nep-cna New Economics Papers
on China
Issue of 2022‒09‒12
sixteen papers chosen by
Zheng Fang
Ohio State University

  1. China's Financial System and Economy: A Review By Zhiguo He; Wei Wei
  2. Regional Variation of GDP per head within China, 1080-1850 : implications for the great divergence debate By Broadberry, Stephen; Guan, Hanhui
  3. German-Chinese Trade Relations: How Dependent is the German Economy on China? By Andreas Baur; Lisandra Flach
  4. Lessons from U.S.-China Trade Relations By Lorenzo Caliendo; Fernando Parro
  5. Non-Tariff Barriers in the U.S.-China Trade War By Tuo Chen; Chang-Tai Hsieh; Zheng Michael Song
  6. Is Finance Good for Growth? New Evidence from China By Jingzhu Chen; Yuemei Ji
  7. Place-based Land Policy and Spatial Misallocation: Theory and Evidence from China By Min Fang; Libin Han; Zibin Huang; Ming Lu; Li Zhang
  8. Internationalizing Like China By Christopher Clayton; Amanda Dos Santos; Matteo Maggiori; Jesse Schreger
  9. Green Bond Premiums in the Chinese Secondary Market By Karel Janda; Anna Kortusova; Binyi Zhang
  10. Bootstrapping Science? The Impact of a “Return Human Capital†Programme on Chinese Research Productivity By Ash, Elliott; Cai, David; Draca, Mirko; Liu, Shaoyu
  11. The Long-Term Health Effects of Oil Discoveries: Evidence from China By Raveh, Ohad; Zhang, Yan
  12. How China Has Increased the International Competitiveness of Science and Technology: A summary of the governance system of science and technology and the trial and error of institutional design (Japanese) By MENG Jianjun; PAN Motao
  13. Exploring the Level of DRC's Dependence on China By Benjamin Mwadi Makengo; Joseph Mimbale Molanga; Jean-Marie Mbutamuntu; Patience Kamanda Londo; Théo-Macaire Kaminar Nsiy; Shi Xinzhi; Gracien Mwadi Kapita
  14. Intervention for Cryptocurrency Emissions: A China Case Study By Scott Fan; Elliot Gyllensvärd; Erich Farkas; Julian Schutzner
  15. Changing anchor of the renminbi: A Bayesian learning approach to the decade-long transition By Chen Zhang; Ying Fang; Linlin Niu
  16. BigTech credit and monetary policy transmission: Micro-level evidence from China By Huang, Yiping; Li, Xiang; Qiu, Han; Yu, Changhua

  1. By: Zhiguo He; Wei Wei
    Abstract: China's financial system has been integral to its spectacular economic growth over the past 40 years. We review the recent literature on China's financial system and its connections to the Chinese economy based on the categories of Aggregate Financing to the Real Economy (AFRE), a broad measure of the nation's yearly flow of liquidity accounting for unique features of China's financial system. While early work on China's financial system emphasizes the state-owned enterprise (SOE) reform, the recent literature explores other more market-based financing channels—including shadow banking—that grew rapidly after 2010 and have become important components of AFRE. These new financing channels are not only intertwined with each other, but more importantly often ultimately tied back to the dominant banking sector in China. Understanding the mechanisms behind these channels and their intrinsic connections is crucial to alleviate capital allocation distortion and mitigate potential systemic financial risk in China.
