nep-cna New Economics Papers
on China
Issue of 2023‒08‒21
sixteen papers chosen by
Zheng Fang, Ohio State University

  1. Do Primary Healthcare Facilities in More Remote Areas Provide More Medical Services? Spatial Evidence from Rural Western China By Shen, Chi; Lai, Sha; Deng, Qiwei; Cao, Dan; Zhao, Dantong; Zhao, Yaxin; Zhou, Zhongliang; Dong, Wanyue; Chen, Xi
  2. Political Relations and Trade: New Evidence from Australia, China and the United States. By Yifei Cai; Jamel Saadaoui; Yanrui Wu
  3. Supply Shocks in Supply Chains: Evidence from the Early Lockdown in China By R. LAFROGNE-JOUSSIER; J. MARTIN; I. MEJEAN
  4. Opposing firm-level responses to the China shock : Output competition versus input supply By P. AGHION; A. BERGEAUD; M. LEQUIEN; M. MELITZ; T. ZUBER
  5. Air Pollution and Entrepreneurship By Guo, Liwen; Cheng, Zhiming; Tani, Massimiliano; Cook, Sarah; Zhao, Jiaqi; Chen, Xi
  6. Do bankers want their umbrellas back when it rains? Evidence from typhoons in China By Pauline Avril; Gregory Levieuge; Camelia Turcu
  7. How political tensions and geopolitical risks impact oil prices? By Valérie Mignon; Jamel Saadaoui
  8. Policy Expectation Counts? The Impact of China's Delayed Retirement Announcement on Urban Households Savings Rates By Shun Zhang
  9. Can China maintain high growth rates under the “dual-circulation” decoupling? By Popov, Vladimir
  10. China inside out: explaining silver flows in the triangular trade, c.1820s-1870s By Irigoin, Maria Alejandra; Kobayashi, Atsushi; Chilosi, David
  11. Contacts Between Locals and Migrants Among Chinese Youth: Out-group Bias and Familial Transmission By Timo Heinrich; Jason Shachat; Qinjuan Wan
  12. Smart contracts vs incomplete contracts: A transaction cost economics viewpoint By Massimiliano Vatiero
  13. What Do We Know About Chinese Industrial Subsidies? By François Chimits
  14. Optimal Ownership and Firm Performance: An Analysis of China’s FDI Liberalization By Peter Eppinger; Hong Ma
  15. The FDI liberalization and skill structure of labor market in China: The predicament of migrants By Li, Yifan; Miao, Zhuang; Wang, Junbo; Zhang, Yan
  16. A Tale of Two Roads: Groundwater Depletion in the North China Plain By Ujjayant Chakravorty; Xiangzheng Deng; Yazhen Gong; Martino Pelli; Qian Zhang

  1. By: Shen, Chi (Xi’an Jiaotong University); Lai, Sha (Xi’an Jiaotong University); Deng, Qiwei (Xi’an Jiaotong University); Cao, Dan (Xi’an Jiaotong University); Zhao, Dantong (Xi’an Jiaotong University); Zhao, Yaxin (Xi’an Jiaotong University); Zhou, Zhongliang (Xi’an Jiaotong University); Dong, Wanyue (Nanjing University of Chinese Medicine); Chen, Xi (Yale University)
    Abstract: Primary healthcare institutions (PHIs) in China have experienced a sizable decline in medical services in recent years. Despite the large regional disparities in China, there is a lack of evidence on the differential patterns of medical services offered by PHIs, especially from a spatial perspective. This study examines whether residents in more remote areas use more medical services offered by township healthcare centers (THCs), a main type of PHIs. Linking medical visits to 923 THCs in a western Chinese province in 2020 with the driving time and geographic coordinates from the Gaode map, a leading map navigation provider in China, we applied a multilevel linear model and a geographically weighted regression to examine spatial heterogeneity in medical service utilization. We showed that a one-hour increase in the shortest driving time between THCs and the local county hospitals was associated with an average 6% increase in THCs outpatient visits and a 0.6% increase in THCs inpatient visits. Our findings suggest that THCs located in more remote areas provided more medical services, especially outpatient services.
