nep-cna New Economics Papers
on China
Issue of 2019‒07‒15
fifteen papers chosen by
Zheng Fang
Ohio State University

  1. Industrial clusters in the long run: evidence from Million-Rouble plants in China By Stephan Heblich; Marlon Seror; Hao Xu; Yanos Zylberberg
  2. China's lost generation: Changes in beliefs and their intergenerational transmission By Roland, Gerard; Yang, David Y.
  3. Individual vs. Social Motives in Identity Choice: Theory and Evidence from China By Ruixue Jia; Torsten Persson
  4. Dining Out as Cultural Trade By Joel Waldfogel
  5. From state resource allocation to a 'low-level equilibrium trap': re-evaluation of economic performance of Mao's China, 1949-78 By Deng, Kent; Shen, Jim Huangnan
  6. The Political Economy Consequences of China's Export Slowdown By Filipe R. Campante; Davin Chor; Bingjing Li
  7. Do Private Household Transfers to the Elderly Respond to Public Pension Benefits? Evidence from Rural China By Nikolov, Plamen; Adelman, Alan
  8. The Interest Rate Effect on Private Saving: Alternative Perspectives By Joshua Aizenman; Ying-Wong Cheung; Hiro Ito
  9. Government Policy and Land Price Dynamics: A Quantitative Assessment of China's Factor Market By Vipul Bhatt; Mouhua Liao; Min Qiang Zhao
  10. Credit and Fiscal Multipliers in China By Sophia Chen; Lev Ratnovski; Pi-Han Tsai
  11. Setting the Stage for RMB Internationalisation - Liberalizing the Capital Account and Strengthening the Domestic Bond Market By Michel Aglietta; Camille Macaire
  12. Can Consumption Growth in China Keep Up As Investment Slows? By Mali Chivakul; Bernhard Kassner
  13. People’s Republic of China; Detailed Assessment Report on Anti-Money Laundering and Combating the Financing of Terrorism By International Monetary Fund
  14. Impacts of Agricultural Price Support Policies on Price Variability and Welfare: Evidence from China’s Soybean Market By Wenting Wang; Longbao Wei
  15. Antibiotic use and antibiotic resistance in food-producing animals in China By Ziping Wu

  1. By: Stephan Heblich; Marlon Seror; Hao Xu; Yanos Zylberberg
    Abstract: This paper exploits a short-lived cooperation program between the U.S.S.R. and China, which led to the construction of 156 “Million-Rouble plants” in the 1950s. We isolate exogenous variation in location decisions due to the relative position of allied and enemy airbases and study the long-run impact of these factories on local economic activity. While the “156” program accelerated industrialization in treated counties until the end of the command-economy era, this significant productivity advantage fully eroded in the subsequent period. We explore the nature of local spillovers responsible for this pattern, and provide evidence that treated counties are overspecialized and far less innovative. There is a large concentration of establishments along the production chain of the Million-Rouble plants, which limits technological spillovers across industries.
    Keywords: industrial clusters, agglomeration economies, specialization
    JEL: R11 R53 J24 N95
    Date: 2019
  2. By: Roland, Gerard; Yang, David Y.
    Abstract: Beliefs about whether effort pays off govern some of the most fundamental choices individuals make. This paper uses China’s Cultural Revolution to understand how these beliefs can be affected, how they impact behavior, and how they are transmitted across generations. During the Cultural Revolution, China’s college admission system based on entrance exams was suspended for a decade until 1976, effectively depriving an entire generation of young people of the opportunity to access higher education (the “lost generation”). Using data from a nationally representative survey, we compare cohorts who graduated from high school just before and after the college entrance exam was resumed. We find that members of the “lost generation” who missed out on college because they were born just a year or two too early believe that effort pays off to a much lesser degree, even 40 years into their adulthood. However, they invested more in their children’s education, and transmitted less of their changed beliefs to the next generation, suggesting attempts to safeguard their children from sharing their misfortunes.
