nep-cna New Economics Papers
on China
Issue of 2022‒04‒04
five papers chosen by
Zheng Fang
Ohio State University

  1. China's economic transformation and poverty reduction over the years: An overview By Ana Lugo, Maria; Raiser, Martin; Yemtsov, Ruslan
  2. Reluctant US vs ambitious German direct investment in China: The tale of two strategies By Langhammer, Rolf J.
  3. China in Europe: FDI Trends and Policy Responses in the 17+1 Region and Austria By Zuzana Zavarská
  4. Import Shock and Local Labour Market Outcomes: A Sino-Indian Case Study By Feiyang Shi
  5. Cutting Through the Value Chain: The Long-run Effects of Decoupling the East from the West By Gabriel Felbermayr; Hendrik Mahlkow; Alexander Sandkamp

  1. By: Ana Lugo, Maria; Raiser, Martin; Yemtsov, Ruslan
    Abstract: The present document examines the role of social and economic transformation in the process of poverty reduction in China. China's economic growth and poverty reduction over the past 40 years are historically unprecedented both in speed and scale. Between 1978 and 2018 China's economy grew at an annual rate of 9.5 percent, twice as fast as the other developing regions of the World. The proportion of those living in poverty in rural areas fell from 97.5 percent to less than one percent over this period. There are 765 million fewer poor people in China in 2019 than they were in 1980. This means that China alone accounts for three quarters of the total reduction in global extreme poverty in that period. Although China's growth rate will continue to slow in the coming decades, the scope for economic convergence through structural transformation has not yet been fully exhausted. Further urbanization and associated productivity increases can continue to play a critical role for poverty reduction in China. However, for progress to be sustained a number of adjustments to policy will be needed.
    Keywords: poverty reduction,economic transformation,rural-urban migration,China
    Date: 2022
  2. By: Langhammer, Rolf J.
    Abstract: The author shows that the US as the world's largest investor abroad so far shuns the most dynamic host region East Asia including China and instead continues to focus on investment in Europe. In contrast, Germany follows a different path. Similar to trade, German companies have been very active as investors, especially in China. The author explains the discrepancies in the regional structure of FDI by (1) differences in the sectoral focus: US in services and Germany in manufacturing, (2) differences in the regulatory framework protecting national security in the two home countries: much stronger in the US than in Germany especially against China, and (3) differences in Chinese policy interventions: stronger in services than in manufacturing. It can be expected that rising tensions between China and the US will lead to stronger trends of technological self-reliance on both sides, a higher local content of production and more importance of protecting national security. Against this backdrop, US companies with their low presence in China might face less challenges than German companies which are more subject to path dependency given their high presence in China.
    Keywords: Foreign direct investment,US,Germany,East Asia,national security,Ausländische Direktinvestitionen,USA,Deutschland,Ostasien,China,nationale Sicherheit
    Date: 2022
  3. By: Zuzana Zavarská (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: Finding common ground across EU member states in responding to China’s increasingly prominent position in the global economy has thus far proven a challenge. As the EU tries to find a ‘third way’ for dealing with its most important trading partners amid heightened US-China tensions, selected countries within the CESEE region have been deepening their investment relations with China. Given these countries’ significant capital needs for economic development, and in view of the EU’s arguable neglect of parts of the region, it is hardly surprising that they would be incentivised to seek out alternative investors. In addition to managing the risks arising from debt dependencies, China’s growing position in the 17+1 countries’ energy sectors may present a possible risk area. The EU investment screening mechanism is unlikely to align strategic interests across member states in its present scope, given the deficiencies in enforcement. With Austria’s established investment presence and relative geographical proximity to the 17+1 countries, it needs to play a key role in moving the dialogue in the direction of harmonising EU investment screening mechanisms, aligning incentives through greater involvement of the Western Balkans in development financing from the EU and offering realistic EU accession prospects. The Comprehensive Agreement on Investment (CAI) would have constituted a positive step towards a mutually beneficial and competitively neutral investment relationship with China, despite its numerous shortcomings. Austria and the EU-CEE countries should therefore lean towards resumed engagement with China regarding the possible ratification of the CAI, keeping core European values in mind. The EU should prioritise proactive policies to drive growth at home, leveraging the continent’s innovation capacities, and not only rely on defensive mechanisms to keep out unwanted FDI. Ultimately, Austria should recognise and emphasise mutual respect and co-operation towards common goals among the world’s major trading blocs, despite sometimes profound differences in economic models.
    Keywords: EU, China, foreign direct investment, investment screening, investment agreements
    JEL: F13 F21 F42
    Date: 2022–03
  4. By: Feiyang Shi (IHEID, Graduate Institute of International and Development Studies, Geneva)
    Abstract: Focusing on Sino-Indian trade, this paper uses detailed district-level data, exploits India's drastic increase in imports from China since 2001, and uses the instrumental variables approach to examine the impact of trade shock on the local labour market outcomes. Through a matching procedure, the geographical coverage of the paper is significantly improved comparing with prior studies. The range of labour market outcome variables examined is also much wider, including wage, residual wage fluctuation, and employment and underemployment as shares of working-age population. By exploiting spatial variations in industrial activities and labour participation in the industries, the paper finds that, unlike in some other cases, the import competition from China did not have a significant impact on the Indian district average wages. However, it did result in an increase in employment share. In further contribution, the paper also allows heterogeneous effects across consumption, age, gender, occupation and industrial groups. The results confirm that the effect of import shock is not uniformly distributed within the districts. Rather, it varies with respect to certain socio-economic characteristics.
    Keywords: International Trade; Wages; Income Inequality; Import shock; Underemployment
    JEL: F14 F16 J16
    Date: 2022–03–28
  5. By: Gabriel Felbermayr (Austrian Institute of Economic Research); Hendrik Mahlkow; Alexander Sandkamp
    Abstract: With ever-increasing political tensions between China and Russia on one side and the EU and the USA on the other, it only seems a matter of time until protectionist policies cause a decoupling of global value chains. This paper uses a computable general equilibrium trade model calibrated with the latest version of the GTAP database to simulate the effect of doubling non-tariff barriers – both unilateral and reciprocal – between the two blocks on trade and welfare. Imposing trade barriers almost completely eliminates bilateral imports. In addition, changes in price levels lead to higher imports and lower exports of the imposing country group from and to the rest of the world. The targeted country group increases exports to the rest of the world and reduces imports. Welfare falls in all countries involved, suggesting that governments should strive to cooperate rather than turning away from each other. By imposing a trade war on Russia, the political West could inflict severe damage on the Russian economy because of the latter's smaller relative size.
    Keywords: Trade, non-tariff barriers, global value chains, quantitative trade model, China, Russia, European Union
    Date: 2022–03–01

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