nep-cna New Economics Papers
on China
Issue of 2020‒08‒31
seventeen papers chosen by
Zheng Fang
Ohio State University

  1. Growing up under Mao and Deng : On the ideological determinants of corporate policies By Hao, Liang; Rong, Wang; Haikun, Zhu
  2. From workers to capitalists in less than two generations: A study of Chinese urban elite transformation between 1988 and 2013 By Li Yang; Filip Novokmet; Branko Milanovic
  3. Fiscal Decentralization and Interregional Capital Misallocation: Evidence from China By Zheng Li; Jorge Martinez-Vazquez
  4. Do Pension Benefits Accelerate Cognitive Decline? Evidence from Rural China By Plamen Nikolov; Alan Adelman
  5. The Employment Effect of Inward FDI in China: What Do We Learn from the History? By Hao Wang; Yuemei Ji; Qi Luo
  6. The Wage Premium of Communist Party Membership: Evidence from China By Plamen Nikolov; Hongjian Wang; Kevin Acker
  7. The Role of Government in the Market for Electric Vehicles : Evidence from China By Li,Shanjun; Zhu,Xianglei; Ma,Yiding; Zhang,Fan; Zhou,Hui
  8. Different Antidumping Legislations within the WTO: What Can We Learn from China's Varying Market Economy Status? By Alexander Sandkamp; Erdal Yalcin
  9. Capital Flows, Asset Prices, and the Real Economy: A "China Shock" in the U.S. Real Estate Market By Zhimin Li; Leslie Sheng Shen; Calvin Zhang
  10. An Austrian economic perspective on failed Chinese wind power development By Grafström, Jonas
  11. Present Bias for Monetary and Dietary Rewards: Evidence from Chinese Teenagers By Cheung, Stephen L.; Tymula, Agnieszka; Wang, Xueting
  12. Reforming Inefficient Energy Pricing: Evidence from China By ITO Koichiro; ZHANG Shuang
  13. China's Impact on Regional Employment: Propagation through Supply Chains and Co-agglomeration Pattern By SAITO Yukiko; KAINUMA Shuhei; Michal FABINGER
  14. The Impact of Taxes and Transfers on Income Inequality, Poverty, and the Urban-Rural and Regional Income Gaps in China By Nora Lustig; Yang Wang
  15. Visibility graph analysis of economy policy uncertainty indices By Peng-Fei Dai; Xiong Xiong; Wei-Xing Zhou
  16. Common Bubble Detection in Large Dimensional Financial Systems By Ye Chen; Peter C.B. Phillips; Shuping Shi
  17. Did Covid-19 lead to an increase in hate crimes towards Chinese people in London? By Chelsea Gray; Kirstine Hansen

  1. By: Hao, Liang; Rong, Wang; Haikun, Zhu
    Abstract: Economic activities have always been organized around certain ideologies, yet little is known about how ideology shapes corporate behavior and how it is different from other political forces. We investigate the impact of politicians’ ideology on corporate policies by exploring a unique setting of ideological change in China from Mao’s ideology to Deng’s around 1978. Using textual analysis based on keywords in People’s Daily, we find a discontinuity in ideological exposure among people who later became city mayors. Those who were at least 18 years old in 1978 and had joined the Chinese Communist Party (CCP) are more likely to have adopted Mao’s ideology, and those who did not join by 1978, due to age limit, but joined soon thereafter were more likely to have adopted Deng’s ideology. This ideological difference has had an enduring effect on contemporary firm and city policies. Firms in cities governed by mayors with Mao’s ideology have made more social contributions, lowered within-firm pay inequality, and pursued less internationalization than those with Deng’s. These effects are stronger in firms with political connections, less state ownership, and more government subsidies as well as in regions that are more market-oriented and not “revolutionary bases.” Our results are robust to OLS regressions with various pair fixed effects besides regression discontinuity. We further find that corporate policies promoted by Mao’s ideology are associated with slower firm growth but greater stakeholder engagement.
