Frontiers of Economics in China

ISSN 1673-3444

ISSN 1673-3568(Online)

CN 11-5744/F

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Rethinking Globalization in the Trump Era: US-China Relations
Joseph E. Stiglitz
Front. Econ. China    2018, 13 (2): 133-146.   https://doi.org/10.3868/s060-007-018-0010-3
Abstract   PDF (272KB)

The global economic and political order that was created in the aftermath of World War II is under attack by President Donald Trump. In this article, Nobel Prize Laureate Joseph Stiglitz discusses the scope for protectionist actions by President Trump and suggests how countries such as China could and should respond. In particular, he proposes a set of ten principles that should guide China’s response, principles designed to enhance a more stable and efficient multi-polar system of global governance that can contribute to a stronger global economy.

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Urbanization in China, ca. 1100–1900
Yi Xu, Bas van Leeuwen, Jan Luiten van Zanden
Front. Econ. China    2018, 13 (3): 322-368.   https://doi.org/10.3868/s060-007-018-0018-9
Abstract   PDF (882KB)

This paper presents new estimates of the development of the urban population and the urbanization ratio for the period spanning the Song and late Qing dynasties. Urbanization is viewed, as in much of the economic historical literature on the topic, as an indirect indicator of economic development and structural change. The development of the urban system can therefore tell us a lot about long-term trends in the Chinese economy between 1100 and 1900. During the Song, the level of urbanization was high, also by international standards—the capital cities of the Song were probably the largest cities in the world. This remained so until the late Ming, but during the Qing there was a downward trend in the level of urbanization from 11%–12% to 7% in the late 18th century, a level at which it remained until the early 1900s. In our paper we analyse the role that socio–political and economic causes played in this decline, such as the changing character of the Chinese state, the limited impact of overseas trade on the urban system, and the apparent absence of the dynamic economic effects that were characteristic for the European urban system.

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Why Does the World Need a Reserve Asset with a Hard Anchor?
Dongsheng Di, Warren Coats, Yuxuan Zhao
Front. Econ. China    2017, 12 (4): 545-570.   https://doi.org/10.3868/s060-006-017-0023-7
Abstract   PDF (835KB)

From the 1970s, the global currency system has two features: the use of one or a few sovereign currencies as the global reserve asset and the floating exchange rate regime between major currencies. This paper points out that the costs of the dollar’s use as an international reserve currency exceed the benefits for both the US and the rest of the world. These costs include the exporting of American manufacturing as a byproduct of its current account deficit needed to supply its currency to the rest of the world. In addition to the detriment to trade from unpredictable exchange rate fluctuations, the termination of the U.S. obligation to redeem its currency for gold also removed an important restraint on deficit financing for the US and many other countries in the short-run, thus promoting excessive leverage that was a major contributor to the 2008 financial crisis. The paper suggests replacing several main countries’ currencies in international reserves with a real Special Drawing Right (SDR) issued according to currency board rules.

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Examining the Factors Affecting Personal Income: An Empirical Study Based on Survey Data in Chinese Cities
Lihui Wang, Junyi Shen
Front. Econ. China    2017, 12 (4): 515-544.   https://doi.org/10.3868/s060-006-017-0022-0
Abstract   PDF (441KB)

This paper empirically analyzes the factors affecting personal income in urban China using survey data of the “Preference and Life Satisfaction Survey” conducted by the Global COE project of Osaka University from 2009 to 2013. We consider education level as an endogenous variable, and both ordinary least squares (OLS) regression and instrumental variable (IV) regression are performed. We find a number of factors, such as sex, age, education, and marriage that significantly affect personal income. In addition, differences between different occupations are also investigated.

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Product Market Competition and Innovation: What Can We Learn from Economic Theory?
Zhiqi Chen
Front. Econ. China    2017, 12 (3): 450-464.   https://doi.org/10.3868/s060-006-017-0019-2
Abstract   PDF (231KB)

By means of a literature review, this paper strives to provide some clarity on the much-debated relationship between product market competition and firms’ incentives to innovate. It shows that in the literature there does not exist a robust relationship between competition and incentives to innovate. Therefore, it would be futile to continue the debate over whether competition stimulates or hinders innovation. A more useful approach is to make a distinction between pre-innovation competition and post-innovation competition, as it provides a way for reconciling many of the seemingly contradictory findings from the literature. Another important insight from the literature is that the relationship between competition and innovation depends on the source of increased competition.

