nep-cna New Economics Papers
on China
Issue of 2023‒05‒22
twelve papers chosen by
Zheng Fang
Ohio State University

  1. The dynamics of redistribution, inequality and growth across China’s regions By Yang, Xiaoliang; Barros, Lucy; Matthews, Kent; Meenagh, David
  2. Chinese or western finance? Transparency, official credit flows, and the international political economy of development By Cormier, Benjamin
  3. Chinese data governance and trade policy: from cyber sovereignty to the quest for digital hegemony? By Oscar Borgogno; Michele Savini Zangrandi
  4. Doing business in China: parental background and government intervention determine who owns busines By Jia, Ruixue; Lan, Xiaohuan; Padró i Miquel, Gerard
  5. Trade diversion and labor market adjustment: Vietnam and the U.S.-China trade war By Karin Mayr-Dorn; Gaia Narciso; Duc Anh Dang; Hien Phan
  6. Trade Shocks and Credit Reallocation By Stefano Federico; Fadi Hassan; Veronica Rappoport
  7. Anti-Corruption Campaign in China: An Empirical Investigation By Yang, Li; Milanovic, Branko; Lin, Yaoqi
  8. Gender Differences in the Effect of Retirement Duration on Cognitive Functioning By Yingying Zhang; Steve Bradley; Robert Crouchley
  9. The Economic and Geopolitical Consequences of Belt and Road Initiative (BRI)for China: A preliminary model-based analysis By Khan, Haider
  10. Derisking Real Estate in China’s Hybrid Economy By Wei Xiong
  11. The Impact of Communist Party Membership on Wealth Distribution and Accumulation in Urban China By , Matteo; Yang, Li
  12. Are Your Labor Shares Set in Beijing ? The View through the Lens of Global Value Chains By Ariell Reshef; Gianluca Santoni

  1. By: Yang, Xiaoliang; Barros, Lucy (Swansea University); Matthews, Kent (Cardiff Business School); Meenagh, David (Cardiff Business School)
    Abstract: China’s fast growth has been accompanied by rising regional inequality, triggering debate over a policy trade-off between aggregate growth and equity. We set out a three-region model of China in which local government behavior affects local TFP dynamics, and regional inequality itself generates more regional productivity divergence. These dynamics can also be affected by central government transfers to regions. Two kinds of fiscal transfers are investigated: equalization transfers and the tax rebate. We estimate and test the model by indirect inference, and explore transfer policy reforms. The results suggest that transfer policies pursued since 1994 have prevented a 15% rise in regional inequality, though at an 8% cost to aggregate GDP.
    Keywords: Regional inequality, China, Fiscal decentralization, Redistribution, Local Government, Growth
    JEL: E60 H30 H70 O40
    Date: 2023–05
  2. By: Cormier, Benjamin
    Abstract: Why do some developing countries obtain more official finance from China vis-a-vis Western sources? This study finds borrower transparency significantly affects which governments borrow more from China. From a supply side perspective, Chinese lending agencies have incentives to lend more to untransparent borrowers. From a demand side perspective, untransparent borrowers have incentives to use Chinese finance to avoid Western pressure to become more transparent. These findings and explanations have three implications. First, they help explain variation in external debt composition across developing countries using official credit. Second, they have implications for the international political economy of developing countries’ financial ties to China. Third, they imply the use of Chinese finance may allow untransparent governments to remain so, an important implication for the political economy of development.
    Keywords: China; Transparency; Official finance; Aid; International political economy; Development; Springer deal
    JEL: F3 G3
    Date: 2023–04–01
  3. By: Oscar Borgogno (Bank of Italy); Michele Savini Zangrandi (Bank of Italy)
    Abstract: The paper provides an up-to-date overview of the data governance framework developed by the People’s Republic of China. The work investigates whether and how the domestic legal framework on data governance has influenced Chinese trade policy with reference to cross-border data flows and e-commerce issues (at the WTO and G20 level). This study shows that Chinese data governance features a two-pronged legal architecture in which the Cyberspace Administration of China plays a prominent role. By prioritizing the need to maintain party-state domestic control across the digital economy, China has proved to be extremely averse to any international agreement that could undermine its domestic data governance framework.
