nep-cna New Economics Papers
on China
Issue of 2020‒09‒07
fourteen papers chosen by
Zheng Fang
Ohio State University

  1. A Spatial Stochastic SIR Model for Transmission Networks with Application to COVID-19 Epidemic in China By Tatsushi Oka; Wei Wei; Dan Zhu
  2. Reconsidering the Phase One Trade Deal with China in the Midst of the Pandemic By Matthew Higgins; Thomas Klitgaard
  3. Estimating the Effect of the One-Child Policy on Chinese Household Savings: Evidence from an Oaxaca Decomposition By Zhongchen Song; Tom Coupé; W. Robert Reed
  4. Trade liberalization and SO2 emissions: Firm-level evidence from China's WTO entry By Li, Lei; Löschel, Andreas; Pei, Jiansuo; Sturm, Bodo; Yu, Anqi
  5. In Between the State and the Market: An Empirical Assessment of the Early Achievements of China’s 2015 Electricity Reform By Xuemei Zhenga; Flavio Menezes; Rabindra Nepal
  6. Peer Effects and Fertility Preferences in China: Evidence from the China Labor-Force Dynamics Survey By Nie, Peng; Wang, Lu; Sousa-Poza, Alfonso
  7. Air Pollution Quotas and the Dynamics of Internal Skilled Migration in Chinese Cities By Yu, Bo; Lee, Wang-Sheng; Rafiq, Shuddhasattwa
  8. China's Productivity Slowdown and Future Growth Potential By Brandt,Loren; Litwack,John; Mileva,Elitza Alexandrova; Wang,Luhang; Zhang,Yifan-000568579; Zhao,Luan
  9. Technology protectionism and the patent system: Evidence from China By Gaétan de Rassenfosse; Emilio Raiteri
  10. Window Dressing in the Public Sector: A Case Study of China’s Compulsory Education Promotion Program By Hanming Fang; Chang Liu; Li-An Zhou
  11. Frictional Sorting By Wenquan Liang; Ran Song; Christopher Timmins
  12. Childhood Circumstances and Health Inequality in Old Age: Comparative Evidence from China and the United States By Chen, Xi; Yan, Binjian; Gill, Thomas M.
  13. China's Foreign Trade and Investment, 1800 - 1950 By Wolfgang Keller; Carol H. Shiue
  14. Technical gap, trade partners and product mix evolution: how trading with China affects global CO2 emissions By Banie Naser Outchiri; Jie He

  1. By: Tatsushi Oka; Wei Wei; Dan Zhu
    Abstract: Governments around the world have implemented preventive measures against the spread of the coronavirus disease (COVID-19). In this study, we consider a multivariate discrete-time Markov model to analyze the propagation of COVID-19 across 33 provincial regions in China. This approach enables us to evaluate the effect of mobility restriction policies on the spread of the disease. We use data on daily human mobility across regions and apply the Bayesian framework to estimate the proposed model. The results show that the spread of the disease in China was predominately driven by community transmission within regions and the lockdown policy introduced by local governments curbed the spread of the pandemic. Further, we document that Hubei was only the epicenter of the early epidemic stage. Secondary epicenters, such as Beijing and Guangdong, had already become established by late January 2020, and the disease spread out to connected regions. The transmission from these epicenters substantially declined following the introduction of human mobility restrictions across regions.
    Date: 2020–08
  2. By: Matthew Higgins; Thomas Klitgaard
    Abstract: It may be hard to remember given the pandemic, but trade tensions between the United States and China eased in January 2020 with the inking of the Phase One agreement. Under the deal, China committed to a massive increase in its purchases of U.S. goods and services, with targets set for various types of products. At the time of the pact, the U.S. economy was operating near full capacity, and any increase in U.S. exports stemming from the pact would likely have resulted in only a small boost to growth. The environment is now starkly different, with the U.S. economy operating far below potential. While the promised increase in Chinese purchases seems unlikely to be achieved, any appreciable increase in exports from the agreement is now more likely to deliver a meaningful boost to the economy.
    Keywords: China U.S. trade agreement; phase one; pandemic; COVID-19; exports; WTO; diversion creation; commodities
    JEL: F0
    Date: 2020–08–05
  3. By: Zhongchen Song; Tom Coupé (University of Canterbury); W. Robert Reed (University of Canterbury)
    Abstract: Researchers have long puzzled over China’s high household savings rate. Some have hypothesized that the explanation lies with China’s One-Child Policy (OCP). According to this hypothesis, faced with fewer children to support them in their old age, Chinese parents increased their savings to finance retirement. Previous research relied on empirical studies of the relationship between children and saving behavior. However, all of these studies based their analysis on data after the OCP was implemented. Their implicit counterfactual for China without an OCP was households with multiple children living in an OCP environment. In contrast, we compare Chinese people with people from regions that do not have restrictive population policies. These regions share many cultural, demographic and economic characteristics with China that suggest they can be used as a counterfactual for China. This approach enables us to employ a Blinder-Oaxaca decomposition procedure to identify the different channels by which children could affect savings. Our results suggest that the OCP decreased households’ proclivity to save. The estimated effects are generally small, in the range of one to two percentage points. We find no evidence to indicate that the OCP can explain China’s high saving rate. An implication of our findings is that they suggest that the recent relaxation of the OCP cannot be counted upon to substantially boost Chinese consumption.