    JEL: Z1 I23 O53 P26 P48
    Date: 2019–07–04
  3. By: Ruixue Jia; Torsten Persson
    Abstract: The same government policy that incentivizes individuals to make a certain choice can have different effects across groups due to the existence of social norms. In this paper, we study how Chinese ethnic policies that give material benefits to minorities affect ethnicity choices for children in ethnically mixed marriages. We document that, on average, such policies increase the propensity of choosing minority status for the children. Meanwhile, responses to the same policies differ widely across localities, suggesting that social norms may be important. We formalize the ethnic identity choice in a simple framework, which highlights the interaction of material benefits stemming from the ethnic policies, identity costs associated with breaking the norms of following the father's ethnicity, and social reputations altering the importance of identity costs. This framework predicts that ethnic policies should increase the propensity of breaking the norm (i.e., following the mother's ethnicity) in localities where more families follow the norm. We find support for this prediction in microdata from multiple census waves, and show that a number of alternative explanations can be ruled out. More broadly, our study serves as evidence about the interplay of individual and social motivates in shaping policy consequences, as well as evidence on the determinants of identity choice.
    JEL: D01 D02 H1 J1 J13
    Date: 2019–06
  4. By: Joel Waldfogel
    Abstract: Perceptions of Anglo-American dominance in movie and music trade motivate restrictions on cultural trade. Yet, the market for another cultural good, food at restaurants, is roughly ten times larger than the markets for music and film. Using TripAdvisor data on restaurant cuisines, along with Euromonitor data on overall and fast food expenditure, this paper calculates implicit trade patterns in global cuisines for 52 destination countries. We obtain three major results. First, the pattern of cuisine trade resembles the “gravity” patterns in physically traded products. Second, after accounting gravity factors, the most popular cuisines are Italian, Japanese, Chinese, Indian, and American. Third, excluding fast food, the largest net exporters of their cuisines are the Italians and the Japanese, while the largest net importers are the US – with a 2017 deficit of over $130 billion – followed by Brazil, China, and the UK. With fast food included, the US deficit shrinks to $55 billion but remains the largest net importer along with China and, to a lesser extent, the UK and Brazil. Cuisine trade patterns appear to run starkly counter to the audiovisual patterns that have motivated concern about Anglo-American cultural dominance.
    JEL: F14 L66
    Date: 2019–06
  5. By: Deng, Kent; Shen, Jim Huangnan
    Abstract: This paper provides a full picture of how Maoist economy actually performed. We argue that Mao’s China neither undertook a structural change towards industrialisation nor generated a sustainable growth from 1949 to 1978.2 With fatal shortcomings of a planned economic system imported from the Soviet Union – the ‘principle-agent’ problem and information asymmetry for the bureaucracy, and disincentives for producers – China’s economy remained not only deliberately unbalanced but also predominantly rural until the 1980s. More importantly, the Maoist economy was not designed to enrich and empower the masses in society. Instead, all key consumer goods including food, clothing and housing were strictly rationed. The material life of ordinary citizens in China saw no improvement. This paper aims to reveal the harsh reality of the Maoist economy with solid evidence and theoretical explanation.
    Keywords: Maoist economy; structural change; disincentives; information asymmetry; price distortion; material life
    JEL: N00 N55 O40 O53
    Date: 2019–07
  6. By: Filipe R. Campante; Davin Chor; Bingjing Li
    Abstract: We study how adverse economic shocks influence political outcomes in authoritarian regimes in strong states, by examining the 2013-2015 export slowdown in China. We exploit detailed customs data and the variation they reveal about Chinese prefectures’ underlying exposure to the global trade slowdown, in order to implement a shift-share instrumental variables strategy. Prefectures that experienced a more severe export slowdown witnessed a significant increase in incidents of labor strikes. This was accompanied by a heightened emphasis in such prefectures on upholding domestic stability, as evidenced from: (i) textual analysis measures we constructed from official annual work reports using machine-learning algorithms; and (ii) data we gathered on local fiscal expenditures channelled towards public security uses and social spending. The central government was subsequently more likely to replace the party secretary in prefectures that saw a high level of “excess strikes”, above what could be predicted from the observed export slowdown, suggesting that local leaders were held to account on yardsticks related to political stability.
    JEL: D73 D74 F10 F14 F16 H10 J52 P26
    Date: 2019–06
  7. By: Nikolov, Plamen; Adelman, Alan
    Abstract: Aging populations in developing countries have spurred the introduction of public pension programs to preserve the standard of living for the elderly. The often-overlooked mechanism of intergenerational transfers, however, can dampen these intended policy effects, as adult children who make income contributions to their parents could adjust their behavior in response to changes in their parents’ income. Exploiting a unique policy intervention in China, we examine using a difference-in-difference-in-differences (DDD) approach how a new pension program impacts inter vivos transfers. We show that pension benefits lower the propensity of adult children to transfer income to elderly parents in the context of a large middle-income country, and we also estimate a small crowd-out effect. Taken together, these estimates fit the pattern of previous research in high-income countries, although our estimates of the crowd-out effect are significantly smaller than previous studies in both middle- and high-income countries.
