nep-cna New Economics Papers
on China
Issue of 2023‒10‒16
eight papers chosen by
Zheng Fang, Ohio State University

  1. Why Are China’s Households in the Doldrums? By Jeffrey B. Dawson
  2. Navigating Complexities: The Eu's Perceptions Of China's Role In The Ukrainian Conflict And Implications For The Eu-China Relationship By Dradin Romain
  3. Time to say goodbye? The impact of environmental regulation on foreign divestment By Mao, Haiou; Görg, Holger; Fang, Guopei
  4. Inputs, outputs and living standards in rural China during the 1920s and 30s: a quantitative analysis By Wang, Yuton; Guo, Jingyuan; Deng, Kent
  5. Daughters, Savings and Household Finances By Tani, Massimiliano; Wen, Xin; Cheng, Zhiming
  6. A Tale of Two Roads: Groundwater Depletion in the North China Plain By Ujjayant Chakravorty; Xiangzheng Deng; Yazhen Gong; Martino Pelli; Qian Zhang
  7. Traditions and Innovations: The Rise and Decline of the Shanxi Piaohao (Banks) in the Context of Growing Sino-Foreign Economic Interaction, the 1840s to 1910s By Meng Wu
  8. Digital Disruptions & Inequality By Esteve Almirall; Steve Willmott; Ulises Cort\'es

