Quid pro quo: Technology capital transfers for market access in China
Thomas Holmes, Ellen McGrattan, Edward C. Prescott 08 November 2013
Why are FDI flows between China and technologically-advanced countries surprisingly small? This column analyses the issue in light of China's quid pro quo policy that makes technology transfer a precondition of foreign firms selling in China. We find that the policy provides significant gains for China, but losses to its FDI partners.
Over the past two decades China’s economy has grown rapidly and the nation has become a major destination for foreign direct investment. Surprisingly, little of China's FDI inflows come from technologically advanced, dominant players in global investment such as the US, Europe, and Japan (Prasad and Wei 2007, Branstetter and Foley 2010). Moreover, while there has been an explosion of patenting in China by domestic applicants, FDI outflows from China to the US, Europe, and Japan remain small.
Global economy International trade
China, patents, FDI, intellectual property rights
The BRICs party is over
Anders Åslund 04 September 2013
Emerging markets are under pressure. This column argues that this is not a mere headwind but that the BRICs’ party is over. Their ability to get going again rests on their ability to carry through reforms in grim times for which they lacked the courage in a boom.
After a decade of infatuation, investors have suddenly turned their backs on emerging markets. In the BRIC countries – Brazil, Russia, India and China – growth rates have quickly fallen and current-account balances have deteriorated.1 The surprise is not that the romance is over but that it could have lasted for so long.
From 2000 to 2008 the world went through one of the greatest commodity and credit booms of all times. Goldman Sachs preached that the BRICs were unstoppable (e.g. Wilson and Purushothaman 2003).
Development International trade
Russia, China, India, commodities, protectionism, BRICs, Brazil, BRIC
Informal or formal financing: First evidence on co-funding of Chinese firms
Hans Degryse, Liping Lu, Steven Ongena 21 August 2013
Non-bank financing originating in the shadow banking system has increasingly become an issue for policymakers. This column argues that informal financing has, in fact, been an essential element of corporate performance in China. Through reviewing the interaction between informal and formal financing, evidence suggests that informal financing simultaneously granted with formal financing (co-funding) is helpful for growth, especially for small firms.
The credit squeeze in June 2013 has triggered policymakers’ concern worldwide about a potential debt crisis in China, while at the same time the Chinese government has moved to crack down on undisciplined lending in order to alleviate the debt-bubble fears emanating from the shadow banking system.1
Development Financial markets
China, investment, Finance
Who becomes a top politician in China?
Ruixue Jia, Masa Kudamatsu, David Seim 20 August 2013
Despite its economic and political power, details of how China’s leaders are selected are opaque. This column presents new research on how Chinese leaders are selected, suggesting that the Communist Party has avoided selecting loyal and incompetent leaders – typical of autocratic regimes – through a system of job rotation and promotion within the Party. This system has helped pairs of officials build trust by working together, allowing top politicians to choose the most competent among a pool of trustworthy subordinates.
In November 2012, China saw a new team of national political leaders assume office with Xi Jinping at the helm as the general secretary of the Communist Party. Earlier in the same year, Bo Xilai, who had been considered to be a promising candidate for the upcoming new political leadership, was expelled from the Party.
Development Politics and economics
Protectionist clouds darken sunny forecast for solar power
Jeffrey Frankel 07 August 2013
Can international trade be good for the environment? This column assesses the EU-Chinese anti-dumping dispute in detail, and argues that trade could well be the saviour of solar power. Trade was good for protecting against things like sulphur dioxide, in the case of automobiles, 30 years ago. The same is true of trade in solar equipment today. Westerners should celebrate the contribution of trade to reducing the cost of solar power, not block it with protectionist anti-dumping measures.
On 27 July negotiators reached a compromise settlement in the world’s largest anti-dumping dispute, regarding Chinese exports of solar panels to the EU. China agreed to constrain its exports to a minimum price and a maximum quantity. The solution is restrictive relative to the six-year trend of rapidly increasing Chinese market share (which had reached 80% in Europe), and plummeting prices.
US, China, EU, dumping
Urbanisation and migration externalities in China
Pierre-Philippe Combes, Sylvie Démurger, Li Shi 09 July 2013
Economic geography typically predicts positive returns to urban scale. This column argues that China faces unprecedented challenges in the face of a new wave of urban migration. Accelerating urbanisation has been and will continue to be – if managed correctly – an opportunity for sustaining economic growth by capturing the benefits from urban agglomeration.
The latest population census conducted in China in November 2010 portrayed a rapidly urbanising country, with the urban population reaching 49.7%, up 13.5 percentage points compared to 2000.
China, urbanisation, urban immigration
Hopes and false hopes in China’s interest-rate reform
Shang-Jin Wei 25 June 2013
The Chinese central bank has recently dropped hints that it will quicken the pace of interest-rate reforms, moving towards a more market-determined regime. Will this reduce China’s ‘excessive’ savings and current-account surplus? This column argues that it won’t. While the interest-rate reform may carry many benefits, reducing the country’s current-account surplus is not one of them.
The Chinese central bank has recently dropped hints that it will quicken the pace of interest-rate reforms towards a market-determined regime. Both inside and outside the country, this has raised hopes of improving efficiency and reducing China’s ‘excessive’ savings and current account surplus.
International finance International trade
China, interest rate
Firms and credit constraints along the global value chain: Processing trade in China
Kalina Manova, Zhihong Yu 13 May 2013
What can we learn from China’s experience as a linchpin in the global value chain? This column presents new research showing that financial frictions influence the organisation of production across firm and country boundaries. If you’re credit-constrained, you might be stuck in the low value-added stage of the supply chain. Strengthening capital markets might thus be an important prerequisite for moving into higher value-added, more profitable activity. China’s experience tells us that liquidity-constrained manufacturers might therefore benefit more from import liberalisation and from the fragmentation of production across borders.
The past 20 years of globalisation have witnessed a dramatic expansion in the fragmentation of production across countries. Firms today can not only trade in final goods, but also conduct intermediate stages of manufacturing by importing foreign inputs, processing and assembling them into finished products, and re-exporting these to consumers and distributors abroad. While processing trade contributes just 10% of EU exports, at over 50% it has been a major driving force behind the rapid growth of Chinese exports (Cernat and Pajot 2012).
China, global supply chain, global value chain
Finance and growth in China and India: Have firms benefited from the capital-market expansion?
Tatiana Didier, Sergio Schmukler 06 May 2013
The growth of China and India’s financial sectors is hard to ignore. This column presents a new dataset on domestic and international capital raising activity and performance of the publicly listed firms in China and India. The data suggest that expanding capital markets might tend to directly benefit the largest firms – those able to reach some minimum threshold size for issuance. More widespread direct and indirect effects are more difficult to elucidate.
China and India are hard to ignore. Over the past 20 years they have risen as global economic powers, at a very fast pace. By 2012, China has become the second-largest world economy (based on nominal GDP) and India the tenth. Together, they account for about 36% of world population.