nep-cna New Economics Papers
on China
Issue of 2020‒03‒16
sixteen papers chosen by
Zheng Fang
Ohio State University

  1. Understanding PRC Investment Statistics By Carsten A. Holz
  2. Does e-commerce reduce traffic congestion? Evidence from Alibaba single day shopping event By Peng, Cong
  3. E-Commerce Development and Household Consumption Growth in China By Luo,Xubei; Wang,Yue-000541442; Zhang,Xiaobo
  4. New Evidence on the Soft Budget Constraint: Chinese Environmental Policy Effectiveness in Private versus SOEs By Mathilde Maurel; Thomas Pernet-Coudrier
  5. Trade shocks and credit reallocation By Rappoport, Veronica; Federico, Stefano; Hassan, Fadi
  6. Business Environment and Dual-Track Private Sector Development : China's Experience in Two Crucial Decades By Long,Cheryl Xiaoning; Xu,L. Colin; Yang,Jin
  7. Does the belt and road initiative stimulate Chinese exports? The role of state-owned enterprises By Görg, Holger; Mao, Haiou
  8. Factions, Local Accountability, and Long-Term Development : County-Level Evidence from a Chinese Province By Fang,Hanming; Hou,Linke; Liu,Mingxing; Xu,L. Colin; Zhang,Pengfei
  9. Niche Acceleration driven by Expectation Dynamics among Niche and Regime Actors: China’s Wind and Solar Power Development By Kejia Yang; Ralitsa Hiteva; Johan Schot
  10. Incentive Pay and Firm Productivity: Evidence from China By Jin, Zhangfeng; Pan, Shiyuan
  11. China’s Debt Revisited By Sun, Lixin
  12. E-Commerce Participation and Household Income Growth in Taobao Villages By Luo,Xubei; Niu,Chiyu
  13. What are the price effects of trade? Evidence from the US for quantitative trade models By Jaravel, Xavier; Sager, Erick
  14. The Collateral Channel of Monetary Policy: Evidence from China By Hanming Fang; Yongqin; Xian Wu
  15. Who Wins, Who Loses ? Understanding the Spatially Differentiated Effects of the Belt and Road Initiative By Lall,Somik V.; Lebrand,Mathilde Sylvie Maria
  16. The Impact of Trade Liberalization on Firms' Product and Labor Market Power By Dobbelaere, Sabien; Wiersma, Quint

  1. By: Carsten A. Holz
    Abstract: Investment statistics of the People’s Republic of China are a source of many puzzles. Some investment data are of dubious quality, while the particular concepts of investment and their changing definitions over time are often poorly understood. Fixed asset investment, a remnant of the planned economy, comes with severe limitations in terms of data coverage and compilation. Detailed sector data are available, but only for a repeatedly changing subset. Gross fixed capital formation, an alternative investment measure based on the national accounts, may be more reliable but only the most aggregate data are available. The researcher or policy-maker in need of investment data encounters a veritable minefield of data issues that this paper helps navigate.
    Keywords: fixed asset investment, gross fixed capital formation, newly increased fixed assets, national accounts, Chinese statistics, data falsification
    JEL: E22 C82 O53
    Date: 2020
  2. By: Peng, Cong
    Abstract: Traditional retail involves traffic both from warehouses to stores and from consumers to stores. Ecommerce cuts intermediate traffic by delivering goods directly from the warehouses to the consumers. Although plenty of evidence has shown that vans that are servicing e-commerce are a growing contributor to traffic and congestion, consumers are also making fewer shopping trips using vehicles. This poses the question of whether e-commerce reduces traffic congestion. The paper exploits the exogenous shock of an influential online shopping retail discount event in China (similar to Cyber Monday), to investigate how the rapid growth of e-commerce affects urban traffic congestion. Portraying e-commerce as trade across cities, I specified a CES demand system with heterogeneous consumers to model consumption, vehicle demand and traffic congestion. I tracked hourly traffic congestion data in 94 Chinese cities in one week before and two weeks after the event. In the week after the event, intra-city traffic congestion dropped by 1.7% during peaks and 1% during non-peak hours. Using Baidu Index (similar to Google Trends) as a proxy for online shopping, I found online shopping increasing by about 1.6 times during the event. Based on the model, I find evidence for a 10% increase in online shopping causing a 1.4% reduction in traffic congestion, with the effect most salient from 9am to 11am and from 7pm to midnight. A welfare analysis conducted for Beijing suggests that the congestion relief effect has a monetary value of around 239 million dollars a year. The finding suggests that online shopping is more traffic-efficient than offline shopping, along with sizable knock-on welfare gains.
