Europe: prospects for greater financial integration between Europe and China By Daniela Marconi; Lorenzo Bencivelli; Anna Marra; Alessandro Schiavone; Raffaele Tartaglia-Polcini
  4. The End of Cheap Labour: Are Foreign Investors Leaving China? By Julian Donaubauer; Christian Dreger
  5. China - HP-SSST: Last Part of Growing Pains? By Dukgeun Ahn; Maurizio Zanardi
  6. Income Inequality, Family Formation and Generational Mobility in Urban China By Gordon Anderson; Tongtong Hao; Maria Grazia Pittau
  7. Economic Growth in China and Its Potential Impact on Australia-China Bilateral Trade By Yu Sheng
  8. Currency co-movements in Asia-Pacific: the regional role of the renminbi By Daniela Marconi
  9. Real-Time Prediction and Post-Mortem Analysis of the Shanghai 2015 Stock Market Bubble and Crash By Didier Sornette; Guilherme Demos; Qun Zhang; Peter Cauwels; Vladimir Filimonov; Qunzhi Zhang
  10. The relative attractiveness of Germany and the United States for Chinese overseas investments By Greenup, Katherine; Löchel, Horst

  1. By: Harald Hau (University of Geneva, GSEM, Geneva Finance Research Institute); Yi Huang (Graduate Institute of International and Development Studies); Gewei Wang (Graduate Institute of International and Development Studies)
    Abstract: The large regional variation of minimum wage changes in 2002—08 implies that Chinese manufacturing firms experienced competitive shocks as a function of firm location and their low-wage employment share. We find that minimum wage hikes accelerate the input substitution from labor to capital in low-wage firms, reduce employment growth, but also accelerate total factor productivity growth–particularly among the less productive firms under private Chinese or foreign ownership, but not among state-owned enterprises. The heterogeneous firm response to labor cost shocks can be explained by differences in governance or management practice, but is difficult to reconcile with the idea that competitive pressure is a substitute for governance quality.
    Keywords: Firm productivity, capital investment, minimum wage policy
    JEL: D24 G31 J24 J31 O14
    Date: 2016–07
  2. By: Chen, Yujiao; Malkawi, Ali; Liu, Zhu; Freeman, Richard Barry; Tong, Zheming
    Abstract: Natural ventilation (NV) is a key sustainable solution for reducing the energy use in buildings, improving thermal comfort, and maintaining a healthy indoor environment. However, the energy savings and environmental benefits are affected greatly by ambient air pollution in China. Here we estimate the NV potential of all major Chinese cities based on weather, ambient air quality, building configuration, and newly constructed square footage of office buildings in the year of 2015. In general, little NV potential is observed in northern China during the winter and southern China during the summer. Kunming located in the Southwest China is the most weather-favorable city for natural ventilation, and reveals almost zero loss due to air pollution. Building Energy Simulation (BES) is conducted to estimate the energy savings of natural ventilation in which ambient air pollution and total square footage must be taken into account. Beijing, the capital city, displays limited per-square-meter saving potential due to the unfavorable weather and air quality for natural ventilation, but its largest total square footage of office buildings makes it become the city with the greatest energy saving opportunity in China. Our analysis shows that the aggregated energy savings potential of office buildings at 35 major Chinese cities is 112 GWh in 2015, even after allowing for a 43 GWh loss due to China’s serious air pollution issue especially in North China. 8–78% of the cooling energy consumption can be potentially reduced by natural ventilation depending on local weather and air quality. The findings here provide guidelines for improving current energy and environmental policies in China, and a direction for reforming building codes.
    Date: 2016
  3. By: Daniela Marconi (Bank of Italy); Lorenzo Bencivelli (Bank of Italy); Anna Marra (Bank of Italy); Alessandro Schiavone (Bank of Italy); Raffaele Tartaglia-Polcini (Bank of Italy)
    Abstract: China’s financial integration with the rest of the world lags far behind its trade integration, owing to long-standing capital controls and underdeveloped capital markets. Since 2009 Chinese policymakers have actively promoted the internationalization of the renminbi (RMB) and its use abroad, leading to gradual but greater capital account liberalization. This paper offers an overview of recent developments in the process of RMB internationalization. Offshore RMB markets are playing an important role in stimulating China’s financial integration and promoting the use of the RMB outside the country. In Europe, as elsewhere, offshore RMB centers are flourishing in response to increased demand for RMB-denominated financial services and strong political support from both sides. These developments have implications for currency trading, trade financing and banking activity in general, and strengthen the financial links between Europe and China. Capital account opening in China is expected to remain gradual. Recent episodes of instability on the Chinese financial and exchange rate markets have shown that the road to liberalization may be bumpy and international spillovers large.
    Keywords: Renminbi internationalization, renminbi offshore markets
    JEL: F3 G1
    Date: 2016–07
  4. By: Julian Donaubauer; Christian Dreger
    Abstract: China’s government is promoting the shift towards a consumption-based economy since a few years. The explicit goal to significantly raise the percentage of wages in the national household income is integral part of the 12th Five-Year Plan (2011-15). The changes in the economic strategy are likely to affect the attractiveness of the country to foreign investors. In this paper, we raise the hypothesis that soaring wages negatively affect FDI inflows to China and alter the distribution of FDI over Chinese provinces. In addition, low-wage countries in the geographical surrounding might benefit from the changed direction of FDI inflows. By performing panel models with spatial effects for both Chinese provinces and developing ASEAN countries, regional dependencies are explicitly addressed. We provide strong and robust evidence that the wage increases change the distribution of FDI within China. In addition, we show that the changes in China’s economic strategy improve the chances of its low-income neighbours to attract FDI.
