nep-cna New Economics Papers
on China
Issue of 2020‒02‒03
ten papers chosen by
Zheng Fang
Ohio State University

  1. Relocating or Redefined: A New Perspective on Urbanization in China By Li Gan; Qing He; Ruichao Si; Daichun Yi
  2. Exporting out of China or out of Africa? Automation versus relocation in the global clothing industry By Altenburg, Tilman; Chen, Xiao; Lütkenhorst, Wilfried; Staritz, Cornelia; Whitfield, Lindsay
  3. The Impact of Intranational Trade Barriers on Exports: Evidence from a Nationwide VAT Rebate Reform in China By Jie Bai; Jiahua Liu
  4. Which Countries Have Benefited the Most from China’s Belt and Road Initiative? By Albert Park
  5. China-Pakistan Economic Corridor- tightrope or boulevard to prosperity? By Naubahar Sharif
  6. The Economic Consequences of Political Hierarchy: Evidence from Regime Changes in China, AD1000-2000 By Ying Bai; Ruixue Jia
  7. Connecting the Emerging Markets: China's Growing Role in Global Digital Infrastructure By Yujia He
  8. Equilibrium Consequences of Corruption on Firms: Evidence from China’s Anti-Corruption Campaign By Haoyuan Ding; Hanming Fang; Shu Lin; Kang Shi
  9. Quantifying Quality Specialization Across Space: Skills, Sorting, and Agglomeration By Chang, Pao-Li; Lu, Angdi; Yi, Xin
  10. The puzzle of falling happiness despite rising income in rural China: ten hypotheses By John Knight; Bianjing Ma; Ramani Gunatilaka

