nep-cna New Economics Papers
on China
Issue of 2021‒06‒14
ten papers chosen by
Zheng Fang
Ohio State University

  1. The natural interest rate in China By Daniel Rees; Guofeng Sun
  2. How do Firms Respond to Long-term Political Tensions? Evidence from Chinese Food Importers By Li, Haoran; Wan, Xibo; Zhang, Wendong
  3. Explaining Trends in Adult Height in China: 1950 to 1990 By Chae, Minhee; Hatton, Tim; Meng, Xin
  4. Does vocational education pay better, or worse, than academic education? By Chen, Jie; Pastore, Francesco
  5. Money, technology and banking: what lessons can China teach the rest of the world? By Michael Chui
  6. One-Child Policy and Marriage Market in China By Han, Jun; Zhao, Zhong
  7. Gains associated with linking the EU and Chinese ETS under different assumptions on restrictions, allowance endowments, and international trade By Winkler, Malte; Peterson, Sonja; Thube, Sneha
  8. Deadly Discrimination: Implications of "Missing Girls" for Workplace Safety By Zhibo Tan; Shang-Jin Wei; Xiaobo Zhang
  9. Fiscal Decentralization and Fiscal Multiplier in China By Fei Guo; Isabel Kit-Ming Yan
  10. U.S. Presidential Election Polls and the Economic Prospects of China and Mexico By Hyeongwoo Kim; Madeline Kim