  1. By: Jeffrey B. Dawson
    Abstract: A perennial challenge with China’s growth model has been overly high investment spending relative to GDP and unusually low consumer spending, something which China has long struggled to rebalance. As China attempts to move away from credit-intensive, investment-focused growth, the economy’s growth will have to rely on higher consumer spending. However, a prolonged household borrowing binge, COVID scarring and a deep slump in the property market in China have damaged household balance sheets and eroded consumer sentiment. In this post, we examine the impact of recent shocks on Chinese household behavior for clues around the outlook for reviving consumption and economic growth in China.
    Keywords: China; international economics; macroeconomics
    JEL: E2 F00
    Date: 2023–09–27
  2. By: Dradin Romain (National Research University Higher School of Economics)
    Abstract: The EU-China relationship has evolved from a mere economic partnership to a multifaceted relation, with the EU perceiving China as a cooperation partner, economic competitor, and systemic rival since 2019. In 2022, the eruption of armed conflict in Ukraine prompted a significant response from the EU, including sanctions against Russia and indirect measures like capping Russian oil prices for third countries. This event triggered a shift in EU foreign policy, with China maintaining neutrality while facing assertive European demands. This article examines the EU's view of China's response to the Ukrainian conflict, analyzing China's peace principles and their potential impact on the broader EU-China relationship.
    Keywords: EU-China Relationships, Ukrainian Conflict, Discourse, EU Perception, EU Foreign Policy
    JEL: Z
    Date: 2023
  3. By: Mao, Haiou; Görg, Holger; Fang, Guopei
    Abstract: We look at divestments by foreign firms - a topic that has received comparatively little attention in the literature - and investigate how changes in the regulatory environment in the host country may impact on such divestment decisions. We use the implementation of China's Two Control Zone (TCZ) policy as a 'quasi-natural experiment', using detailed firm level combined with city level data for the empirical analysis. Our results show that the implementation of TCZ policy has led to higher probabilities of divestments by foreign firms in targeted TCZ cities and industries. The mechanism behind this seems to be a TCZ-induced increase in discharge fees and efforts to reduce SO2 emissions. Allowing for heterogeneity of effects, we find that the effect is particularly strong for firms from source countries with less stringent environmental regulation, and those using less advanced technology. We furthermore show that firms using intermediates from polluting industries also experience a higher probability of divestment.
    Keywords: foreign divestment, environmental regulation, Two Control Zone Policy, China
    JEL: F23 Q58
    Date: 2023
  4. By: Wang, Yuton; Guo, Jingyuan; Deng, Kent
    Abstract: Since Kenneth Pomeranz’s Great Divergence that was published in 2000, the scholarly debate has been focused on when the divergence was likely to begin. But a lack of real data for the Pomeranz framework has been noticeable. For our purpose, real data are imperative. The primary-source data this study uses are from the first large-scale modern survey of the rural economy in China in the 1920s and 30s to establish correlations between inputs, outputs and living standards in China’s rural sector. This study views China’s traditional growth trajectory continuing from the Qing to troubled times of the 1920s and 1930s despite considerable negative externalities from a regime change. The present view is that given that the rural economy managed to hang on during the Republican Period despite many disadvantages Qing China would have performed at least at the 1920s-30s’ level. Our findings indicate that rural population did indeed eat quite well during the politically troubled time, supporting Pomeranz’s pathbreaking comparison of utility functions between China’s Yangzi Delta and Western Europe. Secondly, food consumption proved incentives for improvement in labour productivity. Thirdly, China’s peasants were rational operators to maximise their returns. Fourthly, China’s highyield farming depended on land and labour inputs along a production probability frontier, which explains the root cause of the Great Divergence. Finally, there was a ‘little divergence’ inside China which was dictated by rice production, which justifies the Yangzi Delta as the best scenario.
    Keywords: Great Divergence; little divergence; primary-source data; inputs and outputs; living standards
    JEL: N35 N55 C51
    Date: 2023–09–01
  5. By: Tani, Massimiliano (University of New South Wales); Wen, Xin (University of New South Wales); Cheng, Zhiming (University of New South Wales)
    Abstract: We explore the link between child gender and household financial decisions within a cultural environment that strongly favours having a son. Using data from the China Household Finance Survey (CHFS), we find that the presence of a daughter is associated with a lower saving rate. This is consistent with the hypothesis that such families, facing a less competitive marriage market thanks to the relative under-supply of unmarried women, have lower incentives to raise their female heirs' marital prospects by accumulating bigger asset pools. The negative correlation becomes more pronounced as the daughter approaches marriageable age. This study expands existing research by examining the impact of child gender on financial decisions while controlling for unobserved time-invariant heterogeneity thanks to the panel nature of the CHFS.
    Keywords: daughter, household savings, marriage market
    JEL: D14 D10 J12 J16
    Date: 2023–09
  6. 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 causal 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 near 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 adjacent to the highway. These results suggest that the environmental cost of new infrastructure building may be significant and needs to be incorporated in benefit-cost analysis.
    Keywords: infrastructure, roads, North China Plain, water resources, sustainability
    JEL: O13 O18 Q25
    Date: 2023
  7. By: Meng Wu
    Abstract: Shanxi piaohao, also known as the Shanxi banks, were arguably China’s most important indigenous financial institutions in the nineteenth century. In a weak state with little legislation to regulate private enterprises, these privately owned banks established a nationwide remittance network by relying on its informal rules. Drawing on comprehensive primary sources, this paper is the first to examine piaohao's institutional arrangement. My study shows that by designing comprehensive rules on draft enforcement, piaohao prevented draft defaulting and fraud problems. A strict discipline mechanism and a performance-and-tenure-based incentive structure enabled them to overcome the commitment problems of distant employees. Piaohao performed well financially and dominated the Chinese remittance market for a century. However, with the blow of the Xinhai Revolution and the rise of modern Chinese banks, they declined and disappeared collectively from the Chinese financial market in the early twentieth century.
    Keywords: micro-business history; business enterprises in China; contract enforcement; remittance; commitment problem
    JEL: M51 N25 N85
    Date: 2023–09
  8. By: Esteve Almirall; Steve Willmott; Ulises Cort\'es
    Abstract: Rising inequality is a critical concern for contemporary societies globally, to the extent that emerging high-growth economies such as China have identified common prosperity as a central goal. Yet, the role and mechanisms of digital disruptions as a cause of inequality and the effectiveness of existing remedies such as taxation, are poorly understood. Particularly the implications of the complex process of technological adoption that requires extensive social validation beyond weak ties. Similarly, the implications of globalization in the hyperconnected landscape of the 21st century remains unexplored. This study aims to shed light in these multifaceted issues. Our findings indicate that network connectivity and the presence of wide bridges between clusters are pivotal factors. We also show the limited utility of taxation as a countermeasure against inequality. Interestingly, the research reveals that the strategic injection of small cohorts of entrepreneurs can expedite technology adoption even when connectivity remains moderate, impacting inequality.
    Date: 2023–09

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