nep-cna New Economics Papers
on China
Issue of 2022‒11‒28
eleven papers chosen by
Zheng Fang
Ohio State University

  1. Efficient market versus regulatory capture: a political economy assessment of power market reform in China By Lin, Jiang Dr.; Xiang, Chenxi Ms
  2. Millet, Rice, and Isolation: Origins and Persistence of the World's Most Enduring Mega-State By Kung, James Kai-sing; Özak, Ömer; Putterman, Louis; Shi, Shuang
  3. Estimating Treatment Effects of Monetary Policies and Macro-prudential Policies: From the Perspectives of Macro-economic Policy Evaluation By Ying Fang; Zongwu Cai; Zeqin Liu; Ming Lin
  4. Do China and Russia Undermine US Sanctions? Evidence from DiD and Event Study Estimation By Jerg Gutmann; Matthias Neuenkirch; Florian Neumeier
  5. Racial and Ethnic Inequality and the China Shock By Lisa B. Kahn; Lindsay Oldenski; Geunyong Park
  6. CHIPS Act will spur US production but not foreclose China By Gary Clyde Hufbauer; Megan Hogan
  7. A Quantitative Evaluation of Interest Rate Liberalization Reform in China By Jing Yuan; Yan Peng; Zongwu Cai; Zhengyi Zhang
  8. From Anti-Corruption to Economics: An Extension of Tsai et al. (2021) By Bonneau, Joseph
  9. Stay-at-Home Peer Mothers and Gender Norms: Short-run Effects on Educational Outcomes By Liwen Chen; Bobby Chung; Guanghua Wang
  10. Mechanics of Spatial Growth By Sheng Cai; Lorenzo Caliendo; Fernando Parro; Wei Xiang
  11. The three eras of global inequality, 1820-2020 with the focus on the past thirty years By Milanovic, Branko

  1. By: Lin, Jiang Dr.; Xiang, Chenxi Ms
    Abstract: China began implementing market-based economic dispatch through power sector reform in 2015, but the reform has encountered some political and economic challenges. This paper identifies the reform’s efficiency changes and explores and quantifies the influences of market-driven and politically driven mechanisms behind these changes, employing a partial market equilibrium model integrating high-frequency data in southern China. We found that the dispatch transition improves the overall efficiency, but regulatory capture in provincial markets limits its full potential. The preference for local enterprises over central state-owned enterprises (SOEs) by local governments, in the form of allocated generation quotas, demonstrates the political challenge for market reform. The allocated generation quota protects small coal-fired and natural gas generators owned by local SOEs, lessening their motivation to improve generation efficiency, even after the reform. As a result, nearly half of the potential carbon dioxide emission reduction and social welfare gains through market reform is not realized.
    Keywords: Social and Behavioral Sciences, Economic dispatch, electricity market, Regulatory capture, Efficiency gains, China
    Date: 2022–11–11
  2. By: Kung, James Kai-sing; Özak, Ömer (Southern Methodist University); Putterman, Louis; Shi, Shuang
    Abstract: We propose and test empirically a theory describing the endogenous formation and persistence of mega-states, using China as an example. We suggest that the relative timing of the emergence of agricultural societies, and their distance from each other, set off a race between their autochthonous state-building projects, which determines their extent and persistence. Using a novel dataset describing the historical presence of Chinese states, prehistoric development, the diffusion of agriculture, and migratory distance across 1-degree x 1-degree grid cells in eastern Asia, we find that cells that adopted agriculture earlier and were close to Erlitou -- the earliest political center in eastern Asia -- remained under Chinese control for longer and continue to be a part of China today. By contrast, cells that adopted agriculture early and were located further from Erlitou developed into independent states, as agriculture provided the fertile ground for state-formation, while isolation provided time for them to develop and confront the expanding Chinese empire. Our study sheds important light on why eastern Asia kept reproducing a mega-state in the area that became China and on the determinants of its borders with other states.
