nep-cna New Economics Papers
on China
Issue of 2021‒03‒22
nineteen papers chosen by
Zheng Fang
Ohio State University

  1. Is Care by Grandparents or Parents Better for Children’s Non-cognitive Skills? Evidence on Locus of Control from China By Xiang Ao; Xuan Chen; Zhong Zhao
  2. Digital Finance and Financial Literacy: An Empirical Investigation of Chinese Households By Yang, Junhong; Wu, Yu; Huang, Bihong
  3. Liquidity of China government bond market: Measures and Driving Forces By Gaofeng Han; Hui Miao; Yabin Wang
  4. Government-Led Urbanization and Natural Gas Demand in China By Cai, Zhengyu; Yu, Chin-Hsien; Zhu, Chunhui
  5. Adverse Childhood Circumstances and Cognitive Function in Middle-Aged and Older Chinese Adults: Lower Level or Faster Decline? By Lin, Zhuoer; Chen, Xi
  6. The paradox of power: principal-agent problems and administrative capacity in Imperial China (and other absolutist regimes) By Ma, Debin; Rubin, Jared
  7. Softening the Blow: U.S. State-Level Banking Deregulation and Sectoral Reallocation after the China Trade Shock By Mathias Hoffmann; Lilia Ruslanova
  8. The Effect of the China Connect By Chang Ma; John Rogers; Sili Zhou
  9. The Future of Labor: Automation and the Labor Share in the Second Machine Age By Hong Cheng; Lukasz A. Drozd; Rahul Giri; Mathieu Taschereau-Dumouchel; Junjie Xia
  10. Doing Business in China: Parental Background and Government Intervention Determine Who Owns Businesses By Ruixue Jia; Xiaohuan Lan; Gerard Padró I Miquel
  11. Return to Schooling in China: A Large Meta-Analysis By Ma, Xinxin; Iwasaki, Ichiro
  12. Teacher Characteristics and Student Performance: Evidence from Random Teacher-Student Assignments in China By Huang, Wei; Li, Teng; Pan, Yinghao; Ren, Jinyang
  13. Artificial Intelligence and Energy Intensity in China’s Industrial Sector: Effect and Transmission Channel By Liu, Liang; Yang, Kun; Fujii, Hidemichi; Liu, Jun
  14. Uneven Recovery from the COVID-19 Pandemic: Post-lockdown Human Mobility Across Chinese Cities By Liu, Yanyan; Ma, Shuang; Mu, Ren
  15. The Effect of US-China Tariff Hikes: Differences in Demand Composition Matter By Ricardo M. Reyes-Heroles; Charlotte T. Singer; Eva Van Leemput
  16. Pandemics and Intergenerational Mobility of Education: Evidence from the 2003 Severe Acute Respiratory Syndrome (SARS) Epidemic in China By Liang, Wenquan; Xue, Sen
  17. Ultra-low tax regime in Imperial China, 1368-1911 By Deng, Kent
  18. The Evolution of Offshore Renminbi Trading: 2016 to 2019 By Yin-Wong Cheung; Louisa Grimm; Frank Westermann
  19. Special Economic Zones: the Chinese Ladder to Get into Neoliberal Globalization By Laura Melissa Naranjo Molano

  1. By: Xiang Ao (Renmin University of China); Xuan Chen (Renmin University of China); Zhong Zhao (Renmin University of China)
    Abstract: This study investigates the effect of grandparental care on children’s locus of control (LOC), which is an important non-cognitive skill that affects children’s future development. We use data from the China Family Panel Studies, which is a nationally representative survey, and employ instrumental variables to address the endogeneity of family childcare choice. We find that children in the care of their grandparents have more external LOC than children in the care of their parents do; that is, they are more likely to attribute individual success to external factors, such as luck, fate, and family background. This finding is robust to different measures of grandparental care and different model specifications. We further examine the potential mechanisms underlying this effect. Grandparents have more external LOC than parents do, which can affect children’s LOC through intergenerational transmission of LOC. Their parenting attitudes and styles are also different from parents’ in that grandparents take less responsibility for children’s academic performance than parents do and are less strict with children. In addition, grandparental care induces adverse effects on children’s family environment.
