Frontiers of Economics in China

ISSN 1673-3444

ISSN 1673-3568(Online)

CN 11-5744/F

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A Policy Perspective on Outward Foreign Direct Investment by Chinese State-Owned Enterprises
Steven Globerman
Front. Econ. China    2016, 11 (4): 537-547.   https://doi.org/10.3868/s060-005-016-0028-8
Abstract   PDF (186KB)

A growing number of developed country governments in recent years have adopted a hostile attitude towards foreign direct investments undertaken in their markets by state-owned enterprises (SOEs), the latter often based in China. The broad reason for this hostility is the belief that state-owned enterprises pursue non-commercial objectives with resulting damage to host economies. This paper argues that the empirical evidence shows SOEs are increasingly exhibiting market-owned behavior. Furthermore, any adverse consequences of non-commercial behavior are likely to be realized primarily by the SOEs themselves.

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The Effect of Family Size on Children’s Education: Evidence from the Fertility Control Policy in China
Ying Shen
Front. Econ. China    2017, 12 (1): 37-65.   https://doi.org/10.3868/s060-006-017-0003-3
Abstract   PDF (2238KB)

Empirical research on the effect of family size on child education is complicated by the endogeneity of family size. This study exploits plausibly exogenous changes in family size caused by China’s population control policy to estimate the causal relationship between family size and child education outcomes. The results show that, compared to an only child, a person with an additional sibling will have an approximate seventeen percentage points lower likelihood of completing middle school in China. Separate regressions across individual characteristics reveal that much of this negative effect appears to be driven by the cohorts born in earlier years after the policy, and children with the highest birth order within a family.

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Hollowing out of the Real Economy: Evidence from China’s Listed Firms
Xu Li,Xiang Shao,Zhigang Tao
Front. Econ. China    2016, 11 (3): 390-409.   https://doi.org/10.3868/s060-005-016-0022-6
Abstract   PDF (282KB)

The paper studies an often-observed phenomenon of diversification of manufacturing firms into real estate development in East Asian economies. Utilizing a sudden change in China’s accounting standards that requires firms to disclose information about their real estate holdings for investment purpose (or investment property), we examine both the impact of such diversification on firms’ investment in their original business and the stock market response to such diversification. Our results confirm there exists underinvestment in original business (or hollowing out of the real economy) for firms diversifying into real estate, and that there is a lack of investor response to such diversification, in both short-run and long-run. Our study calls for further research on the role of real estate development in the long-run competitiveness of developing economies.

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Redundancy of Moment Conditions in Restricted GMM Estimation
Hailong Qian
Front. Econ. China    2016, 11 (3): 468-497.   https://doi.org/10.3868/s060-005-016-0025-7
Abstract   PDF (367KB)

Using a novel approach to calculating the rank of the difference of two asymptotic variance matrices, The author derives the necessary and sufficient conditions for an extra set of moment conditions to be redundant given a set of moment conditions in GMM estimation with general nonlinear restrictions. The necessary and sufficient conditions derived in this paper include as a special case the redundancy of moment conditions for GMM estimation without restrictions that was first derived by Breusch et al. (1999). Therefore this paper advances the research on redundancy of moment conditions from unrestricted GMM estimation to a larger class of GMM estimation. To show their usefulness, the main results of the current paper are applied to instrumental variables estimation of linear regression models and the efficient estimation of seemingly unrelated regressions models, subject to restrictions.

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Exchange Rate Flexibility and Current Account Adjustment: A Threshold VAR Analysis
Yu You,Zongye Huang,Yoonbai Kim
Front. Econ. China    2016, 11 (4): 635-667.   https://doi.org/10.3868/s060-005-016-0032-3
Abstract   PDF (3721KB)

Global imbalances (current account imbalances) have become an important issue for economists and policy makers. Greater exchange rate flexibility is often suggested as a means to achieve faster and more efficient adjustment in the current account. However, previous empirical studies show little support for this hypothesis. This paper revisits this issue with a large panel dataset and a threshold VAR model and finds that (1) some existing popular exchange rate classifications may not capture actual exchange rate variability as well as expected; (2) Once exchange rate variability is correctly identified, the speed of mean reversion in the current account balance is indeed higher in a regime with greater exchange rate variability.

