nep-cna New Economics Papers
on China
Issue of 2023‒03‒27
ten papers chosen by
Zheng Fang
Ohio State University

  1. A Study of Supply Chains of Korean Firms in China Based on Business Survey Data (2022) By Mok, Sakong; Kim, Dongsoo; Jung, Min Han; Kim, Jae Duck
  2. Financing Innovation with Innovation By Zhiyuan Chen; Minjie Deng; Min Fang
  3. Ideas Mobilize People: The Diffusion of Communist Ideology in China By Ying Bai; Ruixue Jia; Runnan Wang
  4. Prospects for Taiwan’s Outward Investment in China By Chen, Chien-Hsun
  5. Foreign Banks and Firms' Export Dynamics: Evidence from China's Banking Reform By Ana P. Fernandes; Jing-Lin Duanmu
  6. Input Subsidies and the Destruction of Natural Capital: Chinese Distant Water Fishing By Gabriel Englander; Jihua Zhang; Juan Carlos Villaseñor-Derbez; Qutu Jiang; Mingzhao Hu; Olivier Deschenes; Christopher Costello
  7. The Impact of Computer-Assisted Instruction on Student Performance: Evidence from the Dual-Teacher Program By Li, Haizheng; Liu, Zhiqiang; Yang, Fanzheng; Yu, Li
  8. A Study of Supply Chains of Korean Firms in Vietnam Based on Business Survey Data (2022) By Kim, Dongsoo; Sakong, Mok; Park, Byungyul; Lee, Eun-Song
  9. The Future of Global Economic Power By Zubarev Andrey; Nesterova Kristina; Kazakova Maria; Benzell Seth; Kotlikoff Laurence; LaGarda Guillermo; Yifan Ye Victor
  10. Contest in Multitasking: An Evidence from Chinese County Officials' Promotion Assessment By Yuanhao Zhang

  1. By: Mok, Sakong (Korea Institute for Industrial Economics and Trade); Kim, Dongsoo (Korea Institute for Industrial Economics and Trade); Jung, Min Han (Korea Institute for Industrial Economics and Trade); Kim, Jae Duck (Korea Institute for Industrial Economics and Trade)
    Abstract: Since 2020, the Korea Institute for Industrial Economics and Trade (KIET) has conducted surveys on the business environment of Korean enterprises in China. For the 2022 iteration of the survey, responses from 406 Korean firms in China were collected, slightly fewer than in 2021, owing to the impact of lockdown measures instituted by the Chinese government intended to staunch the spread of the coronavirus. The purpose of this study is to determine the business conditions faced by Korean companies in China. The survey was conducted in September and October of 2022. The Korea Institute of Industrial Economics and Trade sponsored and planned the survey of Korean enterprises in China; as in the past, KIET worked with a co-organizer and the Beijing office of the Korean Chamber of Commerce served as a co-organizer in conducting the survey.
    Keywords: China; Korea; FDI; trade; manufacturing; supply chains; raw materials; rare earths; foreign investment in China; COVID-19; regulation; business outlook in China; business environment in China; Korea-China relations
    JEL: F01 F20 F21 F23 F51 G32 G38 H32 O24 Q27 Q37
    Date: 2023–02–28
  2. By: Zhiyuan Chen; Minjie Deng; Min Fang
    Abstract: This paper documents that firms are increasingly financing innovation using their stock of innovation, measured as patents. We refer to this behavior as financing innovation with innovation. Drawing on patent collateral data from both the US and China, we first show that (1) in both countries, the total number and share of patents pledged as collateral have been rising steadily, (2) Chinese firms employ patents as collateral on a smaller scale and with a lower intensity than US firms, (3) firms increase their borrowing and innovation after they start to use patent collateral. We then construct a heterogeneous firm general equilibrium model featuring idiosyncratic productivity risk, innovation capital investment, and borrow- ing constrained by patent collateral. The model emphasizes two barriers that hinder the use of patent collateral: high inspection costs and low liquidation values of patent assets. We parameterize the model to firm-level panel data in the US and China and find that both barriers are significantly more severe in China than in the US. Finally, counterfactual analyses show that the gains in innovation, output, and welfare from reducing the inspection costs in China to the US level are substantial, moreso than enhancing the liquidation value of patent assets.
    Keywords: Patent collateral; innovation investment; financial frictions; firm dynamics;
    JEL: E22 G32 O31 O33
    Date: 2023–03–02
  3. By: Ying Bai; Ruixue Jia; Runnan Wang
    Abstract: Can ideas mobilize people into collective action? We provide a positive answer to this question by studying how exposure to the Communist ideology shaped an individual’s choice to join the Chinese Communist Party (CCP) during the party’s formative stage. The individuals we focus on are cadets at the Whampoa Military Academy, who subsequently fought in 20th-century China’s most important wars. Our identification strategy exploits the locality-time-content variation in the circulation of the New Youth magazine—the major platform to promote Communism after the Treaty of Versailles in 1919—as well as the variation in an individual’s location over time. By comparing the Whampoa cadets living in a locality with post-1919 New Youth available against those who had lived in the same locality but missed this channel, we demonstrate that the former were significantly more likely to join the CCP. In future political struggles, those whose party choice was more influenced by this ideology channel were less likely to quit the CCP and more likely to sacrifice their lives. Additionally, we document that family background cannot predict the party choice of these political pioneers but social networks can complement ideology exposure.
