Assessment of China's macroeconomic situation: relevance of the zero interest rate and quantitative easing polices

Using the data available until mid-February, 2009, the article examines China's macroeconomic situation and looks at the prospect of China's economy. It analyzes the zero interest rate and quantitative easing policies in terms of relevant empirical evidences in Japan and the prospect of using this kind of policy in the US. It argues that a zero interest rate and quantitative easing policies are not optimal choices for China.     

Overseas Impacts of China's Outward Direct Investment

China's outward direct investment (ODI) has grown rapidly since 2004. But along with such phenomenal growth is a mixed feeling toward Chinese investments in host countries. This article explores some overseas impacts of Chinese ODI based on an analysis of China's policy environment and investment patterns. We argue that what Chinese investors bring to host economies includes (i) massive job creation, but limited technology transfers to the local economy; (ii) ample capital as well as entry into the Chinese market; and (iii) damage from corporate social misbehavior. However, we suspect that these overseas impacts may be transitory as three dynamics, increased conflicts, accelerated learning and China's domestic structural changes, are simultaneously set in motion.     

Impact of Chinese growth and trade on labor in developed countries

This paper examines the impacts of growth in China's economy and trade on the skill premium of labor in developed countries. We utilize a unique global dataset that disaggregates workers by occupations to identify impacts across labor categories with different skill sets, complementing the widely used GTAP Data Base in the CGE framework offered by the GTAP model. To study the impacts of China's fast-paced growth, we model the counterfactual, i.e., what if China grew and opened at a more modest rate; we then compare this baseline with China's actual growth. Results indicate that a strong rise in manufacturing exports from China to the US impacts output and employment in the US. The US shifts its production away from light manufacturing sectors to more service-oriented sectors that also tend to engage higher skilled labor. There is a small decrease in the real wages of unskilled labor and a rise in the real wages of skilled labor. Interestingly, not all categories of unskilled labor lose, rather those that are more directly linked with manufacturing sectors are impacted; unskilled ‘service and shop workers’ and the unskilled ‘agricultural workers, machine operators, assemblers, craft workers, and others’ observe a small decline in real wages, while the impact on unskilled ‘clerks’ is insignificant. For all categories of skilled workers, there is an increase in real wages primarily driven by the shift in production to services and high-skilled labor intensive categories, resulting in the rising skill premium. Hence disaggregating the labor data provides greater depth on the understanding of the differential impacts on domestic workers resulting from trade, and thereby guides policy on how these differential impacts can be smoothed through redistribution of benefits. Consistent with other study findings, there is a positive impact on overall growth and welfare in the US, EU and Australasia.     

Accounting for the China–US Trade Imbalance: An Ownership‐Based Approach

This paper focuses on measuring the trade imbalance between China and the United States (US) within the framework of the ownership‐based approach. It extends the baseline model developed, respectively, by NAS, Julius, and BEA into a three‐country framework, consisting of the domestic economy, the foreign economy, and the rest of the world. The results of the study show that the non‐US foreign direct investment in China is mostly responsible for China's trade surplus with the US. As a result, China's ownership‐based trade surplus is surprisingly small relative to the conventional measure.     

Why does China protect its labour‐intensive industries more?*

China's tariff structure favours labour‐intensive sectors, and this is at odds with traditional theory of comparative advantage. The paper argues that tariffs in China are a mechanism for protecting technology‐backward domestic – especially state‐owned enterprises (SOEs) from competition technology‐advanced foreign enterprises producing in China. With relatively integrated labour markets and cross‐firm technology differences, SOEs’ subsistence is supported by subsidized credit and limited access of foreign firms’ local production to tariff‐protected domestic markets. Labour market integration and capital subsidies increase the relative cost of labour in SOEs compared to their foreign competitors, hurting more domestic firms in industries that use labour more intensively. Restrictions to FIEs’ (foreign‐invested enterprises) access to tariff‐protected product markets, which protect more labour‐intensive industries, compensate for the greater cost disadvantage of SOEs in labour‐intensive sectors.     

DEMOGRAPHIC SHIFT,POPULATION AGEING AND ECONOMIC GROWTH IN CHINA: A COMPUTABLE GENERAL EQUILIBRIUM ANALYSIS

Abstract. Using a computable general equilibrium (CGE) model and a given ageing profile of the population to forecast the growth path of China's economy during the twenty‐first century, this study finds that: population ageing leads to declining economic growth as labour supply shrinks and the rate of physical capital formation declines; households’ material living standards improve, albeit at a declining rate; falling domestic investment partially offsets declining national savings; and the resulting saving‐investment surplus generates a current account surplus and capital outflows. Finally, the main force that can sustain China's economic growth against the backdrop of population ageing is productivity improvement.     

