nep-cna New Economics Papers
on China
Issue of 2018‒07‒16
seven papers chosen by
Zheng Fang
Ohio State University

  1. Optimal Dynamic Path during the Transition of Exchange Rate Regime: Analysis of the People’s Republic of China (PRC), Malaysia, and Singapore By Yoshino, Naoyuki; Asonuma, Tamon
  2. Will Financial Liberalization Trigger the First Crisis in the People’s Republic of China? Lessons from Cross-Country Experiences By Gou, Qin; Yiping, Huang
  3. China’s Social Credit System: A Mark of Progress or a Threat to Privacy? By Martin Chorzempa; Paul Triolo; Samm Sacks
  4. Innovation, Wages, and Polarization in China By Fleisher, Belton M.; McGuire, William H.; Su, Yaqin; Zhao, Min Qiang
  5. Education Expansion, Assortative Marriage, and Income Inequality in China By Nie, Haifeng; Xing, Chunbing
  6. Plunging into the Sea: Ideological Change, Institutional Environments and Private Entrepreneurship in China By Jin Yang; Jian Huang; Yanhua Deng; Massimo Bordignon
  7. The Impact of Primary School Investment Reallocation on Educational Attainment in Rural Areas of the People’s Republic of China By Haepp, Tobias; Lyu, Lidan