    Keywords: primary healthcare institutions, spatial accessibility, disparities, medical service, China
    JEL: I11 I14 I18 R53
    Date: 2023–07
  2. By: Yifei Cai; Jamel Saadaoui; Yanrui Wu
    Abstract: This paper employs structural vector autoregression and local projection methods to examine the impacts of the deterioration in US-China political relations on bilateral trade between Australia and China. Three scenarios are considered to reflect the evolution of US geopolitical strategies in recent years such as “America First”, “China Threat Theory” and “The Protection of US Allies”. The simulation results illustrate that worsening US-China political relations has a negative impact on Australian exports to and imports from China. It is also found that economic conditions in the US play a more important role in the transmission of this impact than those in China and Australia. In addition, various options are explored to check the robustness of the findings in this paper.
    Keywords: Structural vector autoregression, Local projection, Impulse response; USChina political relations; Australia-China trade.
    JEL: C32 F14 F51
    Date: 2023
  3. By: R. LAFROGNE-JOUSSIER (Insee and CREST-Ecole Polytechnique); J. MARTIN (Université du Quéebec à Montréal and CEPR); I. MEJEAN (Sciences Po and CEPR)
    Abstract: How do firms in global value chains react to input shortages? We examine micro-level adjustments to supply chain shocks, building on the COVID-19 pandemic as a case study. French firms sourcing inputs from China just before the early lockdown in the country experienced a relative drop in imports that increases from February to April 2020. This shock on input purchases transmits to the rest of the supply chain through exposed firms' domestic and export sales. Between February and June, firms exposed to the Chinese early lockdown experienced a 5.5% drop in domestic sales and a 5% drop in exports, in relative terms with respect to comparable non-exposed firms. The drop in foreign sales is entirely attributable to a lower volume of exports driven by a temporary withdrawal from occasional markets. We then dig into the heterogeneity of the transmission across treated firms. Whereas the ex-ante geographic diversication of inputs does not seem to mitigate the impact of the shock, firms with relatively high inventories have been able to absorb the supply shock better.
    Keywords: Covid-19 pandemic, Supply chain disruptions, Transmission of shocks, Global Value Chains
    JEL: F1 F6
    Date: 2023
  4. By: P. AGHION (Collège de France, LSE and INSEAD); A. BERGEAUD (Banque de France and CEP); M. LEQUIEN (Insee); M. MELITZ (Harvard and NBER); T. ZUBER (Banque de France)
    Abstract: We decompose the “China shock” into two components that induce different adjustments for firms exposed to Chinese exports: an output shock affecting firms selling goods that compete with similar imported Chinese goods, and an input supply shock affecting firms using inputs similar to the imported Chinese goods. Combining French accounting, customs, and patent information at the firm-level, we show that the output shock is detrimental to firms’ sales, employment, and innovation. Moreover, this negative impact is concentrated on low-productivity firms. By contrast, we find a positive effect - although often not significant - of the input supply shock on firms’ sales, employment and innovation.
    Keywords: Competition shock, patent, firms, import
    JEL: F14 O19 O31 O33 O34
    Date: 2023
  5. By: Guo, Liwen (University of New South Wales); Cheng, Zhiming (University of New South Wales); Tani, Massimiliano (University of New South Wales); Cook, Sarah (University of Nottingham); Zhao, Jiaqi (Peking University); Chen, Xi (Yale University)
    Abstract: We investigate the effect of exposure to air pollution on an individual's likelihood towards entrepreneurship using panel data in China. To address omitted variable bias and endogeneity arising from self-selection into entrepreneurship and location choice, we employ an individual fixed effects model with an instrumental variable approach. Our findings show that individuals exposed to higher levels of air pollution are less likely to become entrepreneurs or diversify their entrepreneurial activities. Specifically, a one standard deviation increase in air pollution leads to a 21 percentage points decrease in the propensity for entrepreneurship and a 34 percentage points decrease in the likelihood of entrepreneurial diversification. Our study identifies potential channels through which air pollution impacts entrepreneurship. In addition, our findings reveal that air pollution has a more significant negative impact for older individuals, people residing in less populated areas, and those with lower education levels compared to their counterparts.
