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.     

The varying shadow of China's banking system

The rapid rise of shadow banking activities in China since 2009 has attracted a great deal of attention in both academia and policy circles. Most existing studies and commentary on China's shadow banking have treated it as a recent phenomenon that appeared after the Global Financial Crisis and China's response to it. In this paper, I argue that shadow banking is not a new phenomenon; it has always been a part of China's financial system since the 1980s, and arose from the need to get around various lending restrictions imposed by the central government on banks. I also emphasize that there are two types of shadow banking activities, those initiated by banks and those initiated by local governments or state-owned enterprises. I provide evidence suggesting that the shadow banking activities initiated by banks prior to 1996 helped directing credits to the more productive non-state sector and were efficiency enhancing. In recent years, however, I find that the shadow banking loans have a positive effect on real estate investments only, and their effects on investments by private firms outside the real estate sector have been negative.     

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.     

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.     

China's Foreign Aid at a Transitional Stage

By estimating China's foreign aid as a proxy for China's bilateral Official Development Assistance and by analyzing its implementation structure and policy, this paper sheds some light on China's foreign aid activities, which have been at a transitional stage. Based on our estimates, the level of foreign aid in terms of net disbursement has increased sharply since 2004, reaching around US$7.1 billion in 2013. Some measures to strengthen the implementation structure to deal with this expansion have been introduced by the central government; however, this transition process needs more time. To facilitate this process, China is attempting to absorb knowhow on development assistance from multilateral institutions and Organisation for Economic Cooperation and Development's Development Assistance Committee countries that are eager to share their knowledge, with the expectation that China will eventually play a major role in international development.     

The Sleeping Giant Awakes: Projecting Global Implications of China's Energy Consumption

China's rapid economic growth has generated a surge in energy demand that is reallocating global fuel balances. We employ a global energy computable general‐equilibrium model to analyze alternative scenarios for economic growth, Chinese currency appreciation, and oil price shocks, with a special focus on China energy markets. Imports from the Middle East, Central Asia, Russia, and Sub‐Saharan Africa are found to comprise a growing share of China's energy. Imports to China grow from 12% of world energy imports in 2010 to 17% by 2050 when over 80% of China's oil demand will be imported.     

产业政策对光伏企业创新绩效的影响研究——基于区域创新体系的调节作用

我国宏观产业政策的持续投入与微观光伏企业难以突破自身核心技术创新瓶颈的矛盾迫切需要理论研究解答。本文选取沪深A股中的41家光伏上市企业作为研究对象,并在梳理了我国政府部门发布的285项光伏产业政策的基础上,以2009—2020年为时间跨度建立面板数据模型实证研究了我国光伏产业政策对企业创新绩效的作用机制,并引入区域创新体系这一异质性因素检验其在影响路径中的调节作用。实证研究表明：我国光伏产业政策对企业的创新绩效有显著的正向影响;同时区域创新体系中的企业创新指标和创新环境指标在上述传导过程中分别具有显著的正向和负向调节效应。     

Understanding china's economic performance

Broadly speaking, two schools of thought have emerged to interpret China's rapid growth since 1978: the experimentalist school and the convergence school. The experimentalist school attributes China's successes to the evolutionary, experimental, and incremental nature of China's reforms. Specifically, the resulting non-capitalist institutions are claimed to be successful in (a) agriculture where land is not owned by the fanners; (b) township and village enterprises (TVEs) which are owned collectively by rural communities; and (c) state owned enterprises (SOEs) where increased competition and increased wage incentive, but not privatization, have been emphasized.

The convergence school holds that China's successes are the consequences of its institutions being allowed to converge with those of non-socialist market economies, and that China's economic structure at the start of reforms is a major explanation for the rapid growth. China had a high population density heavily concentrated in low-wage agriculture, a condition that was favorable for labor-intensive export-led growth in other parts of East Asia. The convergence school also holds that China's gradualism results primarily from a lack of consensus over the proper course, with power still divided between market reformers and old-style socialists; and that the “innovative” non-capitalist institutions are responses to China's political circumstances and not to its economic circumstances.

Perhaps the best test of the two approaches is whether China's policy choices are in fact leading to institutions harmonized with normal market economies or to more distinctive innovations. In this regard, the recent policy trend has been towards institutional harmonization rather than institutional innovation, suggesting that the government accepts that the ingredients for a dynamic market economy are already well-known.     

China’s house price: Affected by economic fundamentals or real estate policy?

Many theory and empirical literature conclude that house price can reflect economic fundamentals in the long-term. However, by using China’s panel data of 35 main cities stretching from 1998 to 2007, we find that there is no stable relationship between house price and economic fundamentals. House price has deviated upward from the economic fundamentals since government started macro-control of the real estate market. We consider that the mechanism between the house price and economic fundamentals is distorted by China’s real estate policy, especially its land policy. Meanwhile the policy itself is an important factor in explaining the changes of China’s house price. Then we estimate the dynamic panel data model on house price and the variables which are controlled by real estate policy. The result shows: land supply has negative effects on house price; financial mortgages for real estate have positive effects on house price; and the area of housing sold and the area of vacant housing, which reflects the supply and demand of the housing market, has negative effects on house price. We also find some differences in house price influence factor between eastern and mid-western cities. Finally, we propose policy suggestions according to the empirical results.     

Exchange Rate Flexibility in China: Measurement,Regime Shifts and Driving Forces of Change

With an emphasis on government intervention that hinders market forces in currency movements, this paper presents a nuanced investigation of the degree and dynamics of flexibility in China's exchange rate regime. A high‐frequency data model is developed to more accurately detect the extent to which the Chinese currency is market‐driven. This indicator is then utilized in a Markov switching model to examine shifts in RMB regime flexibility. The results suggest a moderate increase in exchange rate flexibility since the 2005 reform. Additionally, two switching states are captured, and possible driving factors are discussed.     