    JEL: G10 G20 G30 O16 O17 O33 P34
    Date: 2022–08
  2. By: Broadberry, Stephen (Nuffield College, Oxford,); Guan, Hanhui (Peking University)
    Abstract: We examine regional variation in Chinese GDP per head for five benchmark years from the Song dynasty to the Qing. For the Ming and Qing dynasties, we provide a breakdown of regional GDP per head across seven macro regions, establishing that East Central China was the richest macro region. In addition, we provide data on the Yangzi Delta, the core of East Central China, widely seen as the richest part of China since 1400. Yangzi Delta GDP per head was 64 to 67 per cent higher than in China as a whole for three of the four Ming and Qing benchmarks, and 52 per cent higher during the late Ming. For the Northern Song dynasty, although it is not possible to derive a full regional breakdown, we provide data for Kaifeng Fu, the region containing the capital city. GDP per head in Kaifeng Fu was more than twice the level of China as a whole. Combined with aggregate data for GDP per head, these estimates suggest that China was the leading economy in the world during the Song dynasty and that the Great Divergence began around 1700 as the leading region of China fell decisively behind the leading region of Europe. JEL classification: N13 ; N33 ; O10 ; O47 Key words: Great Divergence ; China ; regional variation ; GDP per head
    Date: 2022
  3. By: Andreas Baur; Lisandra Flach
    Abstract: In recent decades, China has risen to become Germany’s most important trading partner for international trade in goods. Has Germany become too dependent from trade with China? An analysis using direct and indirect value-added linkages along the supply chain shows that China plays an important, but by no means dominant role for Germany as a supplier or destination market. However, in a survey conducted by the ifo Institute, 46% of German firms in the manufacturing sector state that they currently depend on important intermediate inputs from China. Of those, almost half of the firms are planning to reduce imports from China in the future. The most frequently mentioned reasons for reducing imports from China are the desire to decrease dependencies and increase diversification, increased freight costs and disruptions in transportation, as well as political uncertainty. An analysis at the product level shows that the German economy depends on several critical industrial goods and raw materials from China.
    Date: 2022
  4. By: Lorenzo Caliendo; Fernando Parro
    Abstract: We review theoretical and empirical work on the economic effects of the United States and China trade relations during the last decades. We first discuss the origins of the China shock, its measurement, and present methods used to study its economic effects on different outcomes. We then focus on the recent U.S.-China trade war. We discuss methods used to evaluate its effects, describe its economic effects, and analyze if this increase in trade protectionism reverted the effects of the China shock. The main lessons learned in this review are: (i) the aggregate gains from U.S.-China trade created winners and losers; (ii) China's trade expansion seems not to be the main cause of the decline in U.S. manufacturing employment during the same period; and (iii) the recent trade war generated welfare losses, had small employment effects, and was ineffective in reversing the distributional effects due to the China shock.
    JEL: F1 F10 F11 F12 F13 F14 F15 F16 F19
    Date: 2022–08
  5. By: Tuo Chen; Chang-Tai Hsieh; Zheng Michael Song
    Abstract: We use Chinese customs data to show that unofficial non-tariff barriers were responsible for 50\% of the overall reduction in Chinese imports from the U.S. during the height of the U.S.-China trade war in 2018 and 2019. We infer non-tariff barriers from the change in imports of U.S. products relative to imports from other countries of the same HS-6 product, after controlling for the change in the relative price of U.S. imports to the same product sold by other countries. These barriers were imposed on a small number of agricultural products, did not apply to state-owned importers, and were larger for products where the share of state importers in total imports of the U.S. product was large. Non-tariff barriers were responsible for more than 90\% of the welfare cost to Chinese consumers of the U.S.-China trade war. The welfare loss to China of a given reduction in imports from the U.S. from non-tariff barriers is about six times larger than an equivalent import decline due to higher tariffs. Non-tariff barriers are more costly compared to tariffs because they applied to some importers and not others, which results in misallocation, and because non-tariff barriers do not generate revenues.
    JEL: E0 F0 F13
    Date: 2022–08
  6. By: Jingzhu Chen; Yuemei Ji
    Abstract: We study the relationship between finance and growth using a sample of 275 Chinese cities during 2009-2018. We exclude a large amount of bank loans to local governments through the local government financing vehicles (LGFVs). This allows us to construct a new and better financial development index which measures the level of loans extended by banks to enterprises and households. Estimates from both GMM and Instrument Variables approaches indicate that financial development in the form of higher loan to GDP ratio leads to lower economic growth rate. We find that discrimination in bank lending, housing market bubbles and an unbalanced growth between real and financial sectors account for this negative relationship between finance and growth.
