From world factory to world investor: the new way of China integrating into the world

ABSTRACT

This paper argues that outward direct investment (ODI) is replacing international trade as the new way China integrates into the world. Based on two complementary datasets, we document the pattern of Chinese ODI. We argue that the rapid growth of China’s ODI is the result of strong economic development, increasing domestic constraints, and supportive government policies. Compared with trade integration, investment integration involves China more deeply in global business. As a new global investor, China’s ODI in the future is full of opportunities, risks, and challenges. The Chinese government should improve bureaucracy coordination and participate more in designing and maintaining international rules to protect ODI interests.     

A theory of economic development and dynamics of Chinese economy

This paper constructs a theoretical model which captures the recent slowing-down of Chinese economy. In contrast with the previous literature which largely confines its focus on the resource misallocation between inefficient state-owned enterprises (SOEs) and more efficient private firms under a closed economy setting, this paper re-examines the dynamics of the growth of Chinese economy from the perspective of an open economy. In particular, this paper incorporates heterogeneous outputs and relative prices into the model, where private firms are assumed to be the major exporters and the remaining large SOEs create increasing import demand from the home country. By adding downward sloping world demand curve, our paper predicts a turning point during the transition process, as the falling relative price for exports starts to constrain and eventually slow down the growth; SOEs begin to co-exist with private firms in the economy before it is fully transformed. Our paper provides a theoretical foundation in terms of understanding the current dynamics and institutional change of Chinese economy. Additionally, this paper also provides quantitative evidence on the effects of financial development during the China's economic transition process.     

全球化时代的中国经济及其世界性影响

全球化进程决定了中国经济的高度开放,造就了双重资本积累模式,即内资主导的工业化城市化积累和外资主导的全球低端制造平台积累.这一模式加速了中国经济增长,同时削弱了经济自主.反过来,中国对世界经济造成了多方面影响,包括改变劳资利益格局,推动各国产业重组,改变金融市场结构,加强中美金融依赖等,这些影响随着中国的经济增长和结构升级将日趋显著.因此,中国必须立足内需实现可持续增长,并依靠技术创新来控制资源和环境成本.     

China’s regulatory framework for outward foreign direct investment

China has become the world’s third largest outward investor, behind the United States and Japan. A growing body of literature suggests that China’s regulatory framework for outward foreign direct investment (OFDI) is a determinant of the country’s rising OFDI. This article presents a holistic review of that framework, including some possibilities for its improvement. Overall, China’s framework serves two objectives: to help Chinese firms become more competitive internationally and to assist the country in its development effort. In pursuing these objectives, the regulatory framework has moved from restricting, to facilitating, to supporting, to encouraging OFDI, but there are still strong elements of administrative control that make it cumbersome. State-owned enterprises (SOEs) seem to benefit particularly from the current framework when internationalizing through FDI.     

Growth opportunities and trade credit: evidence from Chinese listed firms

Private firms in China have led the explosive growth of the country’s economy, but with restricted or no access to formal financing. It is puzzling that these firms use relatively less trade credit than their counterparts in developed countries. We argue that firms with more growth opportunities should rely mainly on internal financing owing to high asymmetric information, especially in a financial market environment biased towards state-owned enterprises (SOEs) such as China. To explore growth opportunities, these firms may reduce their level of trade credit in the trade-off they face in deciding where to invest. Using panel data of Chinese non-financial listed firms for the period 2003–2013, we find that the relationship between growth opportunities and trade credit (both accounts receivable and payable) is significantly negative and is more pronounced in private firms than in SOEs. Furthermore, we also find that subsequent to the new receivable pledge policy being introduced, Chinese firms with more growth opportunities have higher accounts receivable, but similar levels of accounts payable.     

The Determinants of Location Choices of China's ODI: Institutions,Taxation and Resources

China has become the third largest source of outward direct investment (ODI). This paper studies how institutions in the host countries affect the location choices of China’s ODI. Based on a deal-level sample from 2002–2011, this paper empirically tests how political institutions, political stability, government effectiveness, regulatory quality, rule of law and contrd of corruption in the host countries affect the location choices of China’s ODI. On top of these institutional factors, we study the effects of tax evasion and natural resources in host countries, and their interactions with institutional factors. We find that political institutions in the host countries are not major concerns of the ODI, while government effectiveness, regulatory quality, and control of corruption have significant effects on the locations of ODI. In addition, China’s ODI tends to avoid countries with strict legal systems. Tax evasion and resources are also major motives of China’s ODI. General institutional quality and tax evasion are substitutes in China’s ODI location decisions.     

