nep-cna New Economics Papers
on China
Issue of 2018‒08‒27
fourteen papers chosen by
Zheng Fang
Ohio State University

  1. Household Saving, Financial Constraints, and the Current Account in China By Ayşe İmrohoroğlu; Kai Zhao
  2. Re-examining the Effects of Trading with China on Local Labor Markets: A Supply Chain Perspective By Zhi Wang; Shang-Jin Wei; Xinding Yu; Kunfu Zhu
  3. How Do Regional Interactions in Space Affect China’s Mitigation Targets and Economic Development? By Wang Lu; Hao Yu; Wei Yi-Ming
  4. Social transfers in rural China: Do they contribute to poverty reduction? By Kuhn, Lena; Brosig, Stephan; Zhang, Linxiu
  5. Unintended Consequences of China’s New Labor Contract Law on Unemployment and Welfare Loss of the Workers By Akee, Randall; Zhao, Liqiu; Zhao, Zhong
  6. Human Capital and Migration: a Cautionary Tale By Salvador Navarro; Jin Zhou
  7. The Shattered “Iron Rice Bowl†— Intergenerational Effects of Economic Insecurity During Chinese State-Owned Enterprise Reform By Nancy Kong; Lars Osberg; Weina Zhou
  8. Urbanization, trade openness, and air pollution: a provincial level analysis of China By Wei Zheng; Patrick Paul Walsh
  9. Notching R&D Investment with Corporate Income Tax Cuts in China By Zhao Chen; Zhikuo Liu; Juan Carlos Suárez Serrato; Daniel Yi Xu
  10. E-Commerce Integration and Economic Development: Evidence from China By Victor Couture; Benjamin Faber; Yizhen Gu
  11. Managing Trade: Evidence from China and the US By Nicholas Bloom; Kalina Manova; John Van Reenen; Stephen Teng Sun; Zhihong Yu
  12. Are China's "Leftover Women" Really Leftover? An Investigation of Marriage Market Penalties in Modern-day China By Loren Brandt; Hongbin Li; Laura Turner; Jiaqi Zou
  13. Anticipating Critical Transitions of Chinese Housing Markets By Zhang Qun; Didier Sornette; Hao Zhang
  14. The internationalization of the Renminbi and the evolution of China’s monetary policy By Ramaa Vasudevan

  1. By: Ayşe İmrohoroğlu (University of Southern California); Kai Zhao (University of Connecticut)
    Abstract: In this paper, we present a model economy that can account for the changes in the current account balance in China since the early 2000s. Our results suggest that the increase in the household saving rate and tighter financial constraints facing the firms played equally important roles in the increase in the current account surplus until 2008. We argue that inadequate insurance through government programs for the elderly and the decline in family insurance due to the one-child policy led to the increase in the household saving rate especially after 2000 as more and more families with only one child entered the economy. The increase in the saving rate coupled with the financial frictions preventing the increased household saving from being invested in domestic firms resulted in large current account surpluses until 2008. Our results also indicate that the decline in the current account surplus since 2008 was likely to be due to the relaxation of financial constraints facing domestic firms, which was a result of the large-scale fiscal stimulus plan launched by the Chinese government after 2008. These findings imply that the planned increases in China’s public pension coverage are likely to reduce the future current account balances. On the other hand, if financial constraints are tightened back to the pre-stimulus levels; the current account surplus may rise again.
    JEL: E00 E20
    Date: 2018–08
  2. By: Zhi Wang; Shang-Jin Wei; Xinding Yu; Kunfu Zhu
    Abstract: The United States imports intermediate inputs from China, helping downstream US firms to expand employment. Using a cross-regional reduced-form specification but differing from the existing literature, this paper (a) incorporates a supply chain perspective, (b) uses intermediate input imports rather than total imports in computing the downstream exposure, and (c) uses exporter-specific information to allocate imported inputs across US sectors. We find robust evidence that the total impact of trading with China is a positive boost to local employment and real wages. The most important factor is employment stimulation outside the manufacturing sector through the downstream channel. This overturns the received wisdom from the reduced-form literature and provides statistical support for a key mechanism hypothesized in general equilibrium spatial models.