    Keywords: China, financial development, economic growth, banks, city
    JEL: O16 O18 O53 G21 N25
    Date: 2022
  7. By: Min Fang; Libin Han; Zibin Huang; Ming Lu; Li Zhang
    Abstract: Place-based land policies may create spatial misallocation. We investigate a major policy in China that aims to reduce regional development gaps by distributing more urban construction land quotas to underdeveloped inland regions. We first show causal evidence that this policy decreased firm-level TFP in more developed eastern regions relative to inland regions. We then build a spatial equilibrium model with migration, land constraints, and agglomeration. The model reveals that this policy led to substantial losses in national TFP and output. It shrinks regional output gap but lowers incomes of workers from underdeveloped regions by hindering their migration to developed regions.
    Keywords: Place-based Policy; Land Policy; Spatial Misallocation; Regional Inequality; China;
    JEL: O18 R58 E24 J61 R52
    Date: 2022–08–22
  8. By: Christopher Clayton; Amanda Dos Santos; Matteo Maggiori; Jesse Schreger
    Abstract: We empirically characterize how China is internationalizing the Renminbi by selectively opening up its domestic bond market to foreign investors and propose a dynamic reputation model to explain this internationalization strategy. The Chinese government deliberately controlled the entry of foreign investors into its market, first allowing in relatively stable long-term investors like central banks before allowing in flightier investors like mutual funds. Our framework explains these patterns as the result of a government strategy to build its reputation as an international currency issuer while attempting to reduce the cost of potential capital flight as it tries to gain credibility. The dynamics of reputation make Chinese debt a substitute for emerging market risky debt in the early stages of internationalization and more of a substitute for developed market safe debt in the later stages. We use our framework to explore how countries compete to become a reserve currency provider. Competition worsens the incentives to build up reputation by reducing the benefits of having a higher reputation. The framework is tractable and can make sense of both new entrants like China and established players like the United States.
    JEL: E0 F2 F3
    Date: 2022–08
  9. By: Karel Janda (Institute of Economic Studies, Faculty of Social Sciences, Charles University & Department of Banking and Insurance, Faculty of Finance and Accounting, Prague University of Economics and Business, Czech Republic); Anna Kortusova (Institute of Economic Studies, Faculty of Social Sciences, Charles University); Binyi Zhang (Institute of Economic Studies, Faculty of Social Sciences, Charles University)
    Abstract: Green bonds have gained prominence in China´s capital market as tools that help to fuel the transition to a climate-resilient economy. Although the issuance volume in the Chinese green bond market has been growing rapidly in recent years, the impact of the green label on bond pricing has not been adequately studied. Therefore, this paper investigates whether this newly developed financial instrument offers investors in China an attractive yield compared to other equivalent conventional bonds. By matching green bonds with their conventional counterparts and subsequently applying a fixed-effects estimation, our empirical results reveal a significant green bond yield premium of 1.8 basis points (bps) on average in the Chinese secondary market. In addition to that, we find that CBI certified green bond generate higher yields than self-labelled green bond in the Chinese market. Investors are found to be willing pay a higher price for green bonds issued by environmental, social and governance (ESG) performance-rated issuers. Our results point to some practical implications for investors and policymakers.