    Keywords: China, One-Child Policy, Savings rate, Demographics, Blinder-Oaxaca decomposition
    JEL: D14 E21 J13 J18 O10
    Date: 2020–08–01
  4. By: Li, Lei; Löschel, Andreas; Pei, Jiansuo; Sturm, Bodo; Yu, Anqi
    Abstract: Is trade liberalization contributing to cleaner production amongst manufacturing firms? Theoretical predictions and empirical evidences are mixed. This study utilizes China's dual trade regime and China's WTO entry in 2001 to construct a unique micro dataset on manufacturing firms for China for the period 2000-2007, and performs a difference-in-difference estimation strategy to directly examine this issue. Specifically, normal exporters that saw tariff changes during the same period form the treatment group; while processing exporters that enjoy tariff-exemptions both pre- and post-WTO entry serve as the control group. Results show that China's WTO entry contributed to a lower SO2 emission intensity for normal exporting firms. We further examine the mechanism and show that the productivity channel accounted for the observed pattern. Specifically, more efficient normal exporters saw greater decline of SO2 emission intensity than average normal exporters. This study contributes to a better understanding of the impact of trade on the environment, especially in developing countries. It also complements the literature in terms of providing China's micro evidence on the impact of trade liberalization on firm's environmental performance.
    Keywords: WTO,trade liberalization,dual trade regime,SO2 emission intensity,China
    JEL: F18 Q53 Q56
    Date: 2020
  5. By: Xuemei Zhenga (School of Economics, Southwestern University of Finance and Economics, Chengdu, China); Flavio Menezes (School of Economics, University of Queensland, Brisbane, Australia); Rabindra Nepal (School of Accounting, Economics and Finance, University of Wollongong, Wollongong, Australia)
    Abstract: This is the first study to investigate and quantify the extent to which the 2015 reform has already impacted the economic and technical performance as well as the security of supply of China’s electricity sector. We use provincial data from 2003 to 2018 to estimate the impacts of the reform on on-grid prices, average retail electricity prices (including those for households) and supply reliability. We adopt fixed effect models together with other dynamic panel data models. We find that the 2015 reform has already had a negative impact on on-grid prices of electricity generated from thermal energy and on overall average retail prices, but the impacts on other prices are not statistically significant. Our results also suggest that the 2015 reform has had significantly negative impacts on technical efficiency, as measured by the coal burned per unit of thermal generation, but no impact on the line loss rate of electricity transmission. In addition, our empirical analysis suggests that the 2015 reform has reduced reliability and increased the instances of supply interruptions. These results are robust to different estimators and models. Finally, the effect of the reform is heterogeneous across regions. Our findings suggest that additional steps are needed to further improve the overall economic efficiency of the electricity sector in China, despite significant progress arising from the 2015 reform. The results may also provide useful lessons for other developing economies aiming to reform their power sectors and who are facing similar choices between the roles of the state and the market in ensuring efficient outcomes.
    Keywords: Electricity sector reform, Market mechanism, China
    JEL: L94 P21 P28
    Date: 2020–07–08
  6. By: Nie, Peng (Xi’an Jiaotong University); Wang, Lu (Xi’an Jiaotong University); Sousa-Poza, Alfonso (University of Hohenheim)
    Abstract: Despite empirical evidence that individuals form their fertility preferences by observing social norms and interactions in their environments, the exact impact of these peer effects remains unclear. We thus use data from the 2014 and 2016 China Labor-force Dynamics Survey to investigate the association between community-level peer effects and fertility preferences among Chinese women aged 18-49. Whereas our baseline results indicate that 11.96% of these women would prefer 1 or no children, 74.1% would like 2 children, and 13.93% would prefer 3 or more children. A one unit increase in community-level peer fertility reduces the preference of wanting only one child by 14.3%, whereas it increases the probability of preferring three children by 9.3% and four or more children by 4.8%. Hence, overall, we find a relatively strong peer effect on individual fertility preferences in communities characterized by generally low fertility rates, which provides support for the role of social norms in the fertility choices of reproductive-aged Chinese women.
