nep-cna New Economics Papers
on China
Issue of 2019‒09‒23
eight papers chosen by
Zheng Fang
Ohio State University

  1. Wage determination and fixed capital investment in an imperfect financial market: the case of China By Gu, Tao
  2. China’s Increasing Inequality of Wealth: Piketty with Chinese Characteristics? By John Knight; LI Shi; WAN Haiyuan
  3. Spatial Misallocation in Chinese Housing and Land Markets By Yongheng Deng; Jing Wu; Yang Tang; ping wang
  4. Geographic Clustering of Firms in China By Douglas Hanley; Chengying Luo; Mingqin Wu
  5. What are the Price Effects of Trade? Evidence from the U.S. and Implications for Quantitative Trade Models By Xavier Jaravel; Erick Sager
  6. The effectiveness of consumption tax on the reduction of car pollution in China By Arcila, Andres; Chen, Tao; Lu, Xiaolan
  7. From Malthus to Malthus By Pedro Cavalcanti Ferreira; Alexander Monge-Nara
  8. Are 'sea turtles' slower? Returnee entrepreneurs, venture resources and speed of entrepreneurial entry By Qin, Fei; Wright, M.; Gao, J.

  1. By: Gu, Tao
    Abstract: The purpose of this paper is to examine how wage decisions and fixed asset investments are determined under China’s imperfect financial market. In addition, we also investigate what kind of interrelationship exists between wage determination and fixed asset investment. To test the hypothesis, we collect aggregate data on wages, the financial market, and fixed asset investment by province, sector, and ownership type from several statistical yearbooks. The main results are (1) while the rise in financial market maturity has led to rising wage levels for state-owned enterprises, this phenomenon is not observed in the private sector, (2) retained earnings are positively correlated with capital investment, indicating that China’s financial market is incomplete. Furthermore, in the private sector, there is a strong reliance on internal reserves that is not observed in the state-owned sector, suggesting that the private sector is differentially treated in the financial market. (3) In the state-owned sector, wage growth has a positive correlation with fixed assets, while in the nonstate-owned sector this relationship is not observed. This implies that in the nonstate-owned sector the underpayment of wages may be used as a survival strategy to conduct business if under financial constraints.
    Keywords: Imperfect financial market, Fixed capital investment, Wage determination
    JEL: G10 G30 J3
    Date: 2019–09–12
  2. By: John Knight; LI Shi; WAN Haiyuan
    Abstract: John Knight, LI Shi and WAN Haiyuan The inequality of wealth in China has increased rapidly in recent years. China presents a fascinating case study of how inequality of household wealth increases as economic reform takes place, marketisation occurs, and capital accumulates. Wealth inequality and its growth are measured and decomposed using data from two national sample surveys of the China Household Income Project (CHIP) relating to 2002 and 2013. An attempt is made to explain the rising wealth inequality in terms of the relationships between income and wealth, differential saving, house price inflation, and income from wealth. This last relationship is stressed by Thomas Piketty in his 2014 book. In China the evidence for it is weak, but there is support for a reformulation that includes real capital gain as part of income. Piketty’s mechanism is relevant, but only ‘with Chinese characteristics’.
    Keywords: China; Housing inequality; Piketty; Wealth inequality; Capital gain.
    JEL: C80 D31
    Date: 2018–11–29
  3. By: Yongheng Deng (University of Wisconsin-Madison); Jing Wu; Yang Tang (Nanyang Technological University); ping wang (Washington University in St.Louis)
    Abstract: Housing and land prices in China have experienced dramatic growth in the past decade. In conjunction with the rapid growth, housing and land price dispersion across Chinese cities have also become more dispersed. This paper intends to explore how market frictions affect the aggregate as well as the spatial distribution of prices. We first document the spatial variations of housing and land market frictions. Larger cities receive less housing and land subsidizes. Land frictions are improving over time. We then embed both frictions into a dynamic competitive spatial equilibrium framework featured with endogenous rural-urban migration. The calibrated model can reasonably mimic the price growth in the data. The counter-factual results suggest that the frictionless economy leads to a slower housing price growth but faster land price growth. In addition, land frictions tend to inhibit land price growth while housing price growth will slow down if only housing frictions are eliminated.
    Date: 2019
  4. By: Douglas Hanley (University of Pittsburgh); Chengying Luo (University of Pittsburgh); Mingqin Wu (South China Normal University)
    Abstract: The spatial arrangement of firms is known to be a critical factor influencing a variety of firm level outcomes. Numerous existing studies have investigated the importance of firm density and localization at various spatial scales, as well as agglomeration by industry. In this paper, we bring relatively new data and techniques to bear on the issue. Regarding the data, we use a comprehensive census of firms conducted by the National Bureau of Statistics of China (NBS). This covers firms in all industries and localities, and we have waves from both 2004 and 2008 available. Past studies have largely relied on manufacturing firms. This additional data allows us to look more closely at clustering within services, as well as potential spillovers between services and manufacturing. Further, by looking at the case of China, we get a snapshot of a country (especially in the early 2000s) in a period of rapid transition, but one that has already industrialized to a considerable degree. Additionally, this is an environment shaped by far more aggressive industrial policies than those seen in much of Western Europe and North America. In terms of techniques, we take a machine learning approach to understanding firm clustering and agglomeration. Specifically, we use images generated by density maps of firm location data (from the NBS data) as well as linked satellite imagery from the Landsat 7 spacecraft. This allows us to frame the issue as one of prediction. By predicting firm outcomes such as profitability, productivity, and growth using these images, we can understand their relationship to firm clustering. By turning this into a prediction problem using images as inputs, we can tap into the rich and rapidly evolving literature in computer science and machine learning on deep convolutional neural networks (CNNs). Additionally, we can utilize software and hardware tools developed for these purposes.