    Keywords: life cycle,retirement,pension,inter vivos transfers,middle-income countries,developing countries,China,crowd-out effect,aging
    JEL: D64 O15 O16 J14 J22 H55 R2
    Date: 2019
  8. By: Joshua Aizenman (Department of Economics, University of Southern California); Ying-Wong Cheung (Department of Economics, City University of Hong Kong); Hiro Ito (Department of Economics, Portland State University)
    Abstract: Lowering the policy interest rate could stimulate consumption and investment while discouraging people from saving. However, such a move may also prompt people to save more to compensate for the low rate of return. Using the data of 135 countries from 1995 to 2014, we show that a low-interest rate environment can yield different effects on private saving under different economic environments. The real interest rate affects private saving negatively if output volatility, old-age dependency, or financial development is above a certain threshold. Depending on a country’s specific economic circumstances, these effects are significant for the economy—a four-percentage point decline in the real interest rate, which is approximately the same as one standard deviation for China, would lead to a 1.52 percentage point increase in the Chinese private saving rate. Further, when the real interest rate is below 1.1%, greater output volatility would lead to higher private saving in developing countries.
    JEL: F3 F31 F32 F36
  9. By: Vipul Bhatt; Mouhua Liao; Min Qiang Zhao
    Abstract: This paper examines the role played by government policy regarding factors of pro- duction in shaping the dynamics of a growing economy. Using land as an example of an important productive factor, we develop a quantitative model with endogenous land price policy regimes to rationalize the following three economic reforms in China: introduction of non-SOEs (state-owned enterprises); reform of SOEs characterized by their retreat from the competitive manufacturing sector and the establishment of state monopolies in factor markets around 2000; and a regime switch from dual-track land pricing to land price discrimination by use. We calibrate our model to key economic indicators for China and quantify the e ects of these reforms. Our calibrated mo- del can match several stylized facts for China after 2000 such as widening disparity in land prices by use, rapid growth in housing price, land revenue, and government expenditures on public goods, and the steep decline in labor share for income.
    Keywords: Dual-track Pricing, Land Price Discrimination, State Monopoly, Land Market Reforms.
    JEL: Q15 R38 H71 E25 O18
    Date: 2019–07–03
  10. By: Sophia Chen (International Monetary Fund); Lev Ratnovski (European Central Bank and International Monetary Fund); Pi-Han Tsai (Zhejiang University)
    Abstract: We estimate credit and fiscal multipliers in China, using subnational political cycles as a source of exogenous variation. The tenure of the provincial party secretary, interacted with the credit and fiscal expenditure used in other provinces, instruments for provincial credit and government expenditure growth. We find a fiscal multiplier of 0.75 in 2001-2008, which increased to 1.2 in 2010-2015, consistent with higher multipliers in a slower economy. At the same time, a credit multiplier of 0.2 in 2001-2008 declined to close to zero in 2010-2015, consistent with credit saturation and credit misallocation. Our results suggest that credit expansion cannot further support economic growth in China. The flip side is that lower credit growth is also unlikely to disrupt output growth. Fiscal policy is powerful, and can cushion the macroeconomic adjustment to lower credit intensity.
    Keywords: Credit Growth, Fiscal Stimulus, Macroprudential Policy, Multipliers, China
    JEL: E63 G21 H20 R12
  11. By: Michel Aglietta; Camille Macaire
    Abstract: Internationalizing the Renminbi pertains to the new era of China’s reform, starting at the 19th Congress of the Communist Party. It is not a technical reform, but a political one. The objective is threefold: to match China’s autonomy in economic policy, to further Asian integration, and to safeguard worldwide multilateralism against by the rise of protectionist forces. The challenge has been aggravated by the protectionist policies pursued by the US, degrading ipso facto the functions assumed by the dollar in the international payment system. China’s authorities have drawn lessons from the Asian crisis of 1997-98 and the systemic crisis of 2008-09. They are now searching for a second-best option in advocating a multilateral international payment system based on the SDR. The process of currency internationalization is linked to the modernization of domestic capital markets. Studying the progress in both dimensions makes the first two parts of the paper We ask the following questions. In the first part: which steps has China taken, and should take in the future, to complete the gradual process of currency internationalization currently under way? In the second part: how can China build the deep and resilient bond market required to attract international investors? A shorter third part examines why emerging market countries are incentivized to issue their government debt in their own currencies to attract foreign investors in the lingering context of ultra-low interest rates in the main convertible currencies. The status of a freely usable currency, already reached by the Renminbi in its prudent internationalization, together with a reform of the huge domestic bond market, should make China able to attract foreign saving. This is compatible with the Belt and Road Initiative, which is bound to mobilize massive capital exports in the form of long-term loans.
