nep-cna New Economics Papers
on China
Issue of 2018‒09‒03
seventeen papers chosen by
Zheng Fang
Ohio State University

  1. Do Farmers Adopt Fewer Conservation Practices on Rented Land? Evidence from Straw Retention in China By Li Gao; Wendong Zhang; Yingdan Mei; Abdoul G Sam; Yu Song; Shuqin Jin
  2. Barriers to Entry and Regional Economic Growth in China By Loren Brandt; Gueorgui Kambourov; Kjetil Storesletten
  3. Domestic value creation in the involvement in global value chains: Evidence of China By Taguchi, Hiroyuki
  4. Case study analysis on household attitudes towards weather index crop insurance in rural China By Zhang, Jing; Brown, Colin; Waldron, Scott
  5. How Women Have Fared with the Rise of the People’s Republic of China in Global Supply Chain Trade By Wang, Limin; Kanji, Shireen; Jha, Shikha; Meurs, Mieke E.
  6. Can the Greater Fool Theory Explain Bubbles? Evidence from China By Xuan Zou
  7. Unintended Consequences of China's New Labor Contract Law on Unemployment and Welfare Loss of the Workers By Randall Akee; Liqiu Zhao; Zhong Zhao
  8. Regional Inequality in China allowing for Spatial Cost-of-Living Differences: Evidence from a Hedonic Analysis of Apartment Prices By Chao Li; John Gibson
  9. Structural Change and Aggregate Employment Fluctuations in China and the US By Wen Yao; Xiaodong Zhu
  10. Synergistic Effects of Environmental Regulations on Carbon Productivity Growth in China's Major Industrial Sectors By Ge Gao; Ke Wang; Chi Zhang; Yi-Ming Wei
  11. Restructuring the Chinese Freight Railway: Two Scenarios By Cui, Shana; Pittman, Russell; Zhao, Jian
  12. The Impact of Chinese Competition along the Quality Ladder By Paul Piveteau; gabriel smagghue
  13. Air pollution and health - A provincial level analysis of China By Wei Zheng; Patrick Paul Walsh
  14. Do Farmers Gain Internet Dividends from E-commerce Adoption? Evidence from China By Guo, Hongdong; Li, Xiaokang; Zeng, Yiwu; Jin, Songqing
  15. How the United States Should Confront China Without Threatening the Global Trading System By Robert Z. Lawrence
  16. Input Prices, Productivity and Trade Dynamics: Long-run Effects of Liberalization on Chinese Paint Manufactures By Paul Grieco; Hongsong Zhang; Shengyu Li
  17. Does Market Competition Dampen Environmental Performance? Evidence from China By Duanmu, Jing-Lin; Bu, Maoliang; Pittman, Russell

  1. By: Li Gao; Wendong Zhang (Center for Agricultural and Rural Development (CARD)); Yingdan Mei; Abdoul G Sam; Yu Song; Shuqin Jin
    Abstract: We examine how land tenure arrangements affect Chinese crop farmers’ adoption of straw retention, a key conservation practice promoted by the Chinese government in part to curb rising air pollution. Using data from a 2016 farmer household survey covering 1,659 crop plots in Henan Province in central China, we analyze whether farmers are less likely to adopt straw retention on rented plots compared to own-contracted plots. To address the potential endogeneity of the choice of renting from others, we use an instrument exploiting the role of remittance income from household members migrated to cities in a bivariate probit model and a control function approach, respectively. Our main results reveal that the Chinese crop farmers’ likelihood of adopting straw retention were almost cut in half on rented plots compared to their owned plots, assuming the assumptions for biprobit or control functions hold. This suggests greater attention is needed to examine the spillovers across agricultural and environmental policies as China pushes for both a nationwide land rental market and more sustainable agricultural practices.
    Date: 2018–08
  2. By: Loren Brandt (University of Toronto); Gueorgui Kambourov (University of Toronto); Kjetil Storesletten (University of Oslo)
    Abstract: The non-state manufacturing sector has been the engine of China's economic transformation. Up through the mid-1990s, the sector exhibited large regional differences; subsequently we observe rapid convergence in terms of new firm start-up rates, productivity, and wages. To analyze the drivers of this behavior, we construct a Melitz (2003) model that incorporates location-specific capital wedges, output wedges, and a novel entry barrier. Using Chinese Industry Census data for 1995, 2004, and 2008, we estimate these wedges and examine their role in explaining differences in performance across prefectures and over time. Entry barriers turn out to be the salient friction for explaining performance differences. We investigate the empirical covariates of these entry barriers and find that barriers are causally related to the size of the state sector. Thus, the downsizing of the state sector after 1997 may be important in explaining the rapid manufacturing growth over the 1995-2008 period.