    JEL: G30 M14 P16
    Date: 2020–08–27
  2. By: Li Yang (PSE - Paris School of Economics, WIL - World Inequality Lab); Filip Novokmet (University of Bonn); Branko Milanovic (New York University - NYU - New York University [New York] - NYU - NYU System)
    Abstract: Economic and social transformation of China during the past 40 years is without precedent in human history. While the economic transformation was extensively studied, social transformation was not. In this paper, we use for the first time harmonized household surveys covering the period 1988-2013 to study the changes in the characteristics the richest 5 percent of China's urban population. We find that the elite changed from being composed of high government officials, clerical staff, and workers in 1988 to professionals and small and large business owners in 2013. The educational level of the elite increased substantially. Membership in CCP has a positive (albeit small) effect on one's income but is particularly valuable to large business owners.
    Keywords: China,elites,income share,class,top incomes
    Date: 2019
  3. By: Zheng Li (Department of Economics, Georgia State University, USA); Jorge Martinez-Vazquez (International Center for Public Policy, Georgia State University, USA)
    Abstract: Misallocation of factors of production has been recently viewed as a promising explanation accounting for the large difference in total factor productivity (TFP) across countries. This paper differs from previous studies by concentrating on interregional capital misallocation and by focusing on the role of fiscal decentralization in shaping misallocation. Using a city-level panel data set, we measure intra-provincial and inter-municipal capital misallocation in China over 2003-18. The empirical results based on provincial-level panel data suggest that fiscal decentralization can lower inter-municipal capital misallocation while revenue decentralization performs better than expenditure decentralization. We further find that this positive effect is more significant and much larger when the market rather than government intervention is driving the flow of capital. The results are robust to subsample regressions, IV estimations, spatial autoregressions and alternative measurement of interregional misallocation. Our study complements the literature on the causes of misallocation and enriches the understanding of the consequences of fiscal decentralization, especially in terms of economic growth and interregional inequality.
    Date: 2020–08
  4. By: Plamen Nikolov; Alan Adelman
    Abstract: Higher life expectancy and rapidly aging populations in developing countries, especially in the last three decades, have created the need for policymakers to introduce pension programs in developing countries. China launched the New Rural Pension Scheme (NRPS) in 2009 to ease internal demographic pressures and concerns about old-age poverty. Using data from the introduction of the NRPS in China, we estimate the effects of pension benefits, due to participation in the NRPS, on individual cognition, measured by episodic memory and intact mental status, among individuals aged 60 and above. We find large negative effects of the provision of pension benefits on cognitive functioning among the elderly. We detect the most substantial impact of the program to be on delayed recall, a measure implicated in neurobiological research as a significant predictor of the onset of dementia. We show suggestive evidence that the program leads to stronger negative impacts among the female sample. Our findings support the mental retirement hypothesis, that decreased mental activity results in atrophy of cognitive skills. We show that retirement plays a significant role in explaining cognitive decline at older ages.
    Date: 2020–07
  5. By: Hao Wang; Yuemei Ji; Qi Luo
    Abstract: This study investigates the long-term influence of colonial legacy on the nexus between inward foreign direct investment (FDI) and labor market. We construct a panel dataset containing 285 Chinese cities 2011 to 2017 along with detailed information about Chinese modern history during 1842-1955). Our results show that the inward FDI has a positive effect on employment and such an effect is more pronounced in the regions with colonial influence than their counterparts. Further, we find that the experience of Western colonization strengthens the positive effect of inward FDI on employment whereas the experience of Japanese colonization weakens or even overturns this positive effect. These findings are robust to controlling for the endogeneity between inward FDI and employment as well as employing alternative measures for the colonization.
