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on China |
| By: | Xiao Ma; Zi Wang; Xiaodong Zhu |
| Abstract: | We develop a dynamic multi-country trade model with trade-related technology diffusion and endogenous R&D to quantify the impacts of trade policies and trade wars on innovation, technology rivalry, and welfare. We estimate the model using data on trade and patent citations and validate it in the context of U.S. export controls on China. Counterfactual analysis yields three main results. First, U.S. export controls on China reduce technological progress in both countries: China experiences a sharp contraction in knowledge inflows, while the U.S. faces a decline in R&D. Second, trade-driven diffusion and endogenous innovation substantially amplify the technological and welfare gains in the U.S. and losses in other major economies from the 2025 Liberation Day tariffs. Third, U.S. optimal tariffs on China, under varying geopolitical concerns, reflect a trade-off between curbing technology diffusion to China and sustaining U.S. innovation. |
| Keywords: | Trade-related Technology Diffusion; Innovation; Endogenous Growth Model; Trade War; Optimal tariffs |
| JEL: | F12 F13 F14 O31 O33 |
| Date: | 2026–06–11 |
| URL: | https://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-824 |
| By: | Shoumitro Chatterjee; Arvind Subramanian |
| Abstract: | China's resurgent trade surplus has revived concern in the United States and Europe, but its development consequences for low and middle income (LMIC) countries remain underappreciated. This paper documents a "China Squeeze": the compression of industrialization space available to poorer economies in labor-intensive manufacturing. Using gross trade, value-added exports, historical benchmarks, and labor-endowment comparisons, we show that China, despite becoming richer and moving up the technology value chain, continues to occupy a historically unusual share of global low-skill export markets, especially once value added embedded across supply chains is counted. We estimate this squeeze at hundreds of billions of dollars of foregone valued added exports in labor-intensive manufacturing in LMICs. The squeeze also operates through rising Chinese import competition in LMIC domestic markets and through China's limited absorption of low-skill imports from poorer countries. We then ask whether this dominance reflects unusual productivity performance or policy distortions. Although definitive micro evidence is unavailable, macro indicators on wages, productivity, and exchange-rate policy suggest distortions, especially an undervalued renminbi, may have played a role. The central concern is developmental: China's export strength may foreclose industrialization pathways for poorer countries. |
| Keywords: | export competition, low- and middle-income countries, industrialization, low-skill manufacturing, value-added trade, China shock, exchange-rate policy |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:bdc:wpaper:432 |
| By: | Djouad, Djellal |
| Abstract: | This paper presents a structural derivatives framework for the repricing of the US AI infrastructure buildout. We formalize a nine-element analytical framework - five operational vectors and four geopolitical fronts - that converges on a 25-40% re-rating of pure-play AI infrastructure equities by Q1 2027. The five vectors are: (1) token commoditization, documented by the DeepSeek V4 Pro permanent pricing at 1/29th of frontier US output pricing; (2) Chinese hardware cost parity, with Huawei Ascend 910C achieving a 2.0-2.3x cost-per-performance advantage over NVIDIA H200 on inference workloads; (3) the US power grid bottleneck, with PJM 2026/2027 capacity auction clearing at $329.17/MW-day; (4) China's parallel energy buildout, with 12-24 month project timelines versus 4-7 years in the US; and (5) the hyperscaler bond wall, with $230-240B forecast 2026 issuance. We construct three trade families - equity dispersion, credit expression, and cross-asset hedges - and present an eleven-catalyst falsification calendar with probability-weighted thresholds. Working paper adapted from: CrossVol Research (2026). The China AI Disruption Thesis: Why the Sell-Side Is Six Months Late. Amazon Kindle, ASIN: B0H11WH3R9. https://www.amazon.com/dp/B0H11WH3R9 |
| Keywords: | AI infrastructure, compute commoditization, DeepSeek, hyperscaler bond wall, PJM capacity auction, Chinese hardware parity, semiconductor dispersion, CDS basis, grid constraint, geopolitical risk premium |
| JEL: | F3 F61 F62 F65 G10 G13 G14 G15 G17 |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:129363 |
