nep-cna New Economics Papers
on China
Issue of 2019‒09‒30
seven papers chosen by
Zheng Fang
Ohio State University

  1. Mapping China’s time-varying house price landscape By Michael Funke; Danilo Leiva-Leon; Andrew Tsang
  2. Trade Shocks and Credit Reallocation By Stefano Federico; Fadi Hassan; Veronica Rappoport
  3. Rural-Urban Migration, Structural Transformation, and Housing Markets in China By Carlos Garriga; Aaron Hedlund; Yang Tang; ping wang
  4. Modelling Opportunity Cost Effects in Money Demand due to Openness By Sophie van Huellen; Duo Qin; Shan Lu; Huiwen Wang; Qingchao Wang; Thanos Moraitis
  5. Bilateral swap agreement and Renminbi settlement in cross-border trade By Song, Ke; Xia, Le
  6. Extreme Temperatures and Time Use in China By Teevrat Garg; Matthew Gibson; Fanglin Sun
  7. The China Shock and Employment in Portuguese Firms By Lee G. Branstetter; Brian K. Kovak; Jacqueline Mauro; Ana Venancio

  1. By: Michael Funke (Hamburg University Department of Economics and CESifo Munich); Danilo Leiva-Leon (Banco de España); Andrew Tsang (Hamburg University Department of Economics)
    Abstract: The recent increase in China’s house prices at the national level masks tremendous variation at the city level – a feature largely overlooked in the macroprudential literature. This paper measures the evolving heterogeneity in China’s house price dynamics across 70 major cities and assesses its relationship with housing market characteristics. We gauge the heterogeneity of house price dynamics using a novel regime-switching modelling approach to estimate the time-varying patterns of China’s city-level housing price synchronization. The estimates indicate an increasing synchronization leading up to 2015, and a decoupling pattern thereafter, which is associated to the heterogeneous strength of regional macroprudential policies. After sorting city-level housing prices into four clusters sharing similar cyclical features, we document high synchronization within clusters, but low synchronization among them. The empirical evidence suggests that differentials in the growth of population, income, and air quality are relevant explanatory factors of housing price synchronization among cities.
    Keywords: house prices, Markov-Switching models, synchronization, China
    JEL: E31 E32 C32 R11
    Date: 2019–09
  2. By: Stefano Federico; Fadi Hassan; Veronica Rappoport
    Abstract: The effect of trade liberalization on welfare and economic activity remains one of the most important questions in economics. The literature identifies a number of key determinants that reduce the potential gains from trade, by focusing on frictions to labor mobility across regions or sectors. This paper contributes to this debate by exploring a novel channel, namely the reallocation of credit in the aftermath of a trade shock. We find that there are endogenous financial frictions that arise from trade liberalization and spillovers between losers and winners from trade that go through banks, as banks can be negatively affected by a trade shock through the portfolio of firms they lend to. Using data from the Italian credit registry, matched with bank and firm level data, we follow the evolution of bank and firm activities prior to and after the entry of China into the WTO. We identify the sectors most affected by import competition from China and estimate the transmission of this trade shock from firms to their lending banks, and the consequence of the shock on banks' lending to other firms. We find that, controlling for credit demand, banks exposed to the China shock decrease their lending relative to non-exposed banks. Importantly, this lending is reduced both for firms exposed to competition from China and to those that are not and that we should expect to expand. The main mechanism is related to the reduction of the core capital of banks, and their resulting funding capacity, through the rise of non-performing loans. We quantify the impact of this effect on real outcomes such as employment, investment, and output and we find relevant aggregate implications. These findings provide evidence that following a trade shock, bank lending has a key impact on the reallocation channel and on the potential gains from trade.
    Keywords: trade liberalisation, China shock, bank credit, resource reallocation, gains from trade
    JEL: F10 F14 G21
    Date: 2019–09
  3. By: Carlos Garriga (Federal Reserve Bank of St. Louis); Aaron Hedlund (University of Missouri); Yang Tang (Nanyang Technological University); ping wang (Washington University in St.Louis)
    Abstract: This paper explores the contribution of the structural transformation and urbanization process in the housing market in China. City migration flows combined with an inelastic land supply, due to entry restrictions, has raised house prices. This issue is examined using a multi-sector dynamic general-equilibrium model with migration and housing market. Our quantitative findings suggest that this process accounts for about 80 percent of urban housing prices. This mechanism remains valid in an extension calibrated to the two largest cities where housing booms have been particularly noticeable. Overall, supply factors and productivity account for most of the housing price growth.
