nep-cna New Economics Papers
on China
Issue of 2020‒07‒27
seven papers chosen by
Zheng Fang
Ohio State University

  1. Provincial interdependence and China’s “irrational” outward foreign direct investment By Mengheng Liu; Xingwang Qian
  2. How Did the 2003 SARS Epidemic Shape Chinese Trade? By Ana P. Fernandes; Heiwai Tang
  3. Emerging Trade Battlefield with China: Export Competition and Firms’ Coping Strategies By Yao Pan; Katariina Nilsson Hakkala
  4. Numerological preferences, timing of births and the long-term effect on schooling By Cheng Huang; Xiaojing Ma; Shiying Zhang; Qingguo Zhao
  5. The role of demographics and migration for the future of economic growth in China By Juan Carlos Conesa; Yan Wang
  6. Sources of knowledge flow between developed and developing nations By Florian Seliger; Gaéran de Rassenfosse
  7. Reserves and Risk: Evidence from China By Rasmus Fatum; Takahiro Hattori; Yohei Yamamoto

  1. By: Mengheng Liu (Zhejiang University); Xingwang Qian (SUNY Buffalo)
    Abstract: China’s outward foreign direct investment (OFDI) has increased by more than 70-fold since early 2000. A sudden plummet of 30% OFDI in 2017 particularly merits explanation. We suggest that the interdependent behavior of Chinese provincial OFDI plays a key role in the astonishing increase and sudden decease in China’s OFDI. Using OFDI data from 31 Chinese provinces, we find that OFDI from one province positively depends on neighboring provinces’ OFDI. While the spillover from neighbors’ behavior increases provincial OFDI, it tends to lead to more OFDI than warranted by economic fundamentals, resulting in an irrational OFDI bubble. Further, we argue that the “follow the leader” firm behavior and the OFDI promotional policies under China’s political tournament environment give rise to the neighboring interdependence. Finally, based on our results, we make a plausible estimation of the amount of irrational OFDI in China in 2016.
    Keywords: China’s outward FDI; provincial interdependence; spillover effect; government promotion policy
    JEL: F21 F63
    Date: 2020–04–30
  2. By: Ana P. Fernandes; Heiwai Tang
    Abstract: This paper examines the impact of the Severe Acute Respiratory Syndrome (SARS) epidemic on China’s trade. Using quarterly transaction-level trade data of all Chinese firms, we find that firms in regions with local transmission of SARS experienced lower import and export growth at both the intensive and extensive margins, compared to those in the unaffected regions. The affected firms’ trade growth remained lower two years after SARS. Products that are more capital-intensive, skill-intensive, upstream in the supply chains, and differentiated experienced a smaller export decline but a stronger recovery. Small exporters were more likely to exit, slowing down trade recovery.
    Keywords: Covid-19, SARS, trade collapse, post-pandemic recovery, natural disasters, disruption, global supply chains
    JEL: F12 F14
    Date: 2020
  3. By: Yao Pan (George Washington University); Katariina Nilsson Hakkala (ETLA and Aalto University)
    Abstract: This paper analyzes how intensified Chinese export competition affects the exports and product ranges of Western firms. Using a novel identification strategy that exploits changes in Chinese export policies, we find that Chinese export competition reduces aggregate product-level exports of Finland. Firm-level analysis using administrative data further shows that Chinese competition leads to substantial price cuts to retain market shares, especially for homogeneous products. In addition, we also discover that firms respond to the increased level of Chinese export competition by dropping their marginal products. Taken together, these results highlight the importance of export competition with China for developed countries.
    Keywords: Trade Flows, Export Competition, Firm-level, Product Mix, China
    JEL: F14 F61 L25
    Date: 2019
  4. By: Cheng Huang (George Washington University); Xiaojing Ma (School of Economics and Management, Harbin Institute of Technology); Shiying Zhang (School of Economics and Management, Harbin Institute of Technology); Qingguo Zhao (Family Planning Research Institute of Guangdong Province)
    Abstract: Cultural beliefs may affect demographic behaviors. According to traditional Chinese astrology, babies born on auspicious days will have good luck in their lifetime, whereas those born on inauspicious days will have bad luck. Using administrative data from birth certificates in Guangdong, China, we provide empirical evidence on the short-term effects of such numerological preferences. We find that approximately 3.9% extra births occur on auspicious days and 1.4% of births are avoided on inauspicious days. Additionally, there is a higher male/female sex ratio for births on auspicious days. Since such manipulation of the birthdate is typically performed through scheduled C-sections, C-section births increase significantly on auspicious days. Moreover, we use a second dataset to examine the long-term effect of numerological preferences and find that people born on auspicious days are more likely to attend college
    Keywords: s Numerological preferences, Birthdate, Timed births, Chinese astrology
    JEL: I21 Z10 J13 D19
    Date: 2019
  5. By: Juan Carlos Conesa; Yan Wang
    Abstract: China's real GDP has been growing by almost 10 percent a year for the last three decades. For how long should we expect this spectacularly high growth to continue? We evaluate in a quantitative two sector model with segmented labor markets and nancial frictions the prospects for China's future growth under different policy scenarios. In our model the high growth rate observed in China since the early 1990s is fueled by the large increase in urban labor supply, because of rural-urban migration, and the emergence of private enterprises that absorb those migrant workers. Our simulations suggest that the rapid aging of its population will signicantly decelerate urban labor force and economic growth starting around 2040. In a counterfactual exercise we show that substantial relaxation of labor market segmentation and nancial constraints faced by private enterprises cannot compensate for that deceleration.
    Date: 2020
  6. By: Florian Seliger (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Gaéran de Rassenfosse (EPFL Lausanne, Switzerland)
    Abstract: This paper provides a long-term view on the sources of knowledge flow between developed and developing nations. It relies on patent data to explore three potential sources: R&D collaboration, technology sourcing, and technology transfer. All three sources provide a very consistent message. First, knowledge flows with East Asia, particularly China, are occurring more frequently. Second, knowledge flows are increasingly concentrateded in information and communication technologies. Third, the United States & Canada had traditionally larger patenting activity with Asia than Europe, but the share of activity between Europe and Asia has been increasing in recent years. Fourth, larger patenting activity between the United States & Canada and Asia implies that the U.S./Canada region is more likely to benefit from reverse knowledge flows as China progresses towards becoming a technological leader.
    Keywords: international technology sourcing; R&D offshoring; R&D collaboration;technology transfer; patent
    JEL: E21 E32 D12 C22
    Date: 2019–02
  7. By: Rasmus Fatum (University of Alberta); Takahiro Hattori (Hitotsubashi University); Yohei Yamamoto (Hitotsubashi University)
    Abstract: We consider if the Chinese accumulation of reserves is associated with unintended consequences in the form of increased private sector risk taking. Using sovereign credit default swap spreads and stock index prices as indicators of risk taking we provide evidence to suggest that as reserve holdings increase, so does the willingness of the private sector to take on more risk. This is an important finding that adds credence to the suggestion that insurance through costly reserves, to be used in the event of a crisis, may lead to private sector actions that in and of themselves make it more likely that this insurance will be used.
    Keywords: International reserves; risk taking; China
    JEL: F31 G15
    Date: 2020–05–17

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