    Date: 2022–06–05
  3. By: Ying Fang (The Wang Yanan Institute for Studies in Economics, Xiamen University, Xiamen, Fujian 361005, China and Department of Statistics & Data Science, School of Economics, Xiamen University, Xiamen, Fujian 361005, China); Zongwu Cai (Department of Economics, The University of Kansas, Lawrence, KS 66045, USA); Zeqin Liu (School of Statistics, Shanxi University of Finance and Economics, Taiyuan, Shanxi 030006, China); Ming Lin (The Wang Yanan Institute for Studies in Economics, Xiamen University, Xiamen, Fujian 361005, China and Department of Statistics & Data Science, School of Economics, Xiamen University, Xiamen, Fujian 361005, China)
    Abstract: The main goal of macro prudential policies is to maintain financial stability. Macro prudential policy framework is a dynamic one, consisting of capital requirements, leverage ratio, liquidity requirements, etc. The concept of macro prudential, developed mainly after the 2008 financial crisis, is the counterpart to micro prudential. Micro prudential policies focus on individual financial institutions, believing that the stability of individual financial institutions could guarantee the stability of the entire financial system. With the outbreak of the financial crisis in 2008, people realized that the sum of micro prudential was not equal to macro prudential, and the sum of healthy micro entities could not guarantee a healthy macro whole. Therefore, many countries and international organizations began to focus on the whole financial system and the macro prudential policy framework came into being. Just as the effectiveness of monetary policies is the core issue in the research of monetary policy theory, the effectiveness of macro prudential policies is also the core issue in the research of macro prudential theory. Existing research generally believes that specific macro prudential policy is effective for the specific objective, such as macro prudential policies for credit could effectively reduce the systemic risk caused by increased credit or asset prices rise (Lim et al. (2011), Dell'Ariccia et al. (2012), Cerutti et al. (2017), Akinci and Olmstead-Rumsey (2018), Fang Yi (2016), Liang Qi et al. (2015)). However, as pointed by Lim et al. (2011) and Dell'Ariccia et al. (2012), the highly targeted characteristic of macro prudential policies would lead to the transfer of risks to sectors with weak supervision due to regulation and cross-border arbitrage, which may lead to more serious consequences. Therefore, it is of great theoretical value and practical significance to explore the effectiveness of macro prudential policies from the perspective of overall financial stability and systemic financial risk. The aim of this paper is to empirically evaluate the effects of the macro prudential policies on financial stability in China. Firstly, the paper proposes adopting the macro-econometric policy evaluation method under the Rubin causal effect framework to evaluate the impact of China's macro prudential policies on financial stability during the sample period 2007-2020. The method is a new route to empirically evaluate macroeconomic policy effects. Different from the panel data methods and micro-level data analyses used in existing studies, the method can evaluate the combined effects of various macro prudential tools for a specific country. Secondly, based on the macro prudential databases of Shim (2013) and Global Macro prudential Policy Instruments (GMPI) survey database of IMF during 2013- 2014, the paper comprehensively explores the practice of macro prudential policies in China since 2000, and constructs a monthly macro prudential policy index to quantitatively measure the intensity of China's macro prudential policies for the period from January 2000 to May 2022. Thirdly, the paper uses the systemic financial risk index, termed as SRISK proposed by Brownlees and Engle (2017), to measure China's systemic financial risk. And then evaluates the macro prudential policies' effects on the systemic financial risk, cross-sectoral contagion of systemic financial risk and important intermediate variables in the credit channel. Our empirical findings indicate that loose macro prudential policies can increase the risks of intermediate variables in the credit channel, and the risks lead to a significant rise in SRISK of house sector, but for the SRISK of financial and manufacturing sectors, the cumulative effects in 24 periods are not significant. However, in addition to a significant rise in commercial banks' capital adequacy ratio growth, tight macro prudential policies have no significant effects on the other intermediate variables in the credit channel, and further have no obvious effects on SRISK of financial, house and manufacturing sectors. Based on the conclusions, we suggest that systemic risk indicators should be further researched to provide more comprehensive and systematic targets for macro prudential authorities. Moreover, the transmission channel of macro prudential policies on financial stability should be improved to enhance the efficiency of regulation. Finally, more attentions should be paid to the cross-sectoral contagion of systemic financial risk to prevent systemic financial risk from a systemic perspective.
