nep-cna New Economics Papers
on China
Issue of 2019‒12‒02
ten papers chosen by
Zheng Fang
Ohio State University

  1. Internal and External Determinants of Housing Price Booms in Hong Kong, China By Taghizadeh-Hesary, Farhad; Yoshino, Naoyuki; Chiu, Alvin
  2. Early Life Environments and Frailty in Old Age among Chinese Older Adults By Li, Yaxi; Xue, Qian-Li; Odden, Michelle C.; Chen, Xi; Wu, Chenkai
  3. The effect of public funding on scientific performance: A comparison between China and the EU By Wang, Lili; Wang, Xianwen; Piro, Fredrik Niclas; Philipsen, Niels
  4. A new and benign hegemon on the horizon? The Chinese century and growth in the global South By NguyenHuua, Tam; Karaman Örsal, Deniz Dilan
  5. Financial development and FDI inflows in China By Khan, Hameed; Khan, Umair
  6. Drivers of bank loan growth in China: government or market? By Xiaohong Chen; Paul Wohlfarth
  7. Adverse Selection and Credit Certificates: Evidence from a P2P Platform By Hu, Maggie Rong; Li, Xiaoyang; Shi, Yang
  8. Exchange Rate Movements and Fundamentals: Impact of Oil Prices and the People’s Republic of China’s Growth By Chen, Hongyi; Cao, Shuo
  9. The Rise of the People’s Republic of China and its Competition Effects on Innovation in Japan By Yamashita, Nobuaki; Yamauchi, Isamu
  10. Social Stability and Resource Allocation within Business Groups By Haikun Zhu

  1. By: Taghizadeh-Hesary, Farhad (Asian Development Bank Institute); Yoshino, Naoyuki (Asian Development Bank Institute); Chiu, Alvin (Asian Development Bank Institute)
    Abstract: Hong Kong, China’s housing market witnessed dramatic appreciations recently, with the price index for private domestic housing units being 3 times higher than 10 years ago. This trend is supported by both internal and external factors. By providing a theoretical model and empirical analysis on the key variables influencing housing prices, we find that changes in housing price index reinforce price trends in the long term. Hong Kong, China’s dollar quantitative easing, and the gross domestic product of the People’s Republic of China (PRC) are positively related to housing prices and negatively to lending. The inability to increase supplies in response to rising demand since 2003 has also much to do with the skyrocketing prices. Moreover, mortgage-to-total loans value is shrinking due to the unaffordability of housing units at current prices. This trend has to be tackled in time, otherwise the PRC may incur severe consequences similar to Japan’s experience in the 1990s.
    Keywords: housing bubble; housing prices; housing market; quantitative easing (QE); monetary policy
    JEL: E31 E51 R31
    Date: 2019–05–09
  2. By: Li, Yaxi (Duke Kunshan University); Xue, Qian-Li (John Hopkins University, Baltimore); Odden, Michelle C. (Stanford University); Chen, Xi (Yale University); Wu, Chenkai (Duke Kunshan University)
    Abstract: Exposures in childhood and adolescence may impact the development of diseases and symptoms in late life. However, evidence from low- and middle- income countries is scarce. In this study, we examined the association of early life risk factors with frailty among older adults using a large, nationally representative cohort of community-dwelling Chinese sample. 6,806 participants aged ≥60 years from the China Health and Retirement Longitudinal Study were included. We measured 13 risk factors in childhood or adolescence through self-reports, encompassing six dimensions (education, family economic status, nutritional status, domestic violence, neighborhood, and health). We used multinomial regression models to examine the association between risk factors and frailty and further calculated the absolute risk difference for the statistically significant factors. Results show that worse health condition in childhood and unfavorable childhood and adolescent socioeconomic status as measured by educational attainment and neighborhood quality may increase the risk of late-life frailty among Chinese older adults. Severe starvation in childhood was associated with higher risk of prefrailty. The risk differences of being frail were 5.7% lower for persons with a high school or above education, 1.5% lower for those whose fathers were literate, 4.8% lower for the highest neighborhood quality, and 2.9% higher for worse childhood health status compared to their counterparts.