    Keywords: peer effects, fertility, fertility preferences, China
    JEL: D10 D71 J13
    Date: 2020–07
  7. By: Yu, Bo (Deakin University); Lee, Wang-Sheng (Deakin University); Rafiq, Shuddhasattwa (Deakin University)
    Abstract: This paper examines the role of a sulphur dioxide (SO2) emissions quota introduced as part of China's 11th Five-Year Plan on internal movements of high-skilled labour across Chinese prefecture cities. Using data on migration flows calculated through changes in Hukou status, this study suggests that a 1,000 tons increase in the SO2 emissions reduction quota leads on average to approximately a 1.5 percentage points increase in high-skilled net outmigration. Compared to the largest prefectures, this regulation effect is twice as large in the smaller regulated prefectures. A possible mechanism could be that the implementation of SO2 quotas decreases relative labour demand in polluting industries in the regulated cities in the short term, thereby resulting in sectoral transitions from dirty-to-clean industries as well as skilled net outmigration flows. However, this net outmigration trend fades in the long term due to stabilisation in air quality. Our findings help contribute to a broader understanding of the effects of environmental policies on internal labour migration and labour force dynamics.
    Keywords: air pollution, China, emissions quota, environmental policy, internal migration, sulphur dioxide
    JEL: J61 O15 Q53 Q58
    Date: 2020–07
  8. By: Brandt,Loren; Litwack,John; Mileva,Elitza Alexandrova; Wang,Luhang; Zhang,Yifan-000568579; Zhao,Luan
    Abstract: China?s economy grew by an impressive 10 percent per year over four decades. Productivity improvements within sectors and gains from resource reallocation between sectors and ownership groups drove that expansion. However, productivity growth has declined markedly in recent years. This paper extends previous macro and firm-level studies to show that domestic factors and policies contributed to the slowdown. The analysis finds that limited market entry and exit and lack of resource allocation to more productive firms were associated with slower manufacturing total factor productivity growth. Earlier reforms led to state-owned enterprises catching up to private sector productivity levels in manufacturing, but convergence stalled after 2007. Furthermore, the allocation of a larger share of credit and investment to infrastructure and housing led to lower returns to capital, a rapid buildup in debt, and higher risks to growth. China?s growth potential remains high, but its long-term growth prospects depend on reversing the recent decline in total factor productivity growth.
    Keywords: Macroeconomics and Economic Growth,Economic Policy, Institutions and Governance,Construction Industry,General Manufacturing,Pulp&Paper Industry,Textiles, Apparel&Leather Industry,Common Carriers Industry,Business Cycles and Stabilization Policies,Plastics&Rubber Industry,Food&Beverage Industry,Labor Markets,International Trade and Trade Rules,Urban Governance and Management,Urban Housing and Land Settlements,Municipal Management and Reform,Urban Housing
    Date: 2020–06–24
  9. By: Gaétan de Rassenfosse (Ecole polytechnique federale de Lausanne); Emilio Raiteri (Eindhoven University of Technology)
    Abstract: Governments have strong incentives to allow their inventors to free ride on foreign technologies. They can achieve this result by discriminating against foreigners in the patent system--by refusing to grant foreigners a patent for their inventions. International patent law treaties forbid this practice, which may lower the global innovation incentives and may hurt international trade. Using data on half a million inventions submitted to the Chinese patent office, we find robust evidence of anti-foreign bias in the issuance of patents in 'strategic' technology areas. Foreigners are about 50 percent more likely to be refused a strategic patent than locals.
    Keywords: industrial policy, national treatment principle, patent, technology protectionism, TRIPS
    JEL: O34 K11 F52
    Date: 2020–09
  10. By: Hanming Fang; Chang Liu; Li-An Zhou
    Abstract: We examine window dressing phenomenon in the public sector by studying the strategic responses of Chinese local officials to the compulsory education promotion program launched by the central government in the 1990s. According to this program, the Chinese counties should receive inspections on whether the compulsory educational targets were achieved on pre-scheduled time by provincial governments; and failing to pass the inspection would have severe negative career consequences for the county leaders. We find that county-level educational expenditures saw a sustained increase before the inspection, but a sharp drop immediately after the inspection. Local officials who were more likely to be inspected within their tenures window-dressed more aggressively. As a result, middle school enrollment rates declined significantly after the inspection, and rural girls bore the blunt of the decline in school enrollment.