  1. By: Daniel Rees; Guofeng Sun
    Abstract: We estimate the natural interest rate in China. The natural interest rate averaged between 3 and 5 per cent between the late 1990s and 2010, but declined over the next decade to around 2 per cent. We attribute around two-thirds of the decline in China's natural interest rate to a lower rate of potential output growth. As the decline in the natural interest rate in China mirrors that observed in many other economies, it is possible that global factors explain part of the decline in the natural rate not explained by lower growth.
    Keywords: real interest rate, natural interest rate, monetary policy
    JEL: E32 E40 E44
    Date: 2021–06
  2. By: Li, Haoran; Wan, Xibo; Zhang, Wendong
    Abstract: Political and economic tensions, which often jeopardize trade, are rising among the world’s major powers, and countries like China are more frequently using food-related trade actions to deal with deteriorating political relations. Previous literature largely focuses on how brief, short-lived political tensions affect bilateral trade; however, little is known about firm-level trade responses to long-termpolitical tensions. This paper investigates how importers respond to long-term political tensions by examining the six-year Norway-China political tensions that ended in 2016. In particular, we use an event study approach to examine China’s seafood importers’ responses to China’s 2010 sanction on Norwegian fresh salmon imports after Norway awarded Liu Xiaobo, a Chinese political dissident, a Nobel Peace Prize. Our results reveal firm-level responses at both the extensive and intensive margins. At the intensive margin, firms that imported Norwegian fresh salmon before the sanction saw a 20% persistent decline in their fresh salmon import value and an 80% decrease in import share of Norwegian fresh salmon products over our study period. At the extensive margin, we not only find a trade diversion effect on firms importing from other countries and less firms importing fresh salmon from Norway, but also a permanent "political hedging" effect with a 20% decline in the maximum import share from any particular country, even if not Norway. We also provide evidence of persistent sanction effects even after China-Norway relations unfroze. Our findings emphasize the need to consider the long-term sanction consequences in foreign policy using food-related trade sanctions.
    Date: 2021–06–02
  3. By: Chae, Minhee (Australian National University); Hatton, Tim (Australian National University); Meng, Xin (Australian National University)
    Abstract: This paper explores the changing trend of adult height in China for cohorts born in 1950-90. We use information on the household structure and local economic conditions during the individual's childhood to explain the trend. We find that during the 40-year period, the growth rate of adult height increased, with the most substantial increase occurring in the 1980s. One important contributing factor to the growth of adult height is the continued increase in government per capita spending on health and education. The impressive growth in the 1980s was mainly due to the introduction of market-oriented economic reforms, rather than the advent of the One-Child Policy. We find that the positive effect of economic reforms was larger for urban dwellers than for their rural counterparts and within the rural areas the benefit was far greater for men than for women.
    Keywords: height, China, economic reform
    JEL: I15 I18 J13 O1
    Date: 2021–06
  4. By: Chen, Jie; Pastore, Francesco
    Abstract: In this paper, we use the Chinese General Social Survey data to analyse the returns to upper secondary vocational education in China. To address possible endogeneity of vocational training due to omitted heterogeneity, we construct a novel instrumental variable using the proportion of tertiary education graduates relative to the entire population by year. Our main finding is that, although returns to vocational upper secondary education appear higher than returns to academic upper secondary education according to the Mincerian equation, the results from the instrumental variable method tell the opposite story: vocational upper secondary graduates face a wage penalty compared to academic upper secondary graduates. The wage penalty is confirmed by an alternative and more recent IV method - the Lewbel method (Lewbel, 2012). Our findings highlight the importance of properly accounting for endogeneity when estimating the returns to vocational education.
    Keywords: vocational education,academic education,upper secondary,China,Lewbel
    JEL: I26 I25 J24 J31 C36
    Date: 2021
  5. By: Michael Chui
    Abstract: Technology companies entering the financial services industry have become a global phenomenon over the past decade. This trend is most remarkable in China where two large technology firms (BigTechs) have emerged as important market players, especially in payment services. This paper examines the factors driving this development and whether the Chinese experience could be applied elsewhere. Several lessons emerge: first, like any company in a network industry, it is important to build and maintain a large user base and that is the key factor behind BigTechs' expansion into the financial industry. On this basis, these BigTechs can be seen as "accidental financiers" rather than "aggressive invaders". Second, these firms are cautious in offering higher-risk financial services as investment losses could lead to an exodus of customers. Third, Chinese authorities' regulatory tolerance during the early stage has been a key supporting factor and helped fostering innovation benefits. But that was balanced by the implementation of capital and liquidity rules to keep BigTechs from "excessive" growth, mis-selling of financial products and posing systemic risks. Fourth, initial conditions and government support matter. The rapid growth has benefitted from China's large population, the availability of low-cost mobile handsets and heavy investment by the government on mobile communication infrastructure. These may not be easily be replicated elsewhere. Last, BigTechs' overseas expansion may require policy coordination between home and host authorities to keep track of emerging risks.
    Keywords: BigTechs, banking and finance
    JEL: D85 E41 E42
    Date: 2021–06
  6. By: Han, Jun (Renmin University of China); Zhao, Zhong (Renmin University of China)
    Abstract: This study analyzes the effect of one-child policy on marriage market in China, and focuses on leftover situation, marriage age, and the age differential between husband and wife. Taking age of 30 as a cut-off point, the one-child policy has increased the leftover proportion about 1.2%, with 1.8% on men and 0.6% on women. Although the problem of urban leftover women has made eye-catching of the general public, the problem of the leftover men is much more serious than that of women: with the former arising from the true over-supply of men while the latter due to the matching process. The one-child policy on marriage age is positive and significant, no matter for urban, rural residents, or migrants, but the effect is smaller in the urban area, which is consistent with the fact that the sex ratio is more balanced in urban area. This policy also increases the age differential between husband and wife on the whole; however, it is positive and significant for the male-head families but negative for the female-headed families.
    Keywords: one-child policy, leftover situation, marriage age, age differential between husband and wife
    JEL: J12 J13
    Date: 2021–06
  7. By: Winkler, Malte; Peterson, Sonja; Thube, Sneha
    Abstract: Linking the EU and Chinese Emission Trading Systems (ETS) increases the cost-efficiency of reaching greenhouse gas mitigation targets, but both partners will benefit - if at all - to different degrees. Using the global computable-general equilibrium (CGE) model DART Kiel, we evaluate the effects of linking ETS in combination with 1) restricted allowances trading, 2) adjusted allowance endowments to compensate China, and 3) altered Armington elasticities when Nationally Determined Contribution (NDC) targets are met. We find that generally, both partners benefit from linking their respective trading systems. Yet, while the EU prefers full linking, China favors restricted allowance trading. Transfer payments through adjusted allowance endowments cannot sufficiently compensate China so as to make full linking as attractive as restricted trading. Gains associated with linking increase with higher Armington elasticities for China, but decrease for the EU. Overall, the EU and China favor differing options of linking ETS. Moreover, heterogeneous impacts across EU countries could cause dissent among EU regions, potentially increasing the difficulty of finding a linking solution favorable for all trading partners.
    Keywords: Paris Agreement,NDC,Emission Trading,Linking ETS,China,EU,Verbindung von Emissionshandelsystemen,NDC,Pariser Klimabakommen,Emissionshandel
    JEL: F13 F18 Q58 Q54
    Date: 2021
  8. By: Zhibo Tan; Shang-Jin Wei; Xiaobo Zhang
    Abstract: We examine an indirect but potentially deadly consequence of the “missing girls” phenomenon. A shortage of brides causes many parents with sons of marriageable age to work harder and seek higher-paying but potentially dangerous jobs. In response, employers invest less in workplace safety, which in turn increases work-related mortality. Drawing from a broad range of data sets and taking advantage of large regional and temporal variations in sex ratios in China, we demonstrate that in areas with a more severe shortage of young women, the parents with unmarried sons suffer a significantly higher incidence of accidental injuries and workplace deaths.
    JEL: J16 O1
    Date: 2021–05
  9. By: Fei Guo (Xian Jiaotong University); Isabel Kit-Ming Yan (City University of Hong Kong)
    Abstract: A fundamental aspect of China's transition to a market economy is the change of fiscal decentralization marked by the tax reform in 1993. This paper examines the effect of revenue and expenditure decentralization and their divergences on fiscal spending multipliers in China using nationally aggregate and provincial-level data from 1978 to 2017. Our investigations show that expenditure decentralization weakens the efficacy of spending policies, while revenue decentralization enhances the efficacy. Moreover, the divergence of revenue and expenditure decentralization has decreased the aggregate and provincial spending multipliers. The results are robust to the inclusion of off-budgetary expenditure and revenue, using different estimates of multipliers and different measures of fiscal decentralization, considering from a long-run perspective, and addressing the endogeneity issue.
    Keywords: Fiscal decentralization, Government spending, Fiscal multiplier, Tax reform, China
    JEL: E62 H5 H72 R5
    Date: 2021–05–31
  10. By: Hyeongwoo Kim; Madeline Kim
    Abstract: Motivated by Mr. Trump's agendas against China and Mexico, we investigate how a candidate's probability of winning the U.S. presidential election affects the international financial markets that are related to these countries. Unexpected increases in Trump's probability of winning the 2020 election generate significantly negative long-term effects on their home currency and the stock prices, while the default probability responds significantly positively in the long run. Similar responses, though in the short run, were observed when Mr. Biden's probability of winning increases, which tends to dissipate quickly over time. The responses to the Biden shock resemble those to the Trump shock during the 2016 election, implying that the probability shock of the new entrant candidate creates short-run disturbances in the financial market, whereas the probability shock of the incumbent candidate such as Trump in 2020 or Clinton in 2016 helps stabilize financial markets in the short run.
    Keywords: Donald Trump; Joe Biden; Hillary Clinton; Incumbent Candidate; PredictIt; Financial market
    JEL: E44 F31 G15
    Date: 2021–05

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