    Keywords: intergenerational childcare, non-cognitive skills, locus of control
    JEL: J13 J24 D19
    Date: 2021–03
  2. By: Yang, Junhong (Asian Development Bank Institute); Wu, Yu (Asian Development Bank Institute); Huang, Bihong (Asian Development Bank Institute)
    Abstract: Using the 2015 and 2017 waves of the China Household Finance Survey, we measured financial literacy and study its relationship to households’ demand for digital finance. We found that a majority of households in the People’s Republic of China possess limited financial literacy. The low level of financial sophistication is responsible for the low usage of digital finance among Chinese households. Further, the positive impact of financial literacy on digital finance is more pronounced for wealthy, high-income, and young households, women, and households in urban and coastal areas. Our results are robust to using a variety of specifications and controlling for endogeneity, peer effects, cognition, and voluntary self-exclusion.
    Keywords: financial literacy; digital finance; household finance; CHFS; People’s Republic of China
    JEL: D10 D83 D91 G11
    Date: 2020–12–25
  3. By: Gaofeng Han (Hong Kong Institute for Monetary and Financial Research); Hui Miao (International Monetary Fund); Yabin Wang (Hong Kong Monetary Authority)
    Abstract: We construct a daily liquidity index of the China government bond market using transaction data from the national interbank market over the past twenty years. The index is a composite of popular price-based and quantity-based metrics of liquidity. The composite indexes, obtained by averaging across different metrics or by applying principal component analysis, both point to a better liquidity condition after 2010. Market liquidity swings appear to be highly correlated with domestic funding liquidity and financial market volatility, but display less correlation to global macrofinancial indicators. Our findings suggest that further deepening of the bond market would support domestic financial stability and monetary operations down the road.
    Keywords: China government bond; Bond liquidity; Principal component analysis; Regime switching model
    JEL: G12
    Date: 2020–12–07
  4. By: Cai, Zhengyu; Yu, Chin-Hsien; Zhu, Chunhui
    Abstract: The Chinese government is actively promoting urbanization to stimulate its economic growth while facing increasingly prominent environmental concerns. The main objective of this research is to assess whether the Chinese government is making efforts to promote cleaner energy demand while pushing for urbanization. This study employs system GMM models to empirically investigate the causal relationship between urbanization and natural gas demand by using a sample of 30 provinces in China over the period 2005–2018. The estimates of the preferred specifications show that government-led urbanization has a positive impact on natural gas demand conditional on total energy use. By attaching natural gas facilities to new structures through the use of administrative power, the government induces natural gas demand while promoting urbanization. Robustness checks indicate that adding more potentially influential factors will not qualitatively change the results from the baseline. A constrained two-step static panel data estimation is used to estimate the depreciation rates of natural gas and of all fuel appliances, suggesting that the promotion of natural gas demand provides a relatively economical way to balance the trade-off between economic growth and the reduction of emissions. The empirical results also show that the dynamic model outperforms its static counterpart in predictions. Based on the results, policy recommendations are made towards the goals of the Fourteenth Five-Year Plan for the National Economic and Social Development of China.
    Keywords: Natural gas,urbanization,dynamic panel model,China
    JEL: Q41 Q47 Q48 R11 R12
    Date: 2021
  5. By: Lin, Zhuoer (Yale University); Chen, Xi (Yale University)
    Abstract: We examine the long-term relationship between childhood circumstances and cognitive aging. In particular, we differentiate the level of cognitive deficit from the rate of cognitive decline. Applying a linear mixed-effect model to three waves of China Health and Retirement Longitudinal Surveys (CHARLS 2011, 2013, 2015) and matching cognitive outcomes to CHARLS Life History Survey (2014), we find that key domains of childhood circumstances, including family socioeconomic status (SES), neighborhood cohesion, friendship and health conditions, are significantly associated with both the level of cognitive deficit and the rate of decline. In contrast, childhood neighborhood safety only affects the level of cognitive deficit. Childhood relationship with mother only affects the rate of cognitive decline. The effects of adverse childhood circumstances are generally larger on level of cognitive deficit than on rate of cognitive decline. Moreover, education plays a more important role in mediating the relationships compared to other later-life factors. These findings suggest that exposure to disadvantaged childhood circumstances can exacerbate cognitive deficit as well as cognitive decline over time, which may be partially ameliorated by educational attainment.
