nep-cna New Economics Papers
on China
Issue of 2016‒09‒18
ten papers chosen by
Zheng Fang
Ohio State University

  1. Love, Money, and Parental Goods: Does Parental Matchmaking Matter? By Fali Huang; Ginger Zhe Jin; Lixin Colin Xu
  2. Urbanization, Inequality, and Poverty in the People’s Republic of China By Zhang, Yuan
  3. "Get rid of the four olds": the long-lasting impact of the Chinese Cultural Revolution on Chinese society By Kerstin Schopohl
  4. Testing the Predictability of Consumption Growth: Evidence from China By Liping Gao; Hyeongwoo Kim
  5. Public Debt and Private Firm Funding: Evidence from Chinese Cities By Yi Huang; Marco Pagano; Ugo Panizza
  6. China’s Belt and Road initiative: can Europe expect trade gains? By Alicia García-Herrero; Jianwei Xu
  7. Protectionism through exporting: subsidies with export share requirements in China By Fabrice Defever; Alejandro Riaño
  8. Granting Market Economy Status to China in the EU: An Economic Impact Assessment By Cecilia Bellora; Sébastien Jean
  9. Willingness to Pay for Clean Air: Evidence from the air purifier markets in China By ITO Koichiro; ZHANG Shuang
  10. Rebalancing in China—Progress and Prospects By Longmei Zhang

  1. By: Fali Huang; Ginger Zhe Jin; Lixin Colin Xu
    Abstract: While parental matchmaking has been widespread throughout history and across countries, we know little about the relationship between parental matchmaking and marriage outcomes. Does parental involvement in matchmaking help ensure their needs are better taken care of by married children? This paper finds supportive evidence using a survey of Chinese couples. In particular, parental involvement in matchmaking is associated with having a more submissive wife, a greater number of children, a higher likelihood of having any male children, and a stronger belief of the husband in providing old age support to his parents. These benefits, however, are achieved at the cost of less marital harmony within the couple and lower market income of the wife. The results render support to and extend the findings of Becker, Murphy and Spenkuch (2015) where parents meddle with children's preferences to ensure their commitment to providing parental goods such as old age support.
    JEL: D82 D83 J12
    Date: 2016–09
  2. By: Zhang, Yuan (Asian Development Bank Institute)
    Abstract: Relying on the present literature, official statistics, and household survey data in the People’s Republic of China (PRC), this paper summarizes research findings on the relationship between urbanization, urban–rural inequality, and poverty, and provides further empirical evidence on the role of urbanization and government policies in urban poverty. Several conclusions can be drawn from this paper. First, urbanization has a significant effect on reducing both poverty of rural residents and poverty of migrating peasants, and, consequently, has a positive effect on narrowing the rural–urban income/consumption gap. Urban labor markets play an important role in this effect. Second, urbanization is positively correlated to urban poverty. This can be explained by the competition between migrating peasants and urban workers in the labor market, and the failure of the government’s anti-poverty policies in urban areas. Third, the existence of an informal sector has a negative effect on the poverty of urban citizens. Being employed by the informal sector significantly increases the probability of falling into poverty for urban citizens. Fourth, the minimum wage has a positive effect on reducing urban poverty, while the effect of other policies, such as Di Bao and Minimum Living Standard, is limited.