| By: | Eun Kyo Cho (Korea Institute for Industrial Economics and Trade); Chuel Cho (Korea Institute for Industrial Economics and Trade); Woo Jung Shim (Korea Institute for Industrial Economics and Trade); Sangsoo Park (Korea Institute for Industrial Economics and Trade) |
| Abstract: | Advanced manufacturing industries targeted by the Made in China 2025 strategy, such as robots, semiconductors, electric vehicles (EVs, including autonomous driving), and batteries, have grown exponentially since 2015. With the exception of semiconductors, several categories within robots, batteries, and EVs have exceeded the localization targets outlined in the strategy. China now holds an overall value chain advantage over South Korea in these sectors. Across R&D, procurement (supply chain), production, services, and demand markets (both domestic and overseas), China maintains an edge in robots, EVs, batteries, and autonomous vehicles. Korea retains superiority in equipment procurement, sales and maintenance services, and overseas demand for the semiconductor industry, driven by its memory chip competitiveness. Korea also maintains a slight lead in robotics R&D capabilities for product development and design.<p> While the expanding rivalry poses threats to Korean industries, opportunities exist to differentiate in advanced and niche markets. China’s price competitiveness, its expanding dominance in new AI-based markets, and its internalizing supply chains are common threats. However, leveraging its overall technological prowess and process expertise in materials, components, and equipment, Korea maintains a qualitative advantage in certain categories. Korea must seek to enter global premium markets, such as the US and the EU, emphasizing stability and reliability.<p> Up to now, Korean industry has pursued an “ultra-gap” strategy, in which firms sought to maintain wide competitive moats against their Chinese competitors. This strategy is no longer viable. Korea urgently needs to shift its policy toward competitive cooperation and strategic utilization, and secure a position in the future ecosystems that China aims to dominate, actively utilizing China’s high-tech and technological ecosystems. We must discover new cooperative models that combine China’s technology, production base, and data with Korea’s innovative ideas. |
| Keywords: | China; Chinese manufacturing; manufacturing industry; advanced manufacturing; robots; semiconductors; electric vehicles; EVs; batteries; competition; competition policy; competitiveness; Korea-China c |
| JEL: | F13 F23 F53 L60 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ris:kietia:022842 |
| By: | Jiyoung MOON (KOREA INSTITUTE FOR INTERNATIONAL ECONOMIC POLICY (KIEP)) |
| Abstract: | At the Central Financial Work Conference in 2023, China emphasized the importance of developing “Financial development with Chinese characteristics”for the nation's economic structural transition, and announced “building a financial powerhouse” as a key national strategic objective. The strategy, termed “Financial development with Chinese characteristics, ” emphasizes strengthened Communist Party leadership over the financial industry, aiming to ensure stability, mitigate risks, and support high-quality economic growth.<p> The Chinese government has undertaken significant institutional reforms around three main pillars: (1) building a comprehensive control framework to reinforce financial stability through enhanced Party supervision, (2) enhancing mechanisms to support the real economy by channeling financial resources into strategic industries such as technology, green finance, inclusive finance, pension finance, and digital finance, and (3) advancing market-oriented financial reforms, particularly interest rate liberalization, to improve capital allocation and address chronic credit constraints, especially for small and medium private enterprises. However, challenges persist, including excessive investment in real estate, local government debt, and underdeveloped capital markets. China is addressing these through supply-side reforms of capital markets, improved regulatory oversight, and efforts to foster world-class investment banks.<p> For Korea, these developments imply both opportunities and risks. As China increases financial support for strategic industries and consolidates regulatory control, Korean companies and financial institutions must adapt their strategies to navigate evolving market entry barriers and geopolitical uncertainties. The report recommends that Korea formulate targeted economic cooperation strategies, closely monitor regulatory changes, assess financial risks, and strengthen bilateral policy coordination to ensure resilient and transparent business partnerships with China. |