    JEL: F16
    Date: 2018–08
  3. By: Wang Lu; Hao Yu; Wei Yi-Ming
    Abstract: China is faced with the big challenge of maintaining a remarkable economic growth in an environmental friendly manner; that is why forecasting the turning point is of necessity. Traditional econometric approaches do not consider the spatial dependence that inevitably exists in the economic units, which probably risks misspecification and generating a biased estimation result. This paper firstly constructs Theil index to measure the intra-and inter regional inequality of CO2 emissions, we find that difference in emissions between regions is narrowed but gap within the Western China is sharply expanding. Then the Spatial Durbin model is employed to shape the relationship between mitigation and economic growth using the panel data of 29 provinces ranging from 1995 to 2011. Results show that the peak of per capita carbon dioxide emissions in China would be seen when GDP per capita reaches between $USD 21594 to 24737 (at 2000 constant price), much smaller when compared with the estimations of models which ignore the spatial dependence. This implies that territorial policy and industry transfer, on one hand would favor those underdeveloped regions with investment, technology and labors transfer; on the other hand enables developed regions more potential to mitigation, thus, chances are that China achieves the emissions peak of carbon dioxide earlier than conventional wisdom.
    Keywords: Environmental Economics and Policy
    Date: 2017–06–14
  4. By: Kuhn, Lena; Brosig, Stephan; Zhang, Linxiu
    Abstract: In order to combat absolute poverty in rural China, the “Rural Minimum Living Standard System” was launched nationally in 2007. The program provides direct monetary transfers to rural households living below the poverty line. A recent research project working with a sample of around 5000 households found that monetary transfers were being misallocated to a considerable extent, which greatly reduced the effectiveness of the program: 89 percent of the recipient households were not eligible according to their (reported) income while 79 percent of households assessed to be eligible according to their reported income were unable to receive the necessary assistance. Qualitative investigations revealed that these misallocations were often caused by a lack of human resources among local administrations within structurally weak regions. Additional financial aid provided by the central government towards the cost of the program's implementation could lead to considerable improvement in targeting, i.e. the identification of households eligible to receive transfers. However, due to an inability to accurately measure and document income, the implementation of a closely supervised system such as those found in central Europe does not appear to be suitable in the near future. In the mid-term, a step by step replacement of social transfers with health and pension benefits should be discussed in order to alleviate the high administrative cost engendered by targeting based on income.
    Keywords: Community/Rural/Urban Development, Consumer/Household Economics, Food Security and Poverty
    Date: 2017
  5. By: Akee, Randall; Zhao, Liqiu; Zhao, Zhong
    Abstract: China's new Labor Contract Law, which intended to strengthen the labor protection for workers, went into effect on January 1, 2008. The law stipulated that the maximum cumulative duration of successive fixed-term (temporary) labor contracts is 10 years, and employees working for the same employer for more than 10 consecutive years are able to secure an open-ended (permanent) labor contract under the new law, which is highly desirable to employees. However, in order to circumvent the new Labor Contract Law, some employers may have dismissed workers, after the passage of the new law, who had worked in the same firm for more than 10 years. Using data from the 2008 China General Social Survey, we find strong evidence that firms did in fact dismiss their formal-contract employees who have been employed for more than 10 years. Additionally, using a regression discontinuity design based on this exogenous change in unemployment status for this particular group of workers, we show that the dismissed workers suffered significant welfare loss in terms of happiness. Our results are robust to various specifications and placebo tests.
    Keywords: Labor Contract Law,Unemployment,Happiness,Regression Discontinuity Design,China
    JEL: J41 J64 I31
    Date: 2018
  6. By: Salvador Navarro (University of Western Ontario); Jin Zhou (University of Chicago)
    Abstract: We study the interaction of migration and education decisions, and their effects on labor market outcomes of individuals in sending locations. We consider the possibility that, while the level of human capital affects the migration decisions of an individual (i.e., self-selection of migrants), it is also the case that the possibility of migration itself affects the human capital accumulation decisions of agents. In particular, we first analyze how the migration option can reduce the incentives to accumulate human capital in the context of a simple Roy model with exogenous migration. As we show, even when the return to migrating is positive,if the return to education for migrants is lower in the receiving location than in the sending location, the mere possibility of migrating reduces the returns to human capital accumulation for people in the sending location. We analyze data on rural migration in China, where this pattern of returns seems to hold. We then use diff-in-diff to show that, consistent with our simple model's prediction, educational attainment in rural China slowed down compared to urban regions after an early 80's reform that relaxed the restrictions to rural migration. Finally, we build a structural model of rural-urban migration in China, where we estimate the reduction in migration costs that happened as a consequence of the reform. To quantify the effect of the policy, we simulate what would have happened had the policy not been implemented. We find that the attendance rates for high school, some college and college would have increased by 29%, 141%, and 24%, respectively.