  1. By: Li Gan; Qing He; Ruichao Si; Daichun Yi
    Abstract: China's fast economic growth over the past 40 years has been accompanied by an increasingly rapid rate of urbanization, from about 20% in the early 1980s to 60% in 2018. In addition to natural population growth, rural-urban migration is generally believed to be a dominant driving force. Motivated by a recent finding of a high housing vacancy rate in urban China, however, we find that a large share of urban population growth comes from community reclassification. These redefined migrants (from communities which were reclassified from rural to urban) accounted for 33.4% of total urban population growth from 2010 to 2015. Households in reclassified communities share similar characteristics with those from rural villages, particularly in their ownership of housing. Furthermore, we provide evidence that at the prefecture level, the size of redefined migrants is significantly related to residential land supply, and to the proportion of households holding vacant housing units, but not to the change of night-time light. These results suggest that an inaccurate account of urbanization is an important factor for the oversupply of residential housing units in China.
    JEL: O18 R31 R52
    Date: 2019–12
  2. By: Altenburg, Tilman; Chen, Xiao; Lütkenhorst, Wilfried; Staritz, Cornelia; Whitfield, Lindsay
    Abstract: The Discussion Paper examines the opportunities that the rising industrial wages in China will bring for Africa. China has been the industrial workbench of the global economy for decades. However, its competitive advantages are waning, particularly for labour-intensive assembly activities in the clothing, shoe, electronics and toy industries. The Chinese government estimates that up to 81 million low-cost industrial jobs are at risk of relocation to other countries - unless China can keep the companies in the country through automation. Against this background, three complementary studies were carried out. The first examines where the automation technology for clothing and footwear production stands today; the second, how clothing companies in China deal with the cost pressure: to what extent they automate, relocate within China or abroad and how great is the interest in Africa as a production location. The third part is devoted to Africa's competitiveness in clothing assemly, with empirical findings from Ethiopia and Madagascar. The Discussion Paper shows that the manufacture of clothing can already be robotized today, but that for sewing, robotization will probably remain more expensive than manual labor in the next 15-20 years. China's companies are investing heavily in the automation of all other production processes and at the same time shifting production to neighbouring Asian countries. In Africa, only Ethiopia is currently competitive in the manufacture of clothing, and here too there are significant institutional difficulties in absorbing large amounts of direct investment.
    Date: 2020
  3. By: Jie Bai; Jiahua Liu
    Abstract: It is well known that various forms of non-tariff trade barriers exist within a country. Empirically, it is difficult to measure these barriers as they can take many forms. We take advantage of a nationwide VAT rebate policy reform in China as a natural experiment to identify the existence of these intranational barriers due to local protectionism and study the impact on exports and exporting firms. As a result of shifting tax rebate burden, the reform leads to a greater incentive of the provincial governments to block the domestic flow of non-local goods to local export intermediaries. We develop an open-economy heterogenous firm model that incorporates multiple domestic regions and multiple exporting technologies, including the intermediary sector. Consistent with the model's predictions, we find that rising local protectionism leads to a reduction in interprovincial trade, more "inward-looking" sourcing behavior of local intermediaries, and a reduction in manufacturing exports. Analysis using micro firm-level data further shows that private companies with greater baseline reliance on export intermediaries are more adversely affected.
    JEL: F14 F15 O14
    Date: 2019–12
  4. By: Albert Park (Director, HKUST Institute for Emerging Market Studies; Chair Professor, Department of Economics, Division of Social Science and Division of Public Policy, Hong Kong University of Science and Technology)
    Abstract: Analysis of project-level data on China’s outbound FDI and construction projects finds that the Belt and Road Initiative (BRI) has led to a large increase in China’s outbound FDI in Belt and Road (B&R) countries compared to non-B&R countries, especially for greenfield FDI projects and in the energy sector. The importance of economic fundamentals in allocating Chinese investment to different countries has declined substantially under the BRI, raising concerns that the expected returns to such investments has declined. The importance of governance quality in explaining China’s outbound FDI increased significantly under the BRI, dispelling concerns that under the BRI China targets investments toward corrupt, poorly governed countries
    Keywords: Belt and Road, China, Financial Development, Firms, Jobs
    Date: 2019–09
  5. By: Naubahar Sharif (Associate Professor, Division of Social Science and Division of Public Policy; Hong Kong University of Science and Technology)
    Abstract: The China–Pakistan Economic Corridor (CPEC) is a key component of the Belt and Road Initiative (BRI) through which China aims to connect East Asia with Europe through connected land and sea routes. Defenders of the CPEC argue that it is a ‘game changer’ that will transform Pakistan’s struggling economy. Critics of the CPEC describe it as a modern-day New East India Company, implying that its purpose, and likely effect, is to turn Pakistan into a Chinese client state China. Neither of these extreme views about CPEC is likely true; Pakistan should be able to take benefit from important features of the CPEC while mitigating the disadvantages.
    Keywords: Belt and Road, China, Innovation
    Date: 2019–09
  6. By: Ying Bai; Ruixue Jia
    Abstract: We argue that China, with its long history, a relatively stable political system, and multiple regime changes, provides us an opportunity to investigate the political economy of administrative hierarchy. Using prefecture-level panel data and exploiting regime changes during AD1000-2000, we find that gaining and losing importance in the political hierarchy led to the rise and decline of different prefectures (measured by population density and urbanization). Moreover, political hierarchy shapes regional development via both political and market channels (reflected by public employment and transportation networks). More broadly, our study serves as new evidence on how politics shapes economic geography and offers a context to understand changes in economic activity location in the long run.
    JEL: H11 N95 O11
    Date: 2020–01
  7. By: Yujia He (Assistant Professor at the Patterson School of Diplomacy and International Commerce,; University of Kentucky)
    Abstract: Rising demand for international communications drive cable capacity growth, yet financing and political risks remain major obstacles. Chinese investments help finance cable systems in multiple emerging market regions. Emerging economies need to develop robust domestic regulations and international coordination to reduce political risks, protect cable infrastructure, and manage cyber risks.
    Keywords: China, Global Economy
    Date: 2019–04
  8. By: Haoyuan Ding; Hanming Fang; Shu Lin; Kang Shi
    Abstract: We use China's recent anti-corruption campaign as a natural experiment to examine the (market expected) equilibrium consequences of (anti-)corruption. We argue that the announcement of inspections of provincial governments by the Central Commission for Discipline Inspection (CCDI) on May 17, 2013 represents a significant departure of past norms of anti-corruption campaigns, and thus serves a rare empirical opportunity to examine the equilibrium effects of anti-corruption campaigns for firms. We first present a conceptual framework to illustrate the channels through which anti-corruption actions can influence firms. Using an event study approach and May 17, 2013 as the event date, we find that, overall, the stock market responded positively to the announcement of strong anti-corruption actions. The announcement returns are significantly lower for luxury-goods producers, and SOES, large firms, or politically connected firms earn lower returns than private, small, or non-connected firms. We also find that existing local institutions play a crucial role in determining the announcement returns across firms. Moreover, a long-term difference-in-differences analysis shows that higher returns during the event window are associated with more subsequent entries of new firms and faster expansions of existing firms. Finally, we also provide direct evidence consistent with the endogenous grits effect.
    JEL: D7 D72 G34 G38
    Date: 2020–01
  9. By: Chang, Pao-Li (School of Economics, Singapore Management University); Lu, Angdi (School of Economics, Singapore Management University); Yi, Xin (School of Economics, Singapore Management University)
    Abstract: We quantify the supply-side determinants of quality specialization across space. Specifically, we complement the quality specialization literature in international trade and study how larger cities specialize in higher-quality goods within a country. In our general equilibrium model, firms in larger cities produce goods with higher quality, because agglomeration benefits accrue more to skilled workers who are also more efficient in upgrading quality. Two channels are at work in our model. The first channel is through the treatment effect of agglomeration, such that firms become more productive if they locate in a larger city. The second channel works through sorting, in that more pro-ductive firms receive higher agglomeration benefits and endogenously sort into larger cities. These two effects are further mitigated by the increasing skill premium with respect to city size, though the latter is dominated in the spatial equilibrium. Using firm-level data from China, we structurally estimate the model and find that product quality is on average 23% higher in big cities than that of small cities. We further find that agglomeration forces account for half of the quality difference in big cities while sorting of firms accounts for another half. A counterfactual policy to relax land use regulation in housing production raises the quality of goods produced in big cities by 5.5% and (in-direct) welfare of all residents by 6.2% through reallocation of economic activities across space.
    Keywords: Agglomeration; Quality Upgrading; Firm Heterogeneity; Sorting
    JEL: D22 F12 R12 R32
    Date: 2019–11–28
  10. By: John Knight; Bianjing Ma; Ramani Gunatilaka
    Abstract: With economic development can come social, attitudinal and cultural change, for good or ill or both We pose an unexplored question: why has happiness fallen in rural China whereas rural income has risen rapidly? Two rich data sets are analysed, the rural surveys of the China Household Income Project (CHIP) relating to 2002 and 2013. Our main methods are happiness regressions and decomposition methodology. Several approaches are adopted and no fewer than ten hypotheses are tested. One approach is to examine the variables that are found to be important in happiness functions and to consider their contributions to the fall in the mean happiness score of rural people. Another approach is to analyse the effect on rural happiness of the vast rural-urban migration that took place over this period. This is followed up by introducing tests of the role that changing attitudes might have played.
    Date: 2020–01–22

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