nep-cna New Economics Papers
on China
Issue of 2022‒10‒24
nine papers chosen by
Zheng Fang
Ohio State University

  1. The Growth of Firms, Markets and Rents: Evidence from China By Daniel Berkowitz; Shuichiro Nishioka
  2. Is China Running Out of Policy Space to Navigate Future Economic Challenges? By Hunter L. Clark; Jeffrey B. Dawson
  3. Housing Wealth and Online Consumer Behavior: Evidence from Xiong'an New Area in China By Hanming Fang; Long Wang; Yang Yang
  4. Industrial Land Discount in China: A Public Finance Perspective By Zhiguo He; Scott T. Nelson; Yang Su; Anthony Lee Zhang; Fudong Zhang
  5. Reforming International Investment Agreements: The Case of China and Foreign Direct Investment By Bellak, Christian; Leibrecht, Markus; Chaisse, Julien
  6. Multinationals and Structural Transformation By Vanessa I. Alviarez; Cheng Chen; Nitya Pandalai-Nayar; Liliana Varela; Kei-Mu Yi; Hongyong Zhang
  7. Exchange rate expectations and exports: Firm-level evidence from China By Xiaohua Bao; Hailiang Huang; Larry D Qiu; Xiaozhuo Wang
  8. The backfiring effects of monetary and gift incentives on Covid-19 vaccination willingness By Xinrui Zhang; Tom Lane
  9. The Belt and Road Initiative: Economic Causes and Effects By Sjöholm, Fredrik

