China's Regional Trade and Domestic Market Integrations

The global economic crisis in 2007 forced China to move from export‐led growth to promoting domestic demand. The move is significant, but the success of this new growth strategy depends critically on the level of domestic market integrations. In this paper, we use the methodology proposed by Anderson and Wincoop to examine China's domestic market integrations. We find evidence of border effects at both national and regional levels with significant regional differences, but they are smaller than some earlier studies suggest. Income growth, lower transportation costs, and higher intra‐industry trade all have positive effects on China's regional trade. Among the factors affecting regional trade, a better business environment has the largest positive impact on lifting China's domestic trade between regions, especially in intermediate goods, suggesting that improving business environment should be the priority of government at all levels in China.     

Domestic Political Institutions,Diplomatic Style and Trade Agreements: A Comparative Study of China and Japan

Through an analysis of the formation of free trade agreements (FTAs), this article seeks to examine the factors that caused the gap in Japan and China's relationship with Southeast Asia to emerge and expand in the new millennium. In order to address this question, the article focuses on China and Japan's diplomatic styles and domestic political institutions and examines how these two elements influenced negotiations on the formation of FTAs, as well as the evolving perceptions that the Southeast Asian nations have of these two states. The article argues that Japan and China possess different kinds of weaknesses in implementing feasible external policies – a lack of policy decisiveness for Japan and weak policy credibility for China – which have resulted from the operation of domestic political institutions. Given these differences, while China implemented pragmatic diplomacy that helped improve its policy credibility, Japan's bargaining diplomatic style did not serve to rectify its weak policy decisiveness. Such differences in their diplomatic approach have led to the differing influence of these two states on Southeast Asia.     

The China factor in recent global commodity price and shipping freight volatilities

This paper attempts an investigation of the impact of the China factor on the global commodity and ocean shipping freight volatilities in recent years. It measures China's contribution to the incremental growth in demand for selected bulk commodities and ocean shipping in the world. China's impact on price volatilities is statistically analyzed through a conventional econometric framework.     

Baltic Dry Index and iron ore spot market: dynamics and interactions

Baltic Dry Index (BDI) is often included in the iron ore spot price. Iron ore market experienced a transition in pricing mechanism from the annual negotiated price to the one based on spot market price in 2008/2009. This paper investigates the dynamics of and the interactions between BDI and iron ore spot price in the regime of the new pricing mechanism. In addition to controlled variables, we find significant spillover interactions between BDI and the iron ore market. We also detect mean-reversion movement in the iron ore market, signalling certain inefficiency in the market pricing.     

Foreign Exchange Accumulation and the Entrapment of Chinese Monetary Power: Towards a Balanced Growth Regime?

This article criticises the notion that China's foreign exchange reserves have strengthened its monetary power. While some scholars have argued that China's international monetary influence has been ‘entrapped’ by the domestic interests of its export sector, a one-sided focus on the export sector fails to identify the significant constraints on its macroeconomic autonomy. This article proposes an extension of the concept of entrapment that draws attention to the key role of state-owned enterprises (SOEs) and their domestic fixed-asset investment in its growth regime: China's external monetary dependency – which is understood as both export dependency and the need to maintain foreign exchange accumulation – has been caused by a disparity between fixed-asset investment and private consumption that reflects a redistribution of income from the household sector to the SOE sector. In particular, I expose the SOE sector's rising interests in foreign exchange accumulation by uncovering a mutually reinforcing dynamic between China's external monetary dependence and the financial repression of its banking system. By entrenching an investment-led growth regime that provides key benefits the SOE sector, this dynamic is found to have seriously constrained the macroeconomic policy autonomy of Chinese authorities to rebalance growth away from investments and exports towards private consumption.     

China's Labor Market Integration and the Effect of Economic Openness

This research theoretically and empirically studies China's labor market integration and the effect of economic openness. We introduce an open parameter to the previous theoretical framework and, based on that, we carry out an empirical study of China's labor market integration measurement from 1987 to 2006, and focus on the impact of economic openness. Research indicates that economic openness has an obvious effect on promoting China's labor market integration. The labor market integration progress differs between regions, with labor markets of coastal areas such as North China, East China and South China, which have one or two labor market centers, being better integrated than those of other interior areas.     

Little Divergence: Evidence from Cotton Textiles in Japan and China 1868–1930

This paper looks at the role of textile exports in Japan and China's economic development in the period of 1868–1930 as a major explanation for the “Little Divergence” between the two countries in the context of the “Great Divergence” between Europe and Asia. Because of textiles' large weighting in proto‐industrialization gross domestic product (GDP), we postulate that China's initial 20‐year lag in textiles vis‐à‐vis Japan turns out to be fatal for its industry and that it eventually ordains totally different development patterns for the textile industry in the two countries, which ultimately led to different growth patterns for the overall economy. Although both countries saw rapid growth of textile exports, the nature of those exports and the entailed position of each country in the industry value chain of trade were quite different. We then use Granger causality tests to show that in one case (Japan) it is in support of the export‐led‐growth hypothesis (ELG) while in another (China) it is not. Our study then also explains why Japan's industrial revolution took place much earlier than China's.     

