nep-cna New Economics Papers
on China
Issue of 2020‒05‒11
ten papers chosen by
Zheng Fang
Ohio State University

  1. Persistence through Revolutions By Alberto F. Alesina; Marlon Seror; David Y. Yang; Yang You; Weihong Zeng
  2. Inter-country Distancing, Globalisation and the Coronavirus Pandemic By Zimmermann, Klaus F.; Karabulut, Gokhan; Bilgin, Mehmet Huseyin; Doker, Asli Cansin
  3. Stocks Vote with Their Feet: Can a Piece of Paper Document Fights the COVID-19 Pandemic? By J. Su; Q. Zhong
  4. Declining Market Competition in China By Daniel Berkowitz
  5. The Effect of the China Connect By Chang Ma; John H. Rogers; Sili Zhou
  6. Hometown Ties and the Quality of Government Monitoring: Evidence from Rotation of Chinese Auditors By Jian Chu; Raymond Fisman; Songtao Tan; Yongxiang Wang
  7. Dinner for three - EU, China and the US around the geographical indications table By Hu, Weinian
  8. A spatial analysis of inward FDI and rural-urban wage inequality: Evidence from China By Wang, Hao; Fidrmuc, Jan; Luo, Qi
  9. The technological contest between China and the United States By Toro Hardy, Alfredo
  10. Foreign Direct Investment and Industrial Agglomeration: Evidence from China By Hsu, Wen-Tai; Lu, Yi; Luo, Xuan; Zhu, Lianming