    Keywords: childhood circumstances, life course factors, cognitive aging, education
    JEL: I14 I24 J13 J14
    Date: 2021–03
  6. By: Ma, Debin; Rubin, Jared
    Abstract: Tax extraction is often low in absolutist regimes. Why are absolutists unable to convert power into revenue? Supported by evidence from Imperial China, we explain this puzzle with a principal-agent model which reveals that absolutists, unconstrained by rule of law and unable to commit to not predating on their tax-collecting agents (and the masses), may find it optimal to settle for a low wage-low tax equilibrium, while permitting agents to keep extra, unmonitored taxes. Our analysis suggests that low investment in administrative capacity is a conscious choice for an absolutist since it substitutes for credible commitment to refrain from confiscation from its agents.
    Keywords: absolutism; administrative capacity; China; credible commitment; Europe; fiscal capacity; limited government; monitoring; principal-agent problem; Qing Empire; state capacity; taxation
    JEL: N45 N43 H20 P48 P51
    Date: 2019–06–01
  7. By: Mathias Hoffmann; Lilia Ruslanova
    Abstract: U.S. state-level banking deregulation during the 1980’s mitigated the impact of the China trade shock (CTS) on local economies (states and commuting zones) a decade later, in the 1990s. Local economies, where local banking markets opened up earlier, were also effectively financially more integrated by the 1990’s and saw smaller declines in house prices, wages, and income following the CTS. We explain this pattern in a theoretical model that emphasizes the stabilizing effect of financial integration on demand for housing and on housing prices: faced with an adverse shock to their region’s terms-of-trade (i.e. the CTS), households in more open states can more easily access credit to smooth consumption. This stabilizes consumer demand for housing, keeps the relative price of housing up, stabilizes wages in the non-tradable sector and thus facilitates the sectoral reallocation of labor away from import-exposed manufacturing towards the housing sector. This in turn stabilizes income and consumption. We corroborate these predictions of our model in state- and commuting zone level data. Then, using granular bank-county-level data, we show that household consumption smoothing in response to the CTS was easier in financially open areas, because geographically diversified banks were more elastic in their lending response to household’s increased demand for credit. Our findings highlight that household access to finance is important to ease adjustment after asymmetric terms-of-trade shocks in monetary unions, in particular when the geographical mobility of labor is limited.
    Keywords: banking deregulation, China trade shock, sectoral reallocation, house prices, consumer access to finance
    JEL: F16 F41 G18 G21 J20
    Date: 2021
  8. By: Chang Ma (Fudan University); John Rogers (Federal Reserve Board); Sili Zhou (Fudan University)
    Abstract: Stock market liberalization generates benefits and costs. We estimate these effects using the Shanghai (Shenzhen) - Hong Kong Stock Connect, an important opening that allows foreign investors to trade a subset of mainland Chinese firms. The liberalization brought connected Chinese firms lower funding costs and more investment, but also increased sensitivity to foreign shocks. These effects are stronger for firms whose stock return has a higher covariance with the world market return and for firms relying more on external financing. We find that both (greater) risk sharing and (lower) funding cost channels explain our results.
    Keywords: Capital Account Liberalization; Capital Controls; Global Financial Cycle; Foreign Spillovers; China Connect; Corporate Investment
    JEL: F38 E40 E52 G15
    Date: 2020–12–07
  9. By: Hong Cheng; Lukasz A. Drozd; Rahul Giri; Mathieu Taschereau-Dumouchel; Junjie Xia
    Abstract: We study the effect of modern automation on firm-level labor shares using a 2018 survey of 1,618 manufacturing firms in China. We exploit geographic and industry variation built into the design of subsidies for automation paid under a vast government industrialization program, “Made In China 2025,” to construct an instrument for automation investment. We use a canonical CES framework of automation and develop a novel methodology to structurally estimate the elasticity of substitution between labor and automation capital among automating firms, which for our preferred specification is 3.8. We calibrate the model and show that the general equilibrium implications of this elasticity are consistent with the aggregate trends during our sample period.