    Date: 2018
  3. By: Taguchi, Hiroyuki
    Abstract: This paper examines how the Chinese economy has been involved in global value chains from the perspective of domestic value creation, by using the OECD value-added-trade data (OECD TiVA database). This study contributes to the existing literature by decomposing the domestic value creation into a direct effect from export industries and an indirect effect from the other supporting industries. The empirical estimation first identified the “smile curve” in the “indirect” domestic value creation in total manufactures as the average pattern of the Asian GVCs development paths, in which the domestic value share to exports declines at the early development stage and regains itself at the later stage with the turning point being at 1,830 US dollars as per capita GDP. Then the analysis confirmed the position of Chinese economy, which has already passed the Asian average turning point and has entered the phase of regaining the domestic value share to exports. Finally, the analysis found that the domestic value creation in China has originated from the development of supporting industries, in particular, service industries, which might reflect the progress in basic infrastructure there.
    Keywords: Domestic value creation, Global value chains, China, Value-added-trade data, Manufactures, Supporting industries
    JEL: F14 L60 O53
    Date: 2018–08
  4. By: Zhang, Jing; Brown, Colin; Waldron, Scott
    Abstract: The paper extends on the literature assessing China’s current “policy-oriented” agricultural insurance crop system to understand and to investigate the factors influencing the relative merits and potential demand for weather index crop insurance as a means for individual farmers in rural China to cope with weather-related production risks. Using the case of Huojia County in Henan Province, an empirical analysis is conducted of information collected from households’ survey and interviews with local village leaders. The key finding is that there is a significant potential demand for weather index crop insurance product as households seek time-efficient risk management strategies although this demand is influenced by generally poor awareness of insurance, small areas, and relatively low profitability of crop production.
    Keywords: Agricultural and Food Policy, Environmental Economics and Policy, Risk and Uncertainty
    Date: 2017–02–07
  5. By: Wang, Limin (World Bank); Kanji, Shireen (University of Birmingham); Jha, Shikha (Asian Development Bank); Meurs, Mieke E. (American University)
    Abstract: Global supply chain (GSC) trade has been a driving force underlying economic transformation, urbanization, and social change in the People’s Republic of China (PRC). Female migrants account for a large share of the labor force in the country’s GSC production base. Using province-level panel data, this study employs regression analysis to examine how the country’s rapid integration into the supply chain has affected women’s welfare outcomes captured by occupational status. The analysis shows mixed results. On the one hand, global integration through trade expansion improved the concentration of men and women equally in professional and skilled occupations and in management positions. On the other hand, female employment in manufacturing for GSC trade increased faster than male employment. This trend decreased in turn the male–female sex ratio among those aged 0–4 years. This finding is consistent with other studies on the PRC that confirm the beneficial effect of a relative rise in women’s income in reducing the sex imbalance. Gender-specific policies should support female migrants in moving up the job ladder in GSC trade through higher education and skills training for professional and leadership positions. This should be complemented with incentives for the private sector—the biggest source of employment in the PRC—to promote gender equality by harnessing the advancement in technology and opportunities offered by the rapid growth of GSC trade.
    Keywords: global supply chain; People’s Republic of China; trade; women
    JEL: F16 J16
    Date: 2017–07–01
  6. By: Xuan Zou (Rutgers University)
    Abstract: Many have noticed the phenomenon that naïve investors are attracted to the market as stock prices soar, yet few empirical studies have tested for this bubble phenomenon. This paper presents previously unused data on the aggregate number of newly opened brokerage accounts in China and tests the role of new investors in bubble formation. I find that new investors, attracted by soaring stock prices and the intensive trading activities of others, drove the Chinese stock market bubbles in 2007 and 2015, supporting the Greater Fool theory of bubbles. The inexperienced and naïve new investors appear more likely to be the "greater fools." Using the residual orthogonalization method, I build a data-driven structural model system, where shocks from the new accounts variable explain 40-55% of Chinese stock return variation.
    Keywords: bubble, individual investors, volume, Chinese stock market
    JEL: G1 G12
    Date: 2018–08–28
  7. By: Randall Akee (University of California, Los Angeles); Liqiu Zhao (Renmin University of China); Zhong Zhao (Renmin University of China)
    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: 2018–08
  8. By: Chao Li (University of Waikato); John Gibson (University of Waikato)
    Abstract: Studies of inequality in China typically ignore cost-of-living differences between areas. Under the Balassa-Samuelson effect, non-tradeables cost more in richer areas, so nominal inequality exceeds real inequality. This especially matters in China, where spatial cost-of-living differences should have increased with recent development of urban housing markets. We use new data on apartment prices in 104 major cities in China to develop housing-related spatial deflators. The level of spatial inequality in 2016 is overstated 27 percent if cost-of-living differences are ignored. A hedonic analysis of 41,000 individual apartment sales shows most price variation is between areas, rather than from features of individual apartments. The dominant trend in the reform era is for regional inequality in China to decline, contrary to common perceptions. In nominal terms, the Theil Index for inter-provincial inequality in 2016 is just 46 percent of its 1978 level, and in real terms the fall in inequality would be even greater.