Spatial correlation effect of China's outward foreign direct investment in countries along the One Belt and One Road

Promoted by both the “going out” policy and the “One Belt and One Road” (OBOR) Initiative, China's outward foreign direct investment (OFDI) has grown rapidly in the past two decades. A spatial network has gradually formed that facilitates global production, sales, and innovation. This paper studies the spatial correlation of China's OFDI network along the OBOR and its determinants. The block model analysis suggests that China's OFDI spatial network comprises four gradient sections. In addition, the analyses of quadratic assignment procedure and exponential random graph models demonstrate a tendency of agglomeration of China's OFDI, which may hinder the further development of its spatial correlation networks. Finally, we present some policy suggestions stemming from the study in the hope of helping both the government and firms to optimize their OFDI spatial layout strategy along the OBOR.     

Who benefits from China’s coal subsidy policies? A computable partial equilibrium analysis

Using a computable partial equilibrium model with monopolistic competition and based on global coal production, trade and consumption data in 2014, this study simulates the economic and welfare impacts of China’s coal subsidies at the industry level. Simulation results show that, first, the government’s subsidies have greatly promoted China's coal output, but may aggravate the overcapacity in China’s coal industry. Second, China's coal subsidies have significant trade destruction effects and its coal imports fall by more than 20% annually. Third, if considering the environmental cost, China's coal subsidies cause not only huge net welfare loss to China, but also harm to the global environment, thus no country benefits from China's coal subsidies.     

RENMINBISING CHINA'S FOREIGN ASSETS

Since the 2008 global financial crisis, China has rolled out a number of initiatives to actively promote the international role of the renminbi and to denominate more of its international claims away from the US dollar and into the renminbi. The present paper discusses the factors shaping the prospects of internationalising the renminbi from the perspective of the currency composition of China's international assets and liabilities. These factors include, among others, underlying valuation and management of the renminbi.     

Aiding regional instability? The geopolitical paradox of Japanese development assistance to China

During the past decade, Japan established itself as the largest bilateral donor of development aid in the world, with more of it directed toward projects in China than any other recipient. Japan sees its aid flows to China as maintaining economic stability in East Asia, particularly as China's raw material and energy resources are articulated into regional markets. In this article, I argue that Japan's aid to China may unintentionally diminish Japan's and the East Asian region's long‐term security for two reasons. First, similar to other nations receiving such assistance, this aid may allow China to reallocate scarce capital to military modernisation. Such military modernisation may enable China to both better suppress internal dissent and carry out a more aggressive foreign policy. Second, this aid does not address the fundamental structural aspects of China's present instability. Long‐term structural instability has many sources, but the two discussed here are socio‐economic inequality (both interregional and intraregional), and sustainable production and environmental problems. Taken together these have important regional and geopolitical implications and repercussions. This article fills a gap in the existing literature on East Asian geopolitics. Namely, that by attending only to relatively short‐term corporate and perceived state interests of China and Japan, Japanese aid to China does little to ameliorate and potentially exacerbates long‐term structural social and environmental problems for China's vast majority living in rural hinterlands. The potential for internal turmoil springing from this uneven and unsustainable development inside China is the real basis for China's ‘threat’ to East Asian security. Thus what appears to make good development and geopolitical sense at first look, Japan's current aid regime with China, paradoxically may actually be the worst path to follow.     

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.     

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.     

Farewell to the God of Plague: Estimating the effects of China's Universal Salt Iodization on educational outcomes

This paper estimates the effects of China's Universal Salt Iodization (USI) policy in 1994 – the largest nutrition intervention policy in human history – on children's later-life educational outcomes. Using population census data combined with county-level information, we apply a difference-in-differences strategy to compare the educational outcomes of cohorts born before and after USI across counties with different iodine deficiency disorder levels. Our results show that USI increased primary school enrollment by 0.6 percentage points. Further investigation suggests that girls and children born in rural areas benefit more from USI. The costs of USI almost evenly fell on China's iodine salt consumers through an in-price tax.     

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。     

STRATEGIC LOBBYING BY POTENTIAL INDUSTRY ENTRANTS*

A firm which lobbies government for a change in policy, say an import tariff, can increase its profits in two ways. First, the policy can increase the profits of all firms in the industry. This effect therefore involves a free-rider problem. Second, a firm's lobbying expenditures may signal other firms about its costs and interests. For example, a firm with low marginal costs may profit much from an import ban. Other firms which see that this firm expects to profit much from the ban may decide not to enter the industry. This may further increase the low-cost firm's profits.     

Analyzing exchange rate uncertainty and bilateral export growth in China: A multivariate GARCH-based approach

Dramatic changes to exchange rate policy for the world's largest exporter have arguably ushered in the optimal environment for studying the effects of exchange rate uncertainty on trade. This study builds on the recent literature by using an extremely general model that measures volatility using the flexible multivariate DCC-GARCH model to analyze the impact exchange rate uncertainty has on bilateral export growth for China's ten largest export markets. All model parameters are estimated simultaneously and lagged values of uncertainty are included for a full year, where significant effects are found. The more general methods potentially overcome issues associated with inefficient two-step methods and the assumption that volatility impacts are close to instantaneous. Using a comprehensive sample that spans 1994–2017, the paper presents evidence that exchange rate uncertainty has no impact on trade with the United States, which strongly contrasts a robust finding of trade deterring impacts for almost all remaining countries. The unifying methodology is also used to analyze nominal uncertainty itself. Here, it is found that Chinese inflation may be a positive contributor to risk in an environment where many exogenous events, such as the Asian currency crisis, are associated with periods of heightened yuan uncertainty.