    Keywords: labor share; labor’s share in income; automation; labor demand; industrial robots
    JEL: D33 E25 O33 J23 J24 E24 O25
    Date: 2021–03–09
  10. By: Ruixue Jia; Xiaohuan Lan; Gerard Padró I Miquel
    Abstract: While intergenerational transmission of entrepreneurship is a well-known regularity, we hypothesize that in a transition economy where the state retains an important role, those whose parents are government workers may also be more likely to become business owners. We test the hypothesis in China and show that (1) on average, both entrepreneurs and government workers have a higher likelihood of having children who own incorporated businesses and (2) In provinces where government involvement is higher, the likelihood that children of government workers (entrepreneurs) own incorporated businesses is significantly higher (lower). Our study demonstrates that the local economic business environment shapes the influence of parental background on business ownership.
    JEL: D02 D72 O12 O38 O53
    Date: 2021–03
  11. By: Ma, Xinxin; Iwasaki, Ichiro
    Abstract: In this study, we conducted a meta-analysis of 2,191 empirical results reported in 213 existing studies to estimate the Mincer-type return to schooling in China. The results revealed that the return to schooling showed a positive trend, and the effect size was medium in terms of the partial correlation coefficient. We also found that workers in non-state sectors and urban regions, urban hukou workers, and women tend to have higher returns to schooling than their counterparts. Furthermore, the results indicate that the return to schooling registered a significant increase over time.
    Keywords: return to schooling, meta-analysis, publication selection bias, China
    JEL: D31 I26 J31 P23 P36
    Date: 2021–03
  12. By: Huang, Wei (National University of Singapore); Li, Teng (National University of Singapore); Pan, Yinghao (National University of Singapore); Ren, Jinyang (Jiangxi University of Finance and Economics)
    Abstract: This paper investigates the impacts of teacher characteristics on student performance using a nationally representative and randomly assigned teacher-student sample in China. We find that having a more experienced or female homeroom teacher (HRT) with additional classroom management duties significantly improves students' test scores and cognitive and noncognitive abilities. In contrast, these effects are not observed for subject teachers who are responsible only for teaching. More experienced or female HRTs are also associated with a better classroom environment, more self-motivated students, more parental involvement, and higher parental expectations. These mechanisms explain 10-25 percent of HRT effects on test scores and cognitive ability and 50-60 percent of HRT effects on noncognitive ability. Our findings highlight the importance of teacher management skills in education production.
    Keywords: teacher value-added, education production function, student performance
    JEL: I21 J24
    Date: 2021–03
  13. By: Liu, Liang; Yang, Kun; Fujii, Hidemichi; Liu, Jun
    Abstract: The continued development of artificial intelligence (AI) has changed production methods but may also pose challenges related to energy consumption; in addition, the effectiveness of AI differs across industries. Thus, to develop efficient policies, it is necessary to discuss the effect of AI adoption on energy intensity and to identify industries that are more significantly affected. Using data on industrial robots installed in 16 Chinese industrial subsectors from 2006 to 2016, this paper investigates both the effect of AI on energy intensity and the channel through which this effect is transmitted. The empirical results show, first, that boosting applications of AI can significantly reduce energy intensity by both increasing output value and reducing energy consumption, especially for energy intensities at high quantiles. Second, compared with the impacts in capital-intensive sectors (e.g., basic metals, pharmaceuticals, and cosmetics), the negative impacts of AI on energy intensity in labor-intensive sectors (e.g., textiles and paper) and technology-intensive sectors (e.g., industrial machinery and transportation equipment) are more pronounced. Finally, the impact of AI on energy intensity is primarily achieved through its facilitation of technological progress; this accounts for 78.3% of the total effect. To reduce energy intensity, the Chinese government should effectively promote the development of AI and its use in industry, especially in labor-intensive and technology-intensive sectors.