    Keywords: colonial legacy, foreign direct investment, employment, Chinese modern history
    JEL: N01 F21 J23
    Date: 2020
  6. By: Plamen Nikolov; Hongjian Wang; Kevin Acker
    Abstract: Social status and political connections could confer large economic benefits to an individual. Previous studies focused on China examine the relationship between Communist party membership and earnings and find a positive correlation. However, this correlation may be partly or totally spurious, thereby generating upwards-biased estimates of the importance of political party membership. Using data from three surveys spanning more than three decades, we estimate the causal effect of Chinese party membership on monthly earnings in in China. We find that, on average, membership in the Communist party of China increases monthly earnings and we find evidence that the wage premium has grown in recent years. We explore for potential mechanisms and we find suggestive evidence that improvements in one's social network, acquisition of job-related qualifications and improvement in one's social rank and life satisfaction likely play an important role. (JEL D31, J31, P2)
    Date: 2020–07
  7. By: Li,Shanjun; Zhu,Xianglei; Ma,Yiding; Zhang,Fan; Zhou,Hui
    Abstract: To promote the development and diffusion of electric vehicles, central and local governments in many countries have adopted various incentive programs. This study examines the policy and market drivers behind the rapid development of the electric vehicle market in China, by far the largest one in the world. The analysis is based on the most comprehensive data on electric vehicle sales, local and central government incentive programs, and charging stations in 150 cities from 2015 to 2018. The study addresses the potential endogeneity of key variables, such as local policies and charging infrastructure, using the border regression design and instrumental variable method. The analysis shows that central and local subsidies accounted for over half of the electric vehicles sold during the data period. Investment in charging infrastructure is much more cost-effective than consumer purchase subsidies. In addition, the policy that merely provided electric vehicles a distinctively license plate was strikingly effective. These findings demonstrate the varying efficacy across policy instruments and highlight the critical role of government in promoting fuel-saving technologies.
    Keywords: Energy and Environment,Energy Demand,Energy and Mining,Multi Modal Transport,Ports&Waterways,Energy Policies&Economics,Transport Services
    Date: 2020–08–13
  8. By: Alexander Sandkamp; Erdal Yalcin
    Abstract: This paper examines how varying antidumping methodologies applied within the WTO differ in the extent to which they reduce targeted exports. We show that antidumping duties, on average, hit Chinese exporters harder than those of other targeted countries. This difference can be traced back in part to China’s non-market economy status, which affects the way AD duties are calculated. Furthermore, we show that the type of imposed duty matters, as ad-valorem duties affect exports differently compared to specific duties or duties conditional on the export price. Overall, however, antidumping duties remain effective in reducing imports independent of market economy status.
    Keywords: antidumping, China, trade, market economy status, World Trade Organization
    JEL: F10 F13 F21
    Date: 2020
  9. By: Zhimin Li; Leslie Sheng Shen; Calvin Zhang
    Abstract: We study the effects of foreign real estate capital flows on local asset prices and employment using detailed housing transactions data. We document (i) a "China shock" in the U.S. real estate market after 2007 driven by the Chinese government's house purchase restrictions and (ii) "home bias" in foreign Chinese housing purchases in the United States as they are concentrated in ZIP codes historically populated by ethnic Chinese. Exploiting the quasi-random temporal and spatial variation of real estate capital inflows from China, we find that foreign Chinese housing purchases have a positive and significant effect on local housing and labor markets. A one standard deviation increase in exposure to these purchases explains 24% and 18% of the cross-ZIP-code variation in local house prices and employment, respectively, with the employment effect transmitted through a housing net worth channel. We also show that these purchases drive out lower-income residents. Our results highlight the role of foreign real estate capital flows in both stimulating the real economy and inducing gentrification in local economies.
    Keywords: Capital flows; House price; Employment; China shock
    JEL: E20 F61 J21 R21
    Date: 2020–06–30
  10. By: Grafström, Jonas (The Ratio Institute)
    Abstract: China is currently hailed as the world’s premier wind power producer. However, despite twice the installed wind power capacity compared to the United States in 2015, the Chinese installed capacity produces less power. Grid connectivity is remarkably low, Chinese firms have few international granted patents, and export is minimal even though production capacity far exceeds the domestic production needs. Using the tools of Austrian economics, failures in China's wind power development from 1980-2016 is documented and analysed. From a theoretical standpoint, both a planning problem and an entrepreneurial problem is evident where governmental policies create misallocation of resources and a hampering of technological development.