    Keywords: data governance, digital infrastructure, China, data sovereignty, digital trade
    JEL: K20 K33 O33 P33 P37
  4. By: Jia, Ruixue; Lan, Xiaohuan; Padró i Miquel, Gerard
    Abstract: While intergenerational transmission of entrepreneurship is a well-known regularity, we hypothesize that in a transition economy where the state retains an important role, those whose parents are government workers may also be more likely to become business owners. We test the hypothesis in China and show that (1) on average, both entrepreneurs and government workers have a higher likelihood of having children who own incorporated businesses and (2) In provinces where government involvement is higher, the likelihood that children of government workers (entrepreneurs) own incorporated businesses is significantly higher (lower). Our study demonstrates that the local economic business environment shapes the influence of parental background on business ownership.
    Keywords: business ownership; China; development; government intervention; intergenerational mobility
    JEL: R14 J01 N0
    Date: 2021–06–01
  5. By: Karin Mayr-Dorn (JKU Linz); Gaia Narciso (Trinity College Dublin); Duc Anh Dang (NCIF); Hien Phan (NCIF)
    Abstract: This paper investigates the effects of the U.S.-China trade war on trade diversion and the labor market outcomes in a third country, Vietnam. We exploit variation in Vietnamese exports following the unexpected and exogenous U.S. tariff hikes on Chinese imports and find that Vietnamese workers and districts more exposed to the trade war display higher employment, longer working hours, and higher wages as a result of the U.S.-China trade war. The effects are mainly driven by women and non-college-educated individuals. Our findings reveal that bilateral trade policies can have substantial spillover effects on trade flows and labor markets in third countries.
    Keywords: trade diversion, trade war
    JEL: F14 F16 R23
    Date: 2023–04
  6. By: Stefano Federico; Fadi Hassan; Veronica Rappoport
    Abstract: This paper identifies a credit-supply contraction that arises endogenously after trade liberalization. Banks with loan portfolios concentrated in sectors exposed to competition from China face an increase in non-performing loans after China’s entry into the World Trade Organization. As a result, they reduce the supply of credit to firms, irrespective of the firm’s sector of operation. This cut in credit translates into lower employment, investment, and output. Through this mechanism, the financial channel amplifies the shock to firms already hit by import competition from China and passes it on to firms in sectors expected to expand upon trade liberalization.
    JEL: F1 F60 G21
    Date: 2023–04
  7. By: Yang, Li; Milanovic, Branko; Lin, Yaoqi
    Abstract: We create a database of officials who have been found guilty of corruption in China in the period 2012–21 with their personal characteristics and the amount of embezzled funds. We use it to investigate the correlates of corruption, estimate the effects of corruption on inequality, and find the expected increase in officials’ income due to corruption and the gain in income distribution ranking. We find that the amount of corruption is positively associated with education, administrative (hierarchical) level of the official, and years of membership in the Communist Party. The sample of corrupt officials belongs to the upper income ranges of Chinese income distribution even without corruption. But corruption is a significant engine of upward mobility. While only one-half of the corrupt official would be in the top 5 percent of urban distribution without illegal incomes, practically all are in the top 5 percent when corrupt income is included. (Stone Center on Socio-Economic Inequality Working Paper)
    Date: 2023–04–10
  8. By: Yingying Zhang; Steve Bradley; Robert Crouchley
    Abstract: Mental health problems and severe cognitive decline can affect individual behaviours and physical health, cause adverse outcomes and generate significant economic costs for the society. In this paper we contribute to the existing literature by investigating long-term retirement effects on individual health outcomes for a developing country – China. Specifically, we examine the cumulative effect of years in retirement on cognitive functioning, measured by scores in cognitive tests such as word recall test and numeracy test, separately for men and women in China. Identifying such effects can be challenging due to endogeneity issues. To overcome this problem, we use different mandatory retirement ages as instruments for blue-collar and white-collar workers using three waves (2011-2015) of data from the national China Health and Retirement Longitudinal Study. Bivariate random-effect Tobit models are estimated, which also allows us to account for the left censored nature of retirement duration. We find that retirement duration is endogenous to men’s scores in memory tests. After accounting for the observed and unobserved confounding factors, we find that one additional year in retirement reduces the number of words men recalled immediately and 10 minutes later by 0.9% and 1.7%, respectively. The effects for women are much smaller - only 25-35% of those for men. One more year in retirement reduces men’ scores in numeracy test by 0.5%, and scores in mental intactness test by 0.3%, but the effect on women’s scores are statistically insignificant. We also explore the underlying mechanisms for these effects by examining participation in various physical and social activities post-retirement.