    Keywords: China; housing; population; regional inequality; spatial deflators
    JEL: O47 Q56 R11
    Date: 2018–08–23
  9. By: Wen Yao (Tsinghua University); Xiaodong Zhu (University of Toronto)
    Abstract: One salient feature of business cycles in developed countries is that the aggregate employment is highly procyclical. In China, however, the correlation of the cyclical components of aggregate employment and output is close to zero. In this paper, we document three new stylized facts: (1) the business cycle properties of employment at sector level (agriculture and non-agriculture) in China are very similar to those in the US; (2) employments in the agricultural and non-agricultural sectors are negatively correlated in both China and the US; and (3) for both economies, the agriculture’s share of employment is negatively correlated with the real GDP per work in both sectors. These facts suggest that difference in sector composition could be an important reason for the difference in aggregate employment fluctuations between the two economies. We then construct a simple two-sector growth model with productivity shocks and non-homothetic preferences and show that the model can simultaneously account for the secular trend in labor reallocation away from agriculture and employment fluctuations at sector level and in the aggregate for both China and the US.
    Date: 2018
  10. By: Ge Gao; Ke Wang; Chi Zhang; Yi-Ming Wei
    Abstract: It is crucial that the implementation of environmental regulations have a positive synergistic effect on carbon productivity growth (i.e., environmentally adjusted productivity growth with the consideration of carbon emissions) for China to realize its sustainable development goals because the country is currently under tripartite pressures of economic growth, carbon emissions control, and environmental pollution reduction. This paper investigates the impact of changes in environmental regulation stringency on industrial-level carbon productivity growth in China. Through utilizing the information entropy method, a new index of environmental regulation stringency is established by taking into account the effects of both pollution reduction consequences and pollution reduction measures. In addition, based on the data envelopment analysis (DEA) method, a Malmquist carbon productivity index is proposed to estimate the industrial carbon productivity growth of 21 major industrial sectors in China¡¯s 30 provinces over 2004-2014. Finally, an econometric regression model is applied to test the synergistic effects of environmental regulations on carbon productivity in China's major industrial sectors. The results show that (i) a stringent environmental regulation is associated with an increase in overall industrial carbon productivity growth in China; (ii) there exist significant pass-through effects in China's major industrial sectors that technology can transmit effectively from leader to follower; (iii) there also exist obvious follow-up effects in China's major industrial sectors, i.e., the industrial sectors that have larger technological gaps with the leaders catch up faster than others; and (iv) the environmental regulations have different effects on industrial sectors with different polluting levels, i.e., there is a positive linear relationship between environmental regulation stringency and industrial-level carbon productivity growth in low-polluting industrial sectors, a parabolic nonlinear relationship between them in high-polluting industrial sectors, and an inverted U-shaped relationship between them in moderate-polluting industrial sectors.
    Keywords: China's industrial sector; environmental regulation; industrial heterogeneity; pollution intensity; total factor carbon productivity
    JEL: Q54 Q40
    Date: 2018–08–18
  11. By: Cui, Shana; Pittman, Russell; Zhao, Jian
    Abstract: Twenty years of debate regarding the restructuring of the Chinese freight railway have failed to yield a consensus. Early policy statements favoring the creation of above-the-rail competition over a monopoly infrastructure – the “European” model of rail restructuring – have broadened into a lively policy and scholarly debate that includes as an alternative the division of the system into competing vertically integrated railways – the “Americas” model of restructuring. To date, however, there have been no tangible reform steps beyond organizational restructuring, the construction of new coal railroads, some with private-sector participation, and the introduction of scheduled service, especially for containers, between China and Europe. In this paper we argue in favor of the Americas model as a basis for restructuring and offer two alternative scenarios for the creation of multiple vertically integrated freight railways. Both plans enable competition between independent firms and routes for import/export traffic, one a southern, One Belt/One Road path, the other a northern path via the Trans-Siberian Railway.
    Keywords: Freight railway, restructuring, competition, vertical separation, horizontal separation, China
    JEL: L14 L33 L43 L92 O18 R42
    Date: 2018–06–25
  12. By: Paul Piveteau (Johns Hopkins University); gabriel smagghue (uc3m)
    Abstract: We investigate the impact of Chinese competition faced by French exporters in their destination markets. We document that French firms with low prices are significantly more affected by the rise of China in international markets. To rationalize this finding, we propose a random coefficient, discrete choice model of demand in which consumers have heterogeneous preferences regarding product characteristics and prices. This heterogeneity in preferences implies more realistic substitution patterns across producers relative to existing trade models. In particular, it allows for French varieties located at the bottom of the price distribution to be closer substitutes to Chinese goods, due to their proximity in the product space. Using firm-level trade data, we estimate the model and quantify the unequal effect of China across French exporters in the footwear industry, between 1997 and 2010. We find substantial differences across firms: the rise in Chinese exports implied losses in market shares five times larger at the bottom of the price distribution relative to the top. Moreover, we show that allowing French firms to adjust their product quality does little to help them escape Chinese competition.