Chinese Saving Rates from 1953 to 2012: Trends,Compositions and Prospects

This study conducts a long‐run analysis on the trends and components of Chinese saving rates from 1953 to 2012. We identify two structural changes in aggregate saving rates around 1978 and 2001, and examine them through a decomposition analysis of the income distribution and sector‐specific saving rates. The following key findings are obtained. First, the major trends and compositions of Chinese saving rates changed markedly over the period considered, which explains the changes of aggregate saving rates with the dramatic economic transition from a planned economy to a market‐oriented economy. Second, we investigate the surge in aggregate saving rates from 2001 to 2012 based on a series of institutional factors, such as the evolving labour market, domestic economic policy adjustments and changes in external economic conditions caused by China's accession to the World Trade Organization in 2001 and the 2008 global financial crisis. Finally, we present the future prospects for the high aggregate saving rates in China based on several evolving economic, demographic and policy trends. We argue that Chinese saving rates have peaked in recent years and that a declining trend is expected, which will contribute to the economic rebalancing of the country.     

Downward accountability in response to collective actions

Will autocratic governments implement policies to satisfy the people's demands in order to prevent large scale social unrest? This article explores this question through quantitative analysis of the political economy of public goods provision in Chinese provinces. Data were collected on the number of labour disputes to measure collective actions. My sample includes provincial leaders whose incentives to deliver public goods can either be explained as a result of upward accountability towards the Centre or downward accountability towards the citizens. The confounding factor of upward accountability is ruled out by using two‐step estimation, and the reverse causality between public goods provision and collective actions is controlled by using instrumental variables. This result suggests that provincial leaders will implement policies more in favour of the citizens in response to intensified labour disputes.     

Market Power and Marketisation: Japan and China's Impact on the Iron Ore Market, 50 Years Apart

ABSTRACT

How can we explain the marketisation of the iron ore market following the emergence of China, whereas the same market had seen change in the opposite direction following the emergence of Japan, 50 years earlier? I argue that relative coordination capacity – or relative market power – between domestic and international stakeholders explains market change at the global level. Via the study of Japan and China's impact on the iron ore pricing and shipping regimes, I show that China's rise led to the marketisation (liberalisation and financialisation) of the iron ore market pricing regime, and the demarketisation of the shipping regime, whereas Japan's rise led to demarketisation in both cases. This article's argument illustrates that China's impact is not equal across markets, contrary to characterisations of China as either a revisionist or status quo power. Second, it argues that China has caused the marketisation of the iron ore pricing regime, which is contrary to expectations on both sides of the debate on China's rise: China was unable to dictate outcomes via a strong state, nor did it seamlessly integrate the global economy. Third, it illustrates the importance of resonance dynamics at the interface of domestic and global market institutions.     

Evolution of the Interindustry Wage Structure in China Since the 1980s

Industry mean wages in China have exhibited sharply increased dispersion since the early1990s. Researchers have attributed this rising inequality within the industrial wage structure to: (i) increasingly competitive labour markets leading to better matches between worker pay, worker skills and employer demands; or (ii) residual government control in some industrial sectors that has generated high wages through monopoly rent sharing. We argue that the rise in China's industrial wage dispersion is primarily attributable to increasingly competitive labour markets, which have led to greater returns to schooling and to efficient redistribution of workers across major industry groups. We cannot reject the null hypothesis that the level or changes in government monopoly power has had negligible impact on China's rising industrial wage dispersion.     

The impact of minimum wages and foreign domestic workers in Taiwan

The purpose of setting the minimum wage is mainly to protect the rights and interests of vulnerable workers and to enhance productivity of labour. In this paper, an attempt has been made to explore the effect of the upwards adjustment of the minimum wage in Taiwan on the inflation rate, the unemployment rate, labour productivity, economic growth and other macroeconomic variables by means of an analysis of empirical data using a structural vector auto‐regressive model. The findings of the paper show that upwards adjustment of the minimum wage in Taiwan will not intensify the unemployment rate. On the contrary, it will help to promote labour productivity to an extent that will have a positive effect on the economic growth rate. In addition, this paper investigates, long‐term care system should incorporate the foreign domestic worker labour pool, which could provide the additional personnel necessary for the nation's long‐term care. Minimum wage should apply to foreign domestic workers, and foreign domestic workers should not be treated as a separate group of workers in minimum wage policy.     

MODELLING THE TRANSITION TOWARDS THE RENMINBI'S FULL CONVERTIBILITY: IMPLICATIONS FOR CHINA'S GROWTH

There is a widespread consensus that China needs to rebalance its export‐driven growth paradigm towards a more consumption‐based one and that such process is to be accompanied by the transition towards the renminbi's full convertibility. However, the Chinese authorities have so far acted with great caution because this transition cannot but accelerate the slowdown of China's growth which will likely occur because of other structural factors. We address these issues by means of a two‐country two‐stage (before and after the renminbi's full convertibility) model, which reproduces some qualitative features of China's growth pattern and its relationship with the United States. We analyse the extent to which altering the Chinese exchange rate regime, as well as other policies affecting sensitive social and economic issues, may impact on the short‐, medium‐ and long‐term evolution of the Chinese economy. The paper shows that by lifting the controls on the capital account and letting the currency float, the Chinese authorities will renounce those policy instruments for controlling the allocation of the national resources and the dynamics of China's economy.     

