nep-cna New Economics Papers
on China
Issue of 2019‒02‒18
eight papers chosen by
Zheng Fang
Ohio State University

  1. Unequal Migration and Urbanisation Gains in China By Pierre-Philippe Combes; Sylvie Démurger; Shi Li; Jianguo Wang
  2. State-owned firms behind China’s corporate debt By Margit Molnar; Jiangyuan Lu
  3. Price Rigidity in China: Empirical Results at Home and Abroad By Chong, Terence Tai Leung; Wu, Zhang
  4. The Effects of Trading Suspensions in China By He, Qing; Gan, Jingyun; Wang, Shuwan; Chong, Terence Tai Leung
  5. The US-China trade dispute: A macro perspective By Rod Tyers; Yixiao Zhou
  6. How Would a Slowdown in the People's Republic of China Affect its Trading Partners? By Willem THORBECKE
  7. The Global Macroeconomics of a Trade War. The EAGLE model on the US-China trade conflict By Wilko Bolt; Kostas Mavromatis; Sweder van Wijnbergen
  8. China Should Join the New Trans-Pacific Partnership By Peter A. Petri; Michael Plummer

  1. By: Pierre-Philippe Combes (Univ Lyon, CNRS, GATE UMR 5824, F-69130 Ecully, France; Sciences Po, Department of Economics, 28, Rue des Saints-Pères, 75007 Paris, France. Research fellow at CEPR); Sylvie Démurger (Univ Lyon, CNRS, GATE UMR 5824, F-69130 Ecully, France. Research fellow at IZA); Shi Li (Business School, Beijing Normal University, China. Research fellow at IZA); Jianguo Wang (Beijing Information Science and Technology University, China)
    Abstract: We assess the role of internal migration and urbanisation in China on the nominal earnings of three groups of workers (rural migrants, low-skilled natives, and high-skilled natives). We estimate the impact of many city and city-industry characteristics that shape agglomeration economies, as well as migrant and human capital externalities and substitution effects. We also account for spatial sorting and reverse causality. Location matters for individual earnings, but urban gains are unequally distributed. High-skilled natives enjoy large gains from agglomeration and migrants at the city level. Both conclusions also hold, to a lesser extent, for low-skilled natives, who are only marginally negatively affected by migrants within their industry. By contrast, rural migrants slightly lose from migrants within their industry while otherwise gaining from migration and agglomeration, although less than natives. The different returns from migration and urbanisation are responsible for a large share of wage disparities in China.
    Keywords: urban development, agglomeration economies, wage disparities, migrants, human capital externalities, China
    JEL: O18 R12 R23 J31 O53
    Date: 2019
  2. By: Margit Molnar; Jiangyuan Lu
    Abstract: While China’s overall debt-to-GDP ratio is not particularly high, its non-financial corporate debt relative to GDP is higher than in other major economies. State-owned enterprises account for over three quarters of that debt with a size exceeding GDP. This paper provides insights into the size of debt, leverage and debt service burden by various non-financial SOE groupings including by size, extent of state ownership, level of the owner, broad and detailed sector and region. Although the debt stock of local SOEs increased the fastest, firms under government agencies leveraged up more quickly and their debt service burden also grew most rapidly. SOEs in services industries increased their debt fastest, in particular in social services, transportation, real estate and construction. In turn, warehousing and real estate firms have the highest leverage. Firms in the three provinces of Xinjiang, Shanxi and Qinghai rank among the top five in all the three indicators of debt to revenues, leverage and debt service burden. Large SOEs owe most debt and leveraged up, while small and medium-size ones reduced their leverage. The surge in the debt service burden of small SOEs coincided with an increase in state assets in this group of firms. Sector-wise, state assets increased most in competitive industries. Empirical analysis shows that higher leverage and labour productivity are more conducive to a surge in SOE debt. Such surges appear to be triggered by falling interest costs, pointing to the role for easy monetary conditions in the rapid SOE debt accumulation. Recent corporate governance reforms of SOEs will likely act as disciplining device on SOE borrowing.
    Keywords: corporate debt, interest burden, leverage, state assets, state-owned enterprises
    JEL: P31 O16 G32 L32
    Date: 2019–02–14
  3. By: Chong, Terence Tai Leung; Wu, Zhang
    Abstract: This paper explores the price rigidity in China using 259 monthly domestic and foreign macroeconomic time series. A factor-augmented vector autoregressive (FAVAR) model expanded with global components is employed. Four findings are obtained. First, the model shows that disaggregated price indices are volatile but not necessarily stickier than aggregate price series, and the inflation triggered by global and domestic components is massive and persistent. Second, although the global components have minimal effects on price volatility, they have a growing contribution to volatility. Moreover, they are a major force of the price persistence in China. Third, no clear evidence shows that the price stickiness in China is subject to urban-rural disparities. Last, we observe a relatively active price volatility and high persistence after the 2008 financial crisis, in which domestic components have increasingly significant impacts.
    Keywords: FAVAR, global components, price rigidity
    JEL: E31 E32 E52
    Date: 2018–10–28
