nep-cna New Economics Papers
on China
Issue of 2018‒04‒23
six papers chosen by
Zheng Fang
Ohio State University

  1. China's Changing Trade and the Implications for the CLMV By Koshy Mathai; Geoff Gottlieb; Gee Hee Hong; Sung Eun Jung; Jochen M. Schmittmann; Jiangyan Yu
  2. Do Financial Frictions Explain Chinese Firms’ Saving and Misallocation? By Yan Bai; Dan Lu; Xu Tian
  3. Do interest rates play a major role in monetary policy transmission in China? By Güneş Kamber; Madhusudan Mohanty
  4. Can Two Consecutive Generations’ Data Predict Longterm Intergenerational Transition? Evidence from China with three generations By He Zhu; Tsunehiro OTSUKI
  5. Corporate foreign bond issuance and interfirm loans in China By Yi Huang; Ugo Panizza; Richard Portes
  6. People’s Republic of China; Tax Policy and Employment Creation By International Monetary Fund

  1. By: Koshy Mathai; Geoff Gottlieb; Gee Hee Hong; Sung Eun Jung; Jochen M. Schmittmann; Jiangyan Yu
    Abstract: China’s trade patterns are evolving. While it started in light manufacturing and the assembly of more sophisticated products as part of global supply chains, China is now moving up the value chain, “onshoring” the production of higher-value-added upstream products and moving into more sophisticated downstream products as well. At the same time, with its wages rising, it has started to exit some lower-end, more labor-intensive sectors. These changes are taking place in the broader context of China’s rebalancing—away from exports and toward domestic demand, and within the latter, away from investment and toward consumption—and as a consequence, demand for some commodity imports is slowing, while consumption imports are slowly rising. The evolution of Chinese trade, investment, and consumption patterns offers opportunities and challenges to low-wage, low-income countries, including China’s neighbors in the Mekong region. Cambodia, Lao P.D.R., Myanmar, and Vietnam (the CLMV) are all open economies that are highly integrated with China. Rebalancing in China may mean less of a role for commodity exports from the region, but at the same time, the CLMV’s low labor costs suggest that manufacturing assembly for export could take off as China becomes less competitive, and as China itself demands more consumption items. Labor costs, however, are only part of the story. The CLMV will need to strengthen their infrastructure, education, governance, and trade regimes, and also run sound macro policies in order to capitalize fully on the opportunities presented by China’s transformation. With such policy efforts, the CLMV could see their trade and integration with global supply chains grow dramatically in the coming years.
    Keywords: Trade partners;Global trade;Trade flows;Trade patterns;trade,labor,clmv
    Date: 2016–09–01
  2. By: Yan Bai; Dan Lu; Xu Tian
    Abstract: We use firm-level data to identify financial frictions in China and explore the extent to which they can explain firms' saving and capital misallocation. We first document the features of the data in terms of firm dynamics and debt financing. State-owned firms have higher leverage and pay much lower interest rates than non-SOEs. Among privately owned firms, smaller firms have lower leverage, face higher interest rates, and operate with a higher marginal product of capital. We then develop a heterogeneous-firm model with two types of financial frictions, default risk, and a fixed cost of issuing loans. Our model generates endogenous borrowing constraints as banks consider the firm's productivity, asset, and debt when providing a loan. Using evidence on the firm size distribution and financing patterns, we estimate the model and find it can explain aggregate firms' saving and investment and around 50 percent of the dispersion in the marginal product of capital within private firms, which translates into a TFP loss as high as 12%.
    JEL: E2 G3
    Date: 2018–03
  3. By: Güneş Kamber; Madhusudan Mohanty
    Abstract: We explore the role of interest rates in monetary policy transmission in China in the context of its multiple instrument setting. In doing so, we construct a new series of monetary policy surprises using information from high frequency Chinese finan- cial market data around major monetary policy announcements. Our event analysis shows that monetary policy surprises have persistent effects on interest rates. We then use these surprise measures as external instruments to identify monetary pol- icy shocks in an SVAR. We find that a contractionary monetary policy surprise increases interest rates and significantly reduces inflation and economic activity. Our findings provide further support to recent studies suggesting that monetary policy transmission in China has become increasingly similar to that in advanced economies.
    Keywords: monetary policy in China, structural VAR, external instruments
    JEL: C22 E5 G14
    Date: 2018–04
  4. By: He Zhu (Graduate student of Osaka School of International Public Policy, Osaka University); Tsunehiro OTSUKI (Professor, Osaka School of International Public Policy, Osaka University)
    Abstract: Most of the studies on long-term intergenerational human capital transition are restricted to two consecutive generations based on the Becker-Tomes model, and assume that the transition will be wiped out during the third generation. However, in developing countries such as China, ancestors play a key role in the family decision-making process. Thus, this research uses a data set of China rural households, which includes three generations of data,to analyze the long-term intergenerational transition. The results provide empirical evidence that separate generations have had an independent and significant influence on the offspring’s human capital outcome. Precisely, the grandparent generation influences the child generation independently rather than influencing the child generation through the parent generation. Therefore, the influence of generations on educational achievements has been overestimated by the data that only encompass two consecutive generations.
    JEL: O14 J62
  5. By: Yi Huang (IHEID, Graduate Institute of International and Development Studies, Geneva); Ugo Panizza (IHEID, Graduate Institute of International and Development Studies, Geneva and CEPR); Richard Portes (London Business School, CEPR and NBER)
    Abstract: This paper uses firm-level data to document and analyze international bond issuance by Chinese non-financial corporations and the use of the proceeds of issuance. We find that dollar issuance is positively correlated with the differential between domestic and foreign interest rates. This interest rate differential increases the likelihood of dollar bond issuance by risky rms and decreases the likelihood of dollar bond issuance of exporters and profitable firms. Moreover, and most strikingly, we find that risky firms do more inter-firm lending than non-risky firms and that this lending rose significantly after the regulatory shock of 2008-09, when the authorities sought to restrict the financial activities of risky firms. Risky firms try to boost profitability by engaging in speculative activities that mimic the behavior of financial institutions while escaping prudential regulation that limits risk-taking by financial firms.
    Keywords: China, bond markets in emerging markets, carry trade, shadow banking
    JEL: F34 F32 G15 G30
    Date: 2018–04
  6. By: International Monetary Fund
    Abstract: Tax Policy and Employment Creation
    Date: 2018–03–28

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