    Keywords: e-commerce; traffic congestion; heterogeneous consumers; shopping vehicle demand; air pollution
    JEL: R40 O30
    Date: 2019–08
  3. By: Luo,Xubei; Wang,Yue-000541442; Zhang,Xiaobo
    Abstract: China has quickly become the largest e-commerce market in the world. By matching a nationally representative China Family Panel Studies survey with county-level e-commerce information obtained from Alibaba, this paper examines how e-commerce development has shaped household consumption growth in China. The paper presents three major findings. First, e-commerce development is associated with higher consumption growth. Second, the relationship is stronger for the rural sample, inland regions, and poor households, suggesting that e-commerce development helps reduce spatial inequality in consumption. Third, the consumption of durable goods and in-style goods has grown faster than the consumption of local services.
    Date: 2019–04–10
  4. By: Mathilde Maurel (CNRS - Centre National de la Recherche Scientifique, CES - Centre d'économie de la Sorbonne - CNRS - Centre National de la Recherche Scientifique - UP1 - Université Panthéon-Sorbonne, UP1 - Université Panthéon-Sorbonne); Thomas Pernet-Coudrier (CES - Centre d'économie de la Sorbonne - CNRS - Centre National de la Recherche Scientifique - UP1 - Université Panthéon-Sorbonne, UP1 - Université Panthéon-Sorbonne)
    Abstract: This paper analyses the efficiency of a set of environmental measures introduced by the 11th FYP (Five Years Plan) in China in 2006, using a rich and unique dataset borrowed from the Ministry of Environmental Protection (MEP) and from the State Environmental Protection Agency (SEPA). The objective is to provide new evidence of the Soft Budget Constraint (SBC), which is a key concept coined by Janos Kornai. The main finding is that TCZ (Two Control Zone) cities are successful in bringing down the emission of SO2, and more importantly that this success is driven by the private sector. Sectors dominated by State-Owned Enterprises (SOEs) are less sensitive to the environmental target-based evaluation system, by a factor of 42%. We also find that one channel, through which this adjustment takes place, is Total Factor Productivity (TFP), but not in the case of SOEs. We interpret these results as pointing to the evidence of a still ongoing SBC surrounding Chinese SOEs.
    Keywords: Environmental regulation,China Kornai,Soft Budget Constraint
    Date: 2020–02
  5. By: Rappoport, Veronica; Federico, Stefano; Hassan, Fadi
    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
  6. By: Long,Cheryl Xiaoning; Xu,L. Colin; Yang,Jin
    Abstract: A void in the literature on the business environment is how it evolves over time. Focusing on China during its crucial two decades of transition (from the early 1990s to the early 2010s), this paper documents how the country's business environment and the characteristics of entrepreneurs evolved, along with the role played by local governments. Relying on multiple comprehensive data sets, the paper shows that many aspects of local business environments improved: infrastructure, development of the court system, and access to external finance. Meanwhile, the share of politically connected private firms remained large, and their advantage in accessing key resources increased. Under this dual-track private sector development, private firms became larger and more innovative and adopted more formal corporate governance mechanisms. Entrepreneurs became much better educated, with more diverse sectoral experience. Market competition increased over time, especially after China's World Trade Organization entry. The paper offers suggestive evidence that this dual track development had negative consequences, such as a lower tendency to innovate by politically connected firms.
    Date: 2020–02–25
  7. By: Görg, Holger; Mao, Haiou
    Abstract: This paper evaluates firms' exporting responses to BRI and considers their heterogeneity in ownership types, product types, regional origin and trade mode. This is done by analyzing firm-product-destination level customs data from 2011 to 2015 in a gravity model framework. Our empirical results show that aggregate export behavior did not change significantly after BRI. However, ownership matters when evaluating firms' reactions. SOEs increase their total exporting and average export value (the intensive margin) to BRI countries, while private domestic firms show no reaction to BRI at any margin. Further, our results on regional heterogeneity suggests that "open through the west", i.e., boosting the development of western regions in China, did not appear to work in the short term. Our findings show clearly the implications of BRI's impact from a firm level perspective.