    Date: 2018
  13. 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: During the past 30 years, China has experienced high growth, and its economic expansion has been one of the strongest in world history. The rapid economic growth has accompanied by rapid increases in energy consumption, which has led to considerable air pollution and significantly affected mortality rate. In this study, Grossman Health Function was applied together with satellite-retrieved PM2.5 pollution data to estimate mortality rate caused by PM2.5 from 2001 to 2012. The results show some new evidence of the impact of sociological, economic and environmental factors on mortality rate of the population of China using the fixed effect (FE) and system generalized method of moments (GMM-sys) estimation methods. The PM2.5 has long-term positive significant effects on mortality. China is now experiencing a substantial mortality burden associated with current air pollution. Health care system and people’s education level are important in lowering mortality.
    Keywords: PM2.5, Mortality rate, Temperature
    Date: 2018–07–27
  14. By: Guo, Hongdong; Li, Xiaokang; Zeng, Yiwu; Jin, Songqing
    Abstract: The revolution of information technology and communications has drastically changed the way people conduct business. With the rapid emergence of Taobao villages and other e-trading platforms in its rural areas, China is leading the developing world in rural e-commerce. Despite the potential of e-commerce to improve agriculture profits and farmer’s income, whether and to what extent farmers really benefit from it remains a question. Using household survey data from farmers selling products through e-trading platform and those selling products through traditional market channel, we aim to rigorously assess the effects of e-commerce adoption on farmer’s income and identify the key mechanisms through which the impact comes about. Propensity score matching (PSM) methods were adopted to deal with the fact that farmers’ participation in selling products through e-commerce is not random. The PSM results show that the adoption of e-commerce has a positive effect on farmers’ income, especially in the villages with more e-commerce adoption. And the increase in the profit margin and the growth of sales are the two main channels through which e-commerce impacts farmers’ income.
    Keywords: Agricultural Finance, Research and Development/Tech Change/Emerging Technologies
    Date: 2017–12–01
  15. By: Robert Z. Lawrence (Peterson Institute for International Economics)
    Abstract: The Trump administration’s willingness to violate trade rules to maximize its negotiating leverage is undermining its most important and most legitimate objective in international trade and investment: persuading China to reform its problematic economic system, in which foreign firms are discriminated against in high-tech projects. The administration could have dealt with the problems posed by China through measures that would have been consistent with preserving the rules-based trading system rather than threatening it with destruction. Instead of confronting China with unilateral actions, the administration should be working with its allies to put pressure on China to conform to World Trade Organization rules where these are applicable. But the administration’s actions, coupled with China’s retaliations, have so far been counterproductive. And overall they have weakened adherence to rules and norms that have contributed to the success of the global trading and investment system.
    Date: 2018–08
  16. By: Paul Grieco (Pennsylvania State University); Hongsong Zhang (University of Hong Kong); Shengyu Li (Durham University)
    Abstract: Input tariff liberalization encourages direct importing by lowering the relative price of directly imported intermediate inputs relative to domestic alternatives. In turn, the action of importing itself encourages productivity growth. We develop a dynamic structural model to illustrate how input tariff reduction affects trading decisions and firm performance. The model features firm heterogeneity in both input prices and productivity. We find a mild short-term effect of input tariff liberalization from China's accession to WTO in the paint industry. The effect is amplified in the long run by induced trade participation, resulting in even higher aggregate productivity and lower input prices. Overall, this effect increases the average present firm value by 2.3 percent.
    Date: 2018
  17. By: Duanmu, Jing-Lin; Bu, Maoliang; Pittman, Russell
    Abstract: Departing from the extant literature which assumes that firms pursue strong environmental performance as a differentiation strategy, we analyse the general relationship between firms’ competitive strategy and their response to heightened market competition. We find that, using a large sample of Chinese manufacturing firms between 2000 and 2005, intensified market competition has an overall negative impact on firms’ environmental performance. The negative impact is exacerbated in firms adopting a cost-leadership strategy, but attenuated in those adopting a differentiation strategy. The results emphasize the importance of including an examination of the particular competitive strategies chosen by firms in seeking to understand the impact of intensified market competition.
    Keywords: Market competition, environmental performance, China, corporate social responsibility, cost leadership, differentiation, market concentration
    JEL: L11 L13 L21 L25 M14 M31 Q52 Q56
    Date: 2018–04–18

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