    JEL: D70 D71 D83 N45 O12 P30
    Date: 2023–02
  4. By: Chen, Chien-Hsun
    Abstract: The similarities in language and culture have given Taiwanese companies an edge in employing ethnic ties through personal connections or “guanxi” to overcome competitive and resource disadvantages. Such relational linkages facilitate Taiwanese investment in China. Since Taiwan has orchestrated a very efficient production network to serve its customers, cross-strait investment and trading activities have driven the formation of close collaborative relationships between Taiwanese and Chinese industries. China is now developing its domestic market to promote economic growth. This is bound to affect cross-strait industrial division of labor, which is not only accelerating the localization of Taiwan businessmen in the Mainland, but also further weakening the connections between Taiwanese businessmen and their parent companies in Taiwan. In the financial sector, Taiwanese banks would do well to find their own niche markets and formulate appropriate strategies, instead of following the practices of large international banks.
    Keywords: Taiwan’s outward investment in China; global supply chain; business strategies; globalization
    JEL: F15 F21 F23
    Date: 2023–03–04
  5. By: Ana P. Fernandes (Department of Economics, University of Exeter); Jing-Lin Duanmu (Department of Economics, University of Exeter)
    Abstract: This paper investigates how banking integration affects export dynamics. To estimate the causal link, we exploit the phased liberalization of the Chinese banking industry to foreign competition across cities, based on WTO accession commitments, and use transaction-level data for all Chinese exporters. Following deregulation of foreign banks' local-currency lending, the increased local presence of foreign banks from the importing country raises export entry and initial sales to the same country for firms in the city, but has no effect on survival or growth. The effects are significantly more pronounced for firms in industries with less collateralizable assets and those exporting riskier goods. The results uncover particular channels for banking integration to facilitate exports, and are consistent with foreign banks having an informational advantage in screening export projects, relying less on collateral for their lending decisions, and in reducing export risk for firms exporting to the banks' country.
    Keywords: banking deregulation, exports, export dynamics, export risk, financial constraints, financial globalization, foreign banks, knowledge spillover, local-currency lending, uncertainty
    JEL: F10 F14 F36 G20 G28 G32
    Date: 2023–03–14
  6. By: Gabriel Englander; Jihua Zhang; Juan Carlos Villaseñor-Derbez; Qutu Jiang; Mingzhao Hu; Olivier Deschenes; Christopher Costello
    Abstract: Input subsidies in natural resource sectors are widely believed to cause depletion of the natural capital on which those sectors rely. But identification and data challenges have stymied attempts to empirically estimate the causal effect of subsidies on resource extraction. China’s fishing fleet is the world’s largest, and in 2016 the government changed its fuel subsidy policy for distant water vessels to one that increases with predetermined vessel characteristics. The policy features 25 thresholds at which subsidies discontinuously increase. Using a regression discontinuity design, we estimate that a 1% increase in fuel subsidy increases hours of fishing by 2.2%. Reducing Chinese distant water fuel subsidies by 50% could eliminate biological overfishing in several ocean regions.
    JEL: H23 O13 Q22 Q28
    Date: 2023–03
  7. By: Li, Haizheng (Georgia Tech); Liu, Zhiqiang (University at Buffalo, SUNY); Yang, Fanzheng (Central University of Finance and Economics Beijing); Yu, Li (Central University of Finance and Economics)
    Abstract: We present findings from an evaluation study of the Dual-Teacher program, a computer- assisted instruction program, that makes lecture videos and other teaching resources from an elite urban middle school available through the internet to schools in poor and remote areas in China. The unique design of the study allows us to not just estimate the effect of the program on student performance but distinguish the direct effect coming from students' exposure to the lecture videos in class and the indirect effect due to improved instruction quality of the local teacher who uses the lecture videos in lesson preparation. Using the difference-in-differences method, we find that the Dual-Teacher program improves student performance in math by 0.978 standard deviations over the three-year middle school education, of which 0.343 standard deviations are attributable to the indirect effect. We also find that the positive impacts of the program are cumulative and robust to student and teacher characteristics as well as a plethora of other considerations. From a policy perspective, our findings suggest that the Dual-Teacher program is an effective and low cost means to improve education outcomes in underserved areas and hence help close cross-region gaps in education.