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Usury, Market Power and Poverty Traps: A Study of Rural Credit in 1930s’ China
Zhiwu Chen, Kaixiang Peng, Weipeng Yuan
Front. Econ. China    2018, 13 (3): 369-396.   https://doi.org/10.3868/s060-007-018-0019-6
Abstract   PDF (478KB)

This paper studies the cross-regional variation of interest rates in China in the 1930s. Based on county-level data from the Buck (1941) rural surveys, we examine factors that may have influenced rural interest rates in pre-1949 China. Since the quality of institutions that define property rights and facilitate contract enforcement is important for such transactions as land tenancy arrangements, we treat land tenancy rate (or percentage of owner-farmers) as a proxy for institutional quality. Contrary to the popular belief among historians and economists that usury or high interest rates caused persistent poverty, we find that while the monopoly-exploitation hypothesis has little explanatory power, a region’s institutional quality and income level are persistent and significant determinants of interest rates. Thus, poverty is a key driver of high rates of interest. Economic growth and the development of market institutions are crucial for lowering high interest rates and combating usury.

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Who Defended Monetary Stability in a Specie Regime? Evidence from the Chinese History
Sheng Qian, LeminWu
Front. Econ. China    2018, 13 (3): 397-435.   https://doi.org/10.3868/s060-007-018-0020-0
Abstract   PDF (3345KB)

Despite the lack of political accountability, ancient autocracies maintained a level of monetary stability that rivals modern democracies. This paper hypothesizes that it is the threat of counterfeiting that has constrained currency debasement. Unwilling to share seigniorage with counterfeiters, who are active only if currency is debased, the government refrains from debasement unless in extreme fiscal situations. To document the facts, we build a database of historical Chinese copper coins that covers the period from the Qin dynasty (221 BC–207 BC) to the Republic of China. We also use the introduction of the steam press in late Qing China as a natural experiment to test the theory. The steam press produced coins of fine patterns that counterfeiters were unable to mimic. As the theory predicts, the removal of the threat of counterfeiting triggered the most serious debasement in the history of the Qing dynasty (1644–1912).

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China’s Investments in Skills
James J. Heckman, Shuaizhang Feng
Front. Econ. China    2018, 13 (4): 531-558.   https://doi.org/10.3868/s060-007-018-0025-5
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.   https://doi.org/10.3868/s060-008-019-0003-1
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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Surviving Unstable Property Rights in Early Modern China: A Case Study of Young Brother Bank
Jinsong Zhao, Hao Pang
Front. Econ. China    2018, 13 (3): 505-530.   https://doi.org/10.3868/s060-007-018-0024-8
Abstract   PDF (855KB)

China’s banking industry experienced rapid growth during the free access era from 1911 to 1927. However, the reasons private banks were so successful then remain unclear, particularly when property rights were not well protected due to government intervention. Using archived Young Brother Bank documents, we describe the bank’s development from its founding as a family firm through its reinvention from a partnership into a corporation. We focus on organizational form choice and bank performance in this case study. We find that bankers in early modern China gain political connections by placing influential nonfamily members (often, acquisitive local warlords) on boards of directors because this protects them from the depredations of those warlords. This is a precondition for operating family businesses in unstable political circumstances.

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A Multi-Layer System and Its Features: Reconceptualizing the Monetary Regime of Late Qing and Modern China
Hongzhong Yan, Zhijian Qiao, Chen Xu
Front. Econ. China    2018, 13 (3): 436-457.   https://doi.org/10.3868/s060-007-018-0021-7
Abstract   PDF (565KB)

This essay aims to reconceptualize the monetary regime of late Qing and modern China as a multilayer system of currencies and examine the features and logics of its operation from the 16th century to early 20th century. We argue that this system consists of a variety of silver and copper currencies, each occupying a particular layer in the structure and each satisfying a specific market demand. Analyzing the production and circulation of copper and silver currencies, we first trace their evolution from the Qing to the Republican era and demonstrate the multi-layer currency structure persisted in China across the modernizing changes that took place at the end of the 19th century. Second, using data drawn from gazetteers, this essay adopts a quantitative approach to empirically examine the mechanism and speed of interactions between the different layers of the monetary market and reveal the operational mechanism of the multi-layer system. We suggest that this multi-layer system, while bringing some efficiency loss, also constituted an effective institutional arrangement that helped to ensure the stability of the Chinese economy in tumultuous times.

