nep-cna New Economics Papers
on China
Issue of 2021‒02‒08
twelve 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. Growth, development, and structural change at the firm-level: The example of the PR China By Heinrich, Torsten; Yang, Jangho; Dai, Shuanping
  3. What 31 provinces reveal about growth in China By Kerola, Eeva; Mojon, Benoît
  4. Market Formation in China from 1978 By Tang, Rongsheng
  5. Data access and regime competition a case study of car data sharing in China By Bertin Martens; Bo Zhao
  6. Pandemics, global supply chains and local labor demand: evidence from 100 million posted jobs in China By Hanming Fang; Chunmian Ge; Hanwei Huang; Hongbin Li
  7. The Role of Hedge Funds in the Asset Pricing: Evidence from China By Zhang, Jing; Zhang, Wei; Li, Youwei; Feng, Xu
  8. Bond Lending and the Law of One Price in China's Treasury Markets By Magnani, Jacopo; Wang, Yabin
  9. Internet Access and U.S. - China Innovation Competition By Gerard Hoberg; Yuan Li; Gordon M. Phillips
  10. The merit of misfortune: Taiping Rebellion and the rise of indirect taxation in modern China, 1850s-1900s By Deng, Hanzhi
  11. The China Syndrome: A Cross-Country Evidence By Mina Taniguchi; Kozo Kiyota; Sawako Maruyama
  12. Deglobalisation in the context of United States-China decoupling By Alicia García-Herrero; Junyun Tan

  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.
    Keywords: Global value chains, production line position, upstreamness, firm heterogeneity, firm lifecycle, China
    JEL: F10 F14 F23 L23 L24 L25
    Date: 2020–09
  2. By: Heinrich, Torsten; Yang, Jangho; Dai, Shuanping
    Abstract: Understanding the microeconomic details of technological catch-up processes offers great potential for informing both innovation economics and development policy. We study the economic transition of the PR China from an agrarian country to a high-tech economy as one example for such a case. It is clear from past literature that rapidly rising productivity levels played a crucial role. However, the distribution of labor productivity in Chinese firms has not been comprehensively investigated and it remains an open question if this can be used to guide economic development. We analyze labor productivity and the dynamic change of labor productivity in firm-level data for the years 1998-2013 from the Chinese Industrial Enterprise Database. We demonstrate that both variables are conveniently modeled as Lévy alpha-stable distributions, provide parameter estimates and analyze dynamic changes to this distribution. We find that the productivity gains were not due to super-star firms, but due to a systematic shift of the entire distribution with otherwise mostly unchanged characteristics. We also found an emerging right-skew in the distribution of labor productivity change. While there are significant differences between the 31 provinces and autonomous regions of the P.R. China, we also show that there are systematic relations between micro-level and province-level variables. We conclude with some implications of these findings for development policy.
    Keywords: structural change; China; labor productivity; heavy-tailed distributions; microdata
    JEL: J24 L11 O10 O3 O53 R12
    Date: 2020–12–27
  3. By: Kerola, Eeva; Mojon, Benoît
    Abstract: It is important to understand the growth process under way in China. However, analyses of Chinese growth became increasingly more difficult after the real GDP doubling target was announced in 2012 and the official real GDP statistics lost their fluctuations. With a dataset covering 31 Chinese provinces from two decades, we have substantially more variation to work with. We find robust evidence that the richness of the provincial data provides information relevant to understand and project Chinese aggregates. Using this provincial data, we build an alternative indicator for Chinese growth that is able to reveal fluctuations not present in the official statistical series. Additionally, we concentrate on the determinants of Chinese growth and show how the drivers have gone through a substantial change over time both across economic variables and provinces. We introduce a method to understand the changing nature of Chinese growth that can be updated regularly using principal components derived from the provincial data.
    JEL: C38 E01 E3 P2
    Date: 2021–01–28
  4. By: Tang, Rongsheng
    Abstract: This paper studies the formation of market economy in China from 1978 to 1992, a period in which market economy was introduced and developed alongside planned government procurements for agricultural goods. Under the “dual track system” (DTS), rural farmers were obligated to fulfill government procurements before selling to the market, whereas urban consumers enjoyed de facto subsidies to agricultural products. Using a neoclassical general equilibrium model with heterogeneous firms and workers and input-output linkage, this paper exploits historical data and analyzes allocation, prices, and the formation of markets in China during this DTS period. Theoretically, while DTS will distort the resources allocation between rural and urban (misallocation effect), it selects workers and farmers in the rural (selection effect). What is more, comparing to the economy under Soviet-style big bang reform, DTS activates industrialization by providing intermediate goods with lower-than-market price (activation effect). Quantitatively, directly switching to market economy in 1978 would decrease total output by 4.5% as the activation effect dominates. On the intensive margin, reform on DTS ( procurement price was getting closer to market price ) had contributed to total output by 4.4% from 1978 to 1992.
    Keywords: Dual Track System; procurement; price distortion; misallocation
    JEL: E65 N10 O43 O53
    Date: 2021–01–24
  5. By: Bertin Martens (European Commission - JRC); Bo Zhao (Tilburg University - Netherlands)
    Abstract: We study the case of a Chinese industrial policy, implemented in Shanghai, that makes it mandator for car manufacturers to share electro-mechanical performance and real time navigation data from their entire fleet of electric and hybrid vehicles with local and central government authorities. This policy seeks to reduce emissions, assess the performance of New Energy Vehicles (NEVs), prevent fraud in state subsidies and strengthen the competitiveness of Chinese manufacturers of these vehicles. We argue that economies of scope in data aggregation may provide traditional market failure arguments for government intervention and mandatory data pooling. Our paper also illustrates how data access regulation could be used for economic regime competition. The EU and China pursue very similar data policy goals that hinge on economies of scope in data aggregation. However, they follow very different political processes to achieve these goals.
