Frontiers of Economics in China

ISSN 1673-3444

ISSN 1673-3568(Online)

CN 11-5744/F

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China’s Investments in Skills
James J. Heckman, Shuaizhang Feng
Front. Econ. China    2018, 13 (4): 531-558.
Abstract   PDF (8146KB)

This paper discusses the benefits of investment in skills in China. We highlight the achievements China has made over time in human capital investments and the new challenges that have emerged as the country develops. To fuel China’s further economic growth and social developments, it is essential to take a more holistic view on skill investments. We suggest policies that promote both economic efficiency and social mobility.

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China’s Growth Deceleration: Causes and Future Growth Prospect
Justin Yifu Lin
Front. Econ. China    2019, 14 (1): 26-52.
Abstract   PDF (1314KB)

China’s growth decelerated substantially after 2010. This paper argues that the main cause for the deceleration is external and cyclical, China has a potential growth rate of 8%, the economy has good investment opportunities and resources, and China is likely to achieve a medium-high growth rate of around 6.5% in the coming years. The paper also examines the various structural reforms that can help China to release its growth potential and complete the transition to a well-functioning market economy.

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Deceleration of China’s Economic Growth: Causes and Countermeasures
Guoqiang Tian
Front. Econ. China    2019, 14 (1): 3-25.
Abstract   PDF (5250KB)

China’s economic growth has been declining continuously at a rapid rate since 2011. It dropped to 6.7% in 2016 by more than 3% from nearly 10% average growth rate during 1979–2010. As for its causes, there are different interpretations among Chinese economists. One of the interpretations, which is held by some scholars including Justin Yifu Lin, is that external and cyclical factors are the main causes for the decline. The author disagrees with this viewpoint and holds that the root cause of economic deceleration is the delay in deep institutional reforms. An inclusive economy and state coercive capacity are two essential ingredients for sustaining economic prosperity. China must further enhance economic inclusiveness, and accelerate its transition into an efficiency-driven and innovation-driven economy through deepened comprehensive marketization reforms. Meanwhile, it should further strengthen the rule of law to build a limited government that is capable, accountable, effective and caring.

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The Determinants of Chinese Outward Foreign Direct Investment: A Closer Look
Muhammad Zubair Mumtaz, Zachary Alexander Smith
Front. Econ. China    2018, 13 (4): 577-601.
Abstract   PDF (537KB)

Over the last fifteen years, China rapidly expanded its outward foreign direct investment (OFDI) through remarkable economic growth and the “go global” policy. Chinese firms explored investment avenues especially in developing and emerging countries. As a result, China became the third largest contributor of OFDI. We examine the determinants of Chinese OFDI in 67 countries during the period lasting from 2006 to 2015 using the feasible generalized least square method. We find that the size of the economy, market opportunities, cost advantages due to low wage structure, ease of doing business, country risk, and geographical proximity are the prominent factors leading to changes in Chinese OFDI in developing and emerging economies. We find that China’s investments in different developing and emerging countries are driven by a different set of factors and the determinants of Chinese OFDI vary in low and high per capita income countries.

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The Slowdown of China’s Economic Growth in Terms of Statistics
Xianchun Xu
Front. Econ. China    2019, 14 (1): 72-79.
Abstract   PDF (514KB)

The paper discusses the falling back of economic growth from four aspects. From the aspect of production, the traditional industry has the greatest impact on the falling back of economic growth. From the perspective of demand, the consumption demand, investment demand, and export demand have jointly caused the falling back of the economic growth, in which the pulling function of investment demand is more obvious. From the standpoint of cardinality, the growth rate of the economy is restrained by the increase of economic scale. From the perspective of production factors, changes in the supply of labor force affect the falling back of economic growth rate.

