nep-cna New Economics Papers
on China
Issue of 2018‒06‒11
seventeen papers chosen by
Zheng Fang
Ohio State University

  1. National Identity under Economic Integration By Chiang, Chun-Fang; Liu, Jin-Tan; Wen, Tsai-Wei
  2. Cognition and SES Relationships Among the Mid-Aged and Elderly: A Comparison of China and Indonesia By John Strauss; Firman Witoelar; Qinqin Meng; Xinxin Chen; Yaohui Zhao; Bondan Sikoki; Yafeng Wang
  3. Insurance Plus Futures: Agricultural Commodity Price Reform in China By Tristan Kenderdine
  4. Why did Warrant Markets Close in China but not Taiwan? By Wing-Keung Wong; Hooi Hoi Lean; Michael McAleer; Feng-Tse Tsai
  5. The Concept of ‘Community of Common Destiny’ in China's Diplomacy: Meaning, Motives and Implications By Denghua Zhang
  6. What can we learn on Chinese aid allocation motivations from new available data? A sectorial analysis of Chinese aid to African countries By Jacky MATHONNAT; Marlène GUILLON
  7. The U.S.-China Trade Balance and the Theory of Free Trade: Debunking the Currency Manipulation Argument By Anwar Shaikh; Isabella Weber
  8. The “Belt and Road Initiative†and comparative regional productivity in China By John Gibson and Chao Li
  9. Asymmetric Risk Impacts of Chinese Tourists to Taiwan By Chia-Lin Chang; Shu-Han Hsu; Michael McAleer
  10. Measuring the Redistributive Effects of China's Personal Income Tax By Li Du and Zhongxiang Zhang
  11. Do Social Medical Insurance Schemes Improve Children's Health in China? By J. Guan; JdD Tena
  12. Going Public in China: Reverse Mergers versus IPOs By Lee, Charles M. C.; Qu, Yuanyu; Shen, Tao
  13. Economic Policy Implications of the Belt and Road Initiative for CESEE and Austria By Alexandra Bykova; Mahdi Ghodsi; Julia Grübler; Doris Hanzl-Weiss; Mario Holzner; Gabor Hunya; Robert Stehrer
  14. How Does China–Pakistan Economic Corridor Show the Limitations of China's ‘One Belt One Road’ Model By Abdur Rehman Shah
  15. “Japan is back†: Autonomy and balancing amidst an unstable China–U.S.–Japan triangle By Lionel P. Fatton
  16. The 4th Industrial Revolution Strategy and Cooperation in China, India and Singapore By Cho, Choongjae; Song, Youngchu
  17. Long-run effects of family policies: An experimental study of the Chinese one-child policy By Carlsson, Fredrik; Lampi, Elina; Martinsson, Peter; Tu, Qin; Yang, Xiaojun

  1. By: Chiang, Chun-Fang; Liu, Jin-Tan; Wen, Tsai-Wei
    Abstract: This study empirically investigates how economic integration influences individuals’ national identity. Due to historical reasons and unique cross-strait politics, some people in Taiwan identify themselves as Chinese while others identify themselves as Taiwanese. Using individual survey data with the outward investment data at the industry level from 1992 to 2009, we find that the rising investment in China has strengthened Taiwanese identity and has reduced the probability of voting for the Pan-Blue parties. The effects are much stronger for unskilled workers than for skilled workers, suggesting that outward investment in China may not only have economic impact on the economy but may also deepen the political polarization in Taiwan.