    Keywords: Belt and Road Initiative,firm's export,extensive margin,intensive margin,state-owned firms
    JEL: F10 O24
    Date: 2020
  8. By: Fang,Hanming; Hou,Linke; Liu,Mingxing; Xu,L. Colin; Zhang,Pengfei
    Abstract: This paper investigates, both theoretically and empirically, the role of factional competition and local accountability in explaining the enormous but puzzling county-level variations in development performance in Fujian province of China. When the Communist armies took over Fujian from the Nationalist control circa 1949, Communist cadres from two different army factions were assigned as county leaders. For decades the Fujian Provincial Standing Committee of the Communist Party had been dominated by members from one particular faction, which we refer as the strong faction. Counties also differed in whether there was local guerrilla presence prior to the Communist takeover. The model predicts that county leaders from the strong faction were less likely to pursue policies friendly to local development, because their political survival relied more on their loyalty to the provincial leader than on the grassroots support from local residents. In contrast, the political survival of county leaders from the weak faction was based more on local grassroots support, which could be best secured if these leaders focused on local development. In addition, the local guerrilla presence in the county further improved the development performance either because it intensified local accountability of the county leader, or because it better facilitated the provision of local public goods beneficial to development. The paper finds consistent and robust evidence supporting these assumptions; being affiliated with weak factions and having local accountability are both associated with sizable long-term benefits in terms of growth, education, private-sector development, and survival in the Great Famine. The paper also finds that being affiliated with the strong faction and adopting pro-local policies are associated with higher likelihood of political survival. The empirical findings here suggest that factional competition contributes to efficiency in non-democratic countries, and that local accountability is a key ingredient for balanced development.
    Keywords: Private Sector Economics,Private Sector Development Law,Marketing,Armed Conflict,Conflict and Fragile States,Industrial Economics,Economic Theory&Research,Economic Growth,Food Security
    Date: 2019–05–01
  9. By: Kejia Yang (SPRU (Science Policy Research Unit), University of Sussex, Brighton, BN1 9SL, UK); Ralitsa Hiteva (SPRU (Science Policy Research Unit), University of Sussex, Brighton, BN1 9SL, UK); Johan Schot (Centre for Global Challenges, Utrecht University, Utrecht, 3512 BK, the Netherlands)
    Abstract: This paper addresses the question how does the alignment of expectations between niche and regime actors unfold during niche development process, and how it shapes the niche development process? In this paper we offer a theoretical framework with three alignment patterns: strong, medium-strong and weak alignment, based on niche and regime actors’ expectation structures. The research aims to establish whether the alignment patterns match three distinct stages of niche development: slow niche development; moderate niche development and substantial niche acceleration. We propose a 16% threshold in terms of adoption for niche acceleration. We apply the conceptual framework to two long-term cases, of wind and solar power development in China between 2000 and 2017. These present two independent cases with different stages of niche development during the studied period, but in the end both show niche acceleration. Our two cases suggest that although alignment patterns between both cases differ, they match niche development phases. Strong alignment does go hand in hand with niche acceleration. Overall, this paper contributes to both a conceptual and methodological understanding of how the alignment patterns between niche and regime actors’ expectations contribute to niche acceleration.
    Keywords: Niche acceleration; Expectations; China; Wind power; Solar power
    Date: 2020–03
  10. By: Jin, Zhangfeng; Pan, Shiyuan
    Abstract: This study examines the causes and consequences of incentive pay adoption among Chinese manufacturing firms. First, we find that a higher degree of labor scarcity encourages firms to adopt more incentive pay. Second, using an instrumental variables approach, we find that a 10 percentage point increase in the intensity of incentive pay results in 38% higher firm productivity. Third, the average productivity differences between SOEs and non-SOEs decrease by about 65% after controlling differences in incentive pay adoption. Therefore, facilitating incentive pay adoption among firms with better labor endowments (e.g. SOEs) increases productivity while reduces resource misallocation in developing countries.
    Keywords: Incentive Pay,Firm Productivity,Labor Scarcity,China,Instrumental Variables
    JEL: O14 O33 M52 J33 P31
    Date: 2020
  11. By: Sun, Lixin
    Abstract: This paper updates the dataset on the structure of China’s debt published in Sun (2015, 2019) with the debt effects. The new dataset extends the sample to the end of 2018 including the collected annual and the estimated quarterly data covering the period 1985-2018, and presents the updated changes in deleverage ratios for all debt categories in China. In addition, we examine the effects of the debt on the monetary policy transmission and the macroeconomy in China with the GMM approach and a VAR model. We find that the monetary policy transmissions have been weakened in times of high indebtedness by both the public and the private debt despite at the heterogenous magnitude. Our study sheds new lights to policy design and debt management in China.