    Keywords: Inequality; poverty; urban; rural; labor market; urbanization; PRC; migration; households; peasants; workers; minimum wage; living standard; income; government policy; income gap
    JEL: D63 I32 J42 R23
    Date: 2016–09–13
  3. By: Kerstin Schopohl
    Abstract: This paper studies the long-term impact of the Chinese Cultural Revolution on interpersonal trust, mental health and perceived equality. The Cultural Revolution was a social upheaval in China between 1966 and 1976 initiated by China’s leader Mao Zedong that resulted in a period of anarchy, violence and chaos as well as a large number of deaths, injuries and much persecution across China and was in particular targeted at intellectuals and the wealthy. The Cultural Revolution is likely to have had a long-lasting impact on social capital and preferences as well as on mental well-being. Using data from the Chinese General Social Survey as well as county level data on the number of abnormal deaths and victims of political persecution between 1966 and 1971 from Walder and Su (2003), I use a difference-in-difference strategy comparing individuals born before the Cultural Revolution with those born thereafter as well as across different counties to estimate the impact of Cultural Revolution intensity measured by victims and abnormal deaths on interpersonal trust, depression and perceived equality. To control for potential endogeneity due to unobservables as well as for measurement error, I instrument Cultural Revolution Intensity with the number of universities in a county at the time of the Cultural Revolution. I find that the Cultural Revolution is associated with lower levels of interpersonal trust, perceived equality and depression for more educated individuals born before the Cultural Revolution. These results are largely robust to a battery of tests. This shows that violence and conflict can have long-lasting effects on societies and that the consequences of the Cultural Revolution persist in China up to today.
    Keywords: Cultural Revolution; China; Trust; Mental Health; Persistence
    JEL: Z13 N45 N35 P26
    Date: 2016
  4. By: Liping Gao; Hyeongwoo Kim
    Abstract: Using time series macroeconomic data, Chow (1985, 2010, 2011) reported indirect empirical evidence that implies the validity of the permanent income hypothesis in China. We revisit this issue by evaluating direct measures of the predictability of consumption growth in China during the post-economic reform regime (1978-2009). We also implement and report similar analysis for the postwar US data for comparison. Our in-sample analysis provides strong evidence against the PIH for both countries. Out-of-sample forecast exercises show that consumption changes are highly predictable, which sharply contrasts the implications of empirical findings by Chow (1985, 2010, 2011).
    Keywords: Permanent Income Hypothesis; Consumption; Out-of-Sample Forecast; Diebold-Mariano-West Statistic
    JEL: E21 E27
    Date: 2016–09
  5. By: Yi Huang (IHEID, The Graduate Institute of International and Development Studies, Geneva); Marco Pagano (University of Naples Federico II); Ugo Panizza (IHEID, The Graduate Institute of International and Development Studies, Geneva)
    Abstract: In China, local public debt issuance between 2006 and 2013 crowded out investment by private manufacturing firms by tightening their funding constraints, while it did not affect state-owned and foreign firms. Using novel data for local public debt issuance, we establish this result in three ways. First, local public debt is inversely correlated with the city-level investment ratio of domestic private manufacturing firms. Instrumental variable regressions indicate that this link is causal. Second, local public debt has a larger negative effect on investment by private firms in industries more dependent on external funding. Finally, in cities with high government debt, firm-level investment is more sensitive to internal funding, also when this sensitivity is estimated jointly with the firm?s likelihood of being credit-constrained. Altogether, these results suggest that, by curtailing private investment, the massive public debt issuance associated with the post-2008 fiscal stimulus sapped long-term growth prospects in China.
    Keywords: Investment, Local public debt, Crowding out, Credit constraints, China.
    JEL: E22 H63 H74 L60 O16
    Date: 2016–07
  6. By: Alicia García-Herrero; Jianwei Xu
    Abstract: The Belt and Road initiative, recently embarked on by China, aims to improve cross-border infrastructure in order to reduce transportation costs across a massive geographical area between China and Europe. The authors estimate how much trade might be created among Belt and Road countries as a consequence of the reduction in transportation costs (both railway and maritime) and find that European Union countries, especially landlocked countries, should benefit considerably. This is also true for eastern Europe and Central Asia and, to a lesser extent, south-east Asia. In contrast, if China were to seek to establish a free trade area within the Belt and Road region, EU member states would benefit less, while Asia would benefit more. Xi Jinping’s current vision for the Belt and Road, centred on improving transport infrastructure, is very good news for Europe as far as trade creation is concerned.
    Date: 2016–09
  7. By: Fabrice Defever; Alejandro Riaño
    Abstract: We study the effect of subsidies subject to export share requirements (ESR) - that is, conditioned on a firm exporting at least a given fraction of its output - on exports, the intensity of competition and welfare, through the lens of a two-country model of trade with heterogeneous firms. Our calibrated model suggests that this type of subsidy boosts exports more and provides greater protection for domestic firms than a standard unconditional export subsidy, albeit at a substantial welfare cost.
