nep-cna New Economics Papers
on China
Issue of 2021‒08‒16
twelve papers chosen by
Zheng Fang
Ohio State University

  1. The cost of weak institutions for innovation in China By Rodríguez-Pose, Andrés; Zhang, Min
  2. Out of the window? Green monetary policy in China: window guidance and the promotion of sustainable lending and investment By Dikau, Simon; Volz, Ulrich
  3. Regional Carbon Markets in China: Cointegration and Heterogeneity By Lyu, Chenyan
  4. Greening Monetary Policy: Evidence from the People's Bank of China By Macaire Camille,; Naef Alain.
  5. Decoupling Europe By Felbermayr, Gabriel; Gans, Steffen; Mahlkow, Hendrik; Sandkamp, Alexander-Nikolai
  6. Location choices of Chinese greenfield investments across EU regions: The role of industry and country-of-origin agglomerations By Yifei Wang; Andrea Ascani; Carolina Castaldi
  7. Energy Poverty and Entrepreneurship By Cheng, Zhiming; Tani, Massimiliano; Wang, Haining
  8. The economic origins of authoritarian values: evidence from local trade shocks in the United Kingdom By Ballard-Rosa, Cameron; Malik, Mashail; Rickard, Stephanie; Scheve, Kenneth
  9. Local Shocks and Internal Migration: The Disparate Effects of Robots and Chinese Imports in the US By Marius Faber
  10. Food Subsidies in General Equilibrium By Albert Jan Hummel; Vinzenz Ziesemer
  11. What Happens When Employers Can No Longer Discriminate in Job Ads? By Peter J. Kuhn; Kailing Shen
  12. Knowing When to Splurge: Precautionary Saving and Chinese-Canadians By Mark S. Manger; J. Scott Matthews

  1. By: Rodríguez-Pose, Andrés; Zhang, Min
    Abstract: Does the variation in the quality of local government institutions affect the capacity of firms to innovate? This paper uses a unique dataset that combines the specific features of 2,700 firms with the institutional and socioeconomic characteristics of the 25 cities in China where they operate, in order to assess the extent to which institutional quality – measured across four dimensions: rule of law, government effectiveness, corruption, and regulatory quality – affects both the innovation probability and intensity of firms. The results of the econometric analysis show that poor institutional quality in urban China is an important barrier for firm-level innovation. In particular, a deficient rule of law, high corruption, and a weak regulatory quality strongly undermine firm-level innovation. The role of these factors is far more limited in the case of innovation intensity. Better institutions also reduce the amount of time firms spend dealing with government regulations in order to facilitate innovation. The results also indicate that the cost of weak institutions for innovation is higher for private than for state-owned firms, at least in the early stages of innovation. In general, differences in institutional quality generate local urban ecosystems that impinge on the propensity of firms to innovate.
    Keywords: innovation; institutions; government quality; firms; cities; China
    JEL: R14 J01
    Date: 2020–04–01
  2. By: Dikau, Simon; Volz, Ulrich
    Abstract: Chinese monetary and financial authorities have been among the pioneers in promoting green finance. This paper investigates the use of one specific monetary policy tool, namely window guidance, by the People’s Bank of China (PBC) and the China Banking Regulatory Commission (CBRC) to encourage financial institutions to expand credit to sustainable activities and curb lending to heavy-polluting industries. We investigate window guidance targets for the period 2001-2020 and find that ‘green window guidance’ was used by the CBRC from at least 2006 and by the PBC from 2007 to discourage lending to carbon-intensive and polluting industries and/or to increase support to sustainable activities. Both authorities stopped discouraging lending to carbon-intensive/polluting industries in 2014. Sustainable objectives were subsequently also removed from the PBC’s list of priority sectors at the start of 2019, ending the practice of green window guidance in China. Sustainability-enhancing window guidance targets were replaced and formalised through new ‘Guidelines for Establishing the Green Financial System’, reflecting efforts to move away from controls-based towards market-based policy instruments. Based on this analysis, the paper draws four lessons for the design of green finance policies for other countries that seek to enhance sustainable finance and mitigate climate change and related risks.
    Keywords: sustainable finance; central banking and financial supervision; China; Centre for Climate Change Economics and Policy; ES/P005241/1; ES/R009708/1; 71661137002
    JEL: G10 G20 G30 Q01 Q50
    Date: 2021–05–14
  3. By: Lyu, Chenyan (Copenhagen School of Energy Infrastructure, Department of Economics, Copenhagen Business School)
    Abstract: China accounts for the largest share of the world’s total greenhouse gas emissions. The scale and growth of industrial activities and energy consumption in China explain the high level of emissions. Achieving “carbon neutrality” through administrative means can be effective but also costly and inefficient. The emission trading scheme is a way to put a price on carbon. The absence of such a mechanism could let low efficiency continue, delay the adoption of clean energy practices, risk a shortage of energy, and even allow corruption in regulation of emissions. In 2013, the government introduced pilot emission trading schemes; and a national ETS, which has started trading since June 2021, is becoming the world’s largest carbon market. This paper focuses on the fragmentation of and integration levels within China’s regional Emission Trading Schemes (ETSs) and the potential models the regional schemes — in Beijing, Shanghai, Shenzhen, Hubei, and Guangdong — offer for national effectiveness. The empirical results from this study suggest the general low level of co-integration in China’s ETS pilots within the sample period may be due to the different economic development levels, energy structures, and degrees of government supervision in each pilot as well as different choices of sector coverage and market threshold in regional ETSs. As the national ETS is at a key stage of construction, greater attention should be paid to exploring reasons for differences among the regional pilot carbon markets, to improve market mechanisms.