  1. By: Daniel Berkowitz (University of Pittsburgh); Shuichiro Nishioka (West Virginia University, Department of Economics)
    Abstract: Using recent methods for estimating firm-level markups and profit shares, we document that Chinese manufacturing firms collected more rents following China's accession to the World Trade Organization (WTO). This is because the net entry of firms lagged the massive growth in the domestic market. These effects were particularly strong in domestic markets where state ownership was pervasive. While selection on large productive firms drove the rise in the aggregate markups in the United State (De Loecker et al, 2020), these competitive forces played a secondary role in Chinese manufacturing.
    Keywords: Markups, Profit shares, Net entry, Market expansion, Trade liberalization in China
    JEL: F13 L11 O19 O53
    Date: 2022–09
  2. By: Hunter L. Clark; Jeffrey B. Dawson
    Abstract: After making progress slowing the pace of debt accumulation prior to the pandemic, China saw its debt levels surge in 2020 as the government responded to the severe economic slowdown with credit-led stimulus. With China currently in the midst of another sharp decline in economic activity due to its property slump and zero-COVID strategy, Chinese authorities have responded again by pushing out credit to soften the downturn despite already high levels of debt on corporate, household, and government balance sheets. In this post, we revisit China’s debt buildup and consider the growing constraints on Chinese policymakers’ tools to navigate future economic challenges.
    Keywords: credit; government debt; China
    JEL: F0
    Date: 2022–09–26
  3. By: Hanming Fang; Long Wang; Yang Yang
    Abstract: We provide new evidence on the causal effects of housing wealth on consumer behavior. To overcome the empirical challenge of non-random housing wealth changes, we exploit the unexpected announcement of China's newest national-level new area—Xiong'an New Area—on April 1, 2017 as an exogenous shock to housing prices. We use a proprietary dataset of individual-level online consumption from the largest e-commerce company in China to measure various aspects of consumer behavior, such as consumption patterns, purchase hesitation, tolerance to unsatisfied products, and shirking (proxied by making online purchases during work hours). We explore the underlying mechanisms through which the housing shock affects consumer behavior; in particular, we attempt to disentangle the realizable and unrealizable housing wealth effects.
    JEL: D01 L81 R3
    Date: 2022–09
  4. By: Zhiguo He; Scott T. Nelson; Yang Su; Anthony Lee Zhang; Fudong Zhang
    Abstract: China’s land market features a substantial industrial discount: industrial-zoned land is an order of magnitude cheaper than residential land. In contrast to explanations centered on subsidies to industry or promoting industry growth, we emphasize the importance of future tax revenues from the land and find that local public finance incentives can largely rationalize this price gap. Under the "land finance" system, land sales are an important source of revenues for Chinese local governments. We show that local governments, who serve as monopolistic land sellers in China, face a trade-off between supplying residential or industrial land that is determined by the different time profiles of revenues from industrial and residential land sales, local governments’ financial constraints, and the extent of local governments’ tax revenue sharing with other levels of government.
    JEL: G31 H70 R14 R38
    Date: 2022–09
  5. By: Bellak, Christian; Leibrecht, Markus; Chaisse, Julien
    Abstract: The paper contributes to the debate on the effects of reforms of bilateral investment treaties on Foreign Direct Investment. So far studies show mixed empirical evidence as to the existence of positive effects on Foreign Direct Investment, pointing to rather small impacts. However, isolating the impact of a reform of bilateral investment treaties on Foreign Direct Investment is plagued by methodological issues as well as data restrictions. This paper adds to the literature as it mitigates some of these limitations by focusing on a particular reform-step in China’s international treaty policy, namely the substitution of a first-generation bilateral investment treaty with a much more “investor-friendly” third-generation bilateral investment treaty. Our basic findings, derived from a two-way fixed-effects framework, suggest that the more investor-friendly third-generation bilateral investment treaties indeed increase Foreign Direct Investment stocks in China. These findings are of policy relevance not only for capital importing countries, but also from the viewpoint of China’s increasing relevance as an outward investor in countries included in the Belt and Road initiative.
    Keywords: China; Foreign Direct Investment; Bilateral Investment Treaties; Reform
    Date: 2022–07
  6. By: Vanessa I. Alviarez; Cheng Chen; Nitya Pandalai-Nayar; Liliana Varela; Kei-Mu Yi; Hongyong Zhang
    Abstract: We study the role of multinationals (MNCs) in facilitating firm-level and aggregate structural transformation. Using a stylized model of multinational production and trade, we show that an inward multinational liberalization in the manufacturing sector raises employment in host country firms, and decreases manufacturing employment, while also raising services employment, in the parent firms. We also show the conditions under which aggregate structural transformation occurs. We test the model's firm-level predictions by using confidential microdata from Japan. We study the response of Japanese MNC parents and of their affiliates in China to an exogenous change in China's openness to foreign direct investment (FDI). We find that in industries where inward FDI was encouraged, Japan MNC's affiliates in China experienced increases in their employment. We also find that MNC parents in the encouraged industries experienced decreases in home country manufacturing employment and increases in home country services and R&D employment. Finally, using microdata for several advanced and middle-income countries, we decompose the change in overall manufacturing employment shares into MNC and non-MNC components. We find a significant role for MNCs across all countries, suggesting the mechanism we highlight is an important global driver of structural transformation.
    JEL: F41 F44
    Date: 2022–09
  7. By: Xiaohua Bao; Hailiang Huang; Larry D Qiu; Xiaozhuo Wang
    Abstract: The notion that the exchange rate affects exports is well understood. However, whether exporters respond to the expectations of the exchange rate is unknown. Hence, in this study, we construct a measure of exchange rate expectations based on news articles from the Factiva database. We use machine learning to identify and classify news articles about the appreciation of the renminbi (RMB, Chinese currency). Our empirical estimation shows that from 2000 to 2006, Chinese firms reduced their exports in response to a higher expectation of RMB appreciation. They switched their sales from export to domestic markets. The responses are larger in low-productivity firms, state-owned enterprises, processing trade, and final goods trade.
    Keywords: Exchange rate expectation; Exports; RMB appreciation
    Date: 2022
  8. By: Xinrui Zhang (University of Nottingham Ningbo China); Tom Lane (University of Nottingham Ningbo China)
    Abstract: Policies offering material incentives for Covid-19 vaccination have been widely used around the world as countries pursue the pressing objective of boosting immunity. This paper reports an experiment in China aimed at testing the effects of such interventions on vaccination willingness. We provide the first Covid-19 vaccine study to separately consider and directly compare the effects of both monetary and gift-based incentives, both of which have been commonly employed in practice. Results from a sample of 1,365 individuals suggest that incentives in the range of 8-125 USD backfire, inducing lower vaccination willingness than simply offering vaccines for free. The effects of money and gifts of equivalent value do not significantly differ. We compare our results against the burgeoning literature on Covid-19 vaccine incentives, and demonstrate that the negative effects we identify are stronger than those observed to date in other populations.
    Keywords: Covid-19; Vaccine willingness; Incentives
    Date: 2022
  9. By: Sjöholm, Fredrik (Research Institute of Industrial Economics (IFN))
    Abstract: Chinese investment abroad has grown significantly in connection with the Belt and Road Initiative. This article tries to answer two questions: first, what considerations gave birth to the BRI? And second, what are the project’s economic effects in terms of capital flows and international trade? It is found that the project is, above all, a way to deal with large surplus capacity in China’s capital-intensive industries, to increase growth in relatively poor regions of the country, and to secure a supply of energy and raw materials. For other countries involved in the project, BRI investments are a means to increase production and international trade. International trade and foreign direct investment have been positively affected, although to a limited extent. Finally, there are concerns that lack of transparency in Chinese lending may lead to increased corruption, and that some countries will face financial difficulties.
    Keywords: The Belt and Road; China; Trade; FDI; Investments
    JEL: F10 F20 O10 O50
    Date: 2022–09–20

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