  1. By: Alberto F. Alesina; Marlon Seror; David Y. Yang; Yang You; Weihong Zeng
    Abstract: The Chinese Communist Revolution in the 1950s and Cultural Revolution from 1966 to 1976 aimed to eradicate inequality in wealth and education, to shut off intergenerational transmission, and to eliminate cultural differences in the population. Using newly digitized archival data and linked contemporary household surveys and census, we show that the revolutions were effective in homogenizing the population economically and culturally in the short run. However, the pattern of inequality that characterized the pre-revolution generation re-emerges today. Grandchildren of the pre-revolution elites earn 17 percent more than those from non-elite households. In addition, the grandchildren of pre-revolution elites differ in their cultural values: they are less averse to inequality, more individualistic, more pro-market, more pro-education, and more likely to see hard work as critical to success. Through intergenerational transmission, socioeconomic conditions and cultural traits thus survived one of the most aggressive attempts to eliminate differences in the population and to foster mobility.
    JEL: N15 Z1
    Date: 2020–04
  2. By: Zimmermann, Klaus F. (UNU-MERIT, Maastricht University, Global Labor Organization, and University of Bonn); Karabulut, Gokhan (Istanbul University, and Global Labor Organization); Bilgin, Mehmet Huseyin (Istanbul Medeniyet University, and Global Labor Organization); Doker, Asli Cansin (Erzincan Binali Yildirim University, and Global Labor Organization)
    Abstract: Originating in China, the Coronavirus has reached the world at different speeds and levels of strength. This paper provides some initial understanding of some driving factors and their consequences. Since transmission requires people, the human factor behind globalisation is essential. Globalisation, a major force behind global well-being and equality, is highly associated with this factor. The analysis investigates the impact globalisation has on the speed of initial transmission to a country and on the size of initial infections in the context of other driving factors. Our cross-country analysis finds that measures of globalisation are positively related to the spread of the virus, both in speed and size. However, the study also finds that globalised countries are better equipped to keep fatality rates low. The conclusion is not to reduce globalisation to avoid pandemics, but to better monitor the human factor at the outbreak and to mobilise collaboration forces to curtail diseases.
    Keywords: Globalisation, Coronavirus, COVID-19, Pandemic, Inter-country Distancing
    JEL: C30 F69 I19
    Date: 2020–04–24
  3. By: J. Su; Q. Zhong
    Abstract: Assessing the trend of the COVID-19 pandemic and policy effectiveness is essential for both policymakers and stock investors, but challenging because the crisis has unfolded with extreme speed and the previous index was not suitable for measuring policy effectiveness for COVID-19. This paper builds an index of policy effectiveness on fighting COVID-19 pandemic, whose building method is similar to the index of Policy Uncertainty, based on province-level paper documents released in China from Jan.1st to Apr.16th of 2020. This paper also studies the relationships among COVID-19 daily confirmed cases, stock market volatility, and document-based policy effectiveness in China. This paper uses the DCC-GARCH model to fit conditional covariance's change rule of multi-series. This paper finally tests four hypotheses, about the time-space difference of policy effectiveness and its overflow effect both on the COVID-19 pandemic and stock market. Through the inner interaction of this triad structure, we can bring forward more specific and scientific suggestions to maintain stability in the stock market at such exceptional times.
    Date: 2020–05
  4. By: Daniel Berkowitz
    Abstract: Using methods in Hall and Jorgenson (1967) and Barkai (2020), we find that pure profitshares rose 25.6 percentage points in China during a period when reforms were enacted thatshould have strengthened market competition. Increases in firms' markups accounts for roughlyfive-sixths of the increase of pure profit shares in manufacturing. Firms that raised markupsoperated primarily in industries where state owned enterprises (SOEs) were pervasive, net entryof firms was slow, and there was a strong reallocation of market shares to SOEs and a weakreallocation to competitive firms. While there was an overall decline in market competition,markets became more competitive in industries where SOEs had small market shares.
    Date: 2020–01
  5. By: Chang Ma; John H. Rogers; Sili Zhou
    Abstract: We document the effect on Chinese firms of the Shanghai (Shenzhen)-Hong Kong Stock Connect. The Connect was an important capital account liberalization introduced in the mid-2010s. It created a channel for cross-border equity investments into a selected set of Chinese stocks while China's overall capital controls policy remained in place. Using a difference-in-difference approach, and with careful attention to sample selection issues, we find that mainland Chinese firm-level investment is negatively affected by contractionary U.S. monetary policy shocks and that firms in the Connect are more adversely affected than those outside of it. These effects are economically large, robust, and stronger for firms whose stock return has a higher covariance with the world market return. We also find that firms in the Connect enjoy lower financing costs, invest more, and have higher profitability than unconnected firms. We discuss the implications of our results for the debate on capital controls and independence of Chinese monetary policy.
    Keywords: Capital controls; Global financial cycle; Foreign spillovers; FOMC shocks; China connect; Corporate investment
    JEL: E40 E52 F38 G15
    Date: 2019–12–30
  6. By: Jian Chu; Raymond Fisman; Songtao Tan; Yongxiang Wang
    Abstract: Audits are a standard mechanism for reducing corruption in government investments. The quality of audits themselves, however, may be affected by relationships between auditor and target. We study whether provincial chief auditors in China show greater leniency in evaluating prefecture governments in their hometowns. In city-fixed-effect specifications – in which the role of shared background is identified from auditor turnover – we show that hometown auditors find 38 percent less in questionable monies. This hometown effect is similar throughout the auditor’s tenure, and is diminished for audits ordered by the provincial Organizations Department as a result of the departure of top city officials. We argue that our findings are most readily explained by leniency toward local officials rather than an endogenous response to concerns of better enforcement by hometown auditors. We complement these city-level findings with firm-level analyses of earnings manipulation by state-owned enterprises via real activity manipulation (a standard measure from the accounting literature), which we show is higher under hometown auditors.
    JEL: D73 G3 H83 M42
    Date: 2020–04
  7. By: Hu, Weinian
    Abstract: China is the EU’s second biggest agri-food exports market. It is also the second destination for the export of EU products protected by geographical indications (GI), accounting for 9% of its value, including wines, agri-food and spirits. The EU-China Agreement on the Protection of Geographical Indications, concluded in November 2019, is expected to realise higher potential for exporting EU GIs to the country since market access is now guaranteed. But the US-China Economic and Trade Agreement, signed in January 2020, has set down a couple of precautionary measures, including a consultation mechanism with China before new GIs can be recognised for protection in the Chinese market because of international trade agreements. As a result, EU GIs could be brought under tighter US scrutiny before being recognised for protection in China. Analysis reveals, however, that only a handful of EU GIs may be affected by the latter Agreement, if at all.
    Date: 2020–04
  8. By: Wang, Hao; Fidrmuc, Jan; Luo, Qi
    Abstract: When investigating the relationship between inward FDI and rural-urban inequality, previous studies overlook the inter-regional interactions. Building on the literature that highlights the significant role of rural-urban migration in inequality, this article investigates spatial spillover effect of inward FDI on the rural-urban wage inequality by utilizing the Spatial Durbin Model (SDM) both in the short run and long run. In particular, we carefully consider the heterogeneity of inward FDI and categorize it with respect to entry modes and sectoral distribution. On the basis of a panel dataset covering 30 provinces in China from 2000 to 2016, our results show that overall the inward FDI should not be blamed for the exacerbation of rural-urban wage inequality. We do not find significant relationship between inward FDI in secondary and tertiary sector while the FDI in primary sector has a slight negative effect. When we separate the FDI according to entry modes, we find that WFE is shown to have a negative effect on the rural-urban wage inequality and this effect is more pronounced in the long run when we conduct a period average estimation. This change also similarly applies to the equity joint ventures.
    Keywords: Spatial spillovers,foreign direct investment,rural-urban wage inequality,SDM
    JEL: C21 F21 O19
    Date: 2020
  9. By: Toro Hardy, Alfredo
    Abstract: China’s proclaimed aim of becoming the world’s leader in science, technology and innovation by the mid twenty first century has triggered an intense competition with the United States. The latter, feeling threatened in its supremacy in this field, has reacted forcefully. This GLO Discussion Paper examines the nature of this contest, the comparative technological standing of both countries, the pros and cons in this area derived from their respective development models and the plausible outcomes of this competition.
    Keywords: Artificial Intelligence,China, Market economy,Research & Development,Science & Technology,State led model,Silicon Valley, United States
    JEL: D78 F01 F52 H52 I25
    Date: 2020
  10. By: Hsu, Wen-Tai (School of Economics, Singapore Management University); Lu, Yi (Tsinghua University); Luo, Xuan (INSEAD); Zhu, Lianming (Osaka University)
    Abstract: This paper studies the effect of foreign direct investment (FDI) on industrial ag-glomeration. Using the differential effects of FDI deregulation in 2002 in China on different industries, we find that FDI actually affects industrial agglomeration neg-atively. As FDI brings technological spillovers and various agglomeration benefits, other forces must be at work to drive our empirical finding. We propose a simple theory that FDI may discourage industrial agglomeration due to fiercer competition pressure. We find various evidence on this competition mechanism. We also examine an alternative theory based on spatial political competition, but find no evidence sup-porting it. On industrial growth, we find that FDI deregulation is conducive, but the dispersion induced by FDI deregulation reduces the positive effect of FDI on growth rate by 16 to 19%.
    Keywords: FDI; deregulation; industrial agglomeration; competition; industrial growth; WTO; China
    Date: 2020–04–01

This nep-cna issue is ©2020 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.