nep-cna New Economics Papers
on China
Issue of 2022‒08‒15
fourteen papers chosen by
Zheng Fang
Ohio State University

  1. The Chinese belt and road initiative between economics and geopolitics: Consequences for Armenia By Wrobel, Ralph
  2. South Korea should prepare for its exposure to US-China technology tensions By Mary E. Lovely; Abigail Dahlman
  3. Capital account openness in India and a comparison with China: Then versus now By Nidhi Aggarwal; Sanchit Arora; Rajeswari Sengupta
  4. Demographic Transition, Industrial Policies and Chinese Economic Growth By Michael Dotsey; Wenli Li; Fang Yang
  5. International Education in a World of New Geopolitics: A Comparative Study of US and Canada By Desai Trilokekar, Roopa
  6. Combating Cross-Border Externalities By Shiyi Chen; Joshua S. Graff Zivin; Huanhuan Wang; Jiaxin Xiong
  7. Stepping Stone: The Logic of Financial Inclusion through Microcredit in Rural China By Nan Zhou; Wenli Cheng; Longyao Zhang
  8. The BRI: Trade integration and stock market synchronization. A review of empirical findings By Heß, Alexander; Hindermann, Christoph Michael
  9. Propagation of Overseas Economic Shocks through Global Supply Chains: Firm-level evidence By INOUE Hiroyasu; TODO Yasuyuki
  10. Technical Barriers to Trade, Product Quality and Trade Margins: Firm-level Evidence By Doan Thi Thanh Ha; Hongyong Zhang
  11. Trade Policy and Global Sourcing: An Efficiency Rationale for Tariff Escalation By Pol Antràs; Teresa C. Fort; Agustín Gutiérrez; Felix Tintelnot
  12. DDPG based on multi-scale strokes for financial time series trading strategy By Jun-Cheng Chen; Cong-Xiao Chen; Li-Juan Duan; Zhi Cai
  13. Good-Bye Original Sin, Hello Risk On-Off, Financial Fragility, and Crises? By Joshua Aizenman; Yothin Jinjarak; Donghyun Park; Huanhuan Zheng
  14. Gravity Channels in Trade By Yulin Hou; Yun Wang; Hakan Yilmazkuday

  1. By: Wrobel, Ralph
    Abstract: Armenia has already signed some agreements with China to participate in the BRI project while no concrete measures are financed by the initiative. But what are the economic advantages and disadvantages of the BRI? While funding of some for Western financiers unattractive projects by China is a good chance for some participating countries a resulting "debt trap" is dangerous for them. Additionally, it can be shown easily that China's investments have mostly some geopolitical aspects which make the projects more advantageous for China than for the participating countries themselves. Especially, when in the BRI participating countries cannot pay back their debts a transfer of natural resources respective of infrastructure like ports ore pipelines to China may be the consequence. Therefore, Armenia is in a dilemma between strengthening cooperation with China and benefitting from that, on the one hand, and the risk of losing economic as well as political independence, on the other hand.
    Keywords: Belt and Road Initiative,Armenia,Geopolitics,Debt-Trap
    Date: 2022
  2. By: Mary E. Lovely (Peterson Institute for International Economics); Abigail Dahlman (Peterson Institute for International Economics)
    Abstract: The stated goal of the US-led Indo-Pacific Economic Framework for Prosperity (IPEF) is to create standards that enhance and elevate regional trade and investment flows, but it is clearly aimed at reducing the role of China in global supply chains. As China is Korea's largest trading partner, US policy discouraging Chinese participation in supply chains has immediate detrimental implications for Korean manufacturers. The United States is the second-most important destination for Korean exports. Given the values of these triangular trade flows, Lovely and Dahlman assess South Korea's exposure to US demands to remove or reduce Chinese participation in the manufacture of exports destined for the US market. The reliance of the proposed framework on certain standards will likely reduce Chinese participation in IPEF trade networks. Korea may benefit from this trend, but IPEF could also increase production costs for Korean companies, especially in the electronics sector, a problem that would worsen if China retaliates against these companies. To reduce these risks, Korea might find it prudent to reduce its reliance on intermediate goods from China for products it produces for export to the United States. The Korean government should also seek to better understand its exposure to US-China trade tensions and diversify its trade relations. Korean firms should start preparing for supply chain disruptions, perhaps by making investments at home. Korea could also help other IPEF members reduce supply chain disruptions while addressing security concerns over China.
