nep-cna New Economics Papers
on China
Issue of 2020‒09‒28
twenty papers chosen by
Zheng Fang
Ohio State University

  1. Growing Like China: Firm Performance and Global Production Line Position By Davin Chor; Kalina Manova; Zhihong Yu
  2. The One-Child Policy Amplifies Economic Inequality across Generations in China By Yu, Yewen; Fan, Yi; Yi, Junjian
  3. Clean Air as an Experience Good in Urban China By Matthew E. Kahn; Weizeng Sun; Siqi Zheng
  4. Trump’s trade attack on China – who laughs last? By Gabriel Felbermayr; Marina Steininger
  5. Data-intensive Innovation and the State: Evidence from AI Firms in China By Martin Beraja; David Y. Yang; Noam Yuchtman
  6. Trade Deficit with China – an Issue for the Euro Area? By Klaus Weyerstrass
  7. Import Competition and Gender Differences in Labor Reallocation By Mansour, Hani; Medina, Pamela; Velasquez, Andrea
  8. To Stay or to Migrate? When Becker Meets Harris-Todaro By Pei-Ju Liao; Ping Wang; Yin-Chi Wang; Chong Kee Yip
  9. The Impact of Migration Controls on Urban Fiscal Policies and the Intergenerational Transmission of Human Capital in China By Holger Sieg; Chamna Yoon; Jipeng Zhang
  10. Perinatal Health among 1 Million Chinese-Americans By Douglas Almond; Yi Cheng
  11. COVID-19: Energy landscape theory of SARS-CoV-2 complexes with Particulate Matter By Zangari del Balzo, Gianluigi
  12. Trade Liberalization and the Gender Employment Gap in China By Wang, Feicheng; Kis-Katos, Krisztina; Zhou, Minghai
  13. Competing for Time: A Study of Mobile Applications By Han Yuan
  14. One Belt, One Road, One Way? By Mau, Karsten; Seuren, Rosalie
  15. China’s post-COVID-19 stimulus: no Green New Deal in sight By Jorrit Gosens
  16. Germany and China Have Savings Gluts, the USA Is a Sump: So What? By Lance Taylor
  17. The Impact of China Exchange Rate Policy on its Trading Partners Evidence Based on the GVAR Model By ABBAS, Shah; Nguyen, V.C.; YANFU, Zhu; Nguyen, Huu Tinh
  18. The Fractured-Land Hypothesis By Jesús Fernández-Villaverde; Mark Koyama; Youhong Lin; Tuan-Hwee Sng
  19. Supranationalism, Sino-American Technology Separation, and Semiconductors: First Observations By Holmström, Harald; Seppälä, Timo
  20. Institutional Discrimination and Assimilation: Evidence from the Chinese Exclusion Act of 1882 By Chen, Shuo; Xie, Bin

  1. By: Davin Chor; Kalina Manova; Zhihong Yu
    Abstract: Global value chains have fundamentally transformed international trade and development in recent decades. We use matched firm-level customs and manufacturing survey data, together with Input-Output tables for China, to examine how Chinese firms position themselves in global production lines and how this evolves with productivity and performance over the firm lifecycle. We document a sharp rise in the upstreamness of imports, stable positioning of exports, and rapid expansion in production stages conducted in China over the 1992-2014 period, both in the aggregate and within firms over time. Firms span more stages as they grow more productive, bigger and more experienced. This is accompanied by a rise in input purchases, value added in production, and fixed cost levels and shares. It is also associated with higher profits though not with changing profit margins. We rationalize these patterns with a stylized model of the firm lifecycle with complementarity between the scale of production and the scope of stages performed.
    JEL: F10 F14 F23
    Date: 2020–09
  2. By: Yu, Yewen (Peking University); Fan, Yi (National University of Singapore); Yi, Junjian (National University of Singapore)
    Abstract: This study finds that China's one-child policy (OCP), one of the most extreme forms of birth control in recorded history, has amplified economic inequality across generations in China since its introduction in 1979. Poor Chinese families, whose fertility choices are less constrained by the OCP than rich ones, have more children but invest less in human capital per child. Since human capital is a major determinant of earnings, the income inequality persists and enlarges across generations as a consequence. Based on nationally representative longitudinal household survey data, our estimation results show that the OCP accounts for 32.7%-47.3% of the decline in intergenerational income mobility. The OCP has significant ramifications for Chinese society, not only intragenerationally but also intergenerationally.