    Keywords: identity,economic integration,voting behavior
    JEL: F50 Z10 D72
    Date: 2018
  2. By: John Strauss; Firman Witoelar; Qinqin Meng; Xinxin Chen; Yaohui Zhao; Bondan Sikoki; Yafeng Wang
    Abstract: In this paper, we use a measure of fluid intelligence, an adaptive number series test, to measure that part of cognition for respondents in two developing countries: China and Indonesia, both with very low educated elderly populations. This test was specially adapted by us and our collaborators from measures used in the United States to better fit such populations. We also use a measure of episodic memory and one measuring mental state intactness and examine their distributions and then the socio-economic gradients associated with each, concentrating on gender differences and how those change as SES and variables measuring community development are added. We find large variation in our cognition measures in both countries, even among those 60 and over with no schooling. We explore the bivariate socio-economic gradients for these measures, separately for different age groups: 45-59 and 60 and above. We find strong gender, education and rural-urban gradients. Of these, the education gradient is the strongest, followed by the rural-urban gradient. China has a stronger rural-urban gradient than Indonesia, which is associated with the hukou residential permit system in China. We find a significant, negative multivariate differential for women, that is significantly larger in China than Indonesia. The gender differential in both countries is smaller for the mid-aged, 45-59, for whom the gender schooling differentials are smaller. The gender differential declines substantially, and the China-Indonesia differential disappears once we control for SES characteristics. Adding community measures related to mean schooling and asset levels does not affect the gender differential. Schooling levels are monotonically and significantly related to higher levels of cognition for all three of the variables we use. The magnitudes of the schooling coefficients are relatively large. Higher log of household per capita expenditure (pce) is positively associated with cognition, more so in China. Other SES characteristics such as height, are also positively related to the cognition measures, again more strongly so in China. Rural respondents have substantially lower levels of cognition measures, with a significantly stronger gradient in China. Mean community level schooling and log pce are also positively related to cognition outcomes, especially for elderly women.
    JEL: I15 O53
    Date: 2018–05
  3. By: Tristan Kenderdine
    Abstract: China's agricultural support policies are moving towards market institutions through a quasi†market transition. Ten years of direct minimum purchase price procurement on agricultural commodities resulted in overcapacity, oversupply, mixed†market signals and grey†market imports. The Insurance Plus Futures (ä¿ é™© + 期货) policy pilot in agricultural price reform is a leading indicator of reform in China's agricultural production and rural finance architecture. State procurement of staple crops is now ending, and an interim governance structure is in place for the transition to market prices. This article assesses the historical institutional development of three key economic institutions in Chinese agricultural production: agricultural prices, insurance and futures. It examines government plans to move from a centrally procured to a provincially variable agricultural production model, examines the provincial sectoral target†price mechanisms constructed in 2016–2018 as interim price†setting mechanisms, looks at the emergence of government mandated agricultural insurance as a measure to cover the subsidy previously served by the minimum purchase price system and assesses the prospects for institutional development of futures contracts, commodities exchanges and price formation institutions in China.
    Keywords: China agriculture, futures markets, agricultural insurance, agricultural subsidies, agricultural commodities
    Date: 2018–05–21
  4. By: Wing-Keung Wong (Asia University, China Medical University Hospital, Lingnan University); Hooi Hoi Lean (Universiti Sains Malaysia); Michael McAleer (Asia University, University of Sydney Business School, EUR); Feng-Tse Tsai (Asia University)
    Abstract: The paper bridges a gap in the literature by using moment analysis, CAPM statistics, stochastic dominance (SD) test, and volume analysis to examine investor preferences for warrants between China and Taiwan, and investigating why the market for warrants in China has to close while the market for Taiwan warrants is successful. Using moment analysis, it is shown that that buying China warrants has a higher likelihood of losses than its Taiwan counterpart. Using CAPM analysis, in general, both the Sharpe ratio and Jensen index for warrants from the Taiwan market are more reasonable, while that from the China market is too negative. On the other hand, the Treynor index for China warrants shows that China warrants are highly volatile. This could make investors avoid investing in China warrants which, in turn, could lead to its closure. Using SD analysis, though there is no arbitrage opportunity between the China and Taiwan warrant markets, it is shown that the markets for China and Taiwan warrants are not efficient, and second- and third-order risk averters prefer to invest in China warrants to warrants in Taiwan. This implies that the warrant issuers prefer to issue Taiwan warrants than China warrants. Using volume analysis, the China warrant market is much more active than the Taiwan warrant market. This could imply that there are more speculative activities in China than in Taiwan which, in turn, could lead to China’s decision to close its warrant market. The findings in the paper are useful for investors for investment decisions regarding Taiwan and China warrants, for academic analysis for modelling Taiwan and China warrants, and policy makers for policy making related to Taiwan and China warrants. In the future, China may rethink reopening warrant markets and learning from mature-covered warrant markets such as Taiwan how to inhibit excess speculation and educate warrant investors.