    Date: 2022–07
  3. By: Nidhi Aggarwal (Indian Institute of Management, Udaipur); Sanchit Arora (Ernst and Young); Rajeswari Sengupta (Indira Gandhi Institute of Development Research)
    Abstract: Existing evidence shows that over the years, India's capital account has become relatively more open, while the same cannot be said for China. However, with its rising share in the world economy, China has increasingly been pursuing its goal of RMB internationalisation, which concurrently relies on an open capital account. In this paper, we revisit the question and examine the openness of capital accounts of both India and China, the two largest emerging economies. Using more than 15 years of daily return differentials in the non-deliverable currency forward (NDF) market vis-a-vis the onshore spot market, we find that the somewhat haphazard process of capital account opening undertaken by the Indian authorities is reflected in large variations in covered interest parity (CIP) deviations across the period. In recent years the deviations have become smaller and the no-arbitrage bands have become narrower, implying greater financial integration and lower effectiveness of existing capital controls Applying our methodology to China, we find that though China has liberalised its capital account over time, its capital controls still bind. Our analysis shows that India's capital account continues to remain substantially more open than that of China's.
    Keywords: Capital account openness, Financial integration, Covered interest parity, Capital controls, Foreign exchange market
    JEL: G15 F30 F31 F32
    Date: 2022–05
  4. By: Michael Dotsey; Wenli Li; Fang Yang
    Abstract: We build a unified framework to quantitatively examine the demographic transition and industrial policies in contributing to China’s economic growth between 1976 and 2015. We find that the demographic transition and industrial policy changes by themselves account for a large fraction of the rise in household and corporate savings relative to total output and the rise in the country’s per capita output growth. Importantly, their interactions also lead to a sizable fraction of the increases in savings since the late 1980s and reduce growth after 2010. A novel and important factor that drives these dynamics is endogenous human capital accumulation, which depresses household savings between 1985 and 2010 but leads to substantial gains in per capita output growth after 2005.
    Keywords: Aging; Credit policy; Household saving; Output growth; China
    JEL: E21 J11 J13 L52
    Date: 2022–07–15
  5. By: Desai Trilokekar, Roopa
    Abstract: This paper examines how international education (IE) as a tool of government foreign policy is challenged in an era of new geopolitics, where China’s growing ambitions have increased rivalry with the West. It compares U.S. and Canada as cases first, by examining rationales and approaches to IE in both countries, second, IE relations with China before conflict and third, current controversies and government policy responses to IE relations with China. The paper concludes identifying contextual factors that shape each country’s engagement with IE, but suggests that moving forward, the future of IE in a world of new geopolitics is likely to be far more complex and conflictual.
    Keywords: Education, International Education, foreign policy, new geopolitics, U.S.-China, U.S.-Canada
    Date: 2022–07–11
  6. By: Shiyi Chen; Joshua S. Graff Zivin; Huanhuan Wang; Jiaxin Xiong
    Abstract: This paper investigates the impact of a pioneering pollution reduction program, the Ecological Compensation Initiative (ECI) in China, which establishes side payments between upstream and downstream provinces along the same river. The program includes both Coasian and pay-for-performance elements. Instructed by a theoretical model, we employ a difference-in-differences empirical design and find strong evidence that the ECI mitigates the spillover effect of water pollution at the province boundary and brings about sharp reductions in water pollutant emissions from upstream firms, especially those in heavily polluting industries. This initiative also reduces upstream firms’ output and pollution intensity relative to downstream firms. The impact is stronger for upstream firms closer to the river and the point at which it enters the downstream province. Further evidence shows a significant increase in the rate of firms’ entry into neighboring prefectures, but no impact on firms’ exit from that region due to the initiative. Evidence from similar programs, later established in other river systems, suggests that cross-jurisdictional negotiations can effectively mitigate cross-border pollution externalities.
