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.
Hans Degryse, Liping Lu, Steven Ongena, 21 August 2013
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.
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.
Pierre-Philippe Combes, Sylvie Démurger, Li Shi, 17 February 2013
This paper evaluates the role that cities play on individual productivity in China. The authors' results strongly support the productivity gains that can be expected from further migration and urbanisation 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.
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.
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.
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.
Willem Thorbecke, 26 February 2013
Policymakers everywhere are concerned about currency wars. Are quantitative easing and managed exchange rates bad for the global economy? This column looks at the hard empirical evidence, arguing that, in fact, Japan is behaving rather responsibly and that other strong economies have themselves benefited from undervalued currencies. That said, it is true that politicians’ short time horizons often lead to stealthy policy and large swings in exchange rates. Economists should therefore aim to promote longer-run cosmopolitan interests rather than shorter-run nationalistic agendas where possible.
George Magnus, 31 January 2013
In 2013, China is at an important crossroads in its economic development. This column argues that we cannot continue to extrapolate from China’s recent economic record. If growth is to remain high and stable, choosing the right course will require nothing less than a significant change in China’s economic model, brought about by what might be the most important political reforms since the 1980s. Whether or not its growth performance tips it into the middle-income trap depends on engaging with and implementing widespread reforms that may be incompatible with the primacy of the Communist Party.
Jérôme Héricourt, Sandra Poncet, 19 January 2013
The increasing volatility of exchange rates after the fall of the Bretton Woods agreements has been a constant source of concern for both policymakers and academics. Does exchange-rate risk dangerously increase transaction costs and reduce gains to international trade? This column uses recent research to argue that there is indeed a negative impact of exchange-rate volatility on firms’ exporting behaviour, magnified for financially vulnerable firms and dampened by financial development. Thus, emerging countries should be careful when relaxing their exchange-rate regime.
Michael W Klein, 17 January 2013
Capital controls are back in vogue. This column argues that we should distinguish between episodic controls (gates) and long-standing controls (walls). Research shows that the apparent success of 'walls' in China and India tells us little about the consequences of capital controls imposed or removed in countries like Brazil and South Korea, as circumstances change. Walls and gates are fundamentally distinct, and policy debate needs to take into account these differences.
Amit Khandelwal, Shang-Jin Wei, Peter K. Schott , 02 December 2012
If trade barriers are managed by inefficient institutions, trade liberalization can lead to greater-than-expected gains. This paper examines Chinese textile and clothing exports before and after the removal of externally imposed quotas. Both the surge in export volumes and the decline in prices after the quota removal are driven by net entry, implying that the pre-liberalisation quota allocation is not based on firm productivity. Removing this misallocation accounts for a substantial share of the overall productivity gains associated with the quota removal.
Barry Eichengreen, Donghyun Park, Kwanho Shin, 11 January 2013
The rapid economic growth of emerging markets is the leading headline of our age. But growth is slowing. Using new research, this column asks why this might be, and how policymakers might remedy flagging economies. The answer seems to be education. Recent research suggests, for instance, that the rapid expansion of secondary and tertiary education helped Korea’s successful transition from middle- to high-income status, very much unlike Malaysia and Thailand. Whether China can avoid the middle-income trap will depend in part upon developing an education system producing graduates with skills that Chinese employers require.
Philippe Bacchetta, Kenza Benhima, Yannick Kalantzis, 09 January 2013
China is perennially accused of currency manipulation. Yet, this column argues that a weak currency value doesn’t necessarily reflect currency manipulation. China is a fast growing economy with strong financial frictions and a high saving rate, and such countries naturally have weak currencies. Instead of focussing on accusations of currency manipulation, it might be more helpful for economists to encourage policies that foster Chinese consumption, gradually leading the renminbi to an appreciating path.
Amit Khandelwal, Peter K. Schott , Shang-Jin Wei, 15 January 2013
The institutions that manage trade barriers are subject to corruption, imposing additional distortions. This column shows that in China, the government misallocated quota licenses permitting firms to export. When the US and EU abolished quotas governing textile exports in 2005, China experienced productivity gains not only from the actual elimination of the quota but also from the termination of the misallocation due to inefficient licensing.
Fabrice Defever, Alejandro Riaño, 04 January 2013
The West perennially complains about China subsidising industry geared towards its domestic market. But what will happen when China enacts its latest Five Year Plan’s emphasis on domestic growth? This column argues that ending ‘pure-exporter subsidies’ – subsidies that boost Chinese exports while simultaneously protecting the least efficient, domestically oriented firms – will benefit Chinese consumers, but will cost the rest of the world.
Rudolfs Bems, Robert Johnson, 06 December 2012
With the rise of complex, globalised supply chains is the real effective exchange rate (REER), the most commonly used measure of competitiveness, now outdated? If it is, what should replace it? This column presents a ‘Value-Added REER’ and shows that it differs substantially from the conventional REER. Because it is possible to construct a new Value-Added REER from existing data, policymakers interested in improving their understanding of competitiveness might well consider including it in their toolbox.
Arvind Subramanian, Martin Kessler, 27 October 2012
As China becomes ever more important in the global economy, will its currency take on an international role? This column argues that in some sense, this is already happening – an increasing number of emerging-market currencies seem to track (co-move with) the renminbi – and the trend is set to continue.
Linda Lim, Ronald U Mendoza , 24 September 2012
There has been much talk among economists of ‘global rebalancing’, with the focus on China and the US rebalancing their current accounts. But this column argues that the type of rebalancing that will bring real gains to the global economy is one that will be shaped by many countries, both industrial and developing.