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Premature Deindustrialisation in the Developing World
Dani Rodrik
Front. Econ. China    2017, 12 (1): 1-6.   https://doi.org/10.3868/s060-006-017-0001-9
Abstract   PDF (1015KB)

As developed economies have substituted away from manufacturing towards services, so too have developing countries—to an even greater extent. Such sectoral change may be premature for economies that never fully industrialised in the first place. This article presents evidence that countries with smaller manufacturing sectors substitute away from manufacturing to a larger extent, suggesting a trade channel through which falling international relative prices of manufacturing lead price-taking developing economies to substitute accordingly.

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A Biography of Gregory C. Chow
Ben Bernanke
Front. Econ. China    2016, 11 (3): 351-354.   https://doi.org/10.3868/s060-005-016-0019-8
Abstract   PDF (148KB)
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Understanding China’s Foreign Trade Policy: A Literature Review
Tan Li,Larry Qiu,Ying Xue
Front. Econ. China    2016, 11 (3): 410-438.   https://doi.org/10.3868/s060-005-016-0023-3
Abstract   PDF (321KB)

China has continued to experience rapid growth in its foreign trade since the implementation of its reform and opening-up policies. In recent years, the country has become the world’s largest exporter and second largest importer of goods and commodities. China’s trade policy has also gradually been transforming from protectionism to open trade. This paper aims to provide a comprehensive survey on the literature of China’s trade policy. The review covers (1) export and import policies, (2) tariff and non-tariff barriers, and (3) policy effects and motivations behind the policy design. This paper also reports on important topics and issues that deserve more research attention.

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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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Income Mobility and Income Inequality in Rural China
Matthieu Clément
Front. Econ. China    2016, 11 (4): 608-634.   https://doi.org/10.3868/s060-005-016-0031-6
Abstract   PDF (3702KB)

The economic literature has argued for a long time that income mobility could attenuate the degree of cross-sectional inequality by offering people opportunities to improve their socio-economic position. Using the longitudinal data from the China Health and Nutrition Survey (CHNS) from 1989 to 2011, we measure income mobility as the degree to which longer-term incomes are distributed more or less equally than yearly income. Five main results are emphasized. First, there is strong income mobility in rural China that partly offsets yearly income inequality. Second, income mobility has decreased since the 2000s, indicating that income distribution is becoming more rigid. Third, mobility is mainly associated with transitory income fluctuations, particularly in the two tails of the distribution. Fourth, income mobility has an equalizing effect on income distribution. Fifth, we show that non-agricultural income mobility has substantially increased over the period and that its equalizing nature has also recently increased. While the development of the non-agriculture sector in rural China was a crucial factor in explaining the increase in rural inequality until the mid-2000s, we suggest that the large-scale generalisation of such non-agricultural opportunities partly accounts for the decline in rural inequality observed since the mid-2000s.

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Aging and Migration: Micro and Macro Evidence from China
Örn B. Bodvarsson,Jack W. Hou,Kailing Shen
Front. Econ. China    2016, 11 (4): 548-580.   https://doi.org/10.3868/s060-005-016-0029-5
Abstract   PDF (1764KB)

Post-reform China has been experiencing two major demographic changes: an increasingly aging population and an extraordinary surge of rural-urban migrants. The question we ask is: are these two demographic changes related? If yes, then, how? The standard view in the migration literature is that the older the migrant, the lower the likelihood of migration. This paper proposes a simple theory of temporary migration for unskilled labor to fit the context of China. Motivated by our model, we then use both cross-sectional micro data and panel macro data to examine the potential impacts of aging on migration. We find that shifts in China’s age distribution have generated significant changes in the country’s migration patterns: migration will shift to closer provinces (probably switching from interprovincial migration to intra-provincial migration) and will concentrate to a few destination provinces.