| Keywords: | China financial development strategy; Financial development with Chinese characters |
| Date: | 2025–06–24 |
| URL: | https://d.repec.org/n?u=RePEc:ris:kiepwe:022490 |
| By: | Shuhei Nishitateno (Kwansei Gakuin University and RIETI); Yasuyuki Todo (Waseda University and RIETI) |
| Abstract: | How Western donors respond to China's expanding development finance remains contested, with competing hypotheses and limited systematic evidence. This study estimates the effect of Chinese aid on bilateral official development assistance (ODA) provided by donors in the OECD Development Assistance Committee (OECD-DAC). Using a Poisson pseudo-maximum likelihood estimator on a four-dimensional panel covering 31 donors, 130 recipients, and 13 sectors from 2001 to 2019, the analysis exploits within-recipient-sector-year variation in Chinese aid shocks and incorporates an extensive set of multi-way fixed effects to address endogeneity concerns. While no average competitive response is detected across all donors, we find consistent evidence that Japan systematically increased its ODA commitments in reaction to Chinese engagement, amounting to an estimated US$ 5.4 billion, or 2.5% of Japan's total ODA commitments in our sample during the study period. Japan's competitive responses are concentrated in geographically proximate and more democratic recipients, consistent with its geopolitical and normative priorities. No comparable response is detected for other major OECD-DAC donors, including the United States, Germany, France, and the United Kingdom. Taken together, the results show that Japan's behaviour illustrates how a traditional donor can strategically deploy ODA as part of a broader foreign policy and industrial strategy, but the scale of its response remains modest. Combined with the muted reactions of other donors, this suggests that the OECD-DAC system is more resilient to China's emergence as a major donor than often assumed. |
| Keywords: | Aid competition, official development assistance, China, Japan |
| JEL: | F35 P45 |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:wap:wpaper:2606 |
| By: | Laeven, Luc; Popov, Alexander; Cozariuc, Catalina |
| Abstract: | Analyzing more than 300, 000 articles across 40 top-tier journals between 2000 and 2022, this study demonstrates that China’s 2006 National Medium-and Long-Term Plan for the Development of Science and Technology catalyzed a surge in publication volume and citations, propelling China past the United States as the world’s leading producer of scientific research. Controlling for national income, population, and human capital, we find these gains are concentrated in fields explicitly targeted by the government’s plan—physics, chemistry, biology, and medicine—while fields excluded from the plan, such as mathematics and economics, show significantly less growth. Our findings suggest that targeted state-led investment can effectively drive scientific progress, at least within a centrally planned economy. JEL Classification: F63, H52, I28, O38, P27 |
| Keywords: | China, government spending, international competitiveness, research and development |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263241 |
| By: | Yuqi Ma; Zhaoyingzi Dong; Pierre-Alexandre Balland; Hantian Sheng |
| Abstract: | Public procurement of innovation (PPI) is widely regarded as a powerful demand-side policy instrument to stimulate innovation, but its role in shaping regional technological diversification remains unclear. Drawing on evolutionary economic geography, this study examines how PPI affects technological diversification under different spatial sourcing strategies. Using 2.24 million procurement contracts and 2.41 million patents from China (2016-2021), we find that PPI facilitates path-breaking diversification, but mainly through non-local procurement. Compared with local procurement, non-local procurement is more conducive to path-breaking diversification in purchasing regions, while its benefits do not spill over symmetrically to supplying regions. By reconceptualizing PPI as a spatially embedded and relational mechanism, this study extends evolutionary accounts of regional diversification beyond a purely territorial lens and highlights how the spatial organization of public demand shapes uneven opportunities for regional technological development. |
| Keywords: | Public procurement of innovation; Technological diversification; Path-breaking innovation; Non-local procurement; Evolutionary economic geography |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:egu:wpaper:2609 |