Oil shocks,policy uncertainty and stock returns in China

This paper examines the interdependence of China's policy uncertainty, the global oil market and stock market returns in China. A structural VAR model is estimated that shows that a positive shock to economic policy uncertainty in China has a delayed negative effect on global oil production, real oil prices and real stock market returns. Shocks to oil market‐specific demand significantly raise China's economic policy uncertainty and reduce the real stock market returns. As measured by a spillover index, the interdependence between these variables has been rising since 2003 as China's influence in the oil market has increased. An equivalent spillover index calculated for the US is smaller and has been largely flat over time.     

长期协议、价格指数和铁矿石定价研究

在长期协议市场和现货市场并存的条件下,当市场存在不确定性和信息不对称时,可以减小随机交易波动,这不仅有利于保持长期协议供给方的领先优势,还能有效降低市场的均衡价格。在我国进口铁矿石定价体系中,国外厂商铁矿石价格指数和中国铁矿石价格指数存在差异和共同点,因此,只有建立运行高效的铁矿石市场交易机制,我国才能获得国际铁矿石定价权。     

A Fragmented China: Measure and Determinants of Chinese Domestic Market Disintegration

This paper studies the degree of integration of China's domestic market and investigates the determinants of inter‐provincial trade barriers under the rubric endogenous trade policy theory. I rely on industry‐level trade flows extracted from provincial input–output tables to develop a model that analyzes the magnitude and evolution of Chinese provinces’ engagement in domestic trade by computing all‐inclusive indicators of trade barriers. Results underline that over the 1990s, not only was China's domestic market fragmentation along provincial borders great, but it also has become more severe at least between 1992 and 1997. The investigation of province‐level and industry‐level trade barriers confirms the relevance of applying the framework of endogenous protection to explain the level of impediments to trade between Chinese provinces. Findings emphasize that provinces’ domestic trade protection pursues a dual objective of socio‐economic stability preservation and fiscal revenues maximization.     

Market socialism,Chinese style: bringing development back into economic theory

China became an important engine of growth for the world during the recent global financial crisis, mainly because of the Chinese government's willingness and ability to stimulate aggregate demand quickly and effectively. China has been able to achieve that partly because of the legacy of central planning before the reform. The local governments implement infrastructure and other projects effectively and quickly, and the state-owned banks lend freely, under the guidance of the central government. These institutional arrangements, however, have been responsible for China's sustained growth since reform began in 1978. They are more for development than for aggregate demand management. The recent event only heightens the merits of its growth-promoting system. A question arises regarding the merits of the Chinese system of market socialism in general. Regarding economic theories, the outstanding performance of the Chinese economy has three implications: (1) Keynesianism is still alive; (2) Gerschenkron's theories of economic backwardness remain valid – that is, the larger the gap, the greater the need to socialize investment risks, and the more forceful the government's intervention needs to be; and hence (3) the more imbalanced the development process will be. These imbalances present daunting challenges.     

Global and regional linkages across market cycles: evidence from partial correlations in a network framework

Using a novel approach, partial correlations within a complex network framework, we examine the degree of globalization and regionalization of stock market linkages and how these linkages vary across different economic or market cycles. Our results show that geography influences network linkages differently across economic cycles. During normal times, regional factors shape market linkages; however, during periods of turbulence, global rather than regional factors drive the linkages. The network traffic also increases during times of turmoil, but contrary to previous results, we do not find a consistent or overwhelming increase in positive linkages between markets. Also, contrary to expectations, financial centres such as the US, China, Japan, and the UK command a greater regional rather than global influence. Our findings have implications for asset pricing and policy decision making.     

Foreign direct investment, regional market conditions and regional development

This paper uses regional panel data to investigate the mechanism whereby foreign direct investment (FDI) has contributed to China's regional development through quantifying regional marketization levels. It is found that FDI inflow generates a demonstration effect in identifying regional market conditions for investment in fixed assets and hence affects industrial location. In addition, its effects on regional export and regional income growth have varied across east, central and west China since the second half of the 1990s, depending on differences in FDI orientation between different regions. In east China, geographical advantage in exports attracts FDI inflow and FDI promotes exports. In addition, the rise of the FDI–GDP ratio increases east China's share in national industrial value added. These effects contribute positively to regional income growth in east China although there is a direct crowding‐out effect between FDI and domestic investment (as input) in growth. In contrast, the negative impact of FDI inflow on regional export orientation in central China weakens its contribution to regional income growth. Furthermore, the contribution of the improvement in the market mechanism to regional development is evidenced in attracting FDI, in promoting export and directly contributing to regional income growth.     