    Keywords: China, data governance, data sharing and access rights, regime competition, industrial policy
    JEL: L11 L41 L43 L62
    Date: 2020–12
  6. By: Hanming Fang; Chunmian Ge; Hanwei Huang; Hongbin Li
    Abstract: This paper studies how the COVID-19 pandemic has affected labor demand, using over 100 million posted jobs on one of the largest online platforms in China. Our data reveal that the number of newly posted jobs within the first 14 weeks after the Wuhan lockdown on January 23, 2020, was about 31% lower than that of comparable periods in 2018 and 2019. We show that, via the global supply chain, COVID-19 cases abroad and pandemic-control policies by foreign governments reduced new-job creation in China by 11.7%. We also find that firms most exposed to international trade outperformed other firms at the beginning of the pandemic but underperformed during the recovery as the virus spread throughout the world.
    Keywords: COVID-19, labor demand, global supply chains, trade, china, employment
    Date: 2020–11
  7. By: Zhang, Jing; Zhang, Wei; Li, Youwei; Feng, Xu
    Abstract: We document that hedge funds nurture mispricing in the Chinese financial market. We exploit the relationship between hedge fund holdings and the degree of mispricing in case that hedge fund holdings of stocks are mainly for arbitrage purpose but not for hedging, and that with and without short-selling restrictions. Hedge funds intentionally hold overvalued stocks. Their trades, which generate an abnormal return to 1.78% per month, also impede the dissipation of stock mispricing. Further, we find trend chasing may be the reason why hedge funds prefer to hold overvalued stocks. This research sheds new lights on the information content and potential investment value of hedge funds holdings in emerging markets.
    Keywords: Hedge funds; stock mispricing; asset pricing; arbitrage
    JEL: G11 G12 G23
    Date: 2021–01
  8. By: Magnani, Jacopo; Wang, Yabin
    Abstract: This paper examines how the introduction of bond lending in China's bond market has affected violations of the law of one price, measured by the yield spread between similar treasury bonds. To identify the effect of bond lending, we exploit the fact that in China identical bonds are traded on two segmented markets and bond lending has been introduced in only one of the two markets. We find that the introduction of bond lending has led to a decline in deviations from the law of one price. Consistent with an interpretation based on limits to arbitrage, a significant fraction of the deviations from the law of one price in our sample represent actual profit opportunities and the introduction of bond lending has reduced arbitrage profits.
    Keywords: China's bond markets, bond lending, law of one price
    JEL: G12 G18
    Date: 2020–12–29
  9. By: Gerard Hoberg; Yuan Li; Gordon M. Phillips
    Abstract: Using new measures of expanded Internet access in China and internet-based search, we examine how competitive shocks from China impact U.S. innovation through the markets for innovation and existing products. We identify shocks to innovation competition using the geography of Chinese internet penetration and Chinese import data. Increases in the ability of Chinese industry peers to gather knowledge through the internet are followed by reductions in U.S. R&D investment and subsequent patents, and increased patenting by Chinese firms. The new Chinese patents also cite the U.S. firms patents at a high rate, consistent with increased intellectual property competition.
    JEL: D43 F13 L21 L26 O31 O34
    Date: 2020–12
  10. By: Deng, Hanzhi
    Abstract: This article revisits the role of war in state development but goes beyond the scope of Western European nation states. It focuses on the relationship between political disorder and indirect taxation with micro-level evidence in late imperial China. With cross-sectional data for 266 prefectures this article employs quantitative methods to test the positive link between the warfare during the Taiping Rebellion (the greatest threat for the Qing reign) and the rapid rise and pervasive persistence of autonomous self-serving indirect taxation (lijin) institutions. The withering central fiscal role with the growing local fiscal-military needs accounted for this change. This article draws more economic and political implications by linking local fiscal autonomy to the Late Qing industrialization and the development of representative politics. The results demonstrate that the warfare by the Taiping Rebellion provided an unexpected opportunity for China’s fiscal modernization in a bottom-up way and that the impact was long-lasting
    Keywords: political disorder; fiscal capacity; modern China; Taiping Rebellion; indirect taxation
    JEL: H25 N45 O14
    Date: 2021–01
  11. By: Mina Taniguchi (Department of Economics and MGSE, University of Munich); Kozo Kiyota (Keio Economic Observatory, Keio University); Sawako Maruyama (Faculty of Economics, Kindai University)
    Abstract: While in many advanced countries the increasing import competition from China on employment is a major concern for policymakers and the general public, its impact of Chinese import competition could be different across countries, depending upon the volume and the composition of the products. This paper examines the impact of the China shock on employment in six advanced countries. We find that the import penetration of final goods from China has negative effects on manufacturing employment in these countries, whereas the import penetration of intermediate inputs from and the exports to China could have positive effects. Moreover, such positive effects could offset or even outweigh the negative effects in some countries. These results together suggest that a careful interpretation is needed when evaluating the external validity of the China shock that is obtained in one country.
    Keywords: The China shock, Cross-country comparisons, Final goods and intermediate inputs, Imports and exports
    JEL: F16 J21
    Date: 2021–01–07
  12. By: Alicia García-Herrero; Junyun Tan
    Abstract: After decades of increasing globalisation on every front, from trade – pushed further by the growing role of value chains – to technology, movement of people and investment, there now seems to be a turn towards slower globalisation if not deglobalisation, at least in some areas. Deglobalisation is not a new concept but rather a megatrend which has been seen before, for example right before the First World War. Signs of deglobalisation,...
    Date: 2020–12

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