    Date: 2019
  5. By: Xavier Jaravel (London School of Economics); Erick Sager (Federal Reserve Board)
    Abstract: We estimate the impact of trade with China on U.S. consumer prices and use this evidence to discipline quantitative trade models. Using comprehensive price data from the U.S. Bureau of Labor Statistics and two complementary identication strategies from Pierce and Schott (2016) and Autor et al. (2014), we find that trade with China had a large impact on U.S. prices. Between 2000 and 2007, a one percentage point increase in Chinese import penetration in a given industry led to a three percentage point fall in the Consumer Price Index in that industry. This effect is large but plausible; abstracting from GE effects and benchmarking our estimates against those of Autor et al. (2013), our results imply that increased Chinese import penetration generated benefits to U.S. consumers through lower prices equal to $101,250 per lost manufacturing job, or a cumulative 1.97% fall in the aggregate U.S. CPI between 2000 and 2007. These price effects are one order of magnitude larger than in the class of trade models nested by Arkolakis et al. (2012). In contrast with these models, we find that (i) the price response of pre-existing domestic products drives the overall price effects; (ii) market concentration is a key predictor of the magnitude of the price response. Using a simple model, we show that these patterns can be explained by a fall in markups in response to increased import competition. These results indicate that the pro-competitive effects of trade have important implications for inflation and consumer welfare.
    Date: 2019
  6. By: Arcila, Andres; Chen, Tao; Lu, Xiaolan
    Abstract: Exposure to airborne pollution has substantial adverse health consequences (Cohen et al, 2004). Governments around the world have paid attention to this problem and started to take actions to mitigate it harmful effects. In this paper, we investigate how a change in the consumption tax structure affects car emissions by exploiting exogenous variation from a natural experiment that took place in China. Our results show that this tax policy, which doubled the imposition paid on cars with large engines, reduced the emissions of all the pollutants studied, with the most significant decrease of 11% noted in Particulate Matter and Carbon Monoxide.
    Date: 2018
  7. By: Pedro Cavalcanti Ferreira (EPGE-FGV); Alexander Monge-Nara (Federal Reserve Bank of St. Louis)
    Abstract: Underneath a veneer of common structural transformation patterns, countries exhibit vast differences in their growth and allocation of human capital. In the one extreme, countries such as Korea, Taiwan, and, more recently, some segments of China, have transitioned, within two generations, from prototypical agrarian Malthusian economies to fast-growing, high-skill-intensive modern service economies. In the other extreme, quite a few countries in Latin America, Africa and Asia have transitioned from similar initial Malthusian economies to urban, slow-growing, pseudo-Malthusian economies that are intensive in low-skill service jobs. We argue that a key determinant for such divergent paths lies in the direction of education policies of countries. We show that in the data, those countries that prioritize subsidies to university education in detriment of elementary and secondary education are those with large segments of the population with low skills, i.e., what we call the pseudo-Malthusian state. In contrast, countries that emphasize subsidizing high quality elementary and secondary education, possibly in detriment of higher education are the ones that have converged to the group of modern economies, which are mostly populated by high-skilled workers. In our model, we enhance the traditional quantity-quality fertility-vs-education model with households with multiple skill levels and multiple choices for the education of the children. The model replicates quite naturally that countries that emphasize lower levels of education eventually converge to a modern, skill intensive economy, while those which emphasize financing higher education will transition from a Malthusian economy to another.
    Date: 2019
  8. By: Qin, Fei; Wright, M.; Gao, J.
    Abstract: We add to neglected research on how venture resources and founder experience outside the home country interplay in facilitating venture creation speed. In particular, we investigate how returnee entrepreneurs influence the role of venture resources in the speed of entrepreneurial entry. Using a novel sample of 388 new ventures covering a range of technologies in China, we find that returnees from abroad are slower in new venture entry in the home country, compared with homegrown entrepreneurs. At the same time, ventures with innovative technology and backed by foreign capital are slower to set up due to higher levels of liability of newness and liability of foreignness. However, when these firms have a returnee founder who can leverage their experience with foreign resources and technological knowhow, such negative effects on entry speed are significantly mitigated. We discuss implications for further research and practice.
    JEL: J50 L81
    Date: 2017–11–01

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