    Keywords: Moment analysis; CAPM statistics; Stochastic dominance; Volume analysis; Arbitrage opportunity; Market efficiency; Warrants; China market; Taiwan market
    JEL: G14 G15
    Date: 2018–05–25
  5. By: Denghua Zhang
    Abstract: ‘Community of common destiny’, a new concept in China's diplomacy, has been increasingly used by the Chinese government, especially President Xi Jinping, on international occasions. Given the paucity of academic research on the concept, this paper aims to fill the gap and examine three aspects: meaning, motives and implications. Building upon the author's long observation of China's foreign policy, the paper argues that this concept of ‘community of common destiny’ is vague in meaning and loosely used by China. While initially proposed by China to mend ties with neighbouring states in the context of escalating territorial disputes, the concept constitutes part of China's long†term strategy to maintain a peaceful ‘period of strategic opportunity’ in the first two to three decades of the 21st century to further develop itself. However, the ambiguity of the concept poses a main challenge for China to promote the acceptance of this concept by the developing world, let alone developed countries. This process demands more transparency, commitment and concrete actions from China.
    Keywords: community of common destiny, China's foreign policy, assertive diplomacy, international cooperation
    Date: 2018–05–21
  6. By: Jacky MATHONNAT (Cerdi - Université Clermont Auvergne); Marlène GUILLON (FERDI)
    Abstract: Since the creation of the Forum on China-Africa Cooperation (FOCAC) in 2000, Chinese official development assistance (ODA) to Africa has increased drastically. Only few analyses on the determinants of Chinese ODA allocation to African countries are available. Moreover, existing literature mainly focused on total aid flows while Chinese motivations for aid allocation might differ depending on the ODA sector considered. Our objective is to study the factors associated with Chinese aid allocation to African countries by sector between 2000 and 2014. We consider 3 ODA broad sectors as defined by the Organisation for Economic Cooperation and Development (OECD): the social infrastructure and services sector, the economic infrastructure and services sector and the production sector. Chinese ODA is measured using the AidData's Global Chinese Official Finance Dataset, 2000-2014, Version 1.0, released in fall 2017. Over the 2000-2014 period, China allocated 971, 218 and 138 ODA projects to African countries in the social infrastructure and services sector, the economic infrastructure and services sector and the production sector respectively. Between 2000 and 2014, the economic infrastructure and services sector was the first sector in terms of ODA amount with a total of US$18.9 billion ahead from the social infrastructure and services sector with US$7 billion or the production sector with US$3.1 billion. Results of our analysis suggest that the motivations of Chinese aid allocation to African countries differ by sector. Chinese ODA in the social infrastructure and services sector appears responsive to the economic needs of recipient countries but is also driven by foreign policy considerations. Chinese economic interest, in particular for natural resources acquisition, is associated with China’s ODA allocation in the economic infrastructure and services sector. Finally, while institutions in recipient countries are not related to Chinese ODA in the social infrastructure and services sector, we find that China allocates more ODA in the economic infrastructure and services sector and the production sector to African countries with weaker institutions. One of the strong conclusions of this study is to show that considering only China's overall aid to Africa can be misleading as to its underlying determinants, and therefore to point out the need to disaggregate the analysis by ODA sectors.
    Keywords: Official development assistance, China, Africa, sectorial analysis.
    JEL: F35
    Date: 2018–04
  7. By: Anwar Shaikh (Department of Economics, New School for Social Research); Isabella Weber (Institute of Management Studies, Goldsmiths University of London)
    Abstract: The U.S.-China trade imbalance is commonly attributed to a Chinese policy of currency manipulation. However, empirical studies failed to reach consensus on the degree and kind of RMB misalignment. We argue that this is not a consequence of poor measurement but of theory. The conventional principle of comparative advantage suggests real exchange rates will adjust so as to balance trade. Therefore, the persistence of trade imbalances tend to be interpreted as arising from currency manipulation. In contrast, the Smithian-Harrodian theory explains trade imbalances as the outcome of free trade and sees unequal real competitiveness as the root cause of the U.S.-China trade imbalance.