    Keywords: early life environments, life course health, physical health, frailty, aging, China
    JEL: I10 I14 I18
    Date: 2019–11
  3. By: Wang, Lili (UNU-MERIT); Wang, Xianwen (Dalian University of Technology); Piro, Fredrik Niclas (Nordic Institute for Studies in Innovation, Research and Education); Philipsen, Niels (RILE, Erasmus University Rotterdam, and METRO, Maastricht University)
    Abstract: Public funding is believed to play an important role in the development of science and technology. However, whether public funding actually helps to increase scientific output (i.e. publications) remains a matter of debate. By analysing a dataset of co-publications between China and the EU and a dataset of joint project collaborations in European Framework Programmes for Research and Innovation (FP7 & H2020), we investigate whether different public funding agencies have different goals in their research policy. Our results support the hypotheses that funded research output represents the intentions of funding sponsors and a high level of public funding does not necessarily lead to high scientific output. Our results show that FP7/H2020 funded projects do not have a positive contribution to the output of joint publications between China and the EU. Interestingly, cooperation in the form of jointly writing proposals to these EU programmes, especially when they are not granted by the European Commission, can contribute significantly to joint scientific publications at a later stage. This applies in particular to cases where funding from China is involved. Our findings highlight the key role that funding agencies play in influencing research performance. While the Chinese government is interested in pursuing a high number of publications, the EU cares more about the social impact and indirect effect, which is hard to measure in the short term.
    Keywords: Public funding, research evaluation, scientific output, international collaboration, China, EU member states
    JEL: F02 H52 O20 O38 O52 O53
    Date: 2019–11–08
  4. By: NguyenHuua, Tam; Karaman Örsal, Deniz Dilan
    Abstract: This study investigates the impacts of trade with China on the gross domestic product (GDP) of the global South. While the current literature on the growth impacts of trade (by leading partner countries) often neglects the properties of macro panel data, such as cross-sectional dependence, heterogeneity and structural breaks, our models take these features into account. The empirical results of 22 major developing countries over 2000Q1 to 2016Q4 find positive contributions of imports from China to GDP in our studied sample, although the magnitude of these effects is smaller than that of otheremerging and developing economies (not including China) (EDE) and advanced economies (AdE). The authors also show that, in contrast with considerable impacts of exports to EDE and AdE, exports to China have limited effects on the growth of its partners. However, the recent financial crisis marks a turning point of China's role as a major driver of growth in the South. Namely, while contributions of trade with China in its partners after the global crisis are on the rise, the opposite is true for EDE and AdE.Examining the effects by individual countries, they present that the distance between China and its partners and economic development level of its partners are almost irrelevant to the contributions of imports from China to its partners' growth. They provide some important policy recommendations for the global South from these findings.
    Keywords: China,growth,developing and emerging economies,international trade,panel data,econometrics,cross-sectional dependence
    JEL: C23 F43 O4
    Date: 2019
  5. By: Khan, Hameed; Khan, Umair
    Abstract: In this paper, the authors revisit the nexus of financial development and FDI inflows in Chinese perspective, incorporating the vital role of institutional quality and other important variables in this paradigm. Using ARDL bound testing and VECM procedures, they establish causality by exploiting variations in financial development and FDI. To unmask the shortcomings in the previous literature, the authors use a composite index of financial development, recently developed by the IMF, since it provides a more fine-grained analysis. The results show that there is a long-run relationship between FDI and financial development. Bidirectional causality is confirmed by using VECM. The inclusion of control variables, e.g., institutional quality, transport infrastructure, per capita GDP, trade openness, domestic investment, natural resources rent, is robust in the analysis. The positive role of financial development in FDI inflows is of utmost importance for policymakers and the Chinese government. Several policy implications are given in this study.
    Keywords: financial development,FDI,ARDL,liberalization,capital market,money market
    JEL: C22 F23 F38 G21 G32 O17
    Date: 2019
  6. By: Xiaohong Chen (Birkbeck, University of London); Paul Wohlfarth (Birkbeck, University of London)
    Abstract: This paper investigates China’s banking system in a post-crisis environment, 2008- 2018, focusing on determinants of bank lending. We use a panel of 14 Chinese listed banks, for which there is data over this period. We group these 14 banks into various bank-clusters, classified by ownership and systemic importance. Possible determinants of loan growth are divided into two sets of variables: bureaucratic variables and economic variables. We find that for individual banks and bank groups bureaucratic variables are very significant and the economic variables have comparatively little influence, which is consistent with the state retraining quite a lot of control. However, pooling of the data gives evidence for the influence of economic variables. The size of the coefficients is similar to the average of the individual banks but they are now significant, reflecting the larger sample size. Thus the pooled estimates are more supportive of the role of bankspecific market forces in determining loan growth.