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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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The Political Cause of the Movement of RMB Exchange Rate:A Research Based on the Spillover Effects of US Political Cycle
Mengnan Zhu,Qian Zhao,Yuguang Wang
Front. Econ. China    2016, 11 (4): 694-731.   https://doi.org/10.3868/s060-005-016-0034-7
Abstract   PDF (683KB)

Movement of the renminbi (RMB) exchange rate is not only affected by economic factors, but also by political factors home and aboard. This paper analyzes the transmission mechanism of political cycles on the RMB exchange rate first, and then sets up a “political cycle spillover effect model” followed by an empirical analysis. We find that: (1) the US political cycle has a direct effect on the RMB exchange rate in the short run, which is mainly transmitted by capital flows and China’s exchange rate policy control; (2) the RMB exchange rate changes periodically in accordance with the US presidential election and midterm election cycle, with the appreciation ratio significantly lower in the first year of the election cycle, while significantly higher in the year after the midterm election; (3) The effect of the political cycle will not be affected by which party holds power, though it will be affected if the president and parliament are ruled by the same party. This paper not only extends the research of the influencing factors of the RMB exchange rate to the political field, but also sets up a use theoretical model to analyze the impact of political issues on the RMB exchange rate, providing a new perspective to fully understand the external environment of RMB exchange rate reform.

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The Competitive Saving Motive: Concept, Evidence, and Implications
Shang-Jin Wei,Xiaobo Zhang
Front. Econ. China    2016, 11 (3): 355-366.   https://doi.org/10.3868/s060-005-016-0020-2
Abstract   PDF (310KB)

This short essay surveys recent literature on the competitive saving motive and its broader economic implications. The competitive saving motive is defined as saving to improve one’s status relative to other competitors for dating and marriage partners. Here are some of the key results of the recent literature: (i) cross-country evidence show that greater gender imbalances tend to correspond with higher savings rates; (ii) household-level evidence suggest that: (a) families with unmarried sons in rural regions with more skewed sex ratios tend to have higher savings rates, while savings rates of families with unmarried daughters appear uncorrelated with gender imbalances; and (b) savings rates of families in cities tend to rise with the local sex ratio; (iii) rising sex ratios contribute nearly half of the rise in housing prices in the People’s Republic of China; and (iv) families with sons in regions of greater sex ratios are more likely to become entrepreneurs and take risky jobs to earn more income.

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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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Regional and Sectoral Patterns and Determinants of Comparative Advantage in China
William Charles Sawyer, Kiril Tochkov, Wenting Yu
Front. Econ. China    2017, 12 (1): 7-36.   https://doi.org/10.3868/s060-006-017-0002-6
Abstract   PDF (1244KB)

China’s export performance is marked by large regional disparities which affect trade patterns at the national level. This paper uses data from input-output tables to estimate the comparative advantage of Chinese provinces in the three main economic sectors over the period 1992–2007. In contrast to existing studies, we include the services sector in the analysis and construct not only indices of revealed comparative advantage for overall trade, but also bilateral indices for interprovincial trade. The results indicate that West and Central China have a comparative advantage in agriculture/mining, coastal provinces in manufacturing, and metropolitan provinces in services. However, interprovincial trade exhibits a more complex pattern. Regression analysis identifies labor endowments as the key determinant of comparative advantage in total trade, while physical capital is the driving force in domestic trade. Human capital and government spending have a positive effect, whereas industrial loans and taxes, along with provincial trade barriers, impair comparative advantage.