  4. By: He, Qing; Gan, Jingyun; Wang, Shuwan; Chong, Terence Tai Leung
    Abstract: We study the effects of both mandatory and voluntary trading suspensions on stock prices, volatility and trading volume in China’s stock market. It is found that both voluntary and mandatory suspensions generate negative abnormal returns. Trading volume and volatility rise significantly in the post-suspension period. Our results suggest that suspensions are not effective in calming down investors in China. Ownership structure and duration of suspension explain the ineffectiveness of suspensions.
    Keywords: Voluntary Suspensions, Mandatory Suspensions, Efficiency
    JEL: G13 G18
    Date: 2018–01–21
  5. By: Rod Tyers; Yixiao Zhou
    Abstract: The recent rise of populism and authoritarian politics has seen a turn from multilateralism and toward international disputes like that between the US and China. This paper uses a calibrated global macro model to assess the potential economic consequences of this conflict under explicit assumptions about monetary and fiscal policy. US unilateral protection emerges as “beggar thy neighbor” policy, the more so if new tariff revenue affords capital tax relief. China’s proportional losses are comparatively large and little mitigated by retaliation, which nonetheless constrains US net gains. Avoiding leakage by protecting against all sources causes substantial losses in third regions trading with China and the US.
    Keywords: Trade disputes, China, macroeconomic policy, general equilibrium analysis, numerical theory
    JEL: F13 F41 F47
    Date: 2019–02
  6. By: Willem THORBECKE
    Abstract: The People's Republic of China (PRC) has become an important importer for many countries. This paper investigates how turbulence in the PRC can spill over to trading partners through the trade channel. Exports from several East and Southeast Asian countries to the PRC exceed 10 percent of their GDPs. To shed light on countries' exposures to the PRC, this paper estimates a gravity model. The results indicate that Taiwan and the Association of Southeast Asian Nations are exposed to the PRC because they produce goods for the Chinese market and exposed to advanced economies because they ship parts and components to the PRC for processing and re-export to the West. South Korea is more exposed to a slowdown in advanced economies that purchase processed exports from the PRC than to a slowdown in the PRC. Major commodity exporters such as Australia, Brazil, Indonesia, and Saudi Arabia and exporters of sophisticated consumer and capital goods such as Germany and Switzerland are exposed to a slowdown in the Chinese domestic market. This paper also estimates import elasticities for the PRC. The results indicate that imports for processing into the PRC are closely linked to processed exports from China to the rest of the world and that ordinary imports are closely linked to Chinese GDP. The renminbi exerts only a weak impact on imports, however. The paper concludes by recommending that firms and countries diversify their export base and their trading partners to reduce their exposures to the PRC and to advanced economies.
    Date: 2019–01
  7. By: Wilko Bolt; Kostas Mavromatis; Sweder van Wijnbergen
    Abstract: We study the global macroeconomic effects of tariffs using a multiregional, general equilibrium model, EAGLE, that we extend by introducing US tariffs against Chinese imports into the US, and subsequently Chinese tariffs against US imports into China, consistent with recent trade policies by the US and the Chinese governments. We abstract from tariffs on goods exported from the euro area, focusing on a US-China trade war. A unilateral tariff from the US against China dampens US exports in line with the Lerner Symmetry theorem but global output contracts. Global output contracts even further after China retaliates. The euro area benefits from this trade war. These European trade diversion benefits are caused by cheaper imports from China and Europe's improved competitiveness in the US. As price stickiness in the export sector in each region increases, the negative effects of tariffs in the US and China are mitigated, but the positive effects in the euro area are then also dampened.
    Keywords: Trade Policy; Exchange Rates; Trade Diversion; Local Currency Pricing
    JEL: E32 F30 H22
    Date: 2019–02
  8. By: Peter A. Petri (Peterson Institute for International Economics); Michael Plummer (Johns Hopkins University and East-West Center)
    Abstract: A year after President Donald Trump’s ill-advised pullout from the Trans-Pacific Partnership (TPP) trade agreement in early 2017, the remaining 11 Asian and Pacific countries agreed on a deal in spite of the absence of the United States. Renamed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the accord took effect on December 30, 2018, and provides rigorous, up-to-date rules for Asia-Pacific trade—but it excludes the region’s two biggest economies, the United States and China. Petri and Plummer calculate that Chinese membership in the CPTPP would yield large economic and political benefits to China and other members. The CPTPP, in its current form, would generate global income gains estimated at $147 billion annually. If China were to join, these gains would quadruple to $632 billion, or a quarter more than in the original TPP with the United States. But to join the CPTPP, China would have to undertake unprecedented reforms and manage complex political challenges.
    Date: 2019–01

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