    Keywords: artificial intelligence; energy intensity; energy consumption; industrial robot; China
    JEL: L6 O13 O14 O32
    Date: 2021–03
  14. By: Liu, Yanyan (IFPRI, International Food Policy Research Institute); Ma, Shuang (Guangzhou University); Mu, Ren (Texas A&M University)
    Abstract: How quickly can we expect human mobility to resume to pre-pandemic levels after lockdowns? Does pandemic severity affect the speed of post-lockdown recovery? Using real-time cross-city human mobility data from China and a difference-in-difference-in-differences framework, we find that mobility in most cities resumed to normal six weeks after reopening. In contrast, the epicenter cities, those with the worst outbreaks, were slow to recover; twelve weeks after reopening, mobility had not returned to the pre-pandemic levels. We provide suggestive evidence that relatively undiminished pandemic concerns may have slowed down mobility recovery in the epicenter region. Our findings imply that a severe pandemic experience impedes post-lockdown mobility recovery. From a policy perspective, this study suggests that it is important to successfully contain the pandemic to achieve a faster post-lockdown recovery.
    Keywords: COVID-19, population mobility, post-lockdown, China
    JEL: L60 H12 I18
    Date: 2021–03
  15. By: Ricardo M. Reyes-Heroles; Charlotte T. Singer; Eva Van Leemput
    Abstract: In this note, we estimate the economic effects of the increases in tariffs between China and the USA since the beginning of 2018, taking into account the investment channel. As of the bilateral Phase One agreement in early 2020, the United States has raised tariffs on about $335 billion of Chinese goods and China has raised tariffs on about $120 billion of US goods.
    Date: 2021–03–04
  16. By: Liang, Wenquan; Xue, Sen
    Abstract: This paper examines the impact of the SARS epidemic in 2003 on intergenerational mobility in China. Using large cross-city variation in SARS cases, our triple difference-in-differences estimates suggest that the SARS epidemic significantly increases the intergenerational transmission of education. Our results show that a one percent increase in the number of SARS cases leads to a 9.3 percent increase in the maternal intergeneration transmission coefficient. The effect of the SARS epidemic is stronger for admission to 4-year bachelor programmes and more concentrated in female students and students in large cities. This paper also investigates the potential mechanisms and finds that more highly educated mothers tend to be more engaged in children's studies during the epidemic period when teachers are absent. These results convey the warning message that pandemics may reduce intergenerational mobility of education
    Keywords: Pandemic,Epidemic,intergenerational mobility,SARS
    JEL: I24 I18 J62
    Date: 2021
  17. By: Deng, Kent
    Keywords: state-peasant alliance; benevolent rule; rent-seeking; tax-burden; mass rebellions; village autonomy
    JEL: B10 H11 N35 N45
    Date: 2021–02
  18. By: Yin-Wong Cheung (City University of Hong Kong); Louisa Grimm (Osnabrück University); Frank Westermann (Osnabrück University)
    Abstract: We study the evolution of offshore renminbi trading between 2016 and 2019. The geographical pattern of changes in offshore renminbi trading during this period is different from the one between 2013 and 2016. The pattern of changes in the 2016-2019 period, in addition to the previously reported convergence to the geographical trading pattern of all currencies, is affected by (geopolitical) disputes and trade intensity. Further, China-specific RQFII investment quota arrangements and offshore market’s equity market capitalization and level of financial development play a role in shaping the offshore RMB trading pattern.
    Keywords: FX Turnover; Geographical Trading Pattern; Renminbi Internationalization; Dispute; Trade Intensity
    JEL: C24 F31 F33 G15 G18
    Date: 2020–12–07
  19. By: Laura Melissa Naranjo Molano
    Abstract: This paper explored how the neoliberalism influenced the formulation, adoption, and implementation of the Special Economic Zones (SEZs) in China. In grappling with this question, a significant link was found: globalization. This process was driven by openness and liberalization, premises that neoliberalism revived in the global political sphere in the last decades of the 20th century. Then, to get into the world economy, China abandoned the protectionist ladder to take an additional one: formulate and adopt SEZs. These zones allowed China to have free trade policies without internal market liberalization. Furthermore, the implementation of SEZs as cities generated direct access to the neoliberal model of globalization.
    Keywords: special economic zone, globalization, neoliberalism, China
    JEL: B27 F13 F68 O24
    Date: 2021–03–06

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