    JEL: D22 H7 K32 Q53 Q56
    Date: 2022–07
  7. By: Nan Zhou (College of Finance, Nanjing Agricultural University); Wenli Cheng (Department of Economics, Monash University); Longyao Zhang (College of Finance, Nanjing Agricultural University)
    Abstract: This paper studies the effect of microcredit on a rural household’s subsequent access to bank loans. Based on a 2018 survey of rural households in 6 Chinese provinces, we find that microcredit served as a stepping stone to bank credit: participation in microcredit improved a household’ probability of obtaining bank loans in the following year by 4.9 percentage points. Notably, the stepping effect was present for both the relatively wealthy households and poor households, if we measure wealth by households’ social capital and assets. We identify two mechanisms behind the stepping stone effect. First, the experience of microcredit instilled confidence in households, which helped to turn their hidden demand for bank credit into effective demand. Second, since microcredit records were included in the National Credit Information System, participation in microcredit in effect enabled households to provide banks with creditable and easily discoverable information about their creditworthiness, which greatly improved their chances of obtaining bank loans.
    Keywords: Microcredit, stepping stone effect, credit graduation, financial inclusion
    JEL: G21 O16
    Date: 2022–07
  8. By: Heß, Alexander; Hindermann, Christoph Michael
    Abstract: In the context of the Belt and Road Initiative (BRI), we review selected studies that explicitly or implicitly address the question of whether there occurs synchronization of stock markets between China and the BRI economies. Following this, we examine the extent to which this synchronization of stock markets may be driven by bilateral trade. This question is of particular interest to investors who wish to profit from the BRI while minimizing their risk through portfolio diversification. Our results show that there is plenty of supporting evidence that the stock markets of China and the BRI economies are synchronized, and that synchronization appears to be increasing since the launch of the BRI. We also find that bilateral trade is an important determinant for explaining stock market integration between China and the BRI countries. Based on these results, interregional diversification appears to be less efficient. Further research is needed to determine whether other forms of diversification, such as inter-industry diversification, would be more beneficial.
    Keywords: BRI,Belt and Road Initiative,Belt and Road Countries,China,Stock Market Synchronization,Stock Market Co-Movement,Stock Market Integration,Trade Integration,Trade Volume,Bilateral Trade,Portfolio Diversification,Investing
    Date: 2022
  9. By: INOUE Hiroyasu; TODO Yasuyuki
    Abstract: Recently, global supply chains are often disrupted because of trade policies and natural disasters. This study simulates the effect of disruption of imports from and exports to various regions on the total production of Japanese firms, incorporating propagation of the economic effect through domestic supply chains at the firm level. We find that the negative effect of disruption of intermediate imports grows exponentially as its duration and level increase because of downstream propagation. In particular, disruption of imports of electrical parts and components from Asia including China largely affects the manufacturing production of Japanese firms. In addition, the negative effect of disruption of imports from a specific region is more closely related to how importers are linked with other domestic firms than the import value from the region. Furthermore, the negative effect of import disruption can be largely mitigated by reorganization of domestic supply chains, even if the newly connected suppliers are limited to suppliers of competitors, i.e., firms sharing a supplier with the focal firm. Our findings suggest that when trade restrictions are imposed, the economic losses can vary substantially depending on their target industries, duration, and level, and the available substitutions.
    Date: 2022–07
  10. By: Doan Thi Thanh Ha (Economic Research Institute for ASEAN and East Asia (ERIA)); Hongyong Zhang (Research Institute of Economy, Trade and Industry (RIETI), Japan)
    Abstract: As tariffs have declined to a low level, the trade literature has paid increasing attention to the impact of non-tariff measures. Unlike tariffs, non-tariff measures could act as both a barrier to trade and a catalyst for quality upgrading. This study examines the effect of technical barriers to trade (TBTs) on trade margins and quality upgrading at the firm level. To do so, we utilise rich Chinese Customs data recording the universe of export transactions from 2000 to 2012, matched with the Annual Survey of Industrial Firms and the World Trade Organization’s Specific Trade Concerns database. We find that TBTs are associated with higher probability to exit. Surviving exporters enjoy larger sales and charge higher export prices. We also find robust evidence for the quality upgrading effects of TBTs. Firms upgrade their product quality by expanding their research and development and investment and importing more intermediate inputs and capital goods. The positive impact of TBTs on quality upgrading offsets that on price increases, resulting in lower quality-adjusted export prices. This suggests the net welfare-enhancing effect of TBTs for the consumers of imported products. The results hold after controlling for potential endogeneity and across various specifications.