    JEL: F10 F31 F32
    Date: 2018–05
  8. By: John Gibson and Chao Li
    Abstract: We study potential internal effects of China's Belt and Road Initiative. These effects may occur sooner than the international effects, since they face no delay from partner negotiations and from financing and security concerns. For a key part of the overland Silk Road Economic Belt, we identify 46 prefectural†level units in a corridor from the China–Kazakh border to Xi'an that are likely to see increased investment and economic activity from Belt and Road. These units are smaller, more diverse, poorer, and less productive than are prefectural†level units in the rest of China. The Belt and Road Initiative will disperse some economic activity to places that the market would not direct it, such as to this corridor. Given that these areas are less productive and are likely to have lower absorptive capacity, investments here will have an efficiency cost since they should yield more GDP if deployed elsewhere in China.
    Keywords: Belt & Road, China, DEA, regional policy, sub†national productivity
    Date: 2018–05–21
  9. By: Chia-Lin Chang (National Chung Hsing University, Taiwan); Shu-Han Hsu (National Chung Hsing University, Taiwan); Michael McAleer (Asia University, Taiwan)
    Abstract: Since 2008, when Taiwan’s President Ma Ying-Jeou relaxed the Cross-Strait policy, China has become Taiwan’s largest source of international tourism. In order to understand the risk persistence of Chinese tourists, the paper investigates the short-run and long-run persistence of shocks to the change rate of Chinese tourists to Taiwan. The daily data used for the empirical analysis is from 1 January 2013 to 28 February 2018. McAleer’s (2015) fundamental equation in tourism finance is used to link the change rate of tourist arrivals and the change in tourist revenues. Three widely-used univariate conditional volatility models, namely GARCH(1,1), GJR(1,1) and EGARCH(1,1), are used to measure the short-run and long-run persistence of shocks, as well as symmetric, asymmetric and leverage effects. Three different Heterogeneous AutoRegressive (HAR) models, HAR(1), HAR(1,7) HAR(1,7,28), are considered as alternative mean equations for capturing a variety of long memory effects. The mean equations associated with GARCH(1,1), GJR(1,1) and EGARCH(1,1) are used to analyse the risk persistence of the change in Chinese tourists. The exponential smoothing process is used to adjust the seasonality around the trend in Chinese tourists. The empirical results show asymmetric impacts of positive and negative shocks on the volatility of the change in the number of Group-type and Medical-type tourists, while Individual-type tourists display a symmetric volatility pattern. Somewhat unusually, leverage effects are observed in EGARCH for Medical-type tourists, which shows a negative correlation between shocks in tourist numbers and the subsequent shocks to volatility. For both Group-type and Medical-type tourists, the asymmetric impacts on volatility show that negative shocks have larger effects than do positive shocks. The leverage effect in EGARCH for Medical-type tourists implies that larger shocks would decrease volatility in the change in the numbers of Medical-type tourists. These results suggest that Taiwan tourism authorities should act to prevent the negative shocks for the Group-type and Medical-type Chinese tourists to dampen the shocks that arise from having fewer Chinese tourists to Taiwan.
    Keywords: Asymmetric risk; leverage; risk persistence; tourist revenues; conditional volatility models; Heterogeneous AutoRegressive (HAR) models
    JEL: G32 C22 C58
    Date: 2018–05–18
  10. By: Li Du and Zhongxiang Zhang
    Abstract: Personal income tax is a commonly used redistributive instrument to deal with inequality. Whether it achieves that efficacy requires an appropriate measurement. This paper aims to examine the redistributive effects of personal income tax (PIT) based on the generalized entropy indexes. Compared with the commonly used approach based on the Gini coefficient, the generalized entropy indexes are more sensitive to the structural features of the redistributive effects and can lead to more reliable evaluation about the redistributive policy adjustments. Based on this new approach, we assess the redistributive effects of the 2011 PIT adjustment in China by using the urban household survey data. Different from previous studies, our results show that the 2011 PIT adjustment has effectively reduced the inequality within high income group, and if hidden income is taken into consideration, the overall inequality reduction resulted from the tax adjustment turns out to be positive. This finding highlights the importance of judging the redistributive effects of PIT on the basis of right household income data and that China should pay more attention to the hidden income in designing the redistributive tax rules.