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Industrialized Innovation: The Connection of Science & Technology Innovation with Industrial Innovation
Yinxing Hong, Yao Lu, Jianghuai Zheng
Front. Econ. China    2017, 12 (3): 400-417.   https://doi.org/10.3868/s060-006-017-0017-8
Abstract   PDF (302KB)

In light of the relationship and the current disconnection between science & technology (S&T) innovation and industrial innovation in China, it is necessary to put forward and emphasize the concept of industrialized innovation. Industrialized innovation is the bridge and intermediation between S&T innovation and industrial innovation, which is not only a concept, but also a mechanism and combination force. There are two ways to achieve industrialized innovation: through industry-university-research coordination and through technology entrepreneurship. The meaning of industry-university-research coordination is not about coordination among industry, university and research sectors in an institutional sense; rather it is about the coordination of the functions of cultivation and development in new industries, new technologies, and new talents of industrialized innovation. The incentive mechanism for industrialized innovation should motivate not only innovation but also coordination. Technology entrepreneurship is the industrialization of new technology through business start-ups, which occurs beyond the stage of incubation and development of new technology. The capital of technology entrepreneurship is the set consisting of knowledge capital manifested through technological innovation, human capital manifested through entrepreneurs, and physical capital in the form of venture capital. While physical capital is indispensable, knowledge capital and human capital play the decisive role in technology entrepreneurship. The industrialization of technological innovation involves two requirements: one is to enable the new technology industry to achieve a large scale rapidly, and the other is to fully realize the potential value of the new technology. Both requirements are reliant on effective innovation in business models.

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Hidden Reserve Prices with Risk-Averse Bidders
Huagang Li, Guofu Tan
Front. Econ. China    2017, 12 (3): 341-370.   https://doi.org/10.3868/s060-006-017-0015-4
Abstract   PDF (469KB)

In this paper, we provide an alternative explanation for why auctioneers often keep the reserve price hidden or secret. We consider a standard independent private values environment in which the buyers are risk-averse and the seller has private information about her valuation of the object to be auctioned. The seller uses a first-price sealed-bid auction mechanism combined with either an announced reserve price or a hidden reserve price. We compare the seller’s ex ante expected profits under these two policies and find that the optimal hidden reserve price policy generates higher expected profits for the seller when the buyers are fairly risk-averse under particular restrictions on buyers’ preferences and the distributions of private values. As the number of the buyers increases, the hidden reserve price is more likely to dominate. Numerical methods are used to demonstrate the generality of our main results.

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Deceleration of China’s Economic Growth: Causes and Countermeasures
Guoqiang Tian
Front. Econ. China    2019, 14 (1): 3-25.   https://doi.org/10.3868/s060-008-019-0002-4
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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Technical Progress and the Diffusion of Innovations: Classical and Schumpeterian Perspectives
Heinz D. Kurz
Front. Econ. China    2017, 12 (3): 418-449.   https://doi.org/10.3868/s060-006-017-0018-5
Abstract   PDF (4170KB)

The paper discusses the diffusion of new technologies from the perspective of the classical economists and Schumpeter. After a comparison of the pre- and post-technical change long-period positions of the economy, we illustrate the process of transition between the two in terms of a two-sector model. Next, we turn to a system with joint production. The fact that some products may be “bads” that need to be disposed of leads to a study of systems of production-cum-disposal. Finally, we investigate the selection pressure innovations exert on incumbent firms. An important message is that technical change cannot generally be studied within a partial framework of the analysis.