    Date: 2019
  4. By: Sophie van Huellen (Department of Economics, SOAS University of London, UK); Duo Qin (Department of Economics, SOAS University of London, UK); Shan Lu (School of Economics and Management, Beihang University, China PR.); Huiwen Wang (School of Economics and Management, Beihang University, China PR.); Qingchao Wang (Department of Economics, SOAS University of London, UK); Thanos Moraitis (Department of Economics, SOAS University of London, UK)
    Abstract: We apply a novel model-based approach to constructing composite international financial indices (CIFIs) as measures of opportunity cost effects that arise due to openness in money demand models. These indices are tested on the People’s Republic of China (PRC) and Taiwan Province of China (TPC), two economies which differ substantially in size and degree of financial openness. Results show that a) stable money demand equations can be identified if accounting for foreign opportunity costs through CIFIs, b) the monetary policy intervention in the PRC over the global financial crisis period temporarily mitigated disequilibrating foreign shocks to money demand, c) CIFIs capture opportunity costs due to openness more adequately than commonly used US interest rates and d) CIFI construction provides valuable insights into the channels through which foreign financial markets affect domestic money demand.
    Keywords: money demand, opportunity cost, open economy
    JEL: E41 F41 C22 O53
    Date: 2019–08
  5. By: Song, Ke; Xia, Le
    Abstract: This research empirically examines the impact of China’s Renminbi (RMB) bilateral swap agree-ments (BSAs) on the usage of the currency in cross-border trade transactions. By using a unique dataset from SWIFT including cross-border settlement messages of 91 countries/regions between October 2010 and November 2015, we confirm that the signing of a RMB BSA helps to increase the number, the value and the proportion of RMB settlement in cross-border trade. Our results are robust with respect to the choice of different models, including multi-level mixed model, two-stage regression model, and difference-in-difference model. In addition to justifying the effectiveness of China’s BSA-signing strategy to promote the RMB usage in trade settlement, our results clarify that the signing of those RMB BSAs is not purely for China’s political ends as some scholars claim.
    JEL: F33 F36 F42
    Date: 2019–09–20
  6. By: Teevrat Garg (School of Global Policy and Strategy, University of California, San Diego); Matthew Gibson (Williams College); Fanglin Sun (Department of Economics, University of California, San Diego)
    Abstract: How do people in developing countries respond to extreme temperatures? Using individual-level panel data over two decades and relying on plausibly exogenous variation in weather, we estimate how extreme temperatures affect time use in China. Extreme temperatures reduce time spent working, and this effect is largest for female farmers. Hot days reduce time spent by women on outdoor chores, but we find no such effects for men. Finally, hot days dramatically reduce time spent on childcare, reflecting large effects on home production. Taken together, our results suggest time use is an important margin of response to extreme temperatures.
    Keywords: Time use, extreme weather, gender
    Date: 2019–05
  7. By: Lee G. Branstetter; Brian K. Kovak; Jacqueline Mauro; Ana Venancio
    Abstract: This paper considers the effects of Chinese import competition on firm-level labor market outcomes in Portugal. We examine direct competition in the Portuguese market and indirect competition Portugal's largest export markets in Western Europe. Using rich employer-employee data matched to firm-level trade transactions, we measure the degree to which different Portuguese firms faced Chinese import competition, based on firm product mix and distribution of sales across countries. We find economically and statistically significant employment declines in firms with more exposure to Chinese competition in European export markets, but minimal effects of direct competition in Portugal. Our findings also suggest a centrally important role for Portugal's stringent labor market regulations in limiting firms' ability to adjust to competitive shocks. In our earlier sample period (1995-2000), firms have limited ability to adjust employment, hours, or wages, and the primary adjustment margin is firm exit. In the later period (2000-2007), when more flexible temporary contracts comprise a larger share of employment, we find employment reductions among more exposed firms. Those employment reductions are entirely accounted for by changes in temporary employment, with no effect on permanent employment. We expect these findings to be informative for other peripheral European countries that had specialized in labor-intensive manufacturing industries operating under inflexible labor market regimes.
    JEL: F14 F16 J21 J31
    Date: 2019–09

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