The global recession and China's stimulus package: A general equilibrium assessment of country level impacts

A dynamic computable general equilibrium model is developed to assess the impact of the recent global recession and the Chinese government's stimulus package on China's economic growth. By designing two scenarios – one with and one without the stimulus package – the model results show that GDP growth rate in 2009 could have fallen to 2.9% without the stimulus package, mainly as a result of the sharp decline in exports of manufactured goods. Under the stimulus scenario, with the generated additional demand on investment goods, the Chinese economy grows 8–10% in 2009 and the succeeding years. The model also measures the overall gains of the stimulus package, and the cumulative GDP growth difference between the two scenarios for 2009–15 is about RMB76 trillion.     

Income and Price Elasticities of China＇s Exports

The appearance of new product varieties and improvements in the quality of goods have both played key roles in the rapid growth of China's exports. However, these two important elements have not been formally integrated into the demand equations for China's exports. As we demonstrate in this paper, income elasticity will be underestimated if new varieties of goods and quality improvements are omitted in price index and quantity index calculations, which are necessary for estimating the export demand function. Moreover, the faster new product varieties enter export markets, the greater the underestimation will be. In this paper, we develop an export demand equation that takes into account new product varieties and improvements in quality, and then calculate the demand function for China's exports using the data from 1992 to 2006. According to our estimation, the short‐term income elasticity of demand for China's exports is approximately 2.34, and the short‐term price elasticity is approximately –0.65. Our estimation predicts an increase in China's export value in the case of an RMB appreciation or export rebate rates reduction in the short term, due to the low price elasticity of China's exports, whose absolute value is less than 1. Our findings are novel and could have significant policy implications.     

China＇s Energy Strategy in the Twenty-first Century

I. Introduction As the biggest developing country, China’s energy consumption has increased substantially. China is now the second largest energy consumer in the world and its primary energy consumption accounts for 13.6 percent of the world total. In the global energy market, China seems to have an endless appetite for oil and gas. China depends on imports for more than 40 percent of its oil. According to an estimation by British Petroleum (BP, 2005), from 2000–2004, China’s oil consum…     

Are China's trade interests overestimated? Evidence from firms’ importing behavior and pollution emissions

Importing is an important driving force for a country's economic growth. While importing promotes the expansion of economic scale, does it also lead the increase of pollution emissions in production? In this paper, we establish a micro theoretical model to analyze the impacts of importing on firms’ environmental performance, and then use the data of China's manufacturing firms for empirical tests. We show that the importing of intermediate goods or capital goods will lead to the increase of firms’ production scale, and thereby increasing their total emissions, which suggests that China's environment will be deteriorated by importing. On the other hand, importing also has some positive environmental effects that firms will increase their abatement investment after importing intermediate goods or capital goods, thus firms’ emission intensity can be effectively reduced. Altogether, this paper provides important evidence on the impacts of importing on pollution emissions at product-level. We suggest that when analyzing China's interests in trade, the environmental effects of trade should be taken into consideration, otherwise China's gains from trade will be overestimated. This paper also has important implications that while developing the economy through international trade, the government should strengthen environmental protection and advocate green trade.     

Effects of China's Structural Change on the Exports of East Asian Economies

The Chinese economy is slowing down and is in the midst of a structural transformation from export‐led and investment‐led growth to domestic demand‐led and consumption‐led growth. While there are widespread concerns among China's trading partners about the effect of the slowdown in China's growth on their exports, China's structural changes are also likely to have a significant impact: for example, China will import fewer machines and more cosmetics. The central objective of the present paper is to empirically examine the effect of China's structural transformation on the exports of East Asian economies, which have close trade linkages with China. We find that economies that have failed to increase the share of consumption goods in their exports to China have suffered larger declines in their quantities of exports to China. In addition, economies that have suffered losses in their shares of China's parts and components imports have faced reductions in their shares in China's total imports.     

How much did China's WTO accession increase economic growth in resource-rich countries?