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Purchasing Power Parity and Price Fluctuations in China before July 1937
Liuyan Zhao, Yan Zhao
Front. Econ. China    2018, 13 (3): 458-483.   https://doi.org/10.3868/s060-007-018-0022-4
Abstract   PDF (1000KB)

In this paper, we provide an empirical investigation of the purchasing power parity (PPP) hypothesis for China before July 1937. Using the monthly data from 1922 to 1937, we find clear and consistent evidence in favor of the purchasing power parity relationship. This naturally leads to the conclusion that the degree of Chinese market integration with the West was substantial before July 1937. These findings offer an empirical interpretation of the rise and fall of the Chinese price level during the Great Depression. It also has further implications of the impact of the American Silver Purchase Act of 1934 and the assessment of the 1935 currency reform on the Chinese economy.

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Conquering China’s Unbalanced and Inadequate Development: Macroeconomic Outlook, Policy Simulations, and Reform Implementation—A Summary of Annual SUFE Macroeconomic Report (2017–2018)
Kevin X. D. Huang, Lei Ning, Guoqiang Tian
Front. Econ. China    2018, 13 (2): 147-170.   https://doi.org/10.3868/s060-007-018-0011-0
Abstract   PDF (5025KB)

Leaving year 2017 China’s macroeconomy is continuously characterized by unbalanced and inadequate development. Whereas some aggregate indicators have shown improvement over the year, the cumulative growth rates in consumption and fixed asset investment have continued their downward trajectories. Worsening income inequality and resource misallocations, both between secondary and tertiary industries, and within the latter, pose serious challenges, let alone the systemic risk associated with the flourishing shadow banking system, rapid credit growth and debt overhang that weigh on the Chinese economy like the Sword of Damocles. This summary report highlights both the status quo and the consequences of the unbalanced and inadequate development embodied in China’s persistently distorted economic structure, and the role of deepening reforms of the institutions and governance in resolving the problems. Our analyses based on IAR-CMM model provide a unified framework for addressing China’s short-, medium-, and long-term issues in an internally coherent manner. Looking into year 2018, our benchmark projection of real GDP growth rate is 6.7% (6.41% using more reliable rather than the official data). Alternative scenario analyses and policy simulations are conducted to reflect various aspects of the economic challenges in the short to long runs. Through the lens of these analyses we conclude that rule-of-law based and market-oriented structural reforms should continue to hold a center stage in China’s transition from a phase of high-speed but unbalanced growth, to a stage of balanced and adequate high-quality development.

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How Did the Chinese Shanxi Merchants Determine the Remittance Fees? Micro Firm Analysis of Rishengchang Piaohao
Meng Wu
Front. Econ. China    2018, 13 (3): 484-504.   https://doi.org/10.3868/s060-007-018-0023-1
Abstract   PDF (428KB)

This paper examines the Chinese Shanxi piaohao, arguably the most important Chinese indigenous financial institutions in the 19th century. Concentrating on their business strategy, the study constructs a unique firm level set of data of the Rishengchang piaohao and explores the piaohao’s types of client, silver and drafts it dealt in, branch distributions, and terms to cash drafts. Besides this, this article also designs multiple linear regressions and identifies elements that determined remittance fees. My study reveals that, when establishing a new branch, the Rishengchang took the consideration of business conditions as its priority and gradually expanded from cities at prefecture level to those in counties and towns. A growth of business sites also led to an increase in the types of client, silver and draft it accepted. Moreover, as it developed, the interval for the Rishengchang to cash a draft shortened by half. When estimating the remittance functions, my study found that as the amount of silver being remitted increased, the length of time to cash a draft extended and as the average distance between two branches increased, the Rishengchang would charge more in remittance fees. “Commoners” and “gentry” would pay more than “firms,” while “other piaohao” would pay lower remittance fees. The drafts sent by telegram would also be much more expensive than those sent by letters or with papers. As the first detailed study on one of the most important and enduring firms in China, this work not only fills the data void where this subject is concerned, but also delineates the historical change of the piaohao’s clients, drafts, business territories and gives profound insights into the rise of the Shanxi piaohao.

