China's outward foreign direct investment in the Belt and Road Initiative: What are the motives for Chinese firms to invest?

Because of the potentially large and important effects of the extremely ambitious Belt and Road Initiative (BRI) launched by China in late 2013, considerable attention has been given to the motives for, and repercussions of, the BRI-driven infrastructural projects. Yet, the non-infrastructural outward foreign direct investment (FDI) from China to BRI countries, which varies quite substantially across different sectors and different countries, has not yet received much attention. In contrast to some recent studies showing that the massive initiative has increased China's total FDI outflows to fellow BRI countries, in this paper, based on our sector-level difference-in-differences models, we find that effect to be statistically insignificant. Yet, at the same time, we provide empirical evidence on the sectoral pattern of China's outward FDI before and after 2014 indicating that China's FDI outflows to BRI countries have significantly increased in sectors characterized by overcapacity and contributing to pollution in China, thereby demonstrating that China's BRI-driven outward FDI has been very selective in terms of sectors. We confirm these findings with a variety of robustness checks and show that it is BRI countries with relatively low institutional quality that have been more likely to receive these types of FDI from China. We thus speculate that Chinese firms have been motivated to place FDI investments in BRI countries for the sake of alleviating China's own overcapacity and pollution problems. Our findings lead us to suggest that, although these sectoral patterns are consistent with the different stages of economic development in which China and its fellow BRI-identified countries find themselves, Chinese investors and host country governments should be more concerned with the potential for unwanted side-effects of the FDI investments so that the mutually beneficial effects of the BRI can be sustained into the indefinite future among all countries involved.     

The Renminbi as a Trading Currency: Evidence from Selected Countries Participating in the Belt and Road Initiative

This paper investigates the effects of the renminbi (RMB) exchange rate on trade prices and volumes in selected Belt and Road Initiative (BRI) countries in comparison with the effects of the US dollar. The stylized facts show that the RMB is underused in bilateral trade with selected BRI countries where intermediate goods dominate. By estimating the level of exchange rate pass‐through and trade volume elasticity, we find that the RMB is significantly correlated with the volume of imports in the sample countries, predicted by the producer currency pricing (PCP) paradigm. We also regroup intermediate and final goods between China and the BRI countries. The evidence shows that dollar fluctuation affects export volumes, reflecting the role of the US as a final goods destination, whereas the RMB exerts a significant impact on the volume of intermediate goods imported from China to the sample countries due to China's important position in global value chains.     

The roles of cultural and institutional distance in international trade: Evidence from China's trade with the Belt and Road countries

Cultural distance and institutional distance have been playing increasingly significant roles in international trade. Recently, the Belt and Road Initiative (BRI) proposed by China has drawn worldwide attention. This paper examines the roles of cultural distance and institutional distance in China's trade relationship with the Belt and Road (B&R) countries. We estimate the extended gravity model using bilateral trade data at product-level during 2002–2016 between China and 99 trading partners, 38 of which are along the Belt and Road. Using Poisson generalized estimating equations (GEE) econometric methods, we find that firstly, cultural distance and institutional distance inhibit China's bilateral trade with the Belt and Road countries. Secondly, China's bilateral trade with the B&R countries is more sensitive to the change of cultural distance than institutional distance by comparing their beta coefficients. Thirdly, compared to Asian countries on the Belt and Road, bilateral trade flows between China and European countries show less sensitivity to changes in cultural distance, except China's imports from its trading partners. While the trade effects of institutional distance show no difference between China's trade with European countries and Asian countries. Lastly, the announcement of BRI does reduce trade-inhibiting effect of cultural distance on China's trade with the Belt and Road countries, while increase China's exports sensitivity to institutional distance. This study finally suggests relevant cultural exchange driven by the BRI eventually assisting unimpeded trade and deepening the cooperation.     

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.     

