New Estimates and a Decomposition of Provincial Productivity Change in China

Productivity and efficiency change lies at the heart of some of the key challenges facing China’s economy. This paper contributes to an understanding of TFP change by computing and decomposing provincial-level Hicks-Moorsteen (H-M) total factor productivity (TFP) indexes for the period 1978 to 2008. The H-M index is appealing because, unlike the more commonly-used Malmquist TFP index, it can be decomposed into unambiguous measures of technical change and efficiency change. The efficiency change component can be further decomposed into measures of pure technical, scale and mix efficiency change. We also make use of new capital stock estimates that have been computed using province-specific investment price deflators and capital stock depreciation rates. On average across provinces, we find evidence of moderate TFP growth, as well as large changes in the components of TFP growth over the sample period. Considerable heterogeneity from province to province is also documented both with respect to the rate of TFP growth and its components.

China's Exchange Rate Policy: The Case Against Abandoning the Dollar PEG

This paper critically evaluates the policy literature surrounding China's exchange rate regime.It first discusses several popularly raised contentions in relation to the dollar peg employed by China, which in fact are poorly grounded in evidence.These include notions that the RMB is clearly undervalued and that its value is a prominent cause of the U.S trade deficit.The paper then describes a consensus position that has emerged which argues that China should abandon the peg in favour of a flexible exchange rate regime.We see numerous weaknesses in this position but a few stand out.Moving to a flexible regime is far from the most proximate policy response to the problems that the consensus literature itself identifies in China's economy.Institutional realities that make moving to a flexible regime difficult also appear to have been seriously overlooked.The paper concludes by noting that in the longer term moving to a managed float may be in China's best interests - but for now the focus needs to be firmly in the area of domestic financial reform.exchange rate;dollar peg;managed float;China

Will the Chinese economy be more volatile in the future? Insights from urban household survey data

© 2019, Emerald Publishing Limited. Purpose: Consumption volatility is a key source of economic growth volatility; thus, it is an important factor in designing macroeconomic policy. The purpose of this paper is to investigate the factors that determine household consumption volatility, using urban household survey (UHS) data over the period 2002–2009 in 18 provinces in China. Design/methodology/approach: Both a traditional variance decomposition method and an advanced variance decomposition method are used. Findings: The traditional variance decomposition method suggests that heterogeneity of consumption goods is the key to analyze consumption volatility in China. Consumption of transportation makes the highest aggregate contribution and per-unit volatility in consumption volatility, whereas consumption of food makes the second highest aggregate contribution and the lowest per-unit volatility. Further investigation with the advanced variance decomposition method, which allows the authors to capture intertemporal dynamics and cross-household differences simultaneously, finds that the main factor determining the consumption volatility in China is intertemporal dynamics, rather than cross-household differences. Research limitations/implications: Future research could fruitfully explore four issues. First, consumption upgrading has increased the volatility of China’s household consumption. How much will this affect economic growth in China under its “new normal” conditions, and how should the Chinese government respond? Second, differences between UHS data and aggregate data in the calculations of consumption risk sharing need to be investigated. Third, it is important to investigate the channels through which the Chinese government can enhance its ability to spread consumption risks and thus reduce consumer consumption volatility. Finally, further study could extend the current 18 provinces to a nation-wide sample and update the data beyond 2009 to estimate the impact of the global financial crisis. Practical implications: The results suggest that when policy makers design macroeconomic policies to smooth consumption volatility, they should consider heterogeneity in household consumption goods, regional disparity and intertemporal dynamics simultaneously. Well-managed volatility of Chinese household consumption can contribute to a stable economic growth in China and the world. Social implications: Well-managed volatility of Chinese household consumption can contribute to a stable economic growth in China and the world. Originality/value: This paper fills this gap by using China’s UHS data to assess consumption volatility from the perspectives of heterogeneity in household consumption goods, cross-household differences and intertemporal dynamics. We make three contributions to the literature. The first contribution of this paper consists of demonstrating the contributions of heterogeneity in household consumption goods to consumption volatility. The second contribution consists of using the advanced variance decomposition method proposed by Crucini and Telmer (2012). This decomposition methodology allows the authors to examine whether household consumption volatility is due to cross-household differences or intertemporal dynamics. The third contribution is that this paper takes Chinese residents’ consumption fluctuations as the starting point to analyze the impact of consumption fluctuations on the future trend of China’s economy

The Chinese economy: crisis, control, recovery, refocus

The China Story Yearbook 2020: Crisis surveys the multiple crises of the year of the Metal Rat, including the catastrophic mid-year floods that sparked fears about the stability of the Three Gorges Dam

Are China's Exports Crowding Out or Being Crowded Out? Evidence from Japan's Imports

© 2018 Institute of World Economics and Politics, Chinese Academy of Social Sciences Previous studies have investigated whether Chinese exports have crowded out those from other countries. However, what has yet to be considered is the evidence based on different quality varieties. Using the most detailed Harmonized System 9-digit product-level data, the present paper provides evidence of crowding-out and crowded-out effects across different product quality segments and across manufacturing sectors by quality segments. The empirical evidence presented in this paper shows that the crowding-out effects of Chinese exports have been greatest at the lower end of the quality spectrum but less significant at the higher quality spectrum. Moreover, since 2007, China's own exports of lower quality manufactured goods have been increasingly crowded out. The key policy implication is that China's export path is in line with that taken by other Asian economies in previous decades; the crowded-out effect could achieve win–win outcomes for countries involved; and lower income countries would do well to be open to receive those relocated low value-added industries from China. However, the relocation policy in China is best implemented gradually as climbing up the product quality ladder takes time

Chinese investment in Australian infrastructure assets: accounting for local public preferences

© 2018, © 2018 Informa UK Limited, trading as Taylor & Francis Group. Chinese investment in Australian infrastructure assets can bring economic benefits for both countries. However, it can also create domestic political challenges. This is because Australian public support for foreign investment in infrastructure is limited. In order to better inform public policy and firm decision-making in both China and Australia, this paper undertakes a choice modelling analysis of original survey data to determine the drivers of local public preferences. The Australian public is found to be more concerned by the share of foreign ownership an investment will bring rather than the fact it is from China. Accounting for these preferences, such as through the recruitment of local partner companies, will facilitate Chinese investment in Australian infrastructure, and potentially, greater bilateral engagement on the Belt and Road Initiative. The Australian case might also offer wider lessons for Chinese investment in infrastructure assets abroad

Campus Conundrums: Clashes and Collaborations

The China Story Yearbook: China Dreams reflects on these issues and more. It surveys the dreams, illusions, aspirations, and nightmares that coexisted (and clashed) in 2019 in China and beyond