    Keywords: Non-tariff Measures, Technical Barrier to Trade, Trade Margins, Quality upgrading, Firm Heterogeneity, China
    JEL: F13 F14 D22
    Date: 2022–02–07
  11. By: Pol Antràs; Teresa C. Fort; Agustín Gutiérrez; Felix Tintelnot
    Abstract: Import tariffs tend to be higher for final goods than for inputs, a phenomenon commonly referred to as tariff escalation. Yet neoclassical trade theory – and modern Ricardian trade models, in particular – predict that welfare-maximizing tariffs are uniform across sectors. We show that tariff escalation can be rationalized on efficiency grounds in the presence of scale economies. When both downstream and upstream sectors produce under increasing returns to scale, a unilateral tariff in either sector boosts the size and productivity of that sector, raising welfare. While these forces are reinforced up the chain for final-good tariffs, input tariffs may drive final-good producers to relocate abroad, mitigating their potential productivity benefits. The welfare benefits of final-good tariffs thus tend to be larger, with the optimal degree of tariff escalation increasing in the extent of downstream returns to scale. A quantitative evaluation of the US-China trade war demonstrates that any welfare gains from the increase in US tariffs are overwhelmingly driven by final-good tariffs.
    JEL: F1 F12 F13
    Date: 2022–07
  12. By: Jun-Cheng Chen; Cong-Xiao Chen; Li-Juan Duan; Zhi Cai
    Abstract: With the development of artificial intelligence,more and more financial practitioners apply deep reinforcement learning to financial trading strategies.However,It is difficult to extract accurate features due to the characteristics of considerable noise,highly non-stationary,and non-linearity of single-scale time series,which makes it hard to obtain high returns.In this paper,we extract a multi-scale feature matrix on multiple time scales of financial time series,according to the classic financial theory-Chan Theory,and put forward to an approach of multi-scale stroke deep deterministic policy gradient reinforcement learning model(MSSDDPG)to search for the optimal trading strategy.We carried out experiments on the datasets of the Dow Jones,S&P 500 of U.S. stocks, and China's CSI 300,SSE Composite,evaluate the performance of our approach compared with turtle trading strategy, Deep Q-learning(DQN)reinforcement learning strategy,and deep deterministic policy gradient (DDPG) reinforcement learning strategy.The result shows that our approach gets the best performance in China CSI 300,SSE Composite,and get an outstanding result in Dow Jones,S&P 500 of U.S.
    Date: 2022–06
  13. By: Joshua Aizenman; Yothin Jinjarak; Donghyun Park; Huanhuan Zheng
    Abstract: We analyze the sovereign bond issuance data of eight major emerging markets (EMs) - Brazil, China, India, Indonesia, Mexico, Russia, South Africa and Turkey from 1970 to 2018. Our analysis suggests that (i) EM local currency bonds tend to be smaller in size, shorter in maturity, or lower in coupon rate than foreign currency bonds; (ii) EMs are more likely to issue local-currency sovereign bonds if their currencies appreciated before the global financial crisis of 2008 (GFC); (iii) inflation-targeting monetary policy increases the likelihood of issuing local-currency debt before GFC but not after; and (iv) EMs that offer higher sovereign yields are more likely to issue local-currency bonds after GFC. Future data will allow us to test and identify structural changes associated with the COVID-19 pandemic and its aftermath.
    Date: 2022–06
  14. By: Yulin Hou (Zhongnan University of Economics and Law, Wuhan, P.R. China); Yun Wang (Barry University, Miami Shores, FL); Hakan Yilmazkuday (Department of Economics, Florida International University)
    Abstract: Gravity variables such as distance, adjacency, colony, free trade agreements or language are used to capture the effects of trade costs in empirical studies. By using actual data on trade costs, this paper decomposes the overall effects of such variables on trade into those through three gravity channels: duties/tariffs (DC), transportation-costs (TC), and dyadic-preferences (PC). As opposed to the existing literature where gravity variables act like supply shifters (through DC and TC), this paper empirically shows that they act like demand shifters (through PC). Regarding policy, it is implied that welfare-improving globalization cannot be achieved only through reductions in direct costs such as duties/tariffs or transportation costs; it is rather the globalization itself that should be promoted in order to shift the preferences of destination countries toward international products and thus reduce indirect trade costs. The results are further connected to several existing discussions in the literature, such as welfare gains from trade and the distance puzzle.
    Keywords: Gravity Variables, Dyadic Preferences, U.S. Imports
    JEL: F12 F14
    Date: 2022–05

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