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Growth and Cycles in China’s Unbalanced Development: Resource Misallocation, Debt Overhang, Economic Inequality, and the Importance of Structural Reforms
Kevin X.D. Huang
Front. Econ. China    2019, 14 (1): 53-71.
Abstract   PDF (935KB)

The recent China’s growth slowdown is both cyclical and secular, driven by external and internal factors. In this article, I highlight several key internal factors that have hindered China’s growth in recent years. These include worsening misallocation of resources and declining growth of total factor productivity, plus rising household income inequality and debt overhang in the face of tightened liquidity constraint. All of these show the urgency for deepening reforms in China’s key macroeconomic landscapes in order to remove institutional barriers and distortions deep-rooted in the nation’s economic and financial structure, and to correct fundamental imperfections of its social- economic system. I argue that such reforms are of critical importance for China’s pursuit of healthy and sustainable growth and of balanced and adequate development going forward.

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Export Performance of China: A Constant Market Share Analysis
Nidhi Bagaria, Saba Ismail
Front. Econ. China    2019, 14 (1): 110-130.
Abstract   PDF (3063KB)

In the light of the fact that there has been substantial growth in China’s exports in last three decades, particularly after China joined the WTO in 2001, this article investigates the major sources of China’s export performance during 2002–2014 by using the constant market share (CMS) model. In this study, exports are further decomposed in three categories based on their technological intensity using Lall (2000) classification on 3 digit SITC Revision-3 data provided by UN Comtrade via WITS database. The categories are high technology, medium technology and low technology. It is found that growth of China’s exports has, moreover, remained above world exports growth in all three categories during the period of study. The analysis reveals that export performance is mainly attributed to its competitive strength in the global market, though decreasing trend has been observed in the competitiveness of all three categories. Increasing cost of labor and appreciating RMB could be the causes behind decreasing competitiveness of Chinese exports. Product structure effect, on an average, has turned out to be negative in all the categories which is the most disturbing aspect of China’s export performance. On the other hand, geographical structure effect has positive impact on export performance of high-technology based exports whereas it has negative impact on export performance of low-technology and medium-technology based exports. China being the world’s largest exporter, decreasing competitiveness and wrong product structure effect could adversely influence its export performance in particular and its growth in general.

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Tackle China’s Economic Complexities by Deepening Reform and Opening Up: Macroeconomic Outlook, Policy Simulations, and Reform Implementation—A Summary of the Annual SUFE Macroeconomic Report (2018–2019)
Kevin X.D. Huang, Guoqiang Tian, Yuqin Wang
Front. Econ. China    2019, 14 (1): 80-109.
Abstract   PDF (757KB)

Faced with complicated external and internal challenges, China’s economy continues to see sluggish growth in 2018. Rapid accumulation of household debts, exacerbation in income inequality, tightened real sector liquidity, escalated trade tensions with the US, and weakened external demand pose key problems in China’s macroeconomic landscape. The status quo is exacerbated by soaring uncertainty and weakening confidence in the face of persistent resource misallocations and institutional distortions, which cast more shadow on the already dampened consumer sentiment, sluggish private investment growth, and fallen foreign reserves. This summary report highlights the urgency of deeper structural reforms for tackling the various internal and external problems. Based on the IAR-CMM model, with both cyclical and secular factors taken into consideration, our baseline forecast of real GDP growth rate is 6.4% (6.1% using more reliable instead of the official data) in 2019. Alternative scenario analyses and policy simulations are conducted to assess the consequences of possible downside risks and the corresponding policy options needed to ensure the assumed growth targets. These analyses lead us to conclude that comprehensively deepening reform and opening up, which should be both rule-of-law based and market-oriented, with well-designed and well-conceived strategies that properly weigh short-, medium-, and long-term benefits and costs, should continue to be set as the guidance for China’s transformation into a phase with sustainable and high-quality growth.

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Existence and Stability of Steady State in an Augmented Solow Model with Multiple Capital Goods
Jian Li, Yao Lu
Front. Econ. China    2018, 13 (4): 685-702.
Abstract   PDF (2005KB)

This paper relaxes two assumptions on the traditional augmented Solow model: strict concavity of production functions and dual capital goods. It generalizes traditional conclusions of the Solow model by demonstrating that neoclassical properties of a production function are sufficient for the existence and global stability of the steady state in the augmented Solow model with multiple capital goods. Moreover, we prove necessity of essentiality of inputs for a neoclassical production function and generalize the golden rule of capital accumulation.

