Housing, spatial price differences, and inequality in China
John Gibson, Chao Li 27 November 2013
Many studies find evidence of a growing income inequality in China. However, the majority of these studies may be constructing biased measures of inequality. This column presents evidence from a new study on how inequality in China is overstated if one ignores the spatial differences in the cost of living. With a booming urban housing market that displays a high degree of heterogeneity, accounting for spatial price differences is essential.
How do others measure inequality in China?
Poverty and income inequality
China, Inequality, spatial price differences, costs of living
Does policy uncertainty reduce economic activity? Insights and evidence from large trade reforms
Kyle Handley, Nuno Limão 23 November 2013
The impact of policy uncertainty on economic activity is potentially important, but controversial because it is hard to identify and quantify. Recent research provides a framework to identify the impacts of policy uncertainty on firm decisions, and finds it has strong effects in the context of international trade. China’s WTO accession secured its most-favoured nation status in the US, and the evidence shows this reduction in uncertainty can explain a significant fraction of its export boom to the US.
The impact of policy uncertainty on economic activity is an issue traditionally associated with developing countries. Since 2008, however, the spotlight has shifted. Governments’ responses to the Great Recession and the Eurozone crisis have raised considerable uncertainty about the future policies of advanced economies. Examples include the timing and size of financial bailouts, government expenditures, and the risk of sovereign-debt default. These crises have also heightened trade policy uncertainty.
US, China, WTO, trade, uncertainty, Great Recession, Eurozone crisis
The dragon awakes: Is Chinese competition policy a cause for concern?
Mario Mariniello 09 November 2013
Since the adoption of the Anti-Monopoly law in 2007, the Chinese competition authorities have stepped up enforcement of mergers and anti-competitive practices. The Chinese Ministry of Commerce has relied heavily on behavioural remedies in merger cases (as opposed to the more efficient structural remedies favoured by the European Commission). Furthermore, merger policy has been used to protect domestic industries from competition. In contrast, Chinese fines for cartels have shown no foreign bias, and if anything have been too low.
Foreign businesses are increasingly realising that China has antitrust laws, and is not shy about using them. The Glencore/Xstrata merger in the spring was cleared only with conditions imposed by the Chinese Ministry of Commerce. In August, the Chinese National Development and Reform Commission imposed a record €82 million fine on milk powder producers for a price-fixing conspiracy. The Chinese authorities are also taking more decisions.
China, international trade, protectionism, Competition policy, antitrust
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