    Keywords: One-Child Policy, differential fertility, child quantity-quality tradeoff, intergenerational mobility
    JEL: E24 J13
    Date: 2020–08
  3. By: Matthew E. Kahn; Weizeng Sun; Siqi Zheng
    Abstract: The surprise economic shutdown due to COVID-19 caused a sharp improvement in urban air quality in many previously heavily polluted Chinese cities. If clean air is a valued experience good, then this short-term reduction in pollution in spring 2020 could have persistent medium-term effects on reducing urban pollution levels as cities adopt new “blue sky” regulations to maintain recent pollution progress. We document that China’s cross-city Environmental Kuznets Curve shifts as a function of a city’s demand for clean air. We rank 144 cities in China based on their population’s baseline sensitivity to air pollution and with respect to their recent air pollution gains due to the COVID shutdown. The largest experience good effect should take place for cities featuring a high pollution sensitive population and where air quality has sharply improved during the pandemic. The residents of these cities have increased their online discussions focused on environmental protection, and local officials are incorporating “green” industrial subsidies into post-COVID stimulus policies.
    JEL: Q52 Q53
    Date: 2020–09
  4. By: Gabriel Felbermayr; Marina Steininger
    Abstract: This policy brief uses a modern general equilibrium trade model to simulate the effects of the Chinese-American trade dispute. It finds that the tariffs and countertariffs implemented as of today cost the US €2.6 billion and China €5.7 billion of GDP. Both economies lose, but China loses absolutely and relatively much more. Europe, in contrast, could register a GDP gain of €345 million. Chinese exports to the US go down by €52.1 billion, while US exports to China fall by €37.1 billion, so the US trade balance slightly improves. A full-blown tariff war, where both parties tax all imports by additional 25%, would lower US GDP by € 9.5 billion and Chinese GDP by €30.4 billion. If the objective of President Trump is to use trade policy to increase the economic distance with China, an escalation helps. Such a trade war would increase value added in the US manufacturing sector by 0.6% while the agri-food sector would shrink by 1.22%. In China, manufacturing would decline by 0.8%. Chinese exports to the US would fall by a whopping €171.3 billion, while US exports to China would contract by €51.0 billion. So, the bilateral trade balance of the US with China improves; however, with the EU it deteriorates. Hence, while Europe may benefit slightly from trade diversion effects, its trade surplus with the US becomes even larger – foreboding further transatlantic conflict.
    Date: 2019
  5. By: Martin Beraja; David Y. Yang; Noam Yuchtman
    Abstract: Data-intensive technologies, like AI, are increasingly widespread. We argue that the direction of innovation and growth in data-intensive economies may be crucially shaped by the state because: (i) the state is a key collector of data and (ii) data is sharable across uses within firms, potentially generating economies of scope. We study a prototypical setting: facial recognition AI in China. Collecting comprehensive data on firms and government procurement contracts, we find evidence of economies of scope arising from government data: firms awarded contracts providing access to more government data produce both more government and commercial software. We then build a directed technical change model to study the implications of government data access for the direction of innovation, growth, and welfare. We conclude with three applications showing how data-intensive innovation may be shaped by the state: both directly, by setting industrial policy; and indirectly, by choosing surveillance levels and privacy regulations.
    JEL: E0 H4 L5 L63 O25 O30 O40 P00 P16 Z21
    Date: 2020–08
  6. By: Klaus Weyerstrass
    Abstract: The rise of China in the world economy and its growing importance as investor in industrialised and developing countries raised concerns of policy makers in some countries. The large deficit in the trade with China has caused the US government to increase tariffs on imports from China. Contrary to the situation regarding trade between China and the US, trade between the euro area aggregate and China is almost balanced, with a small deficit in trade with goods and a small surplus in the services balance of the euro area. On the individual country level, Germany, Ireland and Finland record trade surpluses with China. An econometric analysis identified domestic demand as the most important determinant of the trade balance between the euro area and China. Also revealed comparative advantages, the exchange rate between the euro and the renminbi as well as the stance of fiscal policies influence the trade balance. Since trade between the euro area and China is more or less balanced, there is no need for policy actions to address any imbalances. Furthermore, for open economies which many of the euro area countries are, openness to international trade is important. Thus, European policy makers are well advised to advocate free market access, but reciprocity is important.
