Is China climbing up the quality ladder? Estimating cross country differences in product quality using Eurostat's COMEXT trade database

There is an ongoing debate in the literature about the quality content of Chinese exports and to what extent China imposes a threat to the market positions of advanced economies. While China’s export structure is very similar to that of the advanced world, its export unit values are well below the level of developed economies. Building on the assumption that unit values reflect quality the prevailing view of the literature is that China exports low quality varieties of the same products than its advanced competitors. This paper challenges this view by relaxing the assumption that unit values reflect quality. We derive the quality of Chinese exports to the European Union by estimating disaggregated demand functions from a discrete choice model. The paper has two major findings. First, China’s share on the European Union market is larger than would be justified by its relatively low average prices, implying that the quality of Chinese export products is relatively high compared to many competitors. Second, China has gained quality relative to other competitors since 1995, indicating that China is climbing up the quality ladder. The relatively high and improving quality of China’s exports may be explained by the increasing role of global production networks in China. JEL Classification: F1, F12, F14, F15, F23Chinese Exports, COMEXT database, Discrete Choice Model, Global Production Networks, Quality Ladder, Vertical Product Differentiation

Does the Chinese banking system benefit from foreign investors?

We find empirical evidence that the Chinese banking system has benefited from the entry of foreign investors through higher profitability and increased efficiency of the banking system. Foreign participation, which consists of a minority stake in a Chinese bank (in contrast to the typical pattern in emerging countries), appears to be most effective when the foreign bank acts as a strategic investor. Purely financial investors contribute little, if anything, to bank performance.China; banking system; foreign participation

The oil market : recent developments and outlook

Artículo de revistaThe past three years have seen a radical change in the structure of the oil market, as a result of the deep-seated transformation the US oil industry has undergone and of OPEC’s strategic reaction. This has translated into a substantial reduction in the price of oil. Specifically, this article analyses three key factors behind oil market developments in the past two years: the resilience of US shale oil production, the new turn in OPEC’S strategy to cut output and the slowdown in demand. Further, the medium and long-term outlook for this market is discussed, with the conclusion drawn that a marked rise in prices owing to the foreseeable course of supply and demand is not expected. While some fall-off in supply is contemplated owing to the decline in investment, demand, too, will be contained by greater efficiency in the use of oil-derived fuels and social awareness about their negative externalitie

Domestic Financial Development in Emerging Economies: Evidence and Implications.

We construct, on the basis of an original methodology and database, composite indices to measure domestic financial development in 26 emerging economies, using mature economies as a benchmark. Twenty-two variables are used and grouped according to three broad dimensions: (i) institutions and regulations; (ii) size of and access to financial markets and (iii) market performance. This new evidence aims to fill a gap in the economic literature, which has not thus far developed comparable time series including both emerging and mature economies. In doing so, we provide a quantitative measure of the – usually considerable – scope for the selected emerging countries and regions to “catch up” in financial terms. Moreover, we find evidence that a process of financial convergence towards mature economies has already started in certain emerging economies. Finally, we conduct an econometric analysis showing that different levels of domestic financial development tend to be associated with the building up of external imbalances across countries. JEL Classification: F3, F4, G1, G2, E21, E22, C82.Financial development, index construction, commodity and oil-exporting countries, G20, major emerging economies, financial catching up, global imbalances.

Booms and busts in China's stock market: Estimates based on fundamentals

This paper empirically models China’s stock prices using conventional fundamentals: corporate earnings, risk-free interest rate, and a proxy for equity risk premium. It uses the estimated longrun stock price misalignments to date booms and busts, and analyses equity market reforms and excess liquidity as potential drivers of these stock price misalignments. Our results show that China’s equity prices can be reasonable well modelled using fundamentals, but that various booms and busts can be identified. Policy actions, either taking the form of deposit rate changes, equity market reforms or excess liquidity, seem to have significantly contributed to these misalignments. JEL Classification: G12, G18China, Equity market, liquidity, reforms, Stock price

Do the rich (really) consume higher quality goods? : evidence from international trade data