We provide an estimate of China's impact on the growth rate of resource-rich countries after its WTO accession on 11 December 2001. Our empirical approach follows the logic of the differences-in-differences estimator. In addition to temporal variation arising from the WTO accession, which we argue was exogenous to other countries' growth trajectories, we exploit spatial variation arising from differences in natural resource wealth. This allows us to compare changes in economic growth in the post-accession period relative to the pre-accession period between countries that were able to benefit from the surge in demand for industrial commodities brought about by China's WTO accession and countries that were less able to do so. We find that roughly one tenth of average annual post-accession growth in resource-rich countries was due to China's increased appetite for commodities. We use this finding to inform the debate about what will happen to economic growth in resource-rich countries as China rebalances and its demand for commodities weakens.     

China's Economic Transition Syndrome

Following 30 years of high economic growth, China's economy is in the midst of a classic transition from an industrial to a post‐industrial economy. In this transition period, the mismatch between supply and demand is growing, while the country's economic growth engine is weakening. Stimulus policies have aimed to maintain the country's economic growth momentum but they have come at the price of sharply increased financial fragility and resource misallocation, both of which are harmful to economic growth. China's “economic transition syndrome” refers to the vicious cycle of slowing GDP growth, combined with increasing demand for stimulus policies, and increasing financial fragility and resource misallocation.     

How dependent is the Chinese economy on exports and in what sense has its growth been export-led?

This paper studies the interaction between foreign trade and domestic demand and supply in China's economic transformation. It compares China's export dependency with other economies using input–output analysis. The paper also conducts econometric analysis of provincial level data to examine causality between the growth of foreign trade and components of domestic demand, and causality between the growth of foreign trade and total factor productivity. The main message is that China's export dependency is significantly lower than implied by the headline exports-to-GDP ratio. Moreover, the contribution of export to economic growth in China came mainly from its impact on total factor productivity growth from a supply perspective rather than its multiplier effect from a demand perspective. This relationship was found to be stronger in the more developed coastal areas than in the less developed inland areas.     

China： Unscathed through the Global Financial Tsunami

This paper investigates the reasons behind the resilience of China＇s economy to the global financial tsunami. China ＇s economy is lowly leveraged in its banking, household, public and external sectors and, therefore, is less plagued by the global deleveraging than most developed economies. Chinese domestic sectors have improved significantly over the past decade, giving them larger capacity to cope with external shocks than during the Asian financial crisis a decade ago. Contrary to the conventional wisdom that China＇s economic growth is highly dependent on exports, we find that the main growth engine for China is domestic demand. Destocking, rather than falling exports, was the main cause of the sharp economic slowdown in China in late 2008 and early 2009. Therefore, the global economic slowdown should have limited impact on China＇s economy. We forecast a sustained eeonomic recovery in China in 2009-2011, with real GDP growth exceeding 10 percent in 2010.     

International effects of China's rise and transition: Neoclassical and Keynesian perspectives

Opinion over the global implications of China's rise is divided between critics and proponents. Critics see it as having developed at the expense of both investment and employment in the US, Europe and Japan. Proponents emphasise improvements in the terms of trade and reductions to the cost of financing that stem from China's supply of light manufactures, its demand for Western capital and luxury goods and its high saving. The criticism implies Keynesian assumptions while proponents take a neoclassical perspective. In this paper, both are embodied in a global macro-model that emphasises bilateral linkages via trade and investment, with monetary spill-overs represented by globally integrated bond markets. Net gains are suggested for the US and Europe from China's successful export-oriented growth, though there are partially offsetting Keynesian effects. China's recent slower, more consumption focussed, growth appears also to be beneficial in those regions and in Japan notwithstanding terms of trade losses.     

Balance sheet expansion and economic growth in China: Crowd in or crowd out?

Balance sheet expansion is crucial to understand the historic path, current slowdown and future trend of economic growth in China. As the financial system transforms national savings into investment, balance sheet expands simultaneously. According to changing impacts of balance sheet expansion on real economy, economic growth in China from 1998 to 2016 can be divided into the crowd-in stage and the crowd-out stage. In the first stage (1998–2007), balance sheet expansion crowded China's real economy in, raised TFP dramatically and accelerated economic growth. In the second stage (2008–2016), balance sheet expansion crowded China's real economy out, with stagnant TFP and decelerated economic growth. Balance sheet expansion has slowed down since 2014, but it continues to exert crowding out effects on China's real economy. We argue that balance sheet expansion is crucial for China's future economic growth. In the long term, structural reforms, especially reforms in the financial system, could increase growth potential significantly. In the short term, financial system reforms should focus on generating sufficient cash flows to boost aggregate demand.     