Measuring the size of the shadow economy in 30 provinces of China over 1995–2016: The MIMIC approach

Applying the multiple indicators and multiple causes (MIMIC) approach, the present paper measured the size of the shadow economies in China's provinces over 1995–2016. The results show that the average size of the shadow economy in 30 provinces of China increased from 13.55% in 1995 to 14.39% in 2009, and then decreased to 12.30% in 2016. There are obvious variations in the size of the shadow economies in different districts of China. The average size of the shadow economy is lowest in provinces in the eastern district and highest in the western district. In addition, the causes and consequences of the shadow economies in China's provinces have also been analysed using the MIMIC approach, and the results show that tax burden, complexity of the tax system, intensity of regulation, unemployment, employment in the agricultural sector and economic openness have significant positive effects on China's shadow economy, while the ratio of direct taxes to indirect taxes, fiscal autonomy and income levels have significant negative effects on China's shadow economy. Using the growth rate of energy consumption as the benchmark indicator, the MIMIC analysis shows that the shadow economy has significant positive effects on the development of the official economy and income inequality while having a significant negative effect on the labour participation rate.     

China: Towards a new model of development

This essay argues that changes in China's circumstances require a different model for the Chinese economic development. Because China's circumstances are different from that of other countries, the model for China inevitably needs to be different from that of elsewhere. In line with the central ideas, the essay discusses extensive issues regarding China's economic development such as export growth model, innovation, property rights, tax policy, social insurance, etc.     

RISING WAGES: HAS CHINA LOST ITS GLOBAL LABOR ADVANTAGE?

We document dramatic rising wages in China for the period 1978–2007 based on multiple sources of aggregate statistics. Although real wages increased seven‐fold during the period, growth was uneven across ownership types, industries and regions. Over the past decade, the wages of state‐owned enterprises have increased rapidly and wage disparities between skill‐intensive and labour‐intensive industries have widened. Comparisons of international data show that China's manufacturing wage has already converged to that of Asian emerging markets, but China still enjoys enormous labour cost advantages over its neighbouring developed economies. Our analysis suggests that China's wage growth will stabilize to a moderate pace in the near future.     

Born like China,growing like China

This paper studies the effects of China's one‐child policy on saving and foreign reserve accumulation. Fertility control increases the saving rate both by altering saving decisions at the household level, and by altering the demographic composition of the population at the aggregate level. I show that demographically induced changes in saving explain the build‐up of a large foreign surplus in China. As in Song, Storesletten, and Zilibtti (2011), the model features contractual and financial market imperfections. Government‐owned firms are less productive but have full access to the credit market. Entrepreneurial firms are more productive but face credit constraints. As labour switches from less productive to more productive firms, demand for domestic bank borrowing decreases. As saving increases while demand for loans decreases, domestic savings are invested abroad, generating a foreign surplus. The model predicts that China's foreign reserve accumulation will soon begin to slow down in response to recent relaxation of the one‐child policy.     

The Dynamic Effects of the US Productivity Boom on Australia*

How has the USA's ‘new economy’ productivity boom affected Australia? We consider this question using a dynamic multisector growth model of the Australian and US economies. We find that productivity growth in the US durables sector generates small but important gains to Australia. We find that the transmission of growth is generated through increased export demand for agriculture. Consequently, the USA's productivity growth tends to favour Australia's traditional export sectors. Likewise, it increases the relative demand for less skilled labour in Australia and reduces the demand for more skilled labour and higher education.     

Training,productivity and wages: An investigation of China's manufacturing enterprises in a privatization era

We estimated a structural model of production and wage determination in which labour quality can be affected by a firm's training decision using data of China's manufacturing enterprises in an era of privatization (2004–2007). Training increased both productivity and wages, but the former increased more, which explained the voluntary provision of on-the-job training. Our results also indicate that state-controlled enterprises' investment in training could be both privately and socially efficient; unions played a role in promoting training; it might be more privately and socially efficient for manufacturing firms to prioritize training resources to lower-educated, female and junior workers, if they had not done so, during privatization.     

Capital Structure Premium in Multinational SOEs: Evidence from China

We investigate the relationship among multinational operations, ownership and capital structure using data from China's A‐share listed companies. We find that, in general, multinational enterprises (MNEs) have lower leverages than domestic enterprises (DEs). More importantly, we document a capital structure premium in China's multinational state‐owned enterprises (SOEs). Since the state supports multinational SOEs that promote overseas national strategy, these multinational SOEs will have higher credit availability and therefore higher debt–equity ratios. This study sheds light on the Chinese government's impact on firm's creditability.     

A great wall of patents: What is behind China's recent patent explosion?

China's patent surge, documented in this paper, is seemingly paradoxical given the country's weak record of protecting intellectual property rights. Using a firm-level data set that spans the population of China's large and medium-size industrial enterprises, this paper explores the factors that account for China's rising patent activity. While the intensification of research and development in the Chinese economy tracks with patenting activity, it explains only a fraction of the patent explosion. The growth of foreign direct investment in China is prompting Chinese firms to file for more patent applications. Amendments to the patent law that favor patent holders and ownership reform that has clarified the assignment of property rights also emerge as significant sources of China's patent boom. These results are robust to alternative estimation strategies that account for over-dispersion in the patent counts data and firm heterogeneity.