Incluye referencias bibliográficasAl utilizar el precio (valor unitario) de los bienes importados como estadístico suficiente de su calidad, gran parte de la literatura del comercio internacional encuentra evidencia de una relación positiva entre la renta del importador y la calidad de los productos importados. Sin embargo, esta evidencia podría ser espuria ya que el precio de las importaciones puede estar afectado por factores distintos a la calidad. Este trabajo tiene en cuenta esta limitación con un nuevo desarrollo teórico y empírico. Por un lado, extiende el enfoque de Khandelwal (2010), en el que la calidad de los productos importados se infiere tanto por su cuota de mercado como por su valor unitario, al introducir un modelo teórico en el que la disposición a pagar por la calidad es creciente con la renta del consumidor. Por otro, utiliza para contrastar esta relación la base de datos COMEXT de Eurostat, que recoge el comercio bilateral de aduanas de cada país de la UE a un nivel de desagregación de ocho dígitos. Así, se valida la relación positiva y significativa entre la renta de los consumidores y la calidad de los productos demandados que, a su vez, es robusta entre sectoresUsing average import prices (unit values) as proxies for quality, a large body of the international trade literature finds both theoretical and empirical support for the positive relationship between importer income and quality of imports. Several authors, however, argue that the empirical evidence of the link between income and product quality might be spurious, since import prices could be affected by other factors than product quality. This paper takes into account this issue with a new theoretical and empirical approach. Building on Khandelwal’s (2010) discrete choice model approach, where quality is inferred by quantitative market shares as well as unit values, we develop a model that allows for willingness to pay for quality to vary with income. We empirically validate the theoretical relationship between importer income and product quality by using the Eurostat’s COMEXT database, which collects customs data reported by EU countries at 8-digit disaggregation. Our estimations support the positive link between consumer income and product quality, which is also robust across sector

Is China climbing up the quality ladder?

There is an ongoing debate in the literature about the quality content of Chinese exports and to what extent China poses a threat to the market positions of advanced economies. While China’s export structure is very similar to that of the advanced world, its export unit values are well below the level of developed economies. Building on the assumption that unit values reflect quality, the prevailing view of the literature is that China exports low quality varieties of the same products as its advanced competitors. This paper challenges this view by relaxing the assumption that unit values reflect quality. We derive the quality of Chinese exports to the European Union by estimating disaggregated demand functions from a discrete choice model. The paper has three major findings. First, China’s share of the European Union market is larger than would be justified only by its low average prices, implying that the quality of Chinese exports is high compared to many competitors. Second, China has gained quality relative to other competitors since 1995, indicating that China is climbing up the quality ladder. Finally, our analysis of the supply side determinants reveals that the relatively high quality of Chinese exports is related to processing trade and the increasing role of global production networks in ChinaLa calidadde las exportaciones chinas y hasta qué punto pueden ser una amenaza a las posiciones de mercado de las economías avanzadas es un debate abierto en la literatura. Si bien la estructura de las exportaciones de China es similar a la de los países avanzados, sus valores unitarios son muy inferiores. Basándose en el supuesto de que los valores unitarios reflejan la calidad de las exportaciones, la corriente predominante en la literatura es que China exporta las variedades de baja calidad de los mismos productos que exportan las economías avanzadas. Este trabajo cuestiona esta hipótesis al relajar el supuesto de que los valores unitarios sean una medida de la calidad. La calidad de las exportaciones chinas a la UE se obtiene a través de las funciones desagregadas de demanda derivadas de un modelo de elección discreta. Nuestro análisis obtiene tres resultados principales. En primer lugar, la cuota de mercado de China en la UE es mayor de la que sólo se justificaría por sus precios bajos, lo que implica que la calidad de las exportaciones chinas es relativamente alta respecto a muchos competidores. En segundo lugar, China ha aumentado la calidad relativa de sus exportaciones en relación con otros competidores desde 1995. Finalmente, el análisis sobre los determinantes de oferta de la calidad de las exportaciones chinas revela su relación con el comercio de procesamiento y ensamblaje y, por tanto, con el papel creciente de las redes mundiales de producció

The potential global effects and transmission channels of a slowdown in Chinese growth

Rationale Having picked up following the end of the zero-COVID policy, Chinese economic activity is now slowing. This comes against a backdrop of, inter alia, increased uncertainty related to difficulties in the domestic real estate sector. This article examines and quantifies the different channels through which a potential slowdown in the Chinese economy could affect activity and inflation levels in the world’s major economies. Takeaways • A growth slowdown in China, partly linked to problems in its real estate sector, could pose a downside risk to activity levels in the world’s major economies. • This impact would be felt, with varying intensity, through various channels: trade, commodities and international financial markets. • In the euro area, a temporary slowdown in Chinese economic activity of 1 percentage point (pp) would reduce GDP growth by 0.1 pp in the first year, while lowering inflation by 0.4 pp