Rethinking the Role of State-owned Enterprises in China’s Rise

The massive overseas expansion of Chinese state-owned enterprises (SOEs) is a central aspect of China’s ‘rise’ to great-power status. There is significant disagreement, however, over how to interpret SOEs’ role. Are they instruments of Chinese statecraft, being directed purposefully from Beijing as part of a ‘grand strategy’? Or are they relatively autonomous, profit-maximising businesses, their free-wheeling behaviour often undermining Chinese foreign policy? Finding that there is evidence for both theses, we provide a framework to explain this. We propose theorising party-state/SOEs relations using the concepts of state transformation and regulatory statehood. We show that the Chinese state’s fragmentation, decentralisation and internationalisation since the late 1970s has substantially increased SOE autonomy and weakened but also transformed the executive’s control, reconfiguring it towards a regulatory mode of governance. Party-state/SOEs relations are thus characterised not by direct command and control but weak oversight and ongoing struggles within the party-state. We illustrate this using a case study of China Power Investment Corporation and its Myitsone hydropower dam project in Myanmar. Here, a central SOE clearly defied and subverted central regulations, profoundly damaging Sino-Myanmar state-to-state relations. Party-state authorities are now struggling to rein in this and other central SOEs.     

China’s catch-up to the US economy: decomposing TFP through investment-specific technology and human capital

We implement a neoclassical growth model that incorporates investment-specific technology (IST) modifying capital investment in the law of motion of capital and bifurcates productivity into human capital and total factor productivity (TFP) in the production function. We focus on the role of changes in the quality-adjusted price of investment goods on China’s growth by comparing the effects of IST and human capital on the decomposition of US and Chinese productivity. The results show that both human capital and IST play an important role in the decomposition of US TFP. For China, human capital accounts for an increasingly higher portion of Chinese TFP for the period 1952–2009; however, IST contributes to the explanation of TFP only after the 1979 reforms. The analysis is extended by considering the impact of IST in the consumer’s investment decision and by projecting both countries’ GDP while modelling unbalanced Chinese growth using catch-up. Our model predicts that the Chinese economy will surpass the US economy in 2024.     

国际资本流动对我国低碳经济发展影响的实证分析——基于主成分分析法

在构建低碳经济发展水平综合评价指标体系的基础上,运用主成分分析法研究了1985—2009年我国低碳经济发展水平的变化趋势,进一步对FDI、ODI与我国低碳经济发展水平的关系以及前两者对后者的作用途径进行了实证分析。研究结果显示:1985—2009年期间,我国低碳经济发展水平呈不断上升态势,FDI和ODI对我国低碳经济发展均有正面的促进作用,而促进作用的差异主要由作用途径不同导致。最后提出,应积极优化FDI的产业分布结构和来源结构,增加技术寻求型ODI所占比重。     

From internal imbalances to global imbalances: a survey on the causes of China’s export-led growth

There is a broad consensus that China’s export- and investment-led growth model is unsustainable and therefore needs to become more balanced. In the public debate, Chinese exchange rate interventions are mostly made (solely) responsible for this. But it is unclear whether and how much the Renminbi is undervalued, and if an exchange rate appreciation helps to reduce China’s current account surplus significantly. This survey reviews the international literature on China’s export-oriented growth model. Internal structural imbalances in the Chinese economy, resulting in an extremely low consumption-to-GDP share by historical and international standards, play hereby a central role. Related to this are: 1) the drop in household and wage income as a share of GDP and low employment growth, and its impact on consumption demand; 2) the increase in income uncertainty and inequality, and its impact on household savings; and 3) the role of government spending, i.e., high and increasing public surpluses. The central policy challenge is therefore to increase household incomes, and to reduce income inequality and uncertainty.     