China and the World Trade Organization

For nine long years China made determined but unsuccessful efforts to rejoin GATT, having gone through 21 rounds of protracted negotiations. China failed to become a founding member of WTO when it superseded GATT in January 1995. In 1989 GATT was about to work out the final terms of protocol for China's entry as a reforming socialist economy. But the Tiananmen event made the developed country members, led by the US, politicize the issue of China's membership. They also wanted to prise open the vast China market as a condition for China's entry; i.e. China to be admitted as a developed economy. China for its part regarded the price of its WTO membership as too exorbitant without being allowed a reasonable timetable for adjustment. Minister Wu Yi considered the US demands ‘absolutely unacceptable’. Hence the impasse over China's WTO membership continued. Apart from the imperative of trade diplomacy, however, the perceived benefits of WTO membership to China are difficult to capture. They are mainly general and long-term in nature, e.g. facilitating China's further economic reform and integrating China into the global economy. However, the costs and risks to China could be considerable, much depending on the exact protocol terms of China's membership. In general many state-owned enterprises and township-village enterprises would suffer from stiffer foreign competition. The effect of WTO on Chinese agriculture would be minimal, while the impact on the manufacturing sector could be quite disruptive. The service sector could fare even worse if no protective measures were to be taken. That explains why China needs to insist on developing-country terms of entry. Without doubt, China will eventually accede to WTO. It is a gross anomaly for this global multilateral trade body to continue excluding China, the world's 11th largest trading nation, on which also hinge the two other great trading entities of Hong Kong and Taiwan. There is increasing awareness of this point in the EU; and it will sooner or later also prevail in Washington.     

Why does so much FDI from Hong Kong and Taiwan go to Mainland China?

While the European Union, the US, and Japan (the Triad) supply 90% of global foreign direct investment (FDI) and China is the second largest FDI recipient in the world, most FDI into China did not come from the Triad but from Hong Kong and Taiwan (HKT). Evidence presented in the paper reveals that the unusually large amount of Hong Kong–Taiwan direct investment (HKTDI) cannot be fully appreciated without understanding China's location characteristics and differences between HKTDI and the Triad FDI. Four determinants of the dominant HKTDI in China are identified: China's export-promotion FDI strategy, its large pool of cheap labor, HKT's specific advantages in export-oriented FDI, and their unique links with China (the Chinese connections). Empirical results suggest that HKTDI was primarily motivated by low labor costs while FDI from the Triad was market-oriented. As China's domestic markets become more open to foreign investors, the share of HKTDI may shrink and the importance of FDI from the Triad may rise.     

Development Trajectories in the Biotechnology Industry： China versus Leading Countries

The present paper examines China's biotechnology industry from a global perspective and explores how its development trajectory differs from that of countries that are leaders in biotechnology. We draw on diverse data to demonstrate the unique development trajectory of the industry in China. China has benefited through targeted spin‐offs of R&D‐oriented foreign direct investment from developed countries driven by the effects of globalization, government‐encouraged collaboration between the domestic academia and industry, and the input of overseas returnees. Together with an increasing focus of the government and domestic enterprises on independent innovation, such developments have enabled China to catch up with the global biotechnology industry. However, its small scale and low capacity for commercializing innovations under China's current regulations and other barriers pose challenges for the development of the industry. Suggestions for the sustainable development of China's biotechnology industry are presented in this study.     

The Belt,the Road,and the carbon emissions in China

This paper explores the effect of the Belt and Road Initiative (BRI) on China's exports and the domestic carbon emissions induced by the exports. We employ a decomposition framework to assess the driving factors of the change of CO₂ emissions induced by China's exports to different destinations and evaluate the main contributions of the gap between the BRI countries and non-BRI (NBRI) countries. The decomposition results show that while the scale effect was the dominant force behind the pre-BRI emission growth, the contribution of the composition effect became more prominent after the inception of the Initiative. Our econometric analysis suggests that the Initiative leads to an increase in the share of carbon-intensive products in China's exports to the BRI countries by nearly 5 percentage points, which is approximately one quarter of the share of carbon-intensive exports to the BRI countries. A further investigation reveals that China's international project contracting is the main channel that has resulted in the increase of the share of carbon-intensive exports in China's exports to the BRI countries.     

Adjustment of Global Imbalances and Its Impact on China＇s Economy

I. Introduction Global imbalances have aroused increasingly greater attention worldwide. The global current account deficits are mainly concentrated in the USA and the US current account deficit is rapidly expanding, whereas the counterpart surpluses are more and more concentrated in the East Asian economies,1 especially China and other East Asian economies other than China and Japan (including the four newly industrialized economies, Indonesia, Malaysia,72 Jianhuai Shi / 71 – 85, Vol.…     

Impact of RMB Appreciation on Trade and Labor Markets of China and the USA： A Multi-country Comparative General Equilibrium Model

Since the recent economic crisis, the undervaluation of China's exchange rate has been a focus in the debate on the global policy mix. Using a non‐competitive input–output table, we establish a comparative‐static general equilibrium model to simulate the impact of real exchange rate changes on Sino–US trade and labor markets. The simulation shows that the impacts of a 10‐percent RMB revaluation on the trade surplus of China and the labor market of the USA are more modest than is generally perceived, and the negative impact on the output of the non‐processing industry in China is more significant than that on the processing industry. The Sino–US trade imbalance will continue to deteriorate, China's non‐processing trade surplus will decline and the processing trade will increase, with the combined effect being small. For the USA, labor‐intensive goods imported from China will shift to different Asian countries instead of transferring back to the US market. The simulation results indicate that the impacts of an RMB revaluation on both Chinese and US labor markets would be limited.     