    Keywords: computer-assisted instruction, computer-assisted learning, education policy, inequality
    JEL: I21 I24 I28 O15
    Date: 2023–02
  8. By: Kim, Dongsoo (Korea Institute for Industrial Economics and Trade); Sakong, Mok (Korea Institute for Industrial Economics and Trade); Park, Byungyul (Korea Institute for Industrial Economics and Trade); Lee, Eun-Song (Korea Institute for Industrial Economics and Trade)
    Abstract: As of 2021, Korean trade volume with Vietnam ranks fourth after China, the United States, and Japan, while direct investment in Vietnam ranks third, after the United States and China, and excepting the Cayman Islands and Hong Kong. Surveys on the business environment of Korean companies in Vietnam are conducted intermittently, so it is necessary to secure basic statistics on time series. For this, a business survey was conducted from August to October 2022, the second such survey of Korean businesses in Vietnam (the first having been conducted in 2021) by the Korean Institute for Industrial Economics and Trade (KIET) and the Korean Chamber of Commerce (KORCHAM) in Vietnam. In addition, KIET interviewed several Korean companies in Hanoi. This work analyzes the results of a survey on the business environment and the actual conditions faced by Korean enterprises in Vietnam. The Hanoi and Ho Chi Minh offices of the Korean Chamber of Commerce oversaw the implementation of the survey as co-organizer. KIET planned and conducted the survey together with KORCHAM in Vietnam. Written responses were collected from 326 companies.
    Keywords: Vietnam; Korea; FDI; trade; manufacturing; supply chains; raw materials; rare earths; foreign investment in China; COVID-19; regulation; business outlook in Vietanam; business environment in Vietnam; Korea-Vietnam relations
    JEL: F01 F20 F21 F23 F51 G32 G38 H32 O24 Q27 Q37
    Date: 2023–02–28
  9. By: Zubarev Andrey (RANEPA); Nesterova Kristina (RANEPA); Kazakova Maria (Gaidar Institute for Economic Policy); Benzell Seth (Gaidar Institute for Economic Policy); Kotlikoff Laurence (Gaidar Institute for Economic Policy); LaGarda Guillermo (Gaidar Institute for Economic Policy); Yifan Ye Victor (Gaidar Institute for Economic Policy)
    Abstract: The global economy’s enormous region-specific demographic, technological, and fiscal changes raise five major questions. First, which regions will come to dominate the world economy? Second, will regional levels of per capita GDP converge? Third, will high saving rates in fast growing regions lead to a global capital glut? Fourth, does aging augur far higher tax rates in particular regions? Fifth, will automation materially influence development? This paper develops the Global Gaidar Model, a 17-region, 2-skills, 100-period, OLG model, to address these questions. The model is carefully calibrated to 2017 UN demographic and IMF fiscal data. Productivity growth and its interaction with demographic change are the main drivers of future economic power. Fiscal conditions and automation matter are secondary factors. Our baseline simulation, which sets future productivity based on each region’s long-term record, predicts China and India becoming the world’s top two economies with 27.0 percent and 16.2 percent of 2100 world GDP, respectively. The respective US and Western Europe shares are just 12.3 percent and 11.9 percent. Our baseline also features an evolving global savings glut, major reductions in the world interest rate, substantial aging-related increases in tax rates, and permanent differences in regional living standards. Automation makes little difference to these results. But assumed productivity growth does. If recent productivity continues and demographic projections prove accurate, India will account for one third of world output in 2100 and China for over one fifth. The US output share will grow slightly while other developed countries shrink dramatically. Under more sophisticated, if seemingly less plausible projections, productivity growth in China and India dramatically slows leaving China’s plus India’s 2100 output share at only 16 percent, but, remarkably, Africa’s at an astounding 17 percent.
    Keywords: Global economy, Global Gaidar Model, OLG model, GDP
    JEL: E0 J0 O1
    Date: 2022
  10. By: Yuanhao Zhang
    Abstract: Real-world observed contests often take the form of multi-task contests rather than single-task contests, and existing theories are insufficient to explain the incentive for extending the task dimension. This paper proposes a new effect of multi-task contests compared to single-tasking contests: the specialization effect (SE). By establishing a multi-task contest model with heterogeneous competitor costs, this paper shows that after expanding the new competition dimension, competitors will choose the dimension with greater relative comparative advantage rather than absolute advantage and pay more effort, which eventually leads to competitors choosing higher effort levels in both the original dimension and the extended dimension. The paper then uses staggered Difference-in-Difference (DID) method on China's county officers' promotion assessment from 2001 to 2022 as an entry point to discuss the empirical evidence for specialization effect. Through models and empirical studies, the specialization effect studied in this paper do exists in promotion assessments, and may also explain many other real-world scenarios, such as sports events, competition between corporate compensation and employee benefits and competition for R&D expenses.
    Date: 2023–02

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