    Date: 2019
  7. By: Mansour, Hani (University of Colorado Denver); Medina, Pamela (University of Toronto); Velasquez, Andrea (University of Colorado Denver)
    Abstract: We study gender differences in the labor market reallocation of Peruvian workers in response to trade liberalization. The empirical strategy relies on variation in import competition across local labor markets based on their industrial composition before China entered the global market in 2001. We find that exposure to Chinese imports led to short-run declines in the employment share of women and men. However, the adverse employment effects are only persistent for women, leading to a reduction in their labor force participation. Lack of job market opportunities in the non-tradable sector act as a significant friction that prevents women from fully offsetting trade-induced displacements.
    Keywords: import competition, female employment, gender discrimination
    JEL: E24 F14 J16 J71
    Date: 2020–08
  8. By: Pei-Ju Liao; Ping Wang; Yin-Chi Wang; Chong Kee Yip
    Abstract: Allowing migration activity as an integral part of demographic transition and economic development, we establish a locational quantity-quality trade-off of children and explore its macroeconomic consequences. We construct a dynamic competitive migration equilibrium framework with rural agents heterogeneous in skills and fertility preferences. We then establish and characterize a mixed migration equilibrium where high-skilled rural agents with low fertility preferences always migrate to cities, low-skilled with high fertility preferences always stay, and only an endogenously determined fraction of high-skilled/high fertility preferences or low-skilled/low fertility preferences ends up moving. By calibrating our model to fit the data from China, we find interesting interactions between fertility and migration decisions in various counterfactual experiments with respect to changes in migration, population control and rural land entitlement policies. We conclude that overlooking the locational quantity-quality trade-off of children may lead to nonnegligible biases in assessing the implications and effectiveness of government policies.
    JEL: O15 O53 R23 R28
    Date: 2020–09
  9. By: Holger Sieg; Chamna Yoon; Jipeng Zhang
    Abstract: Using newly available data, we document that internal migrants do not enjoy the same access to local public goods and services as city residents in China. We estimate a spatial overlapping generations model with heterogeneous households to quantify the impact of the Hukou system on urban fiscal policies and access to educational opportunities. We find that migrants provide large fiscal externalities to all major cities. We show the feasibility of alternative internal migration policies that offer the potential of decreasing the inequality within China while at the same time increasing the overall level of human capital in the economy.
    JEL: E6 H7 I25 J24
    Date: 2020–09
  10. By: Douglas Almond; Yi Cheng
    Abstract: The literature on "missing girls" suggests a net preference for sons both in China and among Chinese immigrants to the West. Perhaps surprisingly, we find that newborn Chinese-American girls are treated more intensively in US hospitals: they are kept longer following delivery, have more medical procedures performed, and have more hospital charges than predicted (by the non-Chinese gender difference). What might explain more aggressive medical treatment? We posit that hospitals are responding to worse health at birth of Chinese-American girls. We document higher rates of low birth weight, congenital anomalies, maternal hypertension, and lower APGAR scores among Chinese Americans girls – outcomes recorded prior to intensive neonatal medical care and relative to the non-Chinese gender gap. To the best of our knowledge, we are the first to find that son preference may also compromise "survivor" health at birth. On net, compromised newborn health seems to outweigh the benefit of more aggressive neonatal hospital care for girls. Relative to non-Chinese gender differences, death on the first day of life and in the post-neonatal period is more common among Chinese-American girls, i.e. later than sex selection is typically believed to occur.
    JEL: I1 I12 J13 J16
    Date: 2020–09
  11. By: Zangari del Balzo, Gianluigi
    Abstract: In the past few days, the global scientific community has made much progress in research for the COVID-19 pandemic, but the new SARS-CoV-2 coronavirus has not yet been correctly characterized thermodynamically and much is still unknown. In particular, the current SARS-CoV-2 models lack the characterization of the virus system within its environment. This is a serious systematic error, which stands in the way of impeding research into the pandemic. In the present work, therefore, we consider the SARS-CoV-2 system with its environment, and we give a correct thermodynamic definition, through analysis and simulations, from air transport to cellular entry through the mechanism of receptor- mediated endocytosis. In studying the aerosol environment of the SARS-CoV-2 virus, we cannot omit the presence of nanoparticles or dust. Therefore, analyzing and comparing the air environments in China and Italy, we note that the Chinese and Italian regions which were at the beginning the most affected by the pandemic are also the most polluted. The same phenomenon is happening today for the United States and Brazil. We therefore propose an energy landscape theory of synergistic complexes of SARS- CoV-2 with particulate matter (PM). This could explain the optimized strategy of deep penetration of interstitial lung cells and the rapid spread of the pandemic in the most polluted areas of the planet. It could also explain the severity and difficulty of treating the forms of interstitial pneumonia occurred in Italy and worldwide. The energy landscape theory of complexes of SARS-CoV-2 with particulate matter (PM), leads to crucial methodological constraints aimed at containing systematic errors in experimental laboratory procedures and in mathematical modeling, which can allow and accelerate the definition of the mechanism of action of the virus and therefore the realization of the appropriate therapies and health protocols.