China＇s Free Trade Agreements with ASEAN, Japan and Korea： A Comparative Analysis

The role of China in East Asia's recovery from the recent global financial and economic crisis highlights China's position as an engine of growth for this region. From the viewpoint of China, there are many potential gains from entering into free trade agreements (FTAs) with its neighbors, who collectively form a large and fast‐growing market. In this paper, we qualitatively and quantitatively assess the four main permutations of China's FTAs with East Asian major economies: China–ASEAN, China–Japan, China–Korea and ASEAN+3. We compare the effects of these FTAs on China's output and welfare. Our comparative analysis shows that China will gain from all three bilateral FTAs, while gaining the most from the ASEAN+3. Because forming a region‐wide FTA, such as the ASEAN+3, is expected to be gradual and difficult, China should continue to engage in bilateral FTAs as a medium‐term and alternative strategy. However, in the long term, China should pursue a region‐wide FTA.     

Belt and road: The China dream?

This paper explores the impact of the Belt and Road Initiative (BRI), in terms of changes in trade costs on trade and consumer welfare in China, the EU, and the rest of the World. We employ a general equilibrium structural gravity approach and conduct a counterfactual analysis. Our key findings are as follows: (i) China and the EU are expected to make substantial gains from the BRI due to reductions in transport costs; (ii) signing and implementing a deep FTA between China and the EU is equivalent to transport cost reductions of 15–20%; (iii) the joint policy of the BRI and FTA is super-additive, magnifying the gains from the separate policies; and (iv) where transport cost reductions are 20% or more, the potential negative effect of the China-US trade war on China is more than compensated for by the BRI initiative. Our results provide evidence that the BRI has the potential to deliver significant welfare gains, particularly if combined with other trade integration schemes, and to counterbalance aggressive trade policies.     

Manufacturing in India and Indonesia: performance and policies

Since the global financial crisis of 2008, the world has been riveted by China's rapid growth and its contribution to the global recovery. But less attention has been paid to India and Indonesia – Asia's two other giants – which also displayed resilience during the crisis and show promise of sustaining this performance. Also remarkable are their geographical, historical and cultural proximity; notwithstanding their differences, these two countries are alike in many respects and face similar challenges, as reflected in their emerging policy priorities. China's large size and rapid growth may have absorbed the attention of Indian and Indonesian policy makers, but this paper argues that a comparative approach to the issues that both countries face can yield interesting insights and provide potential solutions to their development challenges.     

China＇s Trade Acceleration and the Deepening of an East Asian Regional Production Network

China＇s recent surge in trade has been associated with its deepening but contrasting trade relations with its two groups of key trading partners. On the one hand, China＇ s trade surpluses with the USA and the EU have risen rapidly, reaching US$144bn and US$91bn in 2006, respectively. On the other hand, China is importing heavily from its Asian neighbors. This diverging pattern of trade relations between China and its main trading partners reflects the continuous expansion and intensification of a complex cross-border production network in Asia, particularly for consumer electronics. In the process of deepening manufacturing sharing, China serves as an essential export platform for firms headquartered in the more advanced economies. These firms export intermediate goods from the relatively more advanced Asian economies to their affiliates in China where these inputs are assembled and then shipped to key export markets, including primarily the USA and the EU. One apparent outcome of the growing processing and assembly trade is the increased interdependency among Asian economies, which are now more dependent on each other than ever. It has also led to substantial structural changes and technological upgrading in China＇ s traded goods.     

Understanding China's demand for resource imports

Is China's demand for resources driven predominantly by domestic factors or by global demand for its exports? The answer to this question is of interest given the highly resource-intensive nature of China's growth, and is important for many resource-exporting countries, such as Australia, Brazil, Canada and India. This paper provides evidence that China's (mainly manufacturing) exports have been a significant driver of its demand for resource commodities over recent decades. First, it employs input–output tables to demonstrate that, historically, manufacturing has been at least as important as construction as a driver of China's demand for resource-intensive metal products. Second, it shows that global trade in non-oil resource commodities can be described by the gravity model of trade. Using this model it is found that, controlling for other determinants of resource trade, exports (and the manufacturing sector more generally) are a sizeable and significant determinant of a country's resource imports, and that this has been true for China as well as for other countries.     