    Keywords: generalised entropy index, personal income tax, redistributive effects, hidden income, China
    Date: 2018–05–21
  11. By: J. Guan; JdD Tena
    Abstract: This study investigates the causal impact of acquiring social medical Insurance on hospital utilisation and health status for children under 16 years old in China from 2010 to 2016. We consider the China Family Panel Studies (CFPS), a longitudinal database which allows us to control for the effect of unobserved individual heterogeneity by means of difference-in-difference regressions combined with matching regression techniques. Our findings suggest that participating in social medical insurance schemes significantly increases children's yearly hospital use, especially for children who come from rural China. Moreover, this increase is not significantly different for people who were not previously sick. It is also found that social medical insurance schemes have no effect or even a marginally negative effect on children's health status in some cases. We discuss some potential explanations for this result.
    Keywords: China;Social Medical Insurance;Health Outcomes;difference-in-difference;propensity score matching
    Date: 2018
  12. By: Lee, Charles M. C. (Stanford University); Qu, Yuanyu (Tsinghua University); Shen, Tao (Tsinghua University)
    Abstract: We study firms' choice to go public through reverse mergers (RMs) versus initial public offerings (IPOs) in a regime with strict entry regulations. Using a manually-assembled data set from China, we show that Chinese RM firms are larger and more profitable than IPO firms prior to public listing. Chinese RM firms also have superior post-listing performance, in terms of both operations and stock returns, compared to IPOs matched on industry and size. Unlike IPOs, Chinese RM firms do not underperform the market in the long run. These results are in sharp contrast to the evidence on RMs from developed countries. We trace these differences to China's stringent IPO policies, which appear to block even high-quality firms from accessing public markets.
    JEL: G12 G18 G20 G34
    Date: 2018–03
  13. By: Alexandra Bykova (The Vienna Institute for International Economic Studies, wiiw); Mahdi Ghodsi (The Vienna Institute for International Economic Studies, wiiw); Julia Grübler (The Vienna Institute for International Economic Studies, wiiw); Doris Hanzl-Weiss (The Vienna Institute for International Economic Studies, wiiw); Mario Holzner (The Vienna Institute for International Economic Studies, wiiw); Gabor Hunya (The Vienna Institute for International Economic Studies, wiiw); Robert Stehrer (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: The Belt and Road Initiative (BRI), a vision to revive the ancient ‘Silk Road’ by means of massive infrastructure investments throughout Eurasia and Africa, was first presented by China’s President Xi Jinping in 2013. China has identified the region of Central East and Southeast Europe (CESEE) as the gateway to Western European markets. This was manifested by the investment in the Port of Piraeus (Greece) and the diplomatic initiative ‘16+1’, comprising eleven EU Member States and five Western Balkan countries, which is interesting for Austria due to its strong economic relations with this region. The Policy Brief analyses the most recent developments in trade and investment activities of China, Austria and the EU in CESEE, which are compared to the state of infrastructure in the region in the areas of transport, energy, information and communication technology as well as finance. Overall, CESEE has a high need for infrastructure investments, particularly in the transport sector. Chinese loans and investments in the region are becoming more important, especially for the Western Balkan countries, which have limited access to EU grants. The paper concludes with seven policy areas for future cooperation between Austria and China. The Policy Note is based on a study conducted for the Embassy of the People’s Republic of China in Austria. It is available upon request. Please contact Ms ZHANG Yiran ( or Mr CHEN Lin (
    Keywords: BRI, Belt and Road, New Silk Road, infrastructure, investment, FDI, transport, ICT, international trade, Gravity estimation, China, Austria, CESEE, Western Balkans
    JEL: E22 F21 H54 F13 F14 L9 O18
    Date: 2018–06
  14. By: Abdur Rehman Shah
    Abstract: Under ‘One Belt One Road’ initiative, China has introduced a new model of economic development of cross†continental connectivity. With all its promising prospects, the initiative raises a question how such grand designs are going to impact the institutions of countries susceptible to potentially adverse impacts of Chinese investments. The case study of Pakistan — the closest ally of China — is a good example. China has started investing more than $50 billion in energy, industrial and communication infrastructure across the country. But the combination of too much and too quick Chinese investments — free of ‘governance†related conditionalities’ normally attached with Western aid — and Pakistan's domestic issues has some adverse impacts on latter's internal politics and state institutions. Lack of transparency, civil†military divide, ethnic differences, discrediting media, widening current account deficit, securitisation of trade and undoing the economic reforms (undertaken under International Monetary Fund program) are some of the unfavourable aspects of China–Pakistan Economic Corridor.