    Keywords: export share requirements; export subsidies; trade policy; heterogeneous firms; China
    JEL: F12 F13 O47
    Date: 2016–05
  8. By: Cecilia Bellora; Sébastien Jean
    Abstract: This Policy Brief assesses the possible economic impacts for the European Union of granting market economy status (MES) to China in antidumping investigations. The issue is important: China ranks first among the countries targeted by European antidumping, and sanctions cover tariff lines worth 8.7% of EU imports from China, based on pre-investigation imports (0.5% for MES partners). We find that China’s exports face a larger number of antidumping investigations than those from MES partners, even accounting for China’s trade specificities. These investigations also have a higher chance of being won by the plaintiff. Furthermore, when a sanction is decided, its trade-restrictive impact is higher against China. In addition, we show that antidumping measures lead not only to an increase in the prices of targeted Chinese products but also in those of Chinese untargeted products similar to those directly targeted. This chilling effect materializes in 4 to 14% prices increases for untargeted exports belonging to the same sector as those targeted. It does not affect MES partners. Antidumping cases against non-MES partners other than China are not numerous enough to isolate the impact of the MES per se. We thus assess the impact of granting MES to China assuming that all China’s specificities in EU antidumping procedures would disappear as a result. Under this assumption, disregarding the chilling effect, changing China’s status would boost its exports to the EU by 3.9% to 5.3% in volume (€13bn to €18bn). Factoring in the removal of the present chilling effect, the impact might reach 7.4% to 21% in volume (€25bn to €72bn). Domestic output losses would be small in relative terms (up to 0.06% disregarding the chilling effect, up to 0.32% taking it into account), but significant in absolute terms (respectively, €3.9bn and €23bn); 90% of these impacts reflect the decline in the number of investigations, as opposed to the level of duty in case of sanction. Accordingly, dropping the so-called lesser duty rule would not alter significantly these impacts.
    Keywords: Antidumping;Market Economy Status;Chilling effect ;China
    JEL: F13 F14
    Date: 2016–09
  9. By: ITO Koichiro; ZHANG Shuang
    Abstract: We develop a framework to estimate the willingness to pay (WTP) for clean air from defensive investments. Applying this framework to product-by-store level scanner data on air purifier sales in China, we provide among the first revealed preference estimates of WTP for clean air in developing countries. A spatial discontinuity in air pollution created by the Huai River heating policy enables us to analyze household responses to long-run exposure to pollution. Our model allows heterogeneity in preference parameters to investigate potential heterogeneity in WTP among households. We show that our estimates provide important policy implications for optimal environmental regulations.
    Date: 2016–06
  10. By: Longmei Zhang
    Abstract: China is transitioning to a greener, more inclusive, more consumer and service based, and less credit-driven economy. This paper defines a framework for assessing rebalancing, reviews progress, and discusses medium-term prospects. External rebalancing has advanced well, while progress on internal rebalancing has been mixed, with substantial progress on the supply side, moderate progress on the demand side, and limited progress on the credit side. Rebalancing on income equality and environment has also been mixed, with the energy intensity of growth falling and labor’s share of income rising, but income inequality and local air pollution remaining very high. Going forward, the high national saving is expected to fall owing to demographic change and a stronger social safety net, while the investment ratio is expected to fall similarly, with increasing competition and profit normalization as growth slows. The service sector will continue to gain importance, helping reduce the carbon intensity of output and increase labor’s share of national income and household consumption. Reducing the credit intensity of growth is likely to progress slowly unless decisive corporate restructuring and SOE reforms are implemented.
    Keywords: Transition economies;China;Demand;Supply;Credit;Fiscal policy;Exchange rate policy;Domestic savings;Income distribution;Environment;Demographic transition;Rebalancing, China
    Date: 2016–09–06

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.
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