    Keywords: air pollution, entrepreneurship, China
    JEL: J24 L26 Q53
    Date: 2023–07
  6. By: Pauline Avril (University of Orleans); Gregory Levieuge (Banque de France and University of Orleans); Camelia Turcu (University of Orleans and West University of Timisoara)
    Abstract: A cataclysmic event might lead to a decrease in lending, while banks would be expected to help with recovery. This study investigates which effect dominates. In particular, our paper explores how typhoons affect the lending activities of Chinese banks. It relies on the exposure of more than 161, 000 bank branches held by 327 Chinese banks over the period from 2004 to 2019. Our difference-in-difference estimates reveal that, on average, typhoons trigger a decrease in lending that accounts for 2.8 percent of total bank assets. This decline comes from commercial banks. On the contrary, rural banks act as shock absorbers. This may be the consequence of long-term lending relationships and banks’ better knowledge of local economic and physical risks. The absence of rural banks is even found to be detrimental to local post-typhoon growth. Last, government ownership and external political pressure mitigate the relative decline in lending by typhoon-hit commercial banks.
    Keywords: Typhoons, lending, banking system, China, shock absorbers, shock transmitters
    JEL: F
    Date: 2023
  7. By: Valérie Mignon (University of Paris Nanterre and CEPII); Jamel Saadaoui (University of Strasbourg)
    Abstract: This paper assesses the effect of US-China political relationships and geopolitical risks on oil prices. To this end, we consider two quantitative measures – the Political Relationship Index (PRI) and the Geopolitical Risk Index (GPR) – and rely on structural VAR and local projections methodologies. We expand the literature on the macroeconomic consequences of geopolitical risks by considering bilateral political relationships. The bilateral GPR does not focus on the relation between the US and China; rather, it provides an overall picture of the geopolitical uncertainty for China on a multilateral basis. Our empirical investigation shows that improved US-China relationships, as well as higher geopolitical risks, drive up the price of oil. Indeed, unexpected shocks in the political relationship index are associated with optimistic expectations about economic activity, whereas unexpected shocks in the geopolitical risk index reflect fears of supply disruption. Political tensions and geopolitical risks are thus complementary causal drivers of oil prices, the former being linked to the demand side and the latter to the supply side.
    Keywords: Oil prices, political relationships, geopolitical risk, China
    JEL: F
    Date: 2023
  8. By: Shun Zhang
    Abstract: This article examines the impact of China's delayed retirement announcement on households' savings behavior using data from China Family Panel Studies (CFPS). The article finds that treated households, on average, experience an 8% increase in savings rates as a result of the policy announcement. This estimation is both significant and robust. Different types of households exhibit varying degrees of responsiveness to the policy announcement, with higher-income households showing a greater impact. The increase in household savings can be attributed to negative perceptions about future pension income.
    Date: 2023–07
  9. By: Popov, Vladimir
    Abstract: In 2020, after decades of “great international circulation” – a strategy of pursuing economic growth and development through export-oriented production – China announced that it would adopt a “dual-circulation” strategy. As was argued, “this means that, while China will continue to engage with global markets and supply chains, it will rely on domestic markets rather than external demand to drive economic growth” (Yu, 2023). What happens to the Chinese growth rates under the dual circulation strategy? Is it inevitable that the dramatic slowdown of growth that occurred since 2007 will become permanent? This paper argues that the slowdown of the Chinese growth is due not only to the objective factors (slowdown of population increase, approach to the technological frontier), but also to policy choices made well before the “dual-circulation” strategy emerged. It is due first and foremost the cessation of foreign reserve accumulation after the “Great Recession” of 2008-09 that led to the appreciation of the yuan, decline in the growth of export, investment and GDP. It is also argued that there are not only temporary costs of decoupling associated with restructuring (reorientation from foreign to domestic markets), but also permanent costs caused by the decline in international specialization and division of labor. It means that high growth rates could be maintained only at a higher price, in particular only with an even higher share of investment in GDP. Such a strategy can be justified only by security consideration, not economic ones.
    Keywords: dual -circulation strategy, Chinese growth, export/GDP ratio, exchange rate undervaluation, foreign exchange reserves accumulation
    JEL: O11 O24 O47 O53
    Date: 2023–07
  10. By: Irigoin, Maria Alejandra; Kobayashi, Atsushi; Chilosi, David
    Abstract: This paper analyses a new, large dataset of silver prices, as well as silver and merchandise trade flows in and out of China in the crucial decades of the mid-19th century when the Empire was opened to world trade. Silver flows were associated with the interaction between heterogenous monetary preferences and availability of specific coins. Before the 1850s, money markets became increasingly efficient, as reliance on bills of exchange allowed exports to grow in times when sound money was in short supply. When a new standard for silver eventually emerged, there was a new peak in China’s silver imports.