| By: | Brunori, Paolo; Ferreira, Francisco H. G.; Salas Rojo, Pedro |
| Abstract: | Researchers have sought to quantify the extent of inequality that is inherited from previous generations or factors that are predetermined at birth in multiple ways, including a large body of work on intergenerational mobility and inequality of opportunity. Many of the most frequently used approaches to measuring mobility or inequality of opportunity fit within a general framework that involves, as a first step, an estimation of the extent to which inherited personal characteristics can predict current incomes. We suggest a new approach, within that broad framework, that is sensitive to differences across the entire conditional distributions of relevant population subgroups, rather than just in their means. Sensitivity to differences in higher moments of the conditional distributions allows for a comprehensive assessment of inherited inequality. We apply this approach to household income distributions in China, India, South Africa and the USA, to illustrate how the method performs in different settings. We find that inherited inequality accounts for large shares of total inequality, from 36% in the USA to 59% in China, 62% in India, and 81% in South Africa. |
| Keywords: | inherited inequality; opportunity; mobility; transformation trees; China; India; South Africa; USA |
| JEL: | D31 D63 J62 |
| Date: | 2026–05–22 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:138497 |
| By: | Chun-Yu Ho; Dan Li; Shut Tian; Xiaodong Zhu |
| Abstract: | This paper examines how bank behavior contributes to capital misallocation from the supply side, leveraging China’s 2008 fiscal stimulus as a quasi-experimental setting. Using proprietary loan-level data from a major state-owned bank, we document systematic credit misallocation favoring state-owned enterprises (SOEs) over private firms. Following the stimulus announcement, the bank reduced interest rates significantly more for SOEs than for comparable private enterprises—a differential reduction of 0.36 standard deviations—despite SOEs exhibiting higher default rates and unchanged credit ratings. We identify the mechanism as a loosening of risk-based pricing: interest rates became less sensitive to internal credit ratings for SOEs. This risk-based pricing misallocation largely relates to the industrial policy in supporting government-preferred industries. Notably, no such distortion appears in bankers’ acceptances, a less-regulated shadow banking activity, suggesting policy intervention—not financial frictions—drives the observed misallocation. Our findings provide direct micro-level evidence on how government directives and industrial policy induce capital misallocation through weakened credit risk management in state-owned banks. |
| Keywords: | Capital Misallocation, Stimulus Plan SOEs Shadow Banking, China |
| JEL: | G21 G28 O16 |
| Date: | 2026–06–09 |
| URL: | https://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-823 |
| By: | Koski, Heli |
| Abstract: | Abstract Geopolitical tensions have increasingly extended to the development of strategic technologies. In particular, technological rivalry between the United States and China has reshaped firms’ international innovation networks and the organization of research and development activities. Patent data from leading 5G firms indicate that the effects of geopolitical fragmentation are strongest among firms whose innovation networks were previously highly integrated across geopolitical blocs. In these firms, the increase in geopolitical fragmentation is associated with a reduction of approximately 2.1 percentage points in the likelihood of collaboration between cross-block inventors, equivalent to roughly one quarter of the average level of collaboration. Geopolitical fragmentation also reduces inventor team diversity and the participation of inventors from rival geopolitical blocs. The effects were the broadest among Chinese firms. The findings suggest that geopolitical rivalry affects not only trade, investment, and technology transfer but also innovation networks through which new technologies are developed. In strategic industries such as 5G, geopolitical fragmentation may narrow the channels of international knowledge exchange and reshape the structure of global innovation networks. |
| Keywords: | 5G, Geopolitical fragmentation, Innovation networks, Crossborder collaboration, Patents |
| JEL: | F51 O31 O33 L96 |
| Date: | 2026–06–09 |
| URL: | https://d.repec.org/n?u=RePEc:rif:briefs:182 |