    Keywords: China’s Debt Dataset; Non-financial Private and Public Debt; Monetary Policy Transmission; GMM Approach; VAR Model; Chinese Economy
    JEL: E50 H63
    Date: 2019–12
  12. By: Luo,Xubei; Niu,Chiyu
    Abstract: E-commerce has developed rapidly in China, and Taobao Villages, which are villages significantly engaged in e-commerce, are prospering in rural areas. E-commerce is fostering entrepreneurship and creating flexible and inclusive employment opportunities, including for women and youth. This paper examines the role of e-commerce participation in household income growth, drawing from a survey of representative Taobao Villages in 2017. The paper presents three main findings. First, e-commerce participation is not random: participation is higher among the households with younger household heads, with secondary education, particularly those with technical and vocational education, urban work experience, and knowledge of e-commerce. Second, e-commerce participation is associated with higher household income, with some indications that participation has a strong positive effect on household incomes. Third, e-commerce appears to yield benefits that are broadly shared among participants in an equitable way in Taobao Villages.
    Date: 2019–04–10
  13. By: Jaravel, Xavier; Sager, Erick
    Abstract: This paper finds that U.S. consumer prices fell substantially due to increased trade with China. With comprehensive price micro-data and two complementary identification strategies, we estimate that a 1pp increase in import penetration from China causes a 1.91% decline in consumer prices. This price response is driven by declining markups for domestically-produced goods, and is one order of magnitude larger than in standard trade models that abstract from strategic price-setting. The estimates imply that trade with China increased U.S. consumer surplus by about $400,000 per displaced job, and that product categories catering to low-income consumers experienced larger price declines.
    JEL: F10 F13 F14
    Date: 2019–08
  14. By: Hanming Fang (University of Pennsylvania); Yongqin (Fudan University); Xian Wu (University of Wisconsin)
    Abstract: Collateral-based monetary policy tools have been used extensively by major central banks. Lack of proper policy counterfactuals, however, makes it di?cult to empirically identify their causal e?ects on the ?nancial market and the real economy. We exploit a quasi-natural ex-periment in China, where dual-listed bonds are traded in two mostly segmented markets: the interbank market regulated by the Central Bank, and the exchange market regulated by the securities regulator. During a policy shift in our study period, China’s Central Bank included a class of previously ineligible bonds in the interbank market to become eligible collateral for ?nancial institutions to borrow money from its Medium-Term Lending Facility (MLF). This policy shift allows us to implement a triple-di?erence strategy to estimate the causal impact of the collateral-based unconventional monetary policy. We ?nd that in the secondary market the policy reduced the spreads of the newly collateralizable bonds in the treatment market (the interbank market) by 42-62 basis points. We also ?nd that there is a pass-through e?ect from the secondary market to the primary market: the spreads of the treated bonds newly issued in the interbank market were reduced by 54 basis points.
    Keywords: Unconventional Monetary Policy, Collateral, Bond Spread, Medium-Term Lend-ing Facility
    JEL: E52 E58 G12
    Date: 2020–02–18
  15. By: Lall,Somik V.; Lebrand,Mathilde Sylvie Maria
    Abstract: This paper examines how cities and regions within countries are likely to adjust to trade openness and improved connectivity driven by large transport investments from China's Belt and Road Initiative. The paper presents a quantitative economic geography model alongside spatially detailed information on the location of people, economic activity, and transport costs to international gateways in Central Asia to identify which places are likely to gain and which places are likely to lose. The findings are that urban hubs near border crossings will disproportionately gain while farther out regions with little comparative advantage will be relative losers. Complementary investments in domestic transport networks and trade facilitation are complementary policies and can help in spatially spreading the benefits. However, barriers to domestic labor mobility exacerbate spatial inequalities whilst dampening overall welfare.
    Date: 2019–04–08
  16. By: Dobbelaere, Sabien (Vrije Universiteit Amsterdam); Wiersma, Quint (Vrije Universiteit Amsterdam)
    Abstract: This paper examines the impact of trade liberalization on firms' product and labor market power. We estimate the prevalence and intensity of firm-level price-cost markups and either wage markups or wage markdowns. We take the dependence between these model-consistent measures of product and labor market power explicitly into account. To identify the effect of trade shocks on product and labor market power, we exploit China's reductions in input and output tariffs upon its accession to the World Trade Organization. We find that trade liberalization has not switched firms away from exercising product and labor market power. Reducing tariffs on intermediate inputs has increased a firm's price-cost markup but decreased the degree of wage-setting power that it possesses, conditional on exercising product/labor market power. Finally, we find heterogeneous effects of trade liberalization on the intensity of firms' product and labor market power, giving insights into the true consequences of trade shocks.
    Keywords: price-cost markups, wage markups, wage markdowns, trade liberalization, tariffs
    JEL: F14 F16 L11 P31
    Date: 2020–01

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