    Keywords: Carbon markets; China’s regional emissions trading; Emission allowances; Market architecture; Cointegration
    JEL: C32 E44 Q43 R11
    Date: 2021–08–05
  4. By: Macaire Camille,; Naef Alain.
    Abstract: In June 2018, the People’s Bank of China (PBoC) decided to include green financial bonds into the pool of assets eligible as collateral for its Medium Term Lending Facility. The PBoC also gave green financial bonds a “first-among-equals” status. We measure the impact of the policy on the yield spread between green and non-green bonds. We show that pre-reform trends are minor, meaning that both green and non-green bonds yields evolved similarily at the time of the reform. Using a difference-in-differences approach, we show that the policy increased the spread by 46 basis points. Our approach differs from the literature in that we match bonds under review with non-green bonds with similar characteristics and issued by the same firm, which improves the relevance of firm fixed-effects. We also specifically investigate the impact on green bonds. The granularity of the data (daily) also allows us to conduct a dynamic analysis by dividing the sample into weekly, monthly and quarterly observations. Our results also show that the impact of the reform starts to materialize after three weeks, has a maximum effect after three months, and has a persistent effect over six months.
    Keywords: People’s Bank of China, Central Bank Collateral Framework, Green Bonds, Bond Yields, Greenium.
    JEL: E52 E58 Q51 Q54 G12 G18
    Date: 2021
  5. By: Felbermayr, Gabriel; Gans, Steffen; Mahlkow, Hendrik; Sandkamp, Alexander-Nikolai
    Abstract: The COVID-19 pandemic revealed the vulnerability of international value chains in the face of global shocks. This has triggered a political discussion regarding a possible reshoring of vulnerable supply chains back home. The aim is to reduce dependencies on foreign suppliers and thus improve crisis resilience of the domestic economy. The debate is also rooted in the growing dependence on Asian suppliers and the colliding political and ideological systems between China and the West. Unilateral decoupling of the EU from China (a doubling of trade costs) would reduce real income in the EU on average by 0.8 percent. In terms of GDP in 2019, this equals a permanent loss in real income of 131.4 bn EUR. Should China retaliate, real income would fall by 1.0 percent (170.3 bn EUR). With its extremely interconnected economy, real income in Germany would even decline by 1.4 percent (48.4 bn EUR). China would also lose from such a trade war, with real income declining by 1.3 percent. Should the EU increase its trade barriers against all its non-European trading partners, real income in the Union would fall by 3.5 percent or 584.3 bn EUR in case of a unilateral increase and by 5.3 percent or 873.1 bn EUR in case the rest of the world responds by also raising trade barriers.
    Keywords: European Union,China,Germany,Trade,Global Value Chains,Europäische Union,Deutschland,Handel,Globale Wertschöpfungsketten
    Date: 2021
  6. By: Yifei Wang (Utrecht University); Andrea Ascani (Gran Sasso Science Institute); Carolina Castaldi (Utrecht University)
    Abstract: We model the impact of public housing supply on local development by using a spatial equilibrium model with a “share-altering†technological shift from agriculture to manufacturing. The model shows that a larger local availability of houses triggers greater population growth and, consequently, industrialization. It also suggests that these effects are stronger in places that exhibited, prior to the public housing plan, relatively higher population density. These implications are broadly confirmed by an empirical evaluation of the INA-Casa plan, a program implemented by the Italian government in the aftermath of WWII.
    Keywords: industry agglomeration, country-of-origin, agglomeration, multinational enterprises, foreign direct investment, China
    JEL: F23 L20 R30
    Date: 2021–07
  7. By: Cheng, Zhiming (University of New South Wales); Tani, Massimiliano (University of New South Wales); Wang, Haining (Sun Yat-Sen University)
    Abstract: We use the 2012-2018 China Family Panel Studies data to examine the relationship between household energy poverty and an individual’s probability of becoming an entrepreneur. Consistent with the theory of underdog entrepreneurship that negative personal circumstances can foster self-reliance, resourcefulness and other skills and personality traits conducive to entrepreneurship, we find that spending a higher share of household income on energy consumption or being energy poor increases the probability of being an entrepreneur. The results are robust to various checks, including alternative measures of energy poverty, non-linear effects of the share of energy spending in household income, past entrepreneurial experience, alternative estimation methods and potential omitted variable bias. We also explore the channels through which energy poverty influences whether one chooses to become an entrepreneur. We find that cognitive functions, mental health and self-confidence negatively mediate, while self-belief, extroversion and openness positively mediate, the relationship between energy poverty and entrepreneurship.