    Date: 2018
  7. By: Nancy Kong (The Centre for the Business of Economics of Health, The University of Queensland); Lars Osberg (Department of Economics, Dalhousie University); Weina Zhou (Department of Economics, Dalhousie University)
    Abstract: Reform of the Chinese state-owned enterprise (SOE) sector in the late 1990s produced massive layoffs (34 million employees) and marked the end of the “iron rice bowl†guarantee of employment security. An expanding international literature has documented the adverse health impacts of economic insecurity on adults but has usually neglected children. This paper uses the natural experiment of SOE reform in China to explore the causal relationship between increased parental economic insecurity and children’s BMI Z-score. Using provincial and year-level layoff rates and income loss from the layoffs, we estimate a generalized differences-in-differences model with individual fixed effects and year fixed effects. For a medium-built 10-year-old boy, a 10%-point increase in expected parental economic loss from layoff (largest treatment effect) implies a gain of 4 kg. The counterfactual analysis suggests a 4.5%-point increase in overweight rate due to the reform. The weight gain persists for boys whose parents kept their jobs, indicating the importance of anxiety about potential losses, as well as the experience of actual loss. Quantile regressions suggest that boys who were relatively overweight were more severely affected by parental economic insecurity. Girls are not significantly affected. Accounting for intergenerational effects therefore increases the estimated public health costs of greater economic insecurity.
    Keywords: Economic Insecurity, Health, Intergenerational Effects, BMI
    JEL: J13 J63
  8. By: Wei Zheng (School of Economics and Development, Wuhan University, China; School of Politics and International Relations, University College Dublin, Dublin, Ireland); Patrick Paul Walsh (School of Politics and International Relations, University College Dublin, Dublin, Ireland)
    Abstract: As the largest developing country in the world, with fast-paced urbanization development, China has achieved rapid economic growth since the “Reform and opening-up” policy implemented in 1978. This growth, however, has resulted in persistent and severe environmental problems. This paper evaluates urbanization, trade openness, energy consumption and PM2.5 in the Chinese economy using Fixed effect (FE), fixed effect instrumental (FE-IV), and system generalized method of moments (GMM-sys) estimation methods from 29 provinces over the period 2001–2012. Results demonstrated that PM2.5 is a continuous process that the previous period has positive effect on the current level of PM2.5; Environmental Kuznets Curve (EKC) hypothesis was not supported by analyzing the relationship between economic growth and PM2.5 in China; temperature is not a crucial influencing factor in affecting the amount of PM2.5; urbanization is beneficial to the decrease of PM2.5. PM2.5 from neighboring regions is an important factor increasing the local PM2.5, and the influencing factors of international trade, heavy industry and private cars are contributors to PM2.5 level as well.
    Keywords: PM2.5, Energy consumption, Urbanization, Average temperature level
    Date: 2018–07–27
  9. By: Zhao Chen; Zhikuo Liu; Juan Carlos Suárez Serrato; Daniel Yi Xu
    Abstract: We analyze the effects of a Chinese policy that awards substantial corporate tax cuts to firms that increase R&D investment over a given threshold, or notch. We exploit this quasi-experimental variation with administrative tax data in order to shed light on longstanding questions on the effects of fiscal incentives for R&D. We find large responses of reported R&D using a cross-sectional "bunching" estimator that is new to the R&D literature. We also find significant increases in firm-level productivity, even though about 30% of the increase in R&D is due to relabeling of administrative expenses. Anchored by these reduced-form effects, we estimate a structural model of R&D investment and relabeling that recovers a 9.8% return to R&D. We simulate alternative policies and show that firm selection into the program and the relabeling of R&D determine the cost-effectiveness of the policy, and the effects on productivity growth.
    JEL: H2 O3
    Date: 2018–06
  10. By: Victor Couture (University of California, Berkeley); Benjamin Faber (UC Berkeley); Yizhen Gu (UC Berkeley)
    Abstract: The number of people buying and selling products online in China has grown from practically zero in 2000 to more than 400 million by 2015. Most of this growth has occurred in cities. In this context, the Chinese government recently announced the expansion of e-commerce to the countryside as a policy priority with the objective to close the rural-urban economic divide. As part of this agenda, the government entered a partnership with a large Chinese e-commerce firm. The program invests in the necessary logistics to ship products to and sell products from tens of thousands of villages that were largely unconnected to e-commerce. The firm also installs an e-commerce terminal at a central village location, where a terminal manager assists households in buying and selling products through the firm’s e-commerce platform. This paper combines a new collection of survey and administrative microdata with a randomized control trial (RCT) that we implement across villages in collaboration with the e-commerce firm. We use this empirical setting to provide evidence on the potential of e-commerce integration to foster economic development in the countryside, the underlying channels and the distribution of the gains from e-commerce across households and villages.