    Keywords: China;Bond Markets;Local Governments;RMB Internationalization;International Monetary System
    JEL: F36 G15 G18 H70 H74
    Date: 2019–06
  12. By: Mali Chivakul (IMF); Bernhard Kassner (Ludwig-Maximilians-Universität)
    Abstract: Rebalancing away from investment to consumption has been on China’s agenda in or- der to keep up higher growth rates. This paper uses both national- and provincial-level data to empirically answer the question how a slowdown in investment could have an impact on household consumption. Our empirical results from both the national- and provincial-level data using Bayesian vector autoregressions and panel regression meth- ods suggest that investment has had a significant impact on household consumption beyond the standard household income channel. The effects are particularly strong in the post-global-financial-crisis period. Policy measures to encourage rebalancing away from investment should take the extra effect it may have on consumption beyond the impact on household income into account.
    Keywords: Reforms, Investment, Consumption, China
    JEL: E21 E22 E27 E44 E47 E52 C12 C32 C33 O53
  13. By: International Monetary Fund
    Abstract: This report provides a summary of the anti-money laundering/combating the financing of terrorism (AML/CFT) measures in place in the People’s Republic of China (China)1 as at the date of the onsite visit (July 9–27, 2018). It analyzes the level of compliance with the Financial Action Task Force (FATF) 40 Recommendations and the level of effectiveness of China’s AML/CFT system and provides recommendations on how the system could be strengthened. China has undertaken a number of initiatives since 2002 that have contributed positively to its understanding of ML/TF risk, although some important gaps remain. Its framework for domestic AML/CFT cooperation and coordination is well established.
    Date: 2019–06–21
  14. By: Wenting Wang; Longbao Wei
    Abstract: As the world’s largest importer of agricultural commodities, China’s agricultural policies have significant implications for the world agricultural market. For the first time, we develop an aggregate structural econometric model of China’s soybean market with linkage to the rest of the world to analyze the worldwide impacts of China’s soybean price support policies from 2008 to 2016. We investigate the impacts of China’s policies on the variability of their domestic and world prices, and adopt a Monte Carlo simulation to evaluate the distributional and aggregate welfare effects. Results indicate that (a) China’s soybean price support policies play an effective role in stabilizing their domestic price, while its increasing imports absorb world production surplus and reduce world price swings; (b) China’s producers gain at the expense of consumers and budgetary costs, and the net welfare change in their domestic market is negative; (c) Soybean exporting countries experience considerable welfare gains, and the world net welfare change is positive. Our findings provide new insights for future trade negotiations and agricultural market reforms in developing countries.
    Date: 2019–07
  15. By: Ziping Wu (Queen's University Belfast)
    Abstract: The People’s Republic of China is an important player in international markets for animal products, antibiotics, as well as in global efforts to combat antibiotic resistance (AMR). This paper reviews use of antibiotics and the emergence of AMR in Chinese food animal production. The rapid growth in food, animal production, and the relatively poor animal production conditions as well as increasing production intensity led to a sharp increase in antibiotic use in both absolute and relative terms. This trend, however, has been reversed by recent government policies and public awareness of AMR. Four government policies are particularly important in attempting to decrease the use of antibiotics: the imposition of maximum residue levels, establishing a list of permitted antibiotics, the proper use of antibiotics during the withdrawal period, and establishing a list of prescription-only antibiotics use in animal production. Antibiotic use in China is more than five times higher than the international average. One of the main reasons for the relative higher antibiotic usage is the widespread misuse associated with growth promotion in the feed and veterinary use on broiler and pig farms. The relatively low cost of antibiotics, estimated at 1% to 3% of production costs, encourages such excess use in livestock production, but alternatives are often not available and more costly. This paper recommends a mix of economic and regulatory approaches to control the overuse of antibiotics in livestock production and limit the rise in antimicrobial resistance.
    Keywords: AMR, antimicrobial
    JEL: Q1
    Date: 2019–07–10

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