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Are Central and Western Chinese Provinces Catching up with the East? An Empirical Analysis of Convergence Processes across China
Marlies Schütz, Han Li, Nicole Palan
Front. Econ. China    2017, 12 (4): 571-606.   https://doi.org/10.3868/s060-006-017-0024-4
Abstract   PDF (1748KB)

Since the Reform and Opening-up policy had been implemented in 1978, mainland China has experienced significant economic growth, with GDP rising on an annual average of about 10%. However, this growth miracle was far from being evenly distributed across space. It is, therefore, the aim of this paper to study the evolution of spatial disparities in economic development across the country between 1993 and 2012, a period which is characterized by all provinces having access to international markets and being open for international investors. We seek to answer the question of whether Central and Western Chinese provinces were catching up with the East. We define ‘catching up’ as a growing similarity among spatial units. Convergence processes might manifest in four dimensions, including (1) the spatial allocation of employment, value added generation and the fixed capital stock, (2) forms of technical change, (3) productivity patterns, and (4) income distribution. Results show that persistent phases of convergence appeared. However, in some cases the catching up of China’s less developed parts with the flourishing East was limited to only a few Western and Central Chinese provinces. A high degree of path-dependency in economic development prevented catching up from taking place in a more uniform manner.

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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.   https://doi.org/10.3868/s060-007-018-0027-9
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.   https://doi.org/10.3868/s060-008-019-0005-5
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.   https://doi.org/10.3868/s060-008-019-0004-8
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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A Model of Endogenous Cross-Holdings in Oligopoly
Cheng-Zhong Qin, Dandan Zhu, Shengping Zhang
Front. Econ. China    2017, 12 (3): 465-479.   https://doi.org/10.3868/s060-006-017-0020-6
Abstract   PDF (287KB)

A network approach is proposed to analyze the formation of cross-holdings and anti-competitive implications. Our approach is motivated by the bilateral arrangement of passive ownership between Microsoft and Apple in 1997. We provide a complete characterization of pairwise stable cross-holdings for a model of Cournot oligopoly with a homogeneous product. Our results strengthen the competitive implications of endogenous cross-holdings in Cournot oligopoly found in the literature.

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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.   https://doi.org/10.3868/s060-008-019-0007-9
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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Audit Competition in Insurance Oligopolies
Nicolas Boccard, Patrick Legros
Front. Econ. China    2017, 12 (3): 371-399.   https://doi.org/10.3868/s060-006-017-0016-1
Abstract   PDF (762KB)

We provide a simple framework for analyzing how competition affects the choice of audit structures in an oligopolistic insurance industry. When the degree of competition increases, fraud increases but the response of the industry in terms of investment in audit quality follows a U-shaped pattern. Following increases in competition, the investment in audit quality will decrease if the industry is initially in a low competition regime while it will increase when the industry is in a high competition regime. We show that firms will benefit from forming a joint audit agency only when the degree of competition is intermediate; in this case, cooperation might improve total welfare and we analyze the effects of contract innovation on the performance of the industry.

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Global Value Chains, Horizontal Intra-Industry Trade and the Heterogeneous Firm
Sven W. Arndt
Front. Econ. China    2018, 13 (1): 68-82.   https://doi.org/10.3868/s060-007-018-0006-8
Abstract   PDF (789KB)

This paper examines global value chains at the level of the heterogeneous firm. The context is a world of horizontal intra-industry trade, characterized by imperfect competition and product differentiation at the firm level. Standard microeconomic tools are employed to assess the effects of inter-firm dissimilarities in both demand and supply on firms’ responses to changes in trade policy. In this set-up, dissimilarities in firm characteristics play roles similar to factor endowments and technology differences in traditional trade models. When cross-border production sharing (“fragmentation”) is introduced into this framework, those differences in firm characteristics determine the degree to which individual firms will enter into production networks. In this context, horizontal and vertical intra-industry trade elements interact in their effects on firm decisions. Traditional comparative advantage considerations still govern the choice of off-shored activities, while direct competition between imports and exports expands the range of possible outcomes. Finally, it is shown that cross-border production sharing reduces the sensitivity of firms to variations in exchange rates, matching a phenomenon that has been observed in traditional country-level models.

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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.   https://doi.org/10.3868/s060-008-019-0006-2
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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