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Political Connections, Government Regulations and Risk-Taking — Evidence From China
Shangzhou Ji, George Yungchih Wang
Front. Econ. China    2018, 13 (4): 655-684.
Abstract   PDF (353KB)

Sufficient evidence suggests that enterprises under strong government regulations suffer the economic effects of political connections, which not only leads to competitive disadvantages and loss of innovation, but also less willingness to take risks. This paper explores the relationship between political connections and corporate risk-taking behavior in corporate governance. Specifically, in 2008, the Chinese government announced new policies to regulate government officials concurrently holding the positions of independent directors in firms. We sample publicly listed firms in the Chinese A-share market over the period of 2005–2010 and investigate changes in risk-taking behavior due to the new policies. Our findings indicate that a reduction in politically connected independent directors may encourage risk-taking behavior subject to the factors of state ownership, industry regulations, local government control, and corporate characteristics.

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Model Selection in Spatial Autoregressive Models with Varying Coefficients
Hongjie Wei, Yan Sun, Meidi Hu
Front. Econ. China    2018, 13 (4): 559-576.
Abstract   PDF (450KB)

Spatial autoregressive (SAR) models with varying coefficients are useful for capturing heterogeneous effects of the impacts of covariates as well as spatial interaction in empirical studies, and a wide range of popular models can be seen as its special cases, such as linear SAR models. In this study, we will propose a unified model selection method for the SAR model with varying coefficients to achieve two targets simultaneously: (1) variable selection (eliminate irrelevant covariates), and (2) identification of the covariates with constant effect among the relevant covariates. To do so, we follow the idea of group LASSO to incorporate two penalty functions to simultaneously do model selection and estimation. Monte Carlo experiments show that the proposed method performs well in finite samples. Finally, we illustrate the method with an application to the housing data of Chinese cities.

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The Impact of Green Building Labels on the Price of Housing: Evidence from China
Fang Fang, Xuesong Li, Yahong Zhou, Ximing Chen
Front. Econ. China    2018, 13 (4): 635-654.
Abstract   PDF (218KB)

This paper focuses on the willingness to pay for green housing in China. First, we introduce green building related labels in China and briefly discuss the consumers’ incentives to buy this kind of building. Second, with the available transaction data in Shanghai, a hedonic regression model is applied to investigate whether or not a price premium in the residential market exists. Furthermore, we use the nonparametric matching model under a treatment framework to see the robustness of our results. The empirical result shows there exists a significant price premium in China. However, the premium does not increase with quality certification tiers. That may imply that homebuyers in China are not sensitive to the differences among green buildings although they are willing to pay a higher price for this newly emerging energy-saving building. And we also give the explanation why this has happened.

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Coordination Costs, Market Size, and the Choice of Technology
Haiwen Zhou
Front. Econ. China    2019, 14 (1): 131-148.
Abstract   PDF (265KB)

Impact of coordination costs and market size on a firm’s choice of technology is studied in a general equilibrium model in which firms engage in oligopolistic competition. A firm establishes an organizational hierarchy to coordinate its production. First, it is shown that an increase in market size leads a firm to choose a more specialized technology. Second, surprisingly, a robust result is that an increase in the level of coordination efficiency leads a firm to choose a less specialized technology.

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Asset Securitization and Welfare Compensation for House Demolition on New-Type Urbanization in China
Fuxiang Wu, Wei Duan
Front. Econ. China    2018, 13 (4): 602-634.
Abstract   PDF (514KB)

In this paper we design a compensation mechanism for the relocated households in the process of New-Type Urbanization in China. Based on the theories of dynamic rent spatial separation, bid-rent and non-renewable resource exploitation, we give a theretical look at how the current compensation mechanism shapes the welfare of relocated households. Firstly, land rent growth has a spatial difference and the growth rate of the marginal location rent is much higher than that of the mature site. Secondly, there is a demolition championship contest under the sole static money compensation, which can easily lead to land urbanization faster than population urbanization. Thirdly, in the long run the welfare loss of the household is mainly due to the absence of a dynamic compensation mechanism. Furthermore, we design a dynamic compensation mechanism based on the establishment of an asset securitization capital pool, which could be an alternative scheme in the process of New-Type Urbanization.

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