    Keywords: energy poverty, entrepreneurship, China
    JEL: I32 L26 Q41
    Date: 2021–07
  8. By: Ballard-Rosa, Cameron; Malik, Mashail; Rickard, Stephanie; Scheve, Kenneth
    Abstract: What explains the backlash against the liberal international order? Are its causes economic or cultural? We argue that while cultural values are central to understanding the backlash, those values are, in part, endogenous and shaped by long-run economic change. Using an original survey of the British population, we show that individuals living in regions where the local labor market was more substantially affected by imports from China have significantly more authoritarian values and that this relationship is driven by the effect of economic change on authoritarian aggression. This result is consistent with a frustration-aggression mechanism by which large economic shocks hinder individuals’ expected attainment of their goals. This study provides a theoretical mechanism that helps to account for the opinions and behaviors of Leave voters in the 2016 UK referendum who in seeking the authoritarian values of order and conformity desired to reduce immigration and take back control of policymaking.
    Keywords: globalization; backlash; public opinion; political economy; economic policy; Department of Political Science
    JEL: R14 J01 L81
    Date: 2021–07–16
  9. By: Marius Faber
    Abstract: Migration has long been considered one of the key mechanisms through which labor markets adjust to economic shocks. In this paper, we analyze the migration response of American workers to two of the most important shocks that hit US manufacturing since the late 1990s – Chinese import competition and the introduction of industrial robots. Exploiting plausibly exogenous variation in exposure across US local labor markets over time, we show that robots caused a sizable reduction in population size, while Chinese imports did not. We rationalize these results in two steps. First, we provide evidence that negative employment spillovers outside manufacturing, caused by robots but not by Chinese imports, are an important mechanism for the different migration responses triggered by the two shocks. Next, we present a model where workers are geographically mobile and compete with either machines or foreign labor in the completion of tasks. The model highlights that two key dimensions along which the shocks differ – the cost savings they provide and the degree of complementarity between directly and indirectly exposed industries – can explain their disparate employment effects outside manufacturing and, in turn, the differential migration response.
    Keywords: Migration, employment, technology, trade.
    JEL: J21 J23 J61
    Date: 2021–07
  10. By: Albert Jan Hummel; Vinzenz Ziesemer
    Abstract: The Atkinson-Stiglitz theorem on uniform consumption taxation breaks down if prices are endogenous. This paper investigates the implications for optimal food subsidies in China. To do so, we build a general equilibrium model where low-skilled workers have a comparative advantage in the production of food. Food subsidies raise the relative demand for low-skilled workers, which reduces the skill premium and indirectly redistributes income from high-skilled to low-skilled workers. We calibrate our model to match key moments from the Chinese economy, including sectoral production and spending patterns that we obtain from micro-level survey data. Our results suggest that general equilibrium effects rationalize food subsidies in the range 5%-12%.
    Keywords: uniform consumption taxes, general equilibrium effects, food subsidies
    JEL: E64 H21 Q18
    Date: 2021
  11. By: Peter J. Kuhn; Kailing Shen
    Abstract: When employers’ explicit gender requests were unexpectedly removed from a Chinese job board overnight, pools of successful applicants became more integrated: women’s (men’s) share of call-backs to jobs that had requested men (women) rose by 63 (146) percent. The removal ‘worked’ in this sense because it generated a large increase in gender-mismatched applications, and because those applications were treated surprisingly well by employers. The removal had little or no effect on aggregate matching frictions. The job titles that were integrated however, were not the most gendered ones, and were disproportionately lower-wage jobs.
    JEL: J16 J63 J71
    Date: 2021–07
  12. By: Mark S. Manger; J. Scott Matthews
    Abstract: Why do household saving rates differ so much across countries? This micro-level question has global implications: countries that systematically "oversave" export capital by running current account surpluses. In the recipient countries, interest rates are thus too low and financial stability is put at risk. Existing theories argue that saving is precautionary, but tests are limited to cross-country comparisons and are not always supportive. We report the findings of an original survey experiment. Using a simulated financial saving task implemented online, we compare the saving preferences of a large and diverse sample of Chinese-Canadians with other Canadians. This comparison is instructive given that Chinese-Canadians migrated from, or descend from those who migrated from, a high-saving environment to a low-savings, high-debt environment. We also compare behavior in the presence and absence of a simulated "welfare state," which we represent in the form of mandatory insurance. Our respondents exhibit behavior in the saving task that corresponds to standard economic assumptions about lifecycle savings and risk aversion. We find strong evidence that precautionary saving is reduced when a mandatory insurance is present, but no sign that Chinese cultural influences - represented in linguistic or ethnic terms - have any effect on saving behavior.
    Date: 2021–08

This nep-cna issue is ©2021 by Zheng Fang. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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