Who Influences the Asian–Pacific Real Estate Markets: The US,Japan or China?

As rapid economic growth in China has led to significant appreciation of urban real estate market values, this study examines China's influence on Asian–Pacific real estate markets by focusing on their respective market integration with the US, Japan and China during the period January 2005 to December 2017. Market integration is examined by unconditional and time‐varying conditional correlations, nonlinear Granger causality and dynamic connectedness effects. Overall, although the US and Japanese real estate markets have significantly influenced return and volatility in the regional markets, China has emerged as another major regional real estate volatility leader with rising influence over volatility integration, especially during the 2007–2011 crisis period. Financial crises have strengthened China's volatility connectedness effects and market integration with other Asian–Pacific real estate markets. Our results imply that the benefits of regional portfolio diversification may be declining as volatility integration across the Chinese and Asian–Pacific real estate markets becomes stronger. Therefore, diversified global investors should pay greater attention to these real estate markets.     

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.     

Chinese Investment in the US and the EU is Declining –for Similar Reasons

Since peaking in 2016, Chinese outward investment, primarily to the US but also to the European Union (EU), has declined dramatically, especially in response to changes in China's domestic rules for capital outflow. Concern over growing Chinese influence in other economies, the ascendant role of a Communist Party‐led government in Beijing and the possible security implications of Chinese dominance in the high‐tech sector have put Chinese outward investment under international scrutiny. This paper analyzes the recent trends in Chinese investment in the US and the EU and reviews recent political and regulatory changes both have adopted toward Chinese inward investment. It also explores the emerging transatlantic difference in the regulatory response to the Chinese information technology firm, Huawei. Concerned about national security and as part of the ongoing broader trade friction with China, the US has cracked down far harder on the company than the EU.     

The entry price system for fresh fruit and vegetable exports from China to the EU — Breaking a fly on the wheel?

China's exports of apples and pears to the EU have increased substantially, although the EU production of apples and pears is protected by the EU entry price system (EPS), aiming to protect EU producers against international competition by restricting imports below a minimum import price. This study investigates the relevance of the EPS for Chinese exports of apples and pears to the EU accounting for changes over time and seasonal variation. Our results suggest that the high relevance of the EPS for apples originating in China was of temporary nature, whereas the relevance of the EPS for pears originating in China is of a more general nature. In addition, the relevance of the EPS varies seasonally. Finally, we find that the production of pears in China is more competitive than the production of apples vis-à-vis the EU. Therefore, China's fresh fruit and vegetable (FFV) producers would benefit more from an improved EU market access for pears than for apples. Thus, China should put more effort in negotiating improved EU market access conditions for pears rather than for apples.     

How China's accession to the WTO affects global welfare?

Conventional wisdom suggests that, if a large nation reduces tariffs, the Rest of the World (RoW) as a whole should immediately experience gains from trade. However, little simulation evidence has been provided to evaluate the welfare effects of China's tariff reduction upon its WTO accession on each of its trade partners. This paper addresses the above issue under both the perfectly competitive model and the monopolistic competition framework à la Eaton and Kortum (2002) and Melitz (2003). Armed by the method of Dekle, Eaton, and Kortum (2007, 2008) to quantify the individual countries' responses to the “China (trade liberalization) shock” at equilibrium, we could check the extent to which global welfare benefit from the import tariff reduction after China's entry into the WTO. The quantitative results show that, both China and the RoW benefit from Chinese participation into the WTO, with estimated welfare gains falling in a range of [1.4697%, 3.8743%] and [0.0743%, 0.1015%], respectively. That is to say, about 58.24% of total benefits extracted from China's accession into the WTO worldwide flow to countries other than China under perfect competition; while under monopolistic competition, the whole world enjoys a 0.1571% welfare increases if firms' entry is restricted, of which 42.64% are injected into the RoW, an equivalent amount of 23.3903 billion US dollars. Since allowing for firms' entry and exit would lead to adjustments in both aggregate price indices and government tariff revenues, welfare gains of the world significantly increase (0.2474%), but these adjustments would slightly distort the welfare changes for other countries in the sense that only 36.50%, which is equivalent to 32.1008 billion US dollars, overflow to the RoW. As a result, some countries gain more, while some less.