    Keywords: China; Wind power; Economic Planning; Austrian school; Technology; Energy
    JEL: O32 P21 Q55 Q58
    Date: 2020–08–20
  11. By: Cheung, Stephen L. (University of Sydney); Tymula, Agnieszka (University of Sydney); Wang, Xueting (University of Sydney)
    Abstract: Economists model self-control problems through time-inconsistent preferences. Empirical tests of these preferences largely rely on experimental elicitation methods using monetary rewards, with several recent studies failing to find present bias for money. In this paper, we compare estimates of present bias for money with estimates for healthy and unhealthy foods. In a within-subjects longitudinal experiment with 697 low-income Chinese high school students we find strong present bias for both money and food, and that individual measures of present bias are moderately correlated across reward types. Our experimental measures of time preferences over money predict field behaviours better than preferences elicited over foods.
    Keywords: self-control, quasi-hyperbolic discounting, present bias, adolescents, food rewards
    JEL: C91 D12 D80 D91
    Date: 2020–06
  12. By: ITO Koichiro; ZHANG Shuang
    Abstract: Inefficient energy pricing hinders economic development in many countries. We examine long-run effects of a recent heating reform in China that replaced a commonly-used fixed-payment system with individually-metered pricing. Using staggered policy rollouts and administrative data on household-level daily heating consumption, we find that the reform induced long-run reductions in heating usage and generated substantial welfare gains. Consumers gradually learned how to conserve heating effectively, making short-run evaluations underestimate the policy impacts. Our results suggest that energy price reform is an effective way to improve allocative efficiency and air quality in developing countries, where unmetered-inefficient pricing is still ubiquitous.
    Date: 2020–06
  13. By: SAITO Yukiko; KAINUMA Shuhei; Michal FABINGER
    Abstract: How does import from China affect local labor markets in Japan? We examine this question using commuting zones as regional units, incorporating shock propagation through supply chains, as well as co-agglomeration patterns. Applying the method proposed by Autor, Dorn and Hanson (2013) and Acemoglu, et al. (2016), we investigate the impact on regional manufacturing employment. Employing the input-output table allows us to analyse how the shocks propagate to upstream/downstream industries and how regional impact is related to co-agglomeration patterns. We find that the negative direct effect on local employment is underestimated in previous studies that do not consider regional propagation of the shock through supply chains, especially the positive shock to downstream industries. Downstream industries significantly benefit from imports from China due to low input prices, which increases local employment. We find no significant impact on upstream industries. Our results imply that the direct effect on local labor markets is weakened by effects on downstream industries within the same region.
    Date: 2020–05
  14. By: Nora Lustig (Tulane University); Yang Wang (Nanjing Audit University)
    Abstract: China is characterized by high prefiscal overall, urban-rural and regional inequality. Applying standard fiscal incidence analysis, we estimate the redistributive effect of taxes and social spending on income distribution and poverty. In particular, we estimate the effect of direct and indirect taxes, direct cash transfers, contributory pensions, indirect subsidies, and in-kind transfers (education and health) on overall inequality and poverty, the urban-rural income gap, and income inequality between regions. The results show that the fiscal system is inequality-reducing overall and between regions. However, the urban-rural gap rises and the postfiscal headcount ratio is higher than prefiscal poverty in rural areas. Both are undesirable outcomes given that rural residents are poorer. They are largely explained by the considerably lower contributory pensions received by rural residents.