    Keywords: China silver flows; triangular trade settlement mechanism; exchange operations; arbitrage; ‘opening of China’
    JEL: E42 F33 N10
    Date: 2023–07–01
  11. By: Timo Heinrich (Hamburg University of Technology); Jason Shachat (Durham University Business School and Wuhan University); Qinjuan Wan (Central China Normal University)
    Abstract: Conficts between local and migrant populations have been ubiquitous in modern China. We examine the longer-term potentials for resolution through inter-group contact and persistence through the inter-generational transmission of preferences. Public schooling in Chinese cities provides one of the largest interventions for children with diferent group identities to interact extensively. We adopt the perspective that in- and out-group biased behavior structurally arises from group-conditional social preferences. By conducting experiments consisting of binary dictator allocation tasks in schools in a Chinese city, we can analyze how integrated schooling shapes the respective behavior. Surprisingly, we do not observe any negative out-group bias. In fact, local students exhibit a positive out-group bias by choosing sharing behavior more toward migrant than other local peers. This sharing behavior is most prevalent among primary school cohorts. We also do not fnd a higher prevalence of out-group bias among parents. However, parents make more envious choices, highlighting the potential for broader positive efects of schooling. In addition, we fnd strong evidence for the inter-generational transmission of preferences. Overall, these fndings suggest that more directed eforts to establish contact between locals and migrants may be successful in overcoming the confict.
    Keywords: social preferences, group identity, out-group bias, Chinese youth, migration
    JEL: C91 D92 M11
    Date: 2023
  12. By: Massimiliano Vatiero
    Abstract: This paper analyses the effect of rising competition from Chinese exports on the skill premium of Mexican plants. Using detailed product-plant-level production data from Mexico and bilateral product-level trade data for 1994-2007, we provide evidence that Mexican plants reduce their skill premium in response to increasing competition from Chinese exports, and the effect is more pronounced among non-exporting plants. Thus, we develop a model linking competition and wage inequality between skilled and unskilled workers by introducing these two types of labour to a model with heterogeneous firms and quality differentiation. Our model predicts that tougher competition leads plants to downgrade quality, which induces a decline in the wage difference between skilled and unskilled workers. We investigate this hypothesis empirically by analysing the effect of Chinese competition on the product quality of Mexican plants. Consistent with the fall in the skill premium, we document a downgrading impact of China’s rise on Mexican plants’ product quality and this quality downgrading is less intense for products sold in the foreign market. These findings provide empirical support for the predictions of our model.
    Keywords: Adaptation, Blockchain, Enforcement, Incomplete contracts, Smart contracts, Transaction costs.
    Date: 2023
  13. By: François Chimits
    Abstract: While Chinese industrial subsidies have been one of the key drivers of international trade tensions, the details of the phenomenon itself are often overlooked. Reviewing the existing datasets and methodologies used to assess Chinese public supports, this Policy Brief tries to bring more clarity on what is known, and what is not. The most frequently used datasets in the literature are dated and/or largely incomplete, and find limited industrial support compared to more specific analyses. To further complicate things, the new development model pursued by the current leadership seems to champion the idea of “guiding” economic entities to align with Party-State objectives, which, by diffusing public intervention throughout the economy, makes it more difficult to assess the scale of subsidies. The Chinese authorities highly structured and detailed communication and policy planning offers alternative metrics to assess the distribution and evolution of public support to the industry, enabling a complementary approach to triangulate the actual subsidies to industrial production in China.
    Keywords: China;Industrial Policy;Subsidies;Trade policy;WTO
    JEL: L52 O2 F13
    Date: 2023–07
  14. By: Peter Eppinger; Hong Ma
    Abstract: Seminal theories of the firm posit that firm ownership is allocated to minimize contractual inefficiencies. Yet, it remains unclear how much the optimal ownership choice affects firm performance in practice. This paper provides a first quantification of the gains from optimal ownership within multinational firms, by exploiting a major liberalization of China’s policy restrictions on foreign ownership. The liberalization allowed previously restricted firms to become fully foreign owned. We find that these reoptimized ownership choices raise firm output by 40% and productivity by 7.5% on average. An extended property-rights theory of the multinational firm rationalizes these effects and their heterogeneity.