    Keywords: Macro prudential policies; Financial stability; Systematic risk; Macroeconomic policy evaluation; SRISK; Machine learning
    JEL: E60 E50 G28
    Date: 2022–11
  4. By: Jerg Gutmann; Matthias Neuenkirch; Florian Neumeier
    Abstract: A frequently employed argument against imposing international sanctions is that rival superpowers are likely to bust sanctions to simultaneously shield the target, harm the sender, and make a profit. We evaluate the legitimacy of this concern by studying the effect of US sanctions on trade flows between sanctioned and third countries during the period 1995-2019 using panel difference-in-differences estimations and an event study design. Motivated by the claim that China and Russia purposefully undermine US sanction efforts, we test whether target countries' trade with China and Russia increases under US trade sanctions. We find no evidence for systematic sanction busting. Russia does not change its trade patterns with sanctioned countries. Trade of targets of US sanctions with China declines even more than trade with the US. These general patterns are reconfirmed for trade in different groups of commodities. In addition, we find some evidence that a reduction in industrial value added and a devaluation of the domestic currency of the target country are transmission channels through which US sanctions hamper trade with third countries.
    Keywords: Geopolitics, international political economy, international sanctions, trade substitution
    JEL: F13 F14 F50 F51 F52 F53 K33
    Date: 2022
  5. By: Lisa B. Kahn; Lindsay Oldenski; Geunyong Park
    Abstract: We examine how the labor market effects of import competition vary across Black, Hispanic, and white populations. For a given level of exposure to imports from China, we find no evidence that minority workers are relatively more harmed than white workers in terms of their manufacturing employment. However, Hispanic workers are overrepresented in exposed industries and therefore face greater manufacturing employment losses relative to whites on net. In addition, they experienced relative losses in non-manufacturing employment, largely due to their lower educational attainment and baseline industry mix. Overall, the China shock increased the Hispanic-white employment gap by about 5%, though these effects were short lived. In contrast, Black workers are less likely to live in areas or work in industries facing import competition, resulting in less negative effects on manufacturing employment relative to whites. In addition, exposed Black workers experienced gains in non-manufacturing and overall employment with no measurable wage consequences, while white workers saw depressed employment rates due to the China shock. The lasting effects of import competition in exposed areas were driven by white workers, while the experience of Black workers suggests that movement into non-manufacturing jobs was possible. White workers did not take advantage of these opportunities, perhaps due to better safety nets or perceptions that the available jobs were poor substitutes for those lost in manufacturing. The China shock narrowed the Black-white employment gap by about 15%. While many recent labor market trends have exacerbated Black-white gaps, import competition is a modest offsetting force.
    JEL: F16 J15
    Date: 2022–11
  6. By: Gary Clyde Hufbauer (Peterson Institute for International Economics); Megan Hogan (Peterson Institute for International Economics)
    Abstract: The CHIPS and Science Act, export controls, and agreements with allied countries will accomplish many of their multiple objectives. More US semiconductor fabrication plants will be built, US R&D will be accelerated, and advanced chips and chip-making machines will be denied to China, Russia, and other adversaries. However, the Act will not make a material difference to US chip supplies in the next two or three years. Slower economic growth has already tipped the chips market in favor of ample supplies. While collective measures have inflicted considerable short-term pain on China, causing a sharp drop in the fortunes of its high-tech firms, China will respond by redoubling its self-sufficiency programs. The United States, however, should not mimic China in pursuing self-sufficiency, as US self-sufficiency is an illusion. The United States currently exports high-value chips and imports low-value chips, so increasing self-sufficiency would require the United States to prioritize basic chip production at the same time it is supposed to be competing with China in advanced chip production. Continuing to prioritize advanced chip production--where the United States has a clear advantage--is the most efficient course of action.
    Date: 2022–10
  7. By: Jing Yuan (School of Statistics, Shandong Technology and Business University, Yantai, Shandong 264005, China); Yan Peng (School of Statistics, Shandong Technology and Business University, Yantai, Shandong 264005, China); Zongwu Cai (Department of Economics, The University of Kansas, Lawrence, KS 66045, USA); Zhengyi Zhang (International School of Economics and Management, Capital University of Economics and Business, Beijing, Beijing 100070, China)
    Abstract: Based on the characteristics of monetary policy and term structure of bond yields, this paper proposes an interest rate model to evaluate the consequences of interest rate liberalization in China. Our empirical results show that bench- mark interest rates and expected inflation are strongly correlated, although the relationship between expected inflation and market interest rates of all terms is relatively weak. Additionally, our model provides a superior goodness-of-fit over the predicted mean, the variance and the correlations of treasury bond yields, and the inflation estimated from the proposed model demonstrates more preferable forecasting accuracy by outperforming the results estimated from either Langrun or Baidu CPI index. Our findings suggest that adjustment of benchmark rates and reserve requirement are the most important price-based tools for the central bank to transmit the effects of monetary policy along the yield curve. The development of interest rate liberalization further requires prudential managements by the central bank to focus on short-term interest rate intervention besides policy support, in emphasizing the power of market forces to eventually link the change in market interest rates with economic fundamentals.
