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

  1. China and the United States: Different economic models but similarly low levels of socioeconomic mobility By van der Weide Roy; Narayan Ambar
  2. Pollution Regulations, Air Quality, and the Local Economy By Chen, Ying
  3. The vanishing interest income of Chinese banks By Kauko, Karlo

  1. By: van der Weide Roy; Narayan Ambar
    Abstract: The United States and China are the world’s largest economies. Together they are responsible for about one-third of the world’s economic output.This paper aims to examine whether the two economic giants are also lands of opportunity where resources are allocated in a way that minimizes unrealized human potential.Our analysis shows that despite stark differences in their levels of development, the US and China report remarkably similar levels of socioeconomic mobility; a level that is considered low by international standards.The US’s level of socioeconomic mobility has historically been low, with little to no progress over the last three to four decades. Before it embarked on its transition from planned to market economy, socioeconomic mobility was relatively high in China. However, as it underwent a period of rapid economic growth, China’s socioeconomic mobility declined significantly.The paper concludes that the world’s two major economic powers have converged to a low level of socioeconomic mobility where talent from disadvantaged backgrounds is excluded from opportunities, plausibly implying unrealized human potential and misallocation of resources on a large scale.
    Date: 2019
  2. By: Chen, Ying
    Abstract: Air quality is an important amenity that affects the labor supply to a local economy while regulations aiming at improving it can be costly and consequently reduce the local labor demand. This article studies how air quality and its regulation respectively and jointly affect the local economy through these two channels by exploiting China's first national air pollution regulation and migration reform as natural experiments. I propose an instrumental variable for local pollution levels by applying rich remote-sensing data to the engineering considerations of power plant construction. The estimation results suggest that heavy air pollution has driven out high-skilled workers when migration costs fall, while the regulation to curb pollution has led to a reduction in manufacturing employment in targeted locations and sectors. Additional results show relatively slower firm and wage growth in more regulated prefectures and sectors, and a modest local employment reallocation from heavy-to light-polluting industries.
    Keywords: Environmental regulations, Air pollution, Local economic growth
    JEL: J61 Q52 Q53 R11
    Date: 2020–02
  3. By: Kauko, Karlo
    Abstract: Chinese banks likely have more non-performing loans (NPLs) than officially reported. As hidden NPLs earn no interest income, loan quality problems may erode the gross interest income of banks. Using stochastic frontier analysis, we estimate the interest income of a hypothetical profit-maximising Chinese bank with no credit quality problems. Taking the deviation of actual interest income from the calculated efficient income, we then attempt to reveal the amount of hidden NPLs in Chinese banks. Our results uncover a substantial weakening in the quality of Chinese bank loan portfolios in 2016. Big banks are found to have the largest reservoirs of hidden NPLs. Dependence on interbank funding also seems to be a determinant in the size of hidden NPL portfolios.
    JEL: G21 O53
    Date: 2020–02–05

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