    Keywords: multinational firms, ownership, integration, firm performance, property-rights theory, China
    JEL: D23 F21 F23 L22 L23
    Date: 2023
  15. By: Li, Yifan; Miao, Zhuang; Wang, Junbo; Zhang, Yan
    Abstract: Throughout the era of China’s accession to World Trade Organization (WTO), the labor market and education dynamics have been significantly impacted by the surge in foreign direct investment (FDI). This study scrutinizes how these factors interplay, with emphasis on migrants’ educational attainment, skill premium, and employment status. Our empirical evidence suggests that while FDI bolsters the relative demand for high-skill labors, it concurrently enhances education premiums and the educational attainment in general. Nevertheless, an intriguing anomaly emerges with the downward trajectory of migrants' educational levels. This counterintuitive phenomenon is primarily driven by the double-edged predicament of employment discrimination against high-skill migrants and the sluggish growth in demand for their employment. Empirical analysis further reveals that the FDI liberalization period witnessed an insignificant rise in migrants’ educational premiums, thereby predisposing them to low-wage or high-hazard positions. Our quantitative simulation shows that migration workers will improve their educational levels by 16% by migrating to the higher FDI-exposed region, and improve 4% by removal of the employment discrimination toward the migrants. Our study contributes to the understanding labor market structural shifts and migrant employment conditions in China during its WTO accession period. Additionally, it provides insights for policy-making geared towards the equitable distribution of FDI benefits.
    Keywords: FDI Liberalization; Educational Attainments; Educational Wage Premium; Migration
    JEL: F20 I20 J15
    Date: 2023–06–01
  16. By: Ujjayant Chakravorty; Xiangzheng Deng; Yazhen Gong; Martino Pelli; Qian Zhang
    Abstract: There is a large literature on the role infrastructure plays in economic development, but few papers document the effect of infrastructure on the sustainability of natural resources. We examine the effect of the arrival of two new national highways on ground water levels in a small agricultural county in the North China Plain - a region that produces most of the nation’s food grains. We first develop a conceptual framework to show that farmers located closer to the highways devote more acreage to crops that are water intensive. We then use a unique GIS-referenced dataset of all the 12, 160 tube wells in this county to show that highway construction accelerates the drilling of new wells in farms closer to the highway. In addition, there is greater depletion of the groundwater in wells closer to the two highways relative to wells located farther away. Our estimated depletion rates near the two roads are at least 5 times higher relative to mean depletion rates in the North China Plain. We show suggestive evidence that depletion is caused by a switch from subsistence to commercial cropping, and intensification of farming practices closer to the highway. These results suggest that the resource cost of new infrastructure building may be significant and needs to be incorporated in benefit-cost analysis. Il existe une abondante littérature sur le rôle que jouent les infrastructures dans le développement économique, mais peu d'articles documentent l'effet des infrastructures sur la durabilité des ressources naturelles. Nous examinons l'effet de l'arrivée de deux nouvelles routes nationales sur le niveau des eaux souterraines dans un petit comté agricole de la plaine de Chine du Nord, une région qui produit la plupart des céréales alimentaires du pays. Nous développons d'abord un cadre conceptuel pour montrer que les agriculteurs situés plus près des autoroutes consacrent plus de surface aux cultures à forte intensité d'eau. Nous utilisons ensuite un ensemble unique de données référencées par le SIG sur les 12 160 puits tubulaires de ce comté pour montrer que la construction de l'autoroute accélère le forage de nouveaux puits dans les exploitations agricoles situées à proximité de l'autoroute. En outre, l'épuisement des eaux souterraines est plus important dans les puits situés à proximité des deux autoroutes que dans les puits situés plus loin. Les taux d'épuisement estimés à proximité des deux routes sont au moins cinq fois plus élevés que les taux d'épuisement moyens dans la plaine de Chine du Nord. Nous montrons que l'épuisement est dû au passage d'une culture de subsistance à une culture commerciale et à l'intensification des pratiques agricoles à proximité de l'autoroute. Ces résultats suggèrent que le coût en ressources de la construction de nouvelles infrastructures peut être significatif et doit être intégré dans l'analyse coûts-avantages.
    Keywords: Infrastructure, Roads, North China Plain, Water Resources, sustainability, Infrastructure, Routes, Plaine de Chine du Nord, Ressources en eau, Durabilité
    JEL: O13 O18 Q25
    Date: 2023–05–17

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