nep-cna New Economics Papers
on China
Issue of 2019‒07‒08
eleven papers chosen by
Zheng Fang
Ohio State University

  1. Realising regional potentials through better market integration in China By Margit Molnar
  2. Growing into Relative Income Poverty: Urban China 1988 to 2013 By Gustafsson, Björn Anders; Sai, Ding
  3. Taking Stock of Trade Policy Uncertainty: Evidence from China’s Pre-WTO Accession By George A. Alessandria; Shafaat Y. Khan; Armen Khederlarian
  4. China’s overinvestment and international trade conflict By Gunther Schnabl
  5. The Impact of Family Co-Residence and Childcare on Children's Cognitive Skill By Deng, Lanfang; Li, Haizheng; Liu, Zhiqiang
  6. "Rethinking China's Local Government Debt in the Frame of Modern Money Theory" By He Zengping; Jia Genliang
  7. Does the Early Retirement Policy Really Benefit Women? By Hyun Lee; Kai Zhao; Fei Zou
  8. Protectionism under Trump: The China Shock, Intolerance, and the “First White President” By Marcus Noland
  9. A happy way to grow old? Grandparent caregiving, quality of life and life satisfaction By Hao Wang; Jan Fidrmuc; Qi Luo
  10. The Evolution of the World’s Production Fragmentation: 2000 –2014, a network analysis By Susana Vieira; Renato G. Flôres Jr.; Maria Paula Fontoura
  11. Trade blocs and trade wars during the interwar period By David S. Jacks; Dennis Novy

  1. By: Margit Molnar
    Abstract: China’s regions have been experiencing impressive growth over the past decades, but their potentials could be better exploited by creating a single product and labour market. Local protectionism increases transaction costs and hinders competition, thereby taking a toll on productivity. Administrative monopolies have long thrived and are hard to dismantle. Restrictions on the hukou and the fragmented pension system limit labour mobility. Local regulations aim at, among other things, securing the collection of local taxes, without which cities could not afford to offer the same public services to migrants as to urbanites. Hence, dismantling local regulations and creating a single product and labour market needs to go hand-in-hand with the reform of inter-governmental finances. Recent measures on both the product and labour market front appear to aim at making up for the slow progress over the past decade or so. There are signs that these efforts are helping China’s regions at various levels to converge toward each other. Disparities are shrinking faster across provinces, compared to within provinces. Integration of product and labour markets will boost productivity over the medium-to long term by reducing transaction costs, but could potentially widen regional disparities, which are already relatively high. This will necessitate enhanced transfers and re-centralisation of the financing of spending in some key categories such as education and health. Policies to help catching up of laggard regions by better connectivity through infrastructure investment are bearing fruit, but such investments should be subject to rigorous cost-benefit criteria to enhance capital allocation efficiency and should take into account externalities. Notwithstanding significant disparities along multiple dimensions across provinces, inequalities, be it in terms of income, wealth or education, are actually most striking along the rural-urban dimension. The rural revitalisation strategy, a novel element of the 19th Party Congress outcomes, is expected to address this issue. The other recent strategy of nurturing the formation of city groups will also likely benefit rural areas in-between those cities.This Working Paper relates to the 2019 OECD Economic Survey of China ( mic-snapshot/).
    Keywords: administrative monopolies, competition, fiscal transfers, hukou, inter-governmental fiscal relations, labour mobility, protectionism, regional disparities, regional policies
    JEL: R58 L12 L51 L52 P25 J61 H77
    Date: 2019–07–01
  2. By: Gustafsson, Björn Anders (University of Gothenburg); Sai, Ding (Chinese Academy of Social Sciences)
    Abstract: This paper presents several arguments for applying a relative poverty line to urban China. For example between 2002 and 2013 urban residents in China changed their assessment of how much money that is necessary. Data from the China Household Income Project indicate that while, assessed against an absolute poverty line, poverty among Chinese urban residents was already fairly low in 2007, increasing proportions fell under a relative poverty line from 1988 to 2007. Thus income growth in urban China was more rapid in the middle segments of the income distribution that at it's lower segments. In 2013, at least as large fractions of the urban population as in many rich countries were deemed poor in relative terms. We also specify and estimate logit models for 2002 and 2013 after first having divided the samples into children, adults and elderly people. We find that the risk of being relative poor in urban China both years under study was positively associated with lack of work among adult household members, a low education of the household head, living in a low-income city, the number of children, and being aged and not receiving a pension. Pensions for the aged in combination with co-residency with adult children or with other adults have kept poverty rates among the increasing number of elderly in urban China from exceeding those among adults. In contrast, relative poverty rates are somewhat higher among children than among the entire urban population.