    Keywords: Foreign direct investment, Chinese economic transformation, spatial correlation
    JEL: F15 F21 F63 E22
    Date: 2016
  5. By: Dukgeun Ahn; Maurizio Zanardi
    Abstract: In December 2012 Japan requested the establishment of a World Trade Organization (WTO) Panel regarding AD duties that China had imposed on high-performance stainless steel seamless tubes (HP-SSST). The European Union joined as a complainant in June 2013. To some degrees, this dispute follows earlier ones involving China, as similar procedural and substantial issues were raised in previous cases. However, this is the first time that the WTO Panel rejected some important claims, only for those decisions to be reversed by the Appellate Body. Now that various rulings have clarified these legal issues, it remains to be seen if HPSSST represents the last part of growing pains for Chinese authorities to learn about AD legal procedures.
    Keywords: Antidumping, WTO trade disputes, China
    JEL: F13 K33
    Date: 2016
  6. By: Gordon Anderson; Tongtong Hao; Maria Grazia Pittau
    Abstract: Income inequality has increased in most developed and developing economies in the world in the last 30 years and China is exemplary in this regard. Many analyses of its strident growth in income inequality have focused on the effects of policies relating to Urban-Rural and Inland-Coastal distinctions. Yet income inequality growth has prevailed on both sides of those respective divides as though there is something more fundamental underlying the phenomenon. Here, by showing how specific types of change in family formation and specific types of human capital transfer engender increases in inequality measures, growth in urban inequality is rationalized as a consequence of the changing nature of the family and the structure of the human capital augmentation process that has been a feature of the last 70 years in China. Influenced by such events as the Cultural Revolution, the One Child Policy and the Economic Reforms, people changed the way they chose a marriage partner, invested in children and passed on human capital endowments. Social class designations became less important and educational class designations became more important. Using a unique data set linking grandparents, parents and children, such changes can be observed empirically.
    Keywords: Inequality, Intergenerational Mobility, Education, Social Classs
    JEL: I30
    Date: 2016–07–22
  7. By: Yu Sheng (Crawford School of Public Policy)
    Abstract: This paper uses the GTAP Static model to predict the potential impact of economic growth in China on bilateral trade between China and Australia in 2025, under three different scenarios representing the business-as-usual, the successful reform and the stagnation cases respectively. The results show that exports from Australia to China will continue to increase in both absolute and relative terms, irrespective of which economic growth path China takes, partly due to the strong complementary relationship of production between the two countries. The results also indicate that education service exports will become a new engine of bilateral trade in addition to agricultural and mineral products. Furthermore, comparing the results obtained from the three scenarios shows how successful reform will bring more benefits to both China and Australia in trade, which provides useful insights for policy making to facilitate bilateral economic relationship.
    JEL: E17 F17 F43
    Date: 2016–07
  8. By: Daniela Marconi (Bank of Italy)
    Abstract: The economic and political influence of China in the Asia-Pacific region is growing and the internationalization of the Chinese currency, the renminbi (RMB), is adding an additional channel of influence. This paper assesses the evolution of exchange rate co-movements against the US dollar within the region and finds that the RMB is exerting a growing influence. The degree of influence varies considerably across currencies. On the one hand, the Indonesian rupiah, the Korean won, the Malaysian ringgit, the Singaporean dollar, and the Taiwanese dollar show very strong co-movements with the RMB, while on the other hand, the Australian and the New Zealand dollars are not affected. Furthermore, the study confirms that Asian currencies move as if driven by the aim of stabilizing the effective exchange rate, thereby avoiding excessive appreciation against the USD.
    Keywords: exchange rates, Asia-Pacific, renminbi, China
    JEL: F31 F33
    Date: 2016–07
  9. By: Didier Sornette (ETH Zurich and Swiss Finance Institute); Guilherme Demos (ETH Zurich); Qun Zhang (ETH Zurich and South China University of Technology); Peter Cauwels (ETH Zurich); Vladimir Filimonov (ETH Zurich); Qunzhi Zhang (ETH Zurich)
    Abstract: The authors assess the performance of the real-time diagnostic, openly presented to the public on the website of the Financial Crisis Observatory (FCO) at ETH Zurich, of the bubble regime that developed in Chinese stock markets since mid-2014 and that started to burst in June 2015. The analysis is based on (i) the economic theory of rational expectation bubbles, (ii) behavioural mechanisms of imitation and herding of investors and traders and (iii) the mathematical formulation of the Log-Periodic Power Law Singularity (LPPLS) that describes the critical approach towards a tipping point in complex systems. The authors document how the real-time predictions were presented in the automated analysis of the FCO, as well as in our monthly FCO Cockpit report of June 2015. A complementary postmortem analysis on the nature and value of the LPPLS methodology to diagnose the SSEC bubble and its termination is also given.
    Keywords: Financial bubbles, Crashes, Probabilistic forecast, Johansen-Ledoit-Sornette model, Log-periodic power law singularity (LPPLS), Advanced warning, Chinese bubbles, Financial crisis observatory
    JEL: F37 G01 G17
  10. By: Greenup, Katherine; Löchel, Horst
    Abstract: Over the last decade, Chinese outward direct investment (ODI) has been rapidly growing in technologically advanced countries. In this paper, the investment trends are explored with a particular focus on the United States of America and Germany. While the Chinese investors are interested in the U.S. as a powerhouse of technology creation, they may also find Germany an attractive option with its concentrated technological offerings and an easier access. Using 13 factors explores not only technological attractiveness, but also cultural affinity and any trade frictions and investment openness. This paper looks to see if Germany or the USA is overall a more successful location for Chinese ODI.
    Keywords: Overseas Direct Investment,ODI,Germany,Outwards FDI,China,United States of America
    JEL: F21 F23 F52
    Date: 2016

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