    Date: 2018
  11. By: Nicholas Bloom; Kalina Manova; John Van Reenen; Stephen Teng Sun; Zhihong Yu
    Abstract: We present a heterogeneous-firm model in which management ability increases both production efficiency and product quality. Combining six micro-datasets on management practices, production and trade in Chinese and American firms, we find broad support for the model's predictions. First, better managed firms are more likely to export, sell more products to more destination countries, and earn higher export revenues and profits. Second, better managed exporters have higher prices, higher quality, and lower quality-adjusted prices. Finally, they also use a wider range of inputs, higher quality and more expensive inputs, and imported inputs from more advanced countries. The structural estimates indicate that management is important for improving production efficiency and product quality in both countries, but it matters more in China than in the US, especially for product quality. Panel analysis for the US and a randomized control trial in India suggest that management exerts causal effects on product quality, production efficiency, and exports. Poor management practices may thus hinder trade and growth, especially in developing countries.
    JEL: F0
    Date: 2018–06
  12. By: Loren Brandt; Hongbin Li; Laura Turner; Jiaqi Zou
    Abstract: A recent trend in Korea and Japan sees college-graduate women marrying later and at lower rates than less-educated women. In China, "leftover women" have also become a top policy concern. This paper finds however that China's higher-educated urban women attain marital outcomes more like those in the US than in the other Asian Tiger countries, marrying later, but ultimately at comparable rates to less-educated women. For 1990-2009, we quantify marriage quality using the classic Choo-Siow (2006) estimator and find large returns to marrying later but minimal direct higher education effects. Using the Choo (2015) dynamic estimator, we project future marriage rates to remain stable among the higher educated and to decline for lower-educated women.
    Keywords: China, marriage markets, fertility, leftover women, education, assortative mating
    JEL: D13 J11 J12 J13 N35
    Date: 2018–08–18
  13. By: Zhang Qun (Guangdong University of Foreign Studies); Didier Sornette (ETH Zürich and Swiss Finance Institute); Hao Zhang (Guangdong University of Foreign Studies)
    Abstract: We introduce a novel quantitative methodology to detect real estate bubbles and forecast their critical end time, which we apply to the housing markets of China's major cities. Building on the Log-Periodic Power Law Singular (LPPLS) model of self-reinforcing feedback loops, we use the quantile regression calibration approach recently introduced by two of us to build confidence intervals and explore possible distinct scenarios. We propose to consolidate the quantile regressions into the arithmetic average of the quantile-based DS LPPLS Confidence indicator, which accounts for the robustness of the calibration with respect to bootstrapped residuals. We make three main contributions to the literature of real estate bubbles. First, we verify the validity of the arithmetic average of the quantile-based DS LPPLS Confidence indicator by studying the critical times of historical housing price bubbles in the U.S., Hong Kong, U.K. and Canada. Second, the LPPLS detection methods are applied to provide early warning signals of the housing markets in China's major cities. Third, we determine the possible turning points of the markets in BeiJing, ShangHai, ShenZhen, GuangZhou, TianJin and ChengDu and forecast the future evolution of China's housing market via our multi-scales and multi-quantiles analyses.
    Keywords: real estate bubbles, forecasting, Log-Periodic Power Law Singularity, multi-scale analysis, quantile regression, DS LPPLS Confidence indicator
    JEL: C22 C51 C53 E31 E37 G01 G17 R30
    Date: 2017–05
  14. By: Ramaa Vasudevan (Colorado State University)
    Abstract: This paper explores the evolution of monetary policy in the context of the distinct path China and the PBoC have adopted in fostering the international role of the renminbi. Instead of focusing on the PBoC’s negotiation of the impossible trinity of flexible exchange rates, capital mobility and independent monetary policy, the paper highlights the challenges the PBoC faces as it promotes the use renminbi, in international lending in particular, while simultaneously seeking to contain and discipline the inherent instability and potentially disruptive logic of finance.
    Keywords: China, monetary policy, internationalization of renminbi, impossible trinity
    JEL: F33 F36 G28
    Date: 2018–08

This nep-cna issue is ©2018 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.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.