Vertical trade and China's export dynamics

This paper examines how China's exports are affected by exchange rate shocks from countries that supply intermediate inputs to China. We build a simple small open economy model with intermediate goods trade to show that due to the intra-regional trade in intermediate goods, a devaluation of other Asian currencies does not necessarily hurt China's exports, as imported intermediate goods could become cheaper. The effect of intermediate goods costs depends critically on the share of intermediate goods used in China's export goods production and the degree of exchange rate pass-through in imported intermediate goods prices. If prices for intermediate goods are not very sticky, the effect through this channel could be large, and China's exports could even benefit. We find that these findings do not depend on China's choice of currency invoicing between the RMB and the US dollar or the choice between fixed and flexible exchange rate regimes.     

Impact of the Global Financial Crisis on China： Empirical Evidence and Policy Implications

This paper applies a structural vector autoregression analysis to quantify the impact of the global financial crisis on China. It is found that the impact is indeed sizeable： a 1-percent decline in economic growth in the USA, the EU and Japan is likely to lead to a0. 73-percent decline in growth in China. The article discusses whether the current measures of fiscal stimulus are adequate to offset the sharp decline in external demand Although there is little doubt that the massive fiscal stimulus will largely offset the significant shortfalls in external demand, the current growth pattern in China will be increasingly unsustainable in the long term. China ＂s reform cycles suggest that external shocks are often opportunities for structural reforms. Therefore, the crisis could also be a catulyst for rebalancing China ＇s economic structure so as to return the economy to a sustainable path.     

Can China harness globalization to reap domestic carbon savings? Modeling international technology diffusion in a multi-region framework

This paper is devoted to examine the effect of globalization, particularly the international technology diffusion (ITD), on China's domestic carbon savings. Building on a multi-region global modeling framework, we explicitly consider both indigenous R&D and foreign technology diffusion as the dual drivers of endogenous technical change (ETC) for domestic carbon savings. Simulation results show that 1) traditional economic globalization policies like trade and FDI liberalization can boost the growth of production output, but this is at the cost of more fossil energy uses and carbon emissions; 2) technology globalization policies like removals of technology transfer barriers can facilitate the inflows of foreign technologies for domestic carbon savings; and 3) domestic emission control policies have an effect to induce restructuring and reorganization of production technology into a knowledge-intensive one and thus help lower climate compliance costs. Consequently, to create China's domestic carbon savings from globalization, policy should focus on promoting cross-country technology diffusion, beyond traditional cross-border transactions of product and capital goods. Domestic emission-based climate regulation should also be implemented to create market demand for carbon-efficient technologies and thus induce inflows of foreign advanced technologies.     

China＇s Sustained Economic Growth： Do Direct R＆D Spillovers Matter？

Using data from 1986-2005, the present paper estimates the impact of direct knowledge spilled over from G-7 countries on China＇s economy. We use telephone line penetration rates andpersonnel flows to estimate the direct spillover effect. Our results show that direct knowledge spillovers through telecommunication networks and personnelflows are important components of international R＆D spillovers in China. These direct channels of spillover effectively accelerate China＇s economic growth. Therefore, China should invest more in human capital and in its telecommunication network to enhance the absorptive capacity of direct R＆D spillovers, and to increase communication with other nations, in particular the USA and Japan. More subsidies to domestic R＆D research and purchase of intermediate goods will help to raise China＇s R＆D intensity.     