  1. By: Yoshino, Naoyuki (Asian Development Bank Institute); Asonuma, Tamon (Asian Development Bank Institute)
    Abstract: We consider the optimal exchange rate regime transition policy for three East Asian countries: the People’s Republic of China (PRC), Malaysia, and Singapore. In contrast to two traditional approaches to exchange rate regimes in East Asia, we conduct a dynamic transition analysis. Based on a small, open-economy dynamic stochastic general equilibrium model applied to these three countries, we define transition policies from a dollar peg regime to either a basket peg or a floating regime and compare the welfare gains of these policies relative to maintaining the current dollar peg regime. The quantitative analysis using PRC, Malaysian, and Singaporean data shows that the PRC would be better off shifting gradually from a dollar peg to a basket peg. In response to the PRC’s shift, both Malaysia and Singapore would opt to shift gradually to a basket peg regime.
    Keywords: exchange rate; exchange rate regime; dynamic transition analysis; basket peg; dollar peg; floating regime; DSGE model
    JEL: F33 F41 F42
    Date: 2017–07–17
  2. By: Gou, Qin (Asian Development Bank Institute); Yiping, Huang (Asian Development Bank Institute)
    Abstract: The People’s Republic of China (PRC) is beginning a new wave of financial liberalization, which is necessary to support strong economic growth, but will financial liberalization lead to major financial crises, as in many middle-income countries? We propose that financial liberalization generally lowers financial risks, especially for middle-income economies. Nevertheless, the pace of liberalization, quality of institutions, and regulatory structure also matter for outcomes of financial instability. From these findings, we draw some policy implications for the PRC: (1) further liberalization is important not only for economic growth but also for financial stability; (2) a gradual liberalization approach should work better, focusing on the sequencing of reforms; (3) the quality of institutions, especially strong market discipline, is also important for containing financial risks; and (4) it is better for the central bank to participate in financial regulation.
    Keywords: financial liberalization; financial crisis; financial instability
    JEL: G01 G18
    Date: 2018–03–08
  3. By: Martin Chorzempa (Peterson Institute for International Economics); Paul Triolo (New America and Eurasia Group); Samm Sacks (Center for Strategic and International Studies)
    Abstract: No government has a more ambitious and far-reaching plan to harness the power of data to change the way it governs than the Chinese government. Its Social Credit System (SCS), laid out in a plan released in 2014 and still under construction, aims to extend financial credit scoring systems—commonly used by financial institutions in the United States—to other areas of government regulation, from contract enforcement to food safety, corruption, and environmental protection. The plan is to link public and private data on financial and social behavior across China, use the data to evaluate behavior of individuals and organizations, and punish or reward them according to certain agreed upon standards of appropriate conduct. While many of the SCS goals are laudable, the scale and potential impact pose serious risks to individuals and organizations that could result in the opposite of the promised effects. There is still time to shape the SCS to become an effective tool to deal with some of China’s most intractable domestic problems and at the same time minimize the odds of it becoming an Orwellian system of social control.
    Date: 2018–06
  4. By: Fleisher, Belton M. (Ohio State University); McGuire, William H. (University of Washington Tacoma); Su, Yaqin (Hunan University); Zhao, Min Qiang (Xiamen University)
    Abstract: Using data from CHIPS 1995-2013, we find polarization of employment from middle-income Skilled jobs to work in the Unskilled and Self-Employment job categories. This redistribution of employment is consistent with the automation of routine noncognitive tasks in the skilled sector as analyzed in a number of papers on advanced economies and some work on the Chinese economy. While the Unskilled and Self-Employment jobs remain below median income, the redistribution of employment has not been associated with a commensurate polarization of labor income. We find no evidence of polarization of either employment or income at the upper end of the job-skill spectrum.
    Keywords: polarization, innovation, wage growth, China
    JEL: J24 J31 O30 D33
    Date: 2018–05
  5. By: Nie, Haifeng (Sun Yat-Sen University); Xing, Chunbing (Beijing Normal University)
    Abstract: We use census and household survey data to document China's educational assortative marriage and its evolution between 1990 and 2009. Empirical results suggest that men are increasingly likely to marry with women with similar education levels in China since the early 1990s, which is also true for urban areas and for different provinces. We then calculate the counterfactual Gini coefficients that would prevail if marriage matching was random in terms of education. For China in 2005, the inequality of per capita household income would drop from 0.508 to 0.476 if marriage was random. For urban areas in 2009, assortative marriage in education also increased the Gini coefficients by around 2 percentage points (from 0.316 to 0.337). The decomposition exercise shows that the increase in the return to education is the major contributor to the increase in urban household income inequality between 1990 and 2009, and the change in the assortative marriage pattern plays a minor role.
    Keywords: education expansion, assortative marriage, income inequality
    JEL: J12 I24 O15
    Date: 2018–05
  6. By: Jin Yang; Jian Huang; Yanhua Deng; Massimo Bordignon
    Abstract: This paper examines the integration of Chinese Communist Party membership and private entrepreneurship in China after 2002, when the Party revised its constitution and officially removed ideological discrimination against private entrepreneurs. Using six waves of a nationwide survey of privately owned enterprises in China from 1997 to 2008, we find that the constitutional change led to an exodus of Party members, and particularly senior officials, into the private sector. On the contrary, very few private entrepreneurs were admitted to the Party. The exodus of Party members was more prominent in regions with weaker market-supporting institutions. After the reform, Party affiliation is also shown to provide considerable private benefits to entrepreneurs, in the form of easier access to loans from state owned banks, reduced government expropriation, improved firms’ performance. These political rents were larger in regions with weaker market-supporting institutions.
    Keywords: party membership, private entrepreneur, ideology, market institutions, political rents
    JEL: H19
    Date: 2018
  7. By: Haepp, Tobias (Asian Development Bank Institute); Lyu, Lidan (Asian Development Bank Institute)
    Abstract: We analyze the effect of removing village-level primary schools and effectively merging these into larger township-level schools on educational attainment in rural areas of the People’s Republic of China. We employ individual- and village-level information from the China Household Ethnic Survey, which covers regions that are intensively affected by the removal campaign. We find a negative effect of school removals on primary school and junior high school completion rates. However, we also find positive effects on educational attainment beyond junior high school for those students who began their education in the new merged primary schools. This effect can be attributed to resource pooling and higher teacher quality in the new schools. The adverse effects are more severe for girls, especially if the new schools do not provide boarding and are located far away from student residences, and for children whose parents have low educational attainment, thus exacerbating gender inequality and the intergenerational transmission of education inequality. Our findings provide an important reference for other developing countries that will need to reallocate primary school investment in the future.
    Keywords: primary education; school removals; educational attainment; People’s Republic of China
    JEL: H52 I21 I24 J62
    Date: 2018–03–13

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