港澳台—中国对外开放的独特优势

中国对外开放三十多年,经济发展速度之快举世瞩目。作为对外开放的典型标志,对外贸易和引进外资更是突飞猛进,成为世界贸易排名第二、发展中国家引进外资最多的经济体。中国对外开放之所以取得如此成就,港澳台地区功不可没,甚至可言,如果没有同文同种的新型工业化经济体港澳台与中国内地的密切经贸往来,中国对外开放将经历较长的探索阶段。港澳台地区是中国对外开放最早的也是迄今最主要的投资者,是中国承接国际产业转移最重要的推动者,也是中国进军国际市场的最重要中介与平台。无论是珠三角经济带还是长三角经济带,港澳台企业都是重要的支柱力量。中国最早的区域经济一体化协议,是与香港和澳门签署的,今后中国的自贸区战略,港澳台地区将成为核心。     

扩大进口背景下中国进口对世界经济的影响——制造业就业的视角

伴随着中国经济的快速增长，中国在成为世界第一大出口国的同时也成为世界第二大进口国。以往对中国贸易的研究多是从供给端出发，然而从需求端来看，中国进口对世界经济的影响又有几何？本文在扩大进口战略背景下从全球制造业就业的视角对中国进口与世界经济的关系进行了实证分析，研究发现，通过对中国出口，相关国家的制造业就业实现正增长，但是两者关系会在不同贸易商品、经济发展程度和时间样本之间存在差异。在此基础上，本文进一步从就业创造和就业破坏等方面展开了机制分析。本文的研究表明，中国通过“世界市场”的角色在一定程度上降低了全球失业率，但同时也需警惕“进口竞争”对我国经济的影响。     

Digital Economy Enables High-Quality Economic Development: Theoretical Mechanisms and Empirical Evidence

Digital economy has become the primary motivation for high-quality economic development. Upon comprehensively analyzing the connotation of digital economy, this paper constructs an evaluation system from development environment, digital industrialization, industrial digitalization, and digital governance to measure China’s digital economy index from 2016 to 2018 using the entropy-based TOPSIS method. Also, based on the improved Feder dual sector model, this paper discusses the theoretical mechanism of digital economy promoting high-quality economic development directly and through improving economic efficiency and economic structure, and carries out an empirical test. According to findings, on the one hand, China is scaling up digital economy and accelerating digital transformation; on the other hand, the greater the likelihood that high-quality economic development is constrained by low economic efficiency and unreasonable economic structure, the greater the role of digital economy in promoting high-quality economic development. Therefore, this paper puts forward recommendations for China’s high-quality economic development, such as advancing new infrastructure construction, developing digital economy, improving economic efficiency and economic structure, and transforming the government governance model.     

中国企业正大步走向世界

改革开放以来,中国向世界打开了国门,开放成了中国经济的一个重要特征,开放促进了中国经济的发展,同时也加速了中国企业国际化的进程,越来越多的中国企业开始走向世界,到海外投资和创业。     

China’s economic reforms and growth prospects

Conventional wisdom attributes China’s rapid economic growth to its model of state capitalism, which combines direct state ownership of the commanding heights of the economy and indirect state control of the rest of the economy through industrial policies and the allocation of credit through state-owned banks. This article argues that China’s growth since 1978 is largely due to the result of the expanding role of markets and the rise of private business. If China systematically adopts the economic reform agenda endorsed by the Chinese Communist Party in the fall of 2013, it likely will avoid a sustained period of much slower growth that some have forecast.     

Export Performance of China: A Constant Market Share Analysis

In the light of the fact that there has been substantial growth in China's exports in last three decades, particularly after China joined the WTO in 2001, this article investigates the major sources of China's export performance during 2002-2014 by using the constant market share (CMS) model. In this study, exports are further decomposed in three categories based on their technological intensity using Lail (2000) classification on 3 digit SITC Revision-3 data provided by UN Comtrade via WITS database. The categories are high technology, medium technology and low technology. It is found that growth of China's exports has, moreover, remained above world exports growth in all three categories during the period of study. The analysis reveals that export performance is mainly attributed to 让s competitive strength in the global market, though decreasing trend has been observed in the competitiveness of all three categories. Increasing cost of labor and appreciating RMB could be the causes behind decreasing competitiveness of Chinese exports. Product structure effect, on an average, has turned out to be negative in all the categories which is the most disturbing aspect of China's export performance. On the other hand, geographical structure effect has positive impact on export performance of high-technology based exports whereas it has negative impact on export performance of low-technology and medium-technology based exports. China being the world's largest exporter, decreasing competitiveness and wrong product structure effect could adversely influence its export performance in particular and its growth in general.     