    Date: 2020–03–20
  12. By: Wang, Feicheng (University of Göttingen); Kis-Katos, Krisztina (University of Goettingen); Zhou, Minghai (University of Nottingham)
    Abstract: This paper investigates the impact of import liberalization induced labor demand shocks on male and female employment in China. Combining data from population and firm censuses between 1990 and 2005, we relate prefecture-level employment by gender to the exposure to tariff reductions on locally imported products. Our empirical results show that increasing import competition has kept more females in the workforce, reducing an otherwise growing gender employment gap in the long run. These dynamics were present both in local economies as a whole and among formal private industrial firms. Examining channels through which tariff reductions differentially affect males and females, we find that trade-induced competitive pressures contributed to a general expansion of female-intensive industries, a shift in sectoral gender segregation, reductions in gender discrimination in the labor market, technological upgrading through computerization, and general income growth.
    Keywords: trade liberalization, import competition, gender employment gap, China
    JEL: F13 F14 F16 F66 J16
    Date: 2020–08
  13. By: Han Yuan
    Abstract: A smartphone user allocates her time to multiple mobile applications. To study the competitive relationship among apps, I develop a discrete-continuous model of time allocation with a binding time constraint and estimate it with a weekly panel of app usage in China. If two apps are often used together, it is because either they are complements or the preferences of the two apps are positively correlated. To disentangle complementarity (substitutability) from correlation in preferences, I use the exclusion restriction that updates of an app should affect the utility of this app but not those of other apps. I estimate the model on three pairs of apps (substitutes, complements, and independent apps). I recover a reasonable competition pattern and simulate mergers of the three pairs of apps. I find that a seemingly innocuous merger of independent apps can hurt consumers due to the binding time constraint. My results confirm that users and firms can both benefit from a merger of complements. I also find that usage-based pricing leads to higher profits and total surplus compared with subscription pricing because it enables price discrimination based on usage.
    JEL: L11 L40 M31
    Date: 2020–09–18
  14. By: Mau, Karsten (RS: GSBE other - not theme-related research, Macro, International & Labour Economics); Seuren, Rosalie
    Abstract: We analyze the trade effects of a new unfolding transport infrastructure in connection with China's Belt and Road Initiative (BRI). Using panel data for the years 1996-2018, featuring 27 exporting countries and 96 industries, we exploit variation in the timing and number of railway connections to estimate whether European countries benefit from increased export revenues and product variety of their shipments to China. We find that both increase and that also indirectly connected countries benefit. Using additional data on the mode of transport, we find that industries with intermediate time-sensitivity appear to increase their utilization of rail-freight to China the most and confirm that the overall increase in exports is driven by these industries.
    JEL: F14 F15 R41
    Date: 2020–09–15
  15. By: Jorrit Gosens (Crawford School of Public Policy, Australian National University)
    Abstract: Much hope has been placed on China’s decisions regarding low-carbon stimulus following COVID-19. Analysis of China’s recent Government Work Report suggests that while a repeat of recovery measures focused on high-emissions infrastructure following the 2008 global recession is not in the cards, a Chinese Green New Deal is not in sight either. Much investment is flowing to fossil fuel industries, whilst support policies for renewable energy industries are absent from Beijing’s recovery program. These signs of environmental ambition taking a back seat are worrisome given that Beijing is currently designing its 14th Five-Year Plan.
    Date: 2020–07
  16. By: Lance Taylor (New School for Social Research)
    Abstract: A `global saving glut` was invented by Ben Bernanke in 2005 as a label for positive net lending (imports exceeding exports) to the American economy by the rest of the world. This trading situation had already emerged around 1980, and led to the Plaza Accord in 1985. One common explanation is based on the Mundell-Fleming IS/LM/BP model. But this model cannot be valid, since the `BP` equation is not independent of `IS`. Other champions of this saving glut hypothesis rely on loanable funds theory, which is institutionally inadequate. More plausible analyses of the persistent trade imbalance can be derived from a two-country IS/LM set-up devised by Wynne Godley, a Kaleckian description of the political economy of East Asia and the United States, and dissection of the terms of trade due to W. Arthur Lewis and Luigi Pasinetti.