    JEL: D73 H11 H41 P26
    Date: 2020–07
  11. By: Wenquan Liang; Ran Song; Christopher Timmins
    Abstract: In many countries around the world, migration costs and housing supply restrictions interact with each other and combine to restrict workers’ location decisions. Using an equilibrium sorting model and rich micro data from China, we evaluate the impacts of these dual constraints on workers’ sorting behavior and quantify the resulting changes in aggregate welfare and inequality. We find strong policy interactions between the two kinds of frictions in determining welfare losses and regional inequality. Counterfactual simulations show that lowering migration costs can increase welfare and reduce regional inequality by moving workers from unproductive inland regions to productive coastal regions in China; such welfare and regional distributional impacts depend on the elasticity of housing supply in coastal regions and vice-versa. Results highlight the policy complementarities between reducing the two kinds of frictions and have general implications for countries with different levels of constraints on mobility and housing supply.
    JEL: J24 J61 R23
    Date: 2020–08
  12. By: Chen, Xi (Yale University); Yan, Binjian (Nanjing University); Gill, Thomas M. (Yale University)
    Abstract: This paper estimates the extent to which childhood circumstances contribute to health inequality in old age and evaluates the importance of major domains of childhood circumstances to health inequalities in the USA and China. We link two waves of the China Health and Retirement Longitudinal Study (CHARLS) in 2013 and 2015 with the newly released 2014 Life History Survey (LHS), and two waves of the Health and Retirement Study (HRS) in 2014 and 2016 with the newly released 2015 Life History Mail Survey (LHMS) in the USA, to quantify health inequality due to childhood circumstances for which they have little control. Using the Shapley value decomposition approach, we show that childhood circumstances may explain 7-16 percent and 14-30 percent of health inequality in old age in China and the USA, respectively. Specifically, the contribution of childhood circumstances to health inequality is larger in the USA than in China for self-rated health, mental health, and physical health. Examining domains of childhood circumstance, regional and rural/urban status contribute more to health inequality in China, while family socioeconomic status (SES) contributes more to health inequality in the USA. Our findings support the value of a life course approach in identifying the key determinants of health in old age. Distinguishing sources of health inequality and rectifying inequality due to early childhood circumstances should be the basis of policy promoting health equity.
    Keywords: life course approach, inequality of opportunity, self-rated health, mental health, frailty, childhood circumstances
    JEL: I14 J13 J14 O57
    Date: 2020–07
  13. By: Wolfgang Keller; Carol H. Shiue
    Abstract: The First Opium War (1840-42) was a watershed in the history of China. In its aftermath Britain and other countries forced open new ports to foreign trade through international treaties. Chinese institutions of trade were abolished and re-organized under Western management, Western legal institutions were introduced in China in form of courts and legal practices, and foreigners in China were tried according to the laws of their country of origin (extraterritoriality). To better understand the implications of these changes during the Treaty Port Era (1842-1943), we begin by discussing the attitudes towards foreign trade before 1840 for both China and the West. Drawing on information from the foreign-led Chinese Maritime Customs organization, we provide a synopsis of China’s foreign trade and investment both in terms of patterns and volumes. The paper highlights the link between foreign and domestic trade as well as the important role of new, previously not traded goods for welfare. Employing several outcome measures, we show that Western influence generated significant benefits to China’s economy, and the results suggest that the geographic scope of these benefits reached into areas far beyond the treaty ports.
    JEL: F1 F2 N15 O1
    Date: 2020–07
  14. By: Banie Naser Outchiri (Université de Sherbrooke); Jie He (Université de Sherbrooke)
    Abstract: Based on a highly disaggregated database (1033 products, 181 partners) that we have built in physical terms, we investigate the drivers of China’s environmental trade cost (measured by CO2 emissions) from 1995 to 2014. To do this, we first used the “material balance” method to estimate China’s environmental trade cost. Then, we applied a new procedure to identify the drivers of China’s environmental trade cost that contributes to a better understanding of the trade’s role in environmental issues. Finally, we employed additive index decomposition analysis to estimate the contribution of each driver and their statistical accuracy. The results show that China faces a significant environmental cost as a result of its trade integration. Over the period, China’s environmental trade cost first was constant and relatively low from 1995 to 2001, then increased sharply from 2001 to 2008 before falling in 2009 and restarting unstable growth between 2010 and 2014. The decomposition results show that the increase in China’s environmental trade cost is explained by the fact that China’s technical catch-up is no longer able to offset the foreign demand effect and the product mix effect of exports. This is mainly due to the sharp increase in foreign demand for Chinese products and the fact that China’s export structure is becoming dirty mainly due to China-North trade patterns. There are some evidences that dirty production has slowly shifted from rich countries (especially North) to China, and clean production has moved in the opposite way. This has become more important after China’s entry into the World Trade Organization (WTO) in 2001, more specifically since 2004. Therefore, our results are better explained by the pollution haven hypothesis.
    Keywords: Carbon intensity, Emissions embodied in trade, Product level physical database, Material balance method, Index decomposition analysis.
    JEL: F18 O13 Q56 Q54
    Date: 2020–08

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