    Keywords: Loan growth, Listed banks, Bureaucratic effects, Market effects, China
    JEL: E51 P34 C32
    Date: 2019–11
  7. By: Hu, Maggie Rong (Asian Development Bank Institute); Li, Xiaoyang (Asian Development Bank Institute); Shi, Yang (Asian Development Bank Institute)
    Abstract: Certificates are widely used as a signaling mechanism to mitigate adverse selection when information is asymmetric. To reduce information asymmetry between lenders and borrowers, Chinese peer-to-peer (P2P) lending platforms encourage borrowers to obtain various kinds of credit certificates. As P2P markets continue to develop, it is plausible that certification may play a pivotal role in ensuring investment efficiency. We perform the first empirical investigation of this issue, using unique data from Renrendai, one of the People’s Republic of China’s largest P2P lending platforms. We find that surprisingly, loans with more credit certificates experience a higher rate of delinquency and default. However, lenders remain attracted by higher certificates despite lower loan performance ex post, which results in distorted capital allocation and reduced investment inefficiency. Overall, we document a setting where credit certificates fail to serve as an accurate signal due to their costless nature, where poor-quality borrowers use more certificates to boost their credit profiles and improve their funding success. Possible explanations for this phenomenon include differences in marginal benefit of certificates for different borrower types, bounded rationality, cognitive simplification, and borrower myopia.
    Keywords: P2P lending; credit allocation; adverse selection; certificate; bounded rationality; cognitive simplification
    JEL: G10 G20 G21 G23
    Date: 2019–04–11
  8. By: Chen, Hongyi (Asian Development Bank Institute); Cao, Shuo (Asian Development Bank Institute)
    Abstract: We identify five factors that can capture 95% of the variance across 39 United States (US) dollar exchange rates based on the principal component method. We use a time-varying parameter factor-augmented vector autoregressive model to analyze the determinants of movements in these exchange rates, and reveal that their impact on global oil prices and the People’s Republic of China’s growth has increased significantly since 2008. In particular, the variance of US dollar exchange rates has mainly been driven by these two shocks in recent years. The impact of monetary policy shocks on the currency pairs is comparatively small.
    Keywords: exchange rates; commodity prices; People’s Republic of China’s growth; monetary policy; factor model; TVP-FAVAR; Bayesian methods
    JEL: C11 C22 F31 G12
    Date: 2019–03–27
  9. By: Yamashita, Nobuaki (Asian Development Bank Institute); Yamauchi, Isamu (Asian Development Bank Institute)
    Abstract: This paper empirically examines the “defensive innovation” hypothesis that firms with higher exposure to low-wage economy import competition intensively undertake more innovative activity by using a high quality Japanese firm-level panel dataset over the period 1994–2005. The novel feature of the analysis is the relation of firm-level variations of patent usage to import competition. The results suggest that intensified import competition from the People’s Republic of China has resulted in greater innovative activity by Japanese firms, consistent with the findings of European firms in Bloom et al. (2016). Moreover, such competition has also led to an increase in non-used patents.
    Keywords: defensive innovation; import competition; innovative activity
    JEL: F10 O00
    Date: 2019–03–28
  10. By: Haikun Zhu (Tilburg University)
    Abstract: Using datasets on transactions within business groups and social sentiment in China, I show that state-owned enterprises (SOEs) use internal funds to address social unrest, complying with the government`s political goals. I use plausibly unexpected shocks to regional stability to analyze the response of SOEs to these events. I find that the government, as the controlling shareholder, adopts a carrot-and-stick approach. The government offers a `carrot` by injecting funds into SOEs located in the affected areas, which are then used to generate benefits to the public, such as larger labor payments and additional capital expenditures. However, if there are severe political conflicts that threaten its authority, the government applies a `stick` by withdrawing resources. The SOEs channel seems effective because local sentiment recovers around shocks when SOEs offer more benefits. Additional tests show that the SOEs channel is significant in economic magnitude compared to fiscal redistribution. As a result of the transfer, SOEs lose value after shocks, but firms in the region improve their performance later. This paper provides new evidence on how the intra-group allocation of resources incorporates political objectives, and has socioeconomic impact.
    Keywords: business groups, internal capital market, political economy, social stability
    JEL: G32 G34 D74 P16
    Date: 2018–08

This nep-cna issue is ©2019 by Zheng Fang. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.