    Keywords: urban China, poverty, subjective poverty line, children, adults, older people
    JEL: I3 I32
    Date: 2019–06
  3. By: George A. Alessandria; Shafaat Y. Khan; Armen Khederlarian
    Abstract: We study the effects on trade from the annual tariff uncertainty about China’s MFN status renewal prior to joining the WTO. We have three main findings. First, counter to the evidence elsewhere, trade increases strongly in anticipation of uncertain future increases in tariffs. Second, even though the trade response can be quite large, the probability of a tariff increase was perceived to be relatively small, with an average annual probability of non-renewal of about 5.5 percent. And third, what matters more is the expected future tariff rather than the uncertainty around it. We identify these effects using within-year variation in the risk of trade policy changes around the renewal vote and trade flows. We show that an (s,s) inventory model generates this behavior and that variation in the strength of the stockpiling in advance of the vote is increasing in the storability of goods. The model is also consistent with a sizeable fraction of the cross-industry variation in annual trade flows documented elsewhere. Our results explain why trade may hold up well in advance of a prospective policy change such as Brexit or the US escalating tariff war of 2018-19, but may fall off sharply even if expected tariff increases do not materialize.
    JEL: E32 E60 F12 F13 F14
    Date: 2019–06
  4. By: Gunther Schnabl
    Abstract: For a long time, China’s impressive growth performance has been driven by investment and high productivity gains. Based on the recent discussion on possible overcapacities and overinvestment in China, the paper investigates the sustainability of China’s investment- and export-driven growth model. It is shown that since the turn of the millennium buoyant capital inflows and low interest rates have been at the roots of overinvestment and misallocation of capital, which necessitated export subsidies to clear markets. The overinvestment boom is argued to have ended around 2014. Since then, the overcapacities have weakened China’s bargaining position in the US-Chinese trade conflict and have tempted the Chinese authorities to postpone a restructuring of the Chinese economy by low-interest credit provision. The resulting gradual reemergence of quasi soft budget constraints is seen to undermine China’s long-term growth potential.
    Keywords: China, investment, overinvestment, trade policy, credit growth, rebalancing, soft budget constraints, zombification
    JEL: E22 E43 E58 F13
    Date: 2019
  5. By: Deng, Lanfang (Hunan University); Li, Haizheng (Georgia Tech); Liu, Zhiqiang (University at Buffalo, SUNY)
    Abstract: We investigate the impact of family co-residence structure and the allocation of major childcare responsibility across generations on a child's cognitive development. Using data from China, we find that children living in multigenerational families generally perform better in their cognitive tests after controlling for other factors. This result holds only for elementary school children, but not for middle school children. However, children who live only with their parents and children who live only with their grandparents (the left-behind children) do not show a significant difference in their cognitive performance. Moreover, we find that the effect of family environment differs between boys and girls. Girls from multigenerational families with grandparents as the main caregiver generally do better than other girls; while for boys, three-generation co-residence has a positive impact regardless of who the main caregiver is. Additionally, there is some evidence that the co-residence and childcare arrangements respond to the cognitive performance of girls more than boys. Our exploration of behavioral factors as potential operating mechanisms in explaining our findings indicates that the influences of family environment are complex and subtle.
    Keywords: family environment, family co-residence, childcare structure, child cognitive skill, China family panel survey
    JEL: I21 I2
    Date: 2019–06
  6. By: He Zengping; Jia Genliang
    Abstract: Local government debt in China is increasing and presents a great threat to China's financial stability. In China's fiscal system, the central government often prioritizes reducing its fiscal deficit and can determine to a great extent the distribution of revenue and expenditure between itself and local governments. There is therefore a tendency for the fiscal burden to be shifted from the central government to the local governments. Resolving China's local government debt problem requires not only strengthening regulation, but also abandoning the central government's fiscal balance target, because this target may make regulation hard to sustain in times of economic downturn. This paper discusses central-local fiscal relations in the framework of Modern Money Theory, suggesting that, because a government with currency sovereignty can always afford any spending denominated in its own currency, China's central government should bear a greater fiscal burden.