    Keywords: Saving glut, net lending, IS/LM/BP, Mundell-Fleming, productivity growth, terms of trade. China, Japan
    JEL: E12 E16 F32 F41
    Date: 2020–08–05
  17. By: ABBAS, Shah; Nguyen, V.C.; YANFU, Zhu; Nguyen, Huu Tinh
    Abstract: This study is designed to investigate the impact of China exchange rate policy on its trading partners by using a country multi-dataset GVAR model. Our model includes samples of 30 countries, six from high-income, six from middle-income and eighteen from low-income countries. This study used annual time series data over the period 1992 to 2017. We constructed currency misalignment index and it provided some interesting features about the currency undervaluation and overvaluation. The results of the currency misalignment shows that China’s Renminbi is structurally more undervalued over the sample period as compared to other countries, and fluctuation in major currencies effects the global trade around the world. The overall empirical results of the GVAR model indicate that RMB undervaluation affects the trade pattern and macroeconomic performance of China’s trading partners. Overall, China’s exchange rate undervaluation has mixed effects on trading partner’s GDP, exports and imports. The devaluation of China’s RMB efficiently stimulated China’s exports and reduced imports. While, in some countries, this effect is reverse, the RMB undervaluation increases the GDP of partner countries and also increases their exports to China. The results confirm the strong and leading role of the Chinese Renminbi in the global trade.
    Date: 2020–07–31
  18. By: Jesús Fernández-Villaverde; Mark Koyama; Youhong Lin; Tuan-Hwee Sng
    Abstract: Patterns of political unification and fragmentation have crucial implications for comparative economic development. Diamond (1997) famously argued that “fractured land” was responsible for China's tendency toward political unification and Europe's protracted political fragmentation. We build a dynamic model with granular geographical information in terms of topographical features and the location of productive agricultural land to quantitatively gauge the effects of “fractured land” on state formation in Eurasia. We find that either topography or productive land alone is sufficient to account for China's recurring political unification and Europe's persistent political fragmentation. The existence of a core region of high land productivity in Northern China plays a central role in our simulations. We discuss how our results map into observed historical outcomes and assess how robust our findings are.
    JEL: H56 N40 P48
    Date: 2020–09
  19. By: Holmström, Harald; Seppälä, Timo
    Abstract: Abstract Global forces have shaped the world since the industrial and digital ages. A recent perspective on globalization acknowledges the growth of three supranational economic, social, and manufacturing blocs, namely the USA, the EU, and most recently, China. In this larger picture China contends with the US to become the largest economy in the world. Recent developments in the US–China trade conflict have centered on digital technology and have set the two countries on a path towards a technology separation. This technology separation will disrupt the unique and strategically important global value chains of digital technologies. We define digital technologies as the stack of integrated hardware and software systems that enable various end applications to emerge from computation. The technology separation will happen in the lower hardware levels of the technology stack, that is, in knowledge- and capital-intensive semiconductor technology, design and manufacturing. A separation within semiconductor technology could have serious implications for Europe, but especially for smaller open economies such as that of Finland. The key to designing Europe’s semiconductor technology strategy is understanding the history, technologies, and dynamics of the semiconductor industry as well as understanding industrial policies regarding semiconductors in the USA and China. What are the different options for Europe if the technological separation continues?
    Keywords: Semiconductors, Semiconductor industry, Digital technology, Technology stack, Sino-American technology separation, Industrial policy
    JEL: L16 L52 L63 L86
    Date: 2020–09–10
  20. By: Chen, Shuo (Fudan University, China); Xie, Bin (Jinan University)
    Abstract: The Chinese Exclusion Act of 1882 banned Chinese immigration and institutionalized discrimination against Chinese in U.S. society. This study examines the impact of institutional discrimination on the assimilation of Chinese by exploiting the passage of the Act and the state-level variation in the intensity of discrimination, measured by the voting outcomes of the Act and the number of anti-Chinese incidents. Our difference-in-differences estimates show that discrimination substantially slowed the occupational assimilation of Chinese in the Exclusion Era (1882–1943) and that Chinese in the U.S. reacted to discrimination by investing in human capital, improving English skills, and increasingly adopting Americanized names. The triple difference estimates show that these effects are significantly stronger in states with higher support rates of the Act or greater numbers of anti-Chinese incidents. These findings are not driven by the selection in migration and fertility.
    Keywords: the Chinese Exclusion Act, assimilation, human capital, name Americanization
    JEL: J15 N31 K37
    Date: 2020–08

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