    Keywords: Retirement Duration, Cognitive Decline, Gender Differences
    Date: 2023
  9. By: Khan, Haider
    Abstract: Abstract The debate about the Belt and Road Initiative (BRI) in the west seems to have reached an impasse in the absence of any model-based scientific analysis. In order to assess the impact of BRI using consequentialist logic, it is desirable to have model-based counterfactual results. This paper is a first step in that direction. Aggregate consequences for the Chinese economy in terms of economic growth, output and employment impacts are estimated for two BRI scenarios—a high investment and demand scenario and the current low investment and demand scenario. Some important dynamic econometric issues are discussed in an appendix. Also, a more complex economic systems model with explicit banking and financial sectors for the Chinese economy is presented for further, more sophisticated modeling work. As a first approximation, the current modeling results show that BRI will certainly not harm the Chinese economy; but the low demand scenario does not translate into great gains either. The high demand longer term scenario is much more attractive for the economic policymakers in China. However, even in that instance the economic consequences alone cannot justify the strategic importance given to BRI by the Chinese rulers. One possible conclusion is that the geopolitical motives are the main drivers of BRI with modest prospects of economic gains but real prospects of energy security and overall trade and investment security. But this is a delicate and fraught game in geoeconomics and geopolitics in the 21st century.
    Keywords: Belt and Road Initiative, China, East Asia, Social Accounting Matrix, Finance
    JEL: C3 F02 F6
    Date: 2023–01–15
  10. By: Wei Xiong
    Abstract: This article examines the risks faced by China's real estate sector within its distinct hybrid economy, which combines market mechanisms with comprehensive state planning and government intervention. The real estate sector holds particular importance as land sale revenues are a crucial source of funding for local governments, enabling them to finance infrastructure projects and stimulate economic growth. Banks are highly exposed to debt secured by real estate properties, not only involving real estate firms and households but also extending to local governments and affiliated companies. The hybrid structure gives the government a strong commitment and the ability to delay a real estate crisis. However, China’s real estate risk is ultimately tied to the country’s overall economic growth and remains susceptible to policy-related risks.
    JEL: O18 O2 R0
    Date: 2023–04
  11. By: , Matteo; Yang, Li
    Abstract: This paper provides the first in-depth investigation into the evolution of the wealth gap between CCP and non-CCP households in urban China from 1995 to 2017. We apply unconditional quantile regression (UQR) to analyze the variations in the premiums of party membership across the wealth distribution. Our results show that although the average wealth gap between CCP and non-CCP households remained substantial and consistent throughout the period, there have been significant shifts in the returns structure of party membership over time. Prior to the housing reform in the 1990s, the highest wealth premiums of CCP households were primarily concentrated in the middle of the distribution, but now they are concentrated at the bottom of the distribution. This is mainly attributed to the fact that CCP households at the lower end of the net wealth distribution are more inclined to possess real estate assets, which tend to have higher value compared to those owned by non-CCP households. These effects fade out in the top half of the net wealth distribution, where the differences between CCP and non-CCP households become less apparent. Furthermore, by utilizing a balanced household panel from 2013 to 2017, we were able to track wealth accumulation at the household level. Our findings indicate that CCP households accumulate wealth faster than non-CCP households due to larger capital gains, and the differences between the two groups increase along the net wealth distribution. (Stone Center on Socio-Economic Inequality Working Paper)
    Date: 2023–04–20
  12. By: Ariell Reshef (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Gianluca Santoni (CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique)
    Abstract: We study the evolution of labor shares in 1995-2014, while taking into account international trade based on value added concepts. Declines in labor shares accelerate in 2001-2007, concurrently with global value chain (GVC) integration, after which there is no trend for both. We develop a gravity-based instrument for GVC integration and find that the acceleration in the decline in labor shares is caused by increased intensity of forward GVC integration. The integration of China into GVCs has a disproportionally large effect through this mechanism. Declines in labor shares are shouldered mostly by less skilled workers in fabrication functions. Relatively capital abundant countries integrate more into forward GVCs linkages, which is associated with greater upstreamness within GVCs and increases in capital intensity. Forward GVC integration is associated with international vertical integration of both upstream intermediate input production and of offshoring of downstream assembly.
    Keywords: labor share, global value chains, upstreamness
    Date: 2022–05

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