Understanding China's Economic Growth from a Regional Policy Perspective

There has been ongoing interest in China's economic growth. What were the drivers of China's economic growth in past years? What policies were used to promote China's economic growth? Although different lenses may be used to understand and explain China's economic growth, this paper draws on historical, theoretical, and empirical perspectives to discuss the nexus between China's regional policies and economic growth. First, we review the evolution of China's regional policy and the policy's changing emphasis in different development stages, from balanced, unbalanced, and coordinated development to synergistic development. Then we construct a theoretical model to illustrate the impact of regional policy on the local economy and conduct an empirical examination with a case study of regional policy using regression discontinuity design. This paper analyzes the concept of regional policy and the underpinning logic of economic growth and presents practical approaches to formulate a better regional policy framework.     

双循环新发展格局视域下区际经济高质量协调发展研究

面对国际国内政治格局发生的复杂变化以及全球供应链不确定性增强,中国的经济增长动力向内需和消费方向发展,优化国内市场供需双侧格局,发挥中国市场规模优势和市场容量,构建双循环新发展格局势在必行.通过对中国三大区际经济发展水平对比研究认为东、中、西三大区际经济发展存在较大差异,城镇化水平有助于提升经济发展层次,中、西两大区际具有较大市场空间和发展潜力,是经济协调发展的重要改革重心,高质量协调发展须从促进区际协同机制、产业优化布局、构建消费体系等方面展开,快速整合资源,加快双循环发展布局,共促区域经济繁荣发展.     

China's FDI and non-FDI economies and the sustainability of future high Chinese growth

This paper presents and assesses of the contribution of inward FDI to China's recent rapid economic growth using a two stage growth accounting approach. Recent econometric literature focuses on testing whether Chinese growth depends on inward FDI rather than measuring the contribution. Foreign Invested Enterprises (FIEs), often (but not exclusively) are joint ventures between foreign companies and Chinese enterprises, and can be thought of as forming a distinctive subpart of the Chinese economy. These enterprises account for over 50% of China's exports and 60% of China's imports. Their share in Chinese GDP has been over 20% in the last two years, but they employ only 3% of the workforce, since their average labor productivity exceeds that of Non-FIEs by around 9:1. Their production is more heavily for export rather than the domestic market because FIEs provide access to both distribution systems abroad and product design for export markets. Our decomposition results indicate that China's FIEs may have contributed over 40% of China's economic growth in 2003 and 2004, and without this inward FDI, China's overall GDP growth rate could have been around 3.4 percentage points lower. We suggest that the sustainability of both China' export and overall economic growth may be questionable if inward FDI plateaus in the future.     

Business Cycle in China since the Lehman Crisis： Interaction among Macroeconomic Policy,Economic Growth and Inflation

The major objectives of China＇s macroeconomic policy are to stabilize economic growth and inflation, which, in turn, are important factors determining key prices, such as the policy interest rate, the renminbi exchange rate and stockprices. In a framework that distinguishes different phases of the business cycle based on whether the current period＇s economic growth rate and inflation rate are above or below their ＂＇normal＂ values, this paper analyzes the interaction among macroeconomic policy, economic growth and inflation in China since the Lehman crisis, and the implications for these key prices. The path of China＇s economy indicates that stimulus measures taken by the government during the recession phase and tightening measures implemented during the overheating phase have helped minimize the fluctuation over the business cycle. Our analysis shows that Chinese authorities tend to rely more on adjusting the exchange rate than the interest rate to stabilize the economy. Comparing with conditions at the time of the post-Lehman recession, the current slowpace of economie growth in China may reflect not only weakening demand, but also a lowerpotential growth rate associated with the arrival of the Lewis turning point.     

China in Asia

China's surge to become the world's second largest economy and largest trading nation contributes greatly to Asia becoming the world's largest economic system. China is the nexus of intra-Asian trade and direct investment flows. China's rapid growth in the recent decade relied on a state-directed investment model, akin to the state-run Big Push growth model. As in most big push experiences, intermediate term success leads to economic stresses. China's leaders can no longer ignore obvious signs of rising malinvestment, corporate debts, environmental degradation, and social disparity, all amid an aging population and tightening resource constraints. China's economic slowdown also forces economic adjustment upon its neighbors, rendered more difficult by China's policy ambiguity and volatility. Sill, China can be a positive long term influence in Asia, especially as it carries its market reforms to completion.