    Keywords: economic, corridor, investment, limitations, institutions
    Date: 2018–05–21
  15. By: Lionel P. Fatton
    Abstract: Japan's security policy has changed dramatically in recent years. The country balances harder against China, and its armed forces are increasingly autonomous from their American counterparts. What explains Japan's growing autonomy and balancing tendency after decades of relative apathy? I argue that this new strategic orientation results from unprecedented doubts about the effectiveness of its traditional security policy amidst an unstable China–U.S.–Japan triangular relationship. Tokyo is increasingly uncertain about American security commitments in the face of a more assertive China. As both the alliance with the United States and the accommodation of China are becoming unsuitable strategies for guaranteeing national security, Japan reverts to a more autonomous and resolute posture. Japan's new security policy will have important consequences for the triangular relationship.
    Keywords: autonomy, balancing, China, Japan's security policy, United States
    Date: 2018–05–21
  16. By: Cho, Choongjae (Korea Institute for International Economic Policy); Song, Youngchu (Korea Institute for International Economic Policy)
    Abstract: This study focuses on analyzing China, India and Singapore's driving capability for the 4th IR, related national policies, plans, or strategies, etc. In addition, this study suggests implications and directions for the development of policies related to the 4th IR by the Korean government and the strengthening of cooperation with each of these three countries. In conclusion, we presents the following cooperation directions and policy tasks in respect to the three countries above. First, we need to enhance selective and strategic cooperation with China in the aspects of competition and response via the following strategies: 1) strengthening R&D projects for original technologies in new technology and industry areas, thus focusing on early commercialization and standardization; 2) developing strategies to actively utilize digitalized consumers in China and protecting domestic digital consumers and cross-border personal information; 3) advancing into the areas of 5G, smart manufacturing and robot-related fields in China; 4) enhancing collaboration in terms of internationalization of innovative entrepreneurial ecosystems; 5) pursuing agreements to address the issues of technology deception and technical protection. Second, we need to enhance all-round convergence and win-win cooperation with India through the following channels: 1) early enhancement of core SW technologies such as artificial intelligence, embedded and cloud computing via using India's excellent SW, IT service capability; 2) taking advantage of India's Big Data resources, including Aadhaar, the world's largest digital personal authentication system; 3) participating in smart manufacturing, digital infrastructure development with new technologies and products related to smart city initiatives, cooperation between start-ups in both countries; 4) to do this, we will need to consider utilizing the Vision Group of Korea-India Future Strategy; and 5) creating a Korea-India Innovation Venture Fund. Lastly, with Singapore, we need to strengthen innovation cooperation in policies and systems, education, R&D, and entrepreneurial ecosystems that underpin the 4th IR.
    Keywords: 4th industrial revolution strategy; China; India; Singapore
    Date: 2018–04–03
  17. By: Carlsson, Fredrik (Department of Economics, School of Business, Economics and Law, Göteborg University); Lampi, Elina (Department of Economics, School of Business, Economics and Law, Göteborg University); Martinsson, Peter (Department of Economics, School of Business, Economics and Law, Göteborg University); Tu, Qin (School of Economics and Resource Management, Beijing Normal University, Beijing, China); Yang, Xiaojun (School of Public Policy and Administration, Xi’an Jiaotong University, Xi’an, China)
    Abstract: We present lab-in-the-field experimental evidence of the effects of the Chinese one-child policy on individuals’ preferences and behavior as adults. The experiments were conducted in three different provinces because the policy was not strictly implemented at the same time in all provinces. We measure risk and time preferences, as well as subjects’ competitiveness, cooperation, and bargaining behavior, sampling individuals born both before and after the introduction of the policy. Overall, we do not find any sizeable or statistically significant effects of the one-child policy on preferences or behavior in any of the experiments. These results hold for heterogeneity in the timing of the implementation of the OCP in different provinces, for heterogeneity among individuals, and for various robustness checks.
    Keywords: one-child policy; lab-in-the-field experiment; China.
    JEL: C91 D03 D10 I31 P30
    Date: 2018–05

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