    Keywords: Economic fundamentals; Expected inflation rate, Interest rate term structure, Interest rate marketization reform.
    JEL: G1 E4 C5
    Date: 2022–11
  8. By: Bonneau, Joseph
    Abstract: Tsai, Trinh, & Liu (2021) in their initial study sought to examine whether anticorruption efforts in authoritarian regimes affected public opinion of these regimes through not just direct effects, but also indirect effects through affecting evaluations of competence and morality. Conducting a con-joint study in China where respondents were asked to choose between two potential local officials, Tsai et al. found that 26% of the total effect of these officials punishing corrupt subordinates was estimated to come through indirect effects that go through evaluations of morality and compe-tence. Using their code, I reproduced their original findings, and did not find any notable coding errors while doing so. Then, taking advantage of the fact that Tsai et al. included several additional covariates beyond punishment in their experiment, I engaged in an extension of the original model, using the same method, to examine whether economic performance characteristics have indirect effects on evaluation through competence and morality as well. I found results that sug-gest that economic performance does have an indirect effect on preferences through competence and morality. I then tested the robustness of Tsai et al.'s original heterogeneous sensitivity tests by varying cut points on two demographic variables and found that their findings of a lack of heterogeneous sensitivity remain robust to different cut-points. In all, my efforts suggest that Tsai et al.'s methods are valid and their findings robust.
    Date: 2022
  9. By: Liwen Chen (East China Normal University); Bobby Chung (St Bonaventure University); Guanghua Wang (Nanjing Audit University)
    Abstract: Increased exposure to gender-role information affects a girl's educational performance. Utilizing the classroom randomization in Chinese middle schools, we find that the increased presence of stay-at-home peer mothers significantly reduces a girl's performance in mathematics. This exposure also cultivates gendered attitudes towards mathematics and STEM professions. The influence of peer mothers increases with network density and when the girl has a distant relationship with her parents. As falsification tests against unobserved confounding factors, we find that the exposure to stay-at-home peer mothers does not affect boys' performance, nor do we find that stay-at-home peer fathers affect girls' outcomes.
    Keywords: cultural transmission, gender identity, gender norms, role models
    JEL: I24 J16 Z13
  10. By: Sheng Cai; Lorenzo Caliendo; Fernando Parro; Wei Xiang
    Abstract: We develop a dynamic spatial growth model to explore the role of trade and internal migration in the process of spatial development and aggregate growth. Growth is shaped by the best global and local ideas that contribute to the local stock of knowledge. Global ideas diffuse more to locations that are relatively more exposed to international trade. Local ideas are diffused across space when workers move to another location. We embed the diffusion of ideas through trade and migration into a multi-country, multi-region framework with international trade, forward-looking dynamic migration decisions, and endogenous capital accumulation. We apply our framework to study the role of initial conditions, international trade, and internal migration on China’s spatial development and aggregate growth during the 1990s and 2000s. We find that initial conditions across space, idea diffusion, and capital accumulation play an important role in understanding the process of spatial development and aggregate growth in China. Changes in international trade costs and mobility restrictions during the 1990s and 2000s also contribute to aggregate growth, with large heterogeneity across space.
    JEL: F1 F10 F16 O1 O15
    Date: 2022–10
  11. By: Milanovic, Branko
    Abstract: The paper reestimates global inequality between 1820 and 1980, reappraises the results up to 2013, and presents new inequality estimates for 2018. It shows that historically, global inequality has followed three eras: the first, from 1820 until 1950, characterized by rising between country income differences and increasing within-country inequalities; the second, from 1950 to the last decade of the 20th century, with very high global and between-country inequality; and the current one of decreasing inequality thanks to the rise of Asian incomes, and especially so Chinese. The present era has seen the emergence of the global “median” class, reduced population-weighted gaps between nations, and the greatest reshuffling in income positions between the West and China since the Industrial Revolution. Whether global inequality will continue on its downward trend depends now much more on changes in India and large African countries than on China. (Stone Center on Socio-Economic Inequality Working Paper)
    Date: 2022–11–09

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