Labour Market Policy Developments in Japan: Following an Australian Lead?

In recent times, Japan has experienced a rapid expansion in its service sector, increases in casual and part‐time employment and record unemployment. In addition, there has been an associated rise of freeters and NEETs—predominantly young workers with tenuous labour market attachment. While somewhat slow in initiating policy responses, the Japanese government responded to these structural changes by reforming its existing employment policies. In this article we argue that recent changes in the nature of Japan's labour market policies appear to have been driven by some of the same factors which led to the radical overhaul of Australia's own labour market policies.     

The Effects of Foreign Currency Derivatives on the Monetary Policy Exchange Rate Channel in China

This paper examines changes in the monetary policy exchange rate channel in the presence of foreign currency derivatives (FCD) markets in China. Initially a theoretical macroeconomics model incorporating the exchange rate risk hedging is presented, and this is followed by an empirical test. A theoretical model implies that with more firms using foreign currency derivatives to hedge the exchange rate risk, the effect of the exchange rate on the net exports will be weaker and may even be reversed. The empirical section uses Structure Vector Autoregression (SVAR) models with China's monthly macro data over the 2000–2013 period to assess the impact of the FCD market on the exchange rate channel. Empirical support for the changes in the exchange rate channel transmission is found. By impulse response function (IRF) analysis, with the emergence of the domestic FCD market in China, in the long run the probability becomes higher that the negative effect of RMB appreciation on China's net exports to the US is reversed; meanwhile the negative effects of RMB appreciation on the overall net exports and the net exports to the EU become gradually weaker on average.     

The institutional foundation of China's economic growth

China's economic growth is (undoubtedly, undeniably, unquestionably) regarded as a miracle due to the changes it has brought to the lives of the Chinese as well as to the global economic structure. This paper analyzes China's economic growth from the perspective of institutional reforms. The main argument is that, through the redefinition of property rights, the operation costs of China's planned economy under full public ownership have been reduced dramatically. Human resources have greatly improved in terms of productivity and creativity, thus providing China with competitive advantages in the global market.     

市场结构、规模经济与中国铁矿石定价策略

铁矿石定价问题对中国经济的平稳增长有明显影响。本文尝试性地建构了一个引入贸易中介的生产-贸易-消费的三分法结构分析框架,来探讨国际铁矿石定价问题及中国策略。基于国家和企业的双层面三环节结构分析发现,高寡占的生产者结构对应于高竞争性的贸易中介结构和消费者结构是国际铁矿定价格局的结构成因,也是中国制定相关铁矿石贸易和产业政策的重要现实约束。基于生存能力法的规模经济测度发现,铁矿石贸易的规模经济区间为5％以下;铁矿石消费环节的规模经济区间为10％以下,导致了多种形式的铁矿石贸易中介组织共存的特征。论文还从生产-贸易-消费的产业定价策略分析方法出发,提出了中国可资利用的铁矿石定价策略。     

Market Orientation and Regional Economic Disparities in China

The change in China's regional output disparities can be attributed to the variation in market orientation in individual regions, and the change in China's livelihood disparities can be attributed to the weakening of government intervention in the form of regional income redistribution in the reform process. The study suggests that China should accelerate economic growth of backward interior regions by deepening market-oriented reforms on the one hand, and help residents in these regions by strengthening fiscal transfer from richer to poorer regions on the other.     

The determinants and trends of China's exportable structure

The paper empirically investigates several key factors to determine changes in China's exportable structure. Based on this, it predicts the possible changes of China's export goods, especially of those with high value-added. It concludes that comparative advantage, market structure and the global integration penetration are the three most important factors to determine the exportable structure for each industry in China.     

How COVID-19 Medical Supply Shortages Led to Extraordinary Trade and Industrial Policy

Early in the COVID-19 pandemic, a global shortage of hospital gowns, gloves, surgical masks, and respirators caused policymakers globally to panic. China increased imports and decreased exports of this personal protective equipment, removing supplies from world markets. Shortages led to European Union and US export controls as well as other extraordinary policy actions, including a US effort to reserve supplies manufactured in China by a US-headquartered multinational. By April 2020, China's exports had mostly resumed, and over the rest of the year its export volumes surged. But China's export prices also skyrocketed and remained elevated through 2020, reflecting severe and continued shortages. This paper explores these and other government actions, such as US trade war tariffs and US industrial policy in the form of over $1 billion of subsidies to build out its domestic personal protective equipment supply chain, as well as potential lessons for future pandemic preparedness and international policy cooperation.