    Keywords: Green Finance; Green bonds; ESG; China
    Date: 2022–08
  10. By: Ash, Elliott (ETH Zurich); Cai, David (ETH Zurich); Draca, Mirko (University of Warwick, CAGE); Liu, Shaoyu (Columbia University)
    Abstract: We study the impact of a large-scale scientist recruitment program – China’s Junior Thousand Talents Plan (é ’å¹´å ƒäººè®¡åˆ’) – on the productivity of recruited scholars and their local peers in Chinese host universities. Using a comprehensive dataset of published scientific articles, we estimate effects on quantity and quality in a matched difference-in-differences framework. We observe neutral direct productivity effects for participants over a 6-year post-period: an initial drop is followed by a fully offsetting recovery. However, the program participants collaborate at higher rates with more junior China-based co-authors at their host institutions. Looking to peers in the hosting department, we observe positive and rising productivity impacts for peer scholars, equivalent to approximately 0.6 of a publication per peer scholar in the long-run. Heterogeneity analysis and the absence of correlated resource effects point to the peer effect being rooted in a knowledge spillover mechanism.
    Date: 2022
  11. By: Raveh, Ohad; Zhang, Yan
    Abstract: Does the discovery and operation of a nearby oil field carry long-term health consequences? Existing studies focus primarily on relatively short-term impacts, and disregard potential effects of mobility-driven external influences. We fill this gap by capitalizing on the unique features of the China Health and Retirement Longitudinal Study, which provides a comprehensive health survey of Chinese individuals while tracking the location of their residence over their lifetime. Matching the latter with the location of giant oil field discoveries, we undertake a difference-in-differences analysis of individuals born before and after a discovery, basing the treatment on proximity, to examine the impact of discoveries made as early as 1938 on objective health outcomes reported in 2011-2018. Our identification strategy rests on the plausible exogeneity of the timing, location, and exploitation of discoveries, and the examination of individuals who did not change residence locations for long periods since birth. We find that a discovery made within a range of approximately 60km significantly decreases the relative average long-run health conditions of individuals born after it, although these individuals are younger, and were born into a more developed environment. Specifically, their average share of individuals diagnosed with a chronic disease increases, in relative terms, by 25% in the long term. This effect is observed most notably in diseases related to the respiratory, digestive, and urinary systems.
    Keywords: Oil discoveries, health, long-term effects
    JEL: Q3 Q32
    Date: 2022–08–01
  12. By: MENG Jianjun; PAN Motao
    Abstract: Since the founding of the people's Republic of China in 1949, great progress has been made in science and technology in China. Looking at the evolution of national comprehensive planning and specific countermeasures, the government is coordinating policies for the governance system of science and technology in a timely manner, under the guidance of national goals. In the early stages before 1949, the national goal of industrialization generated advances in scientific and technological progress, accumulating basic scientific research on the "whole nation system" under the planned economy. After the reform and opening up of the economy since 1978, scientific and technological progress has contributed to the market economy and improved the status of scientific and technological undertakings. In addition to emphasizing the economic significance of science and technology, China also placed an emphasis on the R&D investment in science and technology in the long run. In the near future, in the current stage of national goals in the complex international environment, scientific and technological progress will depend on the efficiency of relevant policy and institutional design, which will optimize the governance system of science and technology, and promote the improvement of China's international competitiveness. Today, under the decision to grasp the "time lag" of the flow of scientific and technological resources and the development of science and technology, the proposal of the “new whole nation system†for the science and technology governance system in 2021 is characterized by further trial and error in the institutional design.
    Date: 2022–08
  13. By: Benjamin Mwadi Makengo (Central China Normal University [Wuhan, China], UNIKIN - University of Kinshasa); Joseph Mimbale Molanga; Jean-Marie Mbutamuntu (UNIKIN - University of Kinshasa); Patience Kamanda Londo; Théo-Macaire Kaminar Nsiy; Shi Xinzhi; Gracien Mwadi Kapita
    Abstract: This paper briefly deciphers the level of DRC's dependence on China. It considers it from the point of view of trade volume, the construction of economic and social infrastructures, the promotion of social mobility and the transfer of skills, and solidarity in the fight against COVID-19. Finally, this article proposes a reading grid which, from the outset, refutes any fixed opinion and any definitive point of viewby apprehending the concept of DRC's dependence on China from three (3) logical angles: a means of circumventing Western dependence (1); which consequently places DRC in a "complex dilemma" (2), and exposes it to illconsidered risks, especially in times of crisis (3). Hence the need for DRC to anticipate not only to avoid collisions between its main strategic partners, but above all to reduce its economic and even structural dependence on them [both "conservative" and "progressive"] by diversifying its economy and its partners.