    Keywords: Local Government Debt; China; Modern Money Theory; Fiscal Systems
    JEL: G18 H74 H77 O53
    Date: 2019–06
  7. By: Hyun Lee (University of Connecticut); Kai Zhao (University of Connecticut); Fei Zou (University of Connecticut)
    Abstract: China’s mandatory retirement policy requires most female workers to retire five years earlier than their male counterparts. The conventional wisdom behind this policy is that it benefits women by relieving them from work earlier and providing them with more years of public pension benefits than men. However, is the early retirement policy really welfare-improving for women? In this paper, we quantitatively evaluate the welfare consequence of China’s gender-specific mandatory retirement policy using a calibrated Overlapping-Generation model with heterogeneous agents and incomplete markets. We find that the early mandatory retirement reduces welfare for women. An important reason behind this welfare result is that China’s public pension benefits are only partially indexed to growth, and therefore women who retire earlier also benefit less from economic growth than men. Our quantitative results suggest that equalizing the retirement age across gender can generate a welfare gain for both men and women.
    Keywords: Social Security, China, Mandatary Retirement, Gender
    JEL: E20 E60 H30
    Date: 2019–07
  8. By: Marcus Noland (Peterson Institute for International Economics)
    Abstract: In 2016, the United States elected an avowedly protectionist president. This paper uses US county-level electoral data to examine this outcome. The hypothesis that support for protectionism was purely a response to globalization is rejected. Exposure to trade competition encouraged a shift to the Republican candidate, but this effect is mediated by race, diversity, education, and age. If the turn toward protectionism is due to economic dislocation, then public policy interventions could mitigate the impact and support the reestablishment of a political consensus for open trade. If, however, the drivers are identity or cultural values, then the scope for constructive policy intervention is unclear.
    Keywords: China shock, Donald Trump, globalization, protectionism, sociotropic voting
    JEL: D72 F13 Z13
    Date: 2019–06
  9. By: Hao Wang; Jan Fidrmuc; Qi Luo
    Abstract: Utilizing the 2015 wave of the China Health and Retirement Longitudinal Study (CHARLS) that covers 7045 households, we study the effect of grandparents looking after grandchildren on quality of life and life satisfaction of grandparents. We find evidence of important favorable effects of grandparents caregiving: when grandparents look after their grandchildren, they are 2.9% less likely to report symptoms of depression, the amount of support that they receive from their children approximately doubles, and are 2.7% (1.1%) more likely to report being very satisfied (completely satisfied). These favorable effects are proportionate to the amount of time spend caring for grandchildren and increase with the number of grandchildren looked after. The favorable effects on mental health seem limited to grandparents living in rural areas and apply especially to grandfathers. The favorable effect on life satisfaction is primarily directly attributable to caring for grandchildren rather than being incurred indirectly due to better health or financial situation of grandparents.
    Keywords: grandparenting, quality of life, life satisfaction
    JEL: D13 O18
    Date: 2019
  10. By: Susana Vieira; Renato G. Flôres Jr.; Maria Paula Fontoura
    Abstract: We employ network analysis to characterise the evolution of the world’s trade in value-added between 2000 and 2014. Relatively to previous studies, more recent time points are included, consolidating some of their conclusions. A small number of countries occupy central positions in the international production chains and concentration rules, along a few main production regions. Without Germany, Europe loses its pumping engine; the same for Asia without China and, in 2014, for the whole world, without the US. Will China eventually either absorb or dominate the other hubs, becoming the new central node of the World Trade Network?
    Keywords: Trade in Value Added; Input -Output Matrix; Network Analysis; Node and Eigenvector Centrality.
    JEL: F01 F23
    Date: 2019–06
  11. By: David S. Jacks; Dennis Novy
    Abstract: What precisely were the causes and consequences of the trade wars in the 1930s? Were there perhaps deeper forces at work in reorienting global trade prior to the outbreak of World War II? And what lessons may this particular historical episode provide for the present day? To answer these questions, we distinguish between long-run secular trends in the period from 1920 to 1939 related to the formation of trade blocs (in particular, the British Commonwealth) and short-run disruptions associated with the trade wars of the 1930s (in particular, large and widespread declines in bilateral trade, the narrowing of trade imbalances, and sharp drops in average traded distances). We argue that the trade wars mainly served to intensify pre-existing efforts towards the formation of trade blocs which dated from at least 1920. More speculatively, we argue that the trade wars of the present day may serve a similar purpose as those in the 1930s, that is, the intensification of China- and US-centric trade blocs.
    Keywords: Commonwealth, distance, gravity, interwar period, trade blocs, trade wars
    JEL: F10 F30 N70
    Date: 2019

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