Domestic segment of global value chains in China under state capitalism

This paper studies the relationship between the changing domestic segment of global value chains and the return of state capitalism in China. To this end, we propose a method to estimate an extended input-output (IO) table that tracks inter-sector transactions between different types of firms in a domestic economy. The method is an application of constrained optimization, which relies on basic information from a country's national IO table, as well as sector- and firm-level data. We also propose a way to construct bootstrapped standard errors for any global value chain (GVC) measures estimated from the extended IO tables. We then use the extended IO table to study the domestic segment of GVC in China. We find that, not only is state-owned enterprises’ (SOEs) domestic value-added to gross exports ratio much higher than those of other firms, but it also increased significantly from 1.2 in 2007 to 1.7 in 2010. Our findings suggest that, even after years of privatization, SOEs still play an important role in shaping China's exports.     

“中美国”的终结

在过去十年中,世界经济表现较好的原因是,形成了由中国出口导向型发展和美国过度消费相结合的经济模式。2007～2009年的金融危机可能标志着"中美国"时代的终结。本文将从经济史学者的视角研究这一时期的种种事态发展及其产生的深远影响。中国经济模式在1998～2007将近10年间,某些方面类似于西德和日本第二次世界大战之后的经济模式,即对美的贸易顺差在推动经济增长中发挥了主要作用。然而值得注意的是,中国与这两个国家的经济模式存在着两个关键性差异。首先,中国干预货币的规模是前所未有的,而这对世界经济造成的扭曲也是如此;其次,中国迄今为止仍抵制类似西德和日本升值货币的做法。从中可以推断出,当前的"中美国"形式不可能长久。在20世纪70年代,世界经济的重新平衡有赖于汇率的大幅度调整。但是,中国政府目前采取的汇率调整却无法平衡当前世界经济。     

制度-垄断地租与中国地方政府竞争:一个马克思主义分析框架

竞争性地方政府作为改革以来形成的重要制度形式,在相当程度上决定了中国社会主义市场经济体制的特点。本文不仅承续了既有文献中将地方政府的经济动机归于租金,并将土地财政视为地方政府利用租金开展战略投资的观点,而且试图在一个马克思主义框架内进一步发展这一观点。为此我们对租金的生产性利用和国家的经济作用的关系做了初步探讨,并将大卫·哈维的制度-垄断地租理论运用于分析中国地方政府围绕营建环境的投资活动。本文的基本结论是,中国地方政府在以土地财政为核心的战略投资中,充当了租金的生产性分配者和使用者的角色,并因之嵌入了原本由企业之间的竞争所带来的相对剩余价值生产过程,形成了中国经济特有的相对剩余价值生产双重结构,从而在相当长的时间内造就了世所罕见的高投资率,推动了中国经济的持续快速增长。     

Chinese Economy under the New "Dual Circulation" Strategy: Challenges and Opportunities—A Summary of the Annual SUFE Macroeconomic Report (2020–2021)

Entering year 2020, the Chinese economy was struck by the COVID-19 outbreak. The unprecedented pandemic, entangled with the already elevated complexities in the nation’s internal environment and external surroundings, aggravated its economic outlook. Internal factors including severe education mismatch in China’s labor force, its vanishing demographic dividend, the declined purchasing power of its middle-income groups, risen leverage ratio of households and enterprises, and soared local government debt reinforced to weaken China’s domestic demand. External factors, especially uncertainty in the China-US relation in the face of the re-shaping global value chain, dragged world economic recovery and thus China’s exports and imports. This summary report highlights some major challenges and opportunities faced by the nation under its new development strategy that stresses internal circulation of domestic economy aided by its interaction with the globe. Our analyses based on IAR-CMM model provide a unified framework for addressing China’s short-, medium-, and long-term issues in an internally coherent manner. Looking into year 2021, our benchmark projection reports an 8.4% annual real GDP growth rate. Alternative scenario analyses and policy simulations are conducted to assess the impacts of potential downside risks and the corresponding policy options for ensuring implicit targets. Through the lens of these analyses, we conclude that a refocus on effective management of internal demand, while deepening structural reforms on supply side and advancing orderly opening up, can help smooth the internal and external circulations of the Chinese economy to achieve high-quality development.