    Keywords: Poverty and Inequality in China, Urban-Rural Gap, Regional Disparity, Taxes, Transfers, Incidence Analysis
    JEL: D31 H22 I38
    Date: 2020–08
  15. By: Peng-Fei Dai (TJU); Xiong Xiong (TJU); Wei-Xing Zhou (ECUST)
    Abstract: Uncertainty plays an important role in the global economy. In this paper, the economic policy uncertainty (EPU) indices of the United States and China are selected as the proxy variable corresponding to the uncertainty of national economic policy. By adopting the visibility graph algorithm, the four economic policy uncertainty indices of the United States and China are mapped into complex networks, and the topological properties of the corresponding networks are studied. The Hurst exponents of all the four indices are within $\left[0.5,1\right]$, which implies that the economic policy uncertainty is persistent. The degree distributions of the EPU networks have power-law tails and are thus scale-free. The average clustering coefficients of the four EPU networks are high and close to each other, while these networks exhibit weak assortative mixing. We also find that the EPU network in United States based on daily data shows the small-world feature since the average shortest path length increases logarithmically with the network size such that $L\left(N\right)=0.626\ln N+0.405$. Our research highlights the possibility to study the EPU from the view angle of complex networks.
    Date: 2020–07
  16. By: Ye Chen (Singapore Management University); Peter C.B. Phillips (Cowles Foundation, Yale University); Shuping Shi (Macquarie University)
    Abstract: Price bubbles in multiple assets are sometimes nearly coincident in occurrence. Such near-coincidence is strongly suggestive of co-movement in the associated asset prices and likely driven by certain factors that are latent in the financial or economic system with common effects across several markets. Can we detect the presence of such common factors at the early stages of their emergence? To answer this question, we build a factor model that includes I(1), mildly explosive, and stationary factors to capture normal, exuberant, and collapsing phases in such phenomena. The I(1) factor models the primary driving force of market fundamentals. The explosive and stationary factors model latent forces that underlie the formation and destruction of asset price bubbles, which typically exist only for subperiods of the sample. The paper provides an algorithm for testing the presence of and date-stamping the origination and termination of price bubbles determined by latent factors in a large-dimensional system embodying many markets. Asymptotics of the bubble test statistic are given under the null of no common bubbles and the alternative of a common bubble across these markets. We prove consistency of a factor bubble detection process for the origination and termination dates of the common bubble. Simulations show good finite sample performance of the testing algorithm in terms of its successful detection rates. Our methods are applied to real estate markets covering 89 major cities in China over the period January 2003 to March 2013. Results suggest the presence of three common bubble episodes in what are known as China's Tier 1 and Tier 2 cities over the sample period. There appears to be little evidence of a common bubble in Tier 3 cities.
    Keywords: Common Bubbles, Mildly Explosive Process, Factor Analysis, Date Stamping, Real Estate Market
    JEL: C12 C13 C58
    Date: 2020–08
  17. By: Chelsea Gray (Metropolitan Police and University College London); Kirstine Hansen (University College London)
    Abstract: There is a long history of research that shows how world events can influence attitudes and behaviours towards whole groups of nations, religions, ethnicities and racial groups. In this paper we examine whether Covid-19, which at the time of writing was widely believed to have originated in China, negatively affected the environment for Chinese people in London leading to an increase in hate crimes towards this group relative to others. We test our hypothesis using data from the Metropolitan Police for the whole of the Metropolitan area of London. We use a difference-in-differences approach to examine what happened to hate crimes against Chinese people in London in the months before (Oct 2019-Dec 2019) and the months after the Covid-19 pandemic (Jan-Mar 2020) relative to other ethnic groups, to other crimes and to other time periods. Our methodology utilises the fact that Covid-19 came as an unexpected shock, which very quickly changed the environment for crime, and did so differentially across ethnicities. We argue that this shock is likely to negatively impact on attitudes and behaviours towards Chinese people, but have no effect on other ethnicities. Our results show that in the months after Covid-19 there was an increase in hate crimes against Chinese people in London, but this increase was not seen amongst the other ethnic groups examined, other non-hate crimes, nor in any other time period. This leads us to conclude that Covid-19 lead to an increase in hate crimes against Chinese people in London.
    Keywords: Covid-19, hate crimes, victimisation, Chinese, London
    JEL: B41 C01 C12 C25 C52 K42
    Date: 2020–08–01

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