    Keywords: DRC's Political Economy,China-DRC Relations,DRC's Dependence
    Date: 2022–05–09
  14. By: Scott Fan (UCL - University College of London [London]); Elliot Gyllensvärd (UCL - University College of London [London]); Erich Farkas (UCL - University College of London [London]); Julian Schutzner (UCL - University College of London [London])
    Abstract: This paper seeks to analyse the environmental effects of China's recent regulatory steps taken against cryptocurrencies and compare them with two policy alternatives. To evaluate the environmental impact, two baseline scenarios are used-a ban scenario and a no-ban scenario-which are then employed to compare China's intervention with two alternative policies; an emissions trading system or carbon taxes. It is estimated that China's decision to ban cryptocurrencies will result in a 25.7% reduction in CO2 emissions from the global Bitcoin network between mid-2021 and 2030. In comparison, under a hypothetical emission trading system (ETS) and carbon tax intervention the most stringent scenario is estimated to reduce global Bitcoin CO2 emissions by 2.9% and 8.5% between mid-2021 and 2030, respectively. Furthermore, this paper shows that the ETS and carbon tax are both restricted in their absolute ability to reduce CO2 emissions due to the difficulties associated with the practical implementation of such policies. This provides evidence for why, in terms of an environmental perspective, a cryptocurrency ban is the most effective policy in reducing the Bitcoin blockchain network's CO2 emissions. However, the paper also shows that the transition to Proof-of-Stake (PoS) blockchains may create an environment in which there is less of an argument for active government intervention in the cryptocurrency markets due to the protocol's high energy efficiency.
    Date: 2022–07–23
  15. By: Chen Zhang; Ying Fang; Linlin Niu
    Abstract: China’s exchange rate reform, initiated in 2005, had the goal of switching from a fixed U.S. dollar (USD) peg to a floating mechanism with reference to a trade-weighted currency basket. Over a decade of gradual transition, the renminbi (RMB) has gained importance in the international monetary system and has shown higher flexibility in its dollar value. However, previous studies have demonstrated the inertia of the RMB in maintaining a de facto dollar peg, with little evidence of the up-to-date effectiveness of the official currency basket. We present a Bayesian time-varying coefficient regression on the currency peg or basket weight suitable for studying transition process. We show that the “8.11” reform in 2015 triggered an eventual anchor switching, driving down the dollar weight from 1 to around 0.3. Since 2016, the weight of the official basket has been double that of the USD. SVAR and TVP-VAR analysis, controlling for endogeneity, provide consistent evidence of this regime change, which has important implications for China and the global economy.
    Keywords: Renminbi, exchange rate regime, dollar peg, currency basket
    JEL: F31 F41 C11
    Date: 2022–08–24
  16. By: Huang, Yiping; Li, Xiang; Qiu, Han; Yu, Changhua
    Abstract: This paper studies monetary policy transmission through BigTech and traditional banks. By comparing business loans made by a BigTech bank with those made by traditional banks, it finds that BigTech loans tend to be smaller, and the BigTech bank grants credit to more new borrowers compared with conventional banks in response to expansionary monetary policy. The BigTech bank's advantages in information, monitoring, and risk management are the potential mechanisms. The analysis also finds that BigTech and traditional bank credits to firms that have already borrowed from these banks respond similarly to changes in monetary policy. Overall, BigTech credit amplifies monetary policy transmission mainly through the extensive margin. In addition, monetary policy has a stronger impact on the real economy through BigTech lending than traditional bank loans.
    Keywords: bank lending,financial technology,monetary policy transmission
    JEL: E52 G21 G23
    Date: 2022

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