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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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R&D Returns, Spillovers and Firm Incentives: Evidence from China
Chorching Goh,Lixin Colin Xu,Wei Li
Front. Econ. China    2016, 11 (4): 581-607.   https://doi.org/10.3868/s060-005-016-0030-9
Abstract   PDF (317KB)

Using a new data set of 12,000 firms in China, this paper estimates the returns to R&D investment and its spillover effects, and investigates how the returns to R&D depend on firm incentives. For the firms in the sample, the results show that on average firm output increases around 0.4 yuan for each additional 1 yuan spent on R&D in the previous year, and there is high R&D return regardless of whether the endogeneity of R&D intensity is dealt with or not. Interestingly, the marginal return to R&D is significantly higher in firms whose CEOs were not appointed by the government, and lower when CEO pay is directly related to annual performance. The return to R&D is higher in relatively poor regions and for firms with worse access to finance. There are also non-trivial R&D spillover effects.

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Inequality and Crime in China
Jiangli Zhu, Zilian Li
Front. Econ. China    2017, 12 (2): 309-339.   https://doi.org/10.3868/s060-006-017-0014-7
Abstract   PDF (706KB)

This paper attempts to investigate comprehensively, a “U”-shaped relationship between income inequality and crime rates in China after building a cost-benefit analysis model, by using time series data from 1981–2012 and panel data from 1999–2012. The empirical results show that: firstly, in the time series model, the U-shaped relationships between inequality and the total crime rate and rates of various crimes except from smuggling, are very significant in the period of 1981–2012, secondly, the panel threshold models show that inequality and crime tend to be correlated positively with each other during 1999–2012, because the inequality level during this period is much higher than the turning points of inequality estimated in the time series models, although three regions with different development levels are located in different parts of a U-shaped curve between inequality and crime.

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Why Doesn’t the Hong Kong Government Sell More Public Land?
Saku Aura, Francis K. Cheung, Shawn Ni
Front. Econ. China    2016, 11 (3): 367-389.   https://doi.org/10.3868/s060-005-016-0021-9
Abstract   PDF (311KB)

Why doesn’t the Hong Kong government sell more of its enormous land holding to lower the city’s high housing price and increase the residents’ small living space? We answer the question in an overlapping generations framework. We show that while a rapid and complete privatization of government land is efficient in the absence of externalities; it is made politically difficult by a compensation gap, when the losses of current property owners are greater than the government revenue from land sales. We argue that the cross-country diversity of government land ownership owes to historical incidents in some countries (such as the U.S. in the 19th century) that allowed disposal of government land without filling the compensation gap and the absence of such incidents in others (such as Hong Kong).

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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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Option Pricing Based on Alternative Jump Size Distributions
Jian Chen,Chenghu Ma
Front. Econ. China    2016, 11 (3): 439-467.   https://doi.org/10.3868/s060-005-016-0024-0
Abstract   PDF (1006KB)

It is well known that volatility smirks and heavy-tailed asset return distributions are two violations of the Black-Scholes model. This paper investigates the role of jump size distribution played in explaining these two abnormalities. We consider a jump-diffusion model with Laplace jump size distribution, in comparison to the conventional normal distribution. In addition, our analysis is built upon a pure exchange economy, in which the representative agent’s risk preference shows a fanning characteristic. We find that, when a fanning effect is present, Laplace model produces a more remarkable leptokurtic pattern of the risk-neutral distribution implied by options, as well as generating more pronounced volatility smirks than the normal model.

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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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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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China under Uncertainty: Outlook, Counterfactual and Policy Simulations, and Reform Implementation—A Summary of Annual Report (2016–2017)
Kevin X. D. Huang, Guoqiang Tian, Yibo Yang
Front. Econ. China    2017, 12 (2): 167-187.   https://doi.org/10.3868/s060-006-017-0008-8
Abstract   PDF (660KB)

China’s macroeconomy is surrounded by increased uncertainties while facing persistent downward pressures entering year 2017. Major external challenges are imposed by the chaotic political climate and disorderly retreat from globalization of the US accompanied with the impending FED rate hikes, which may trigger a destructive trade war and exert pressures on RMB depreciation and capital flight. Remaining ingrained in major internal challenges are the gridlock risks accumulated from excessive financialization of real estate sector and swelling housing market bubbles amid escalating debt levels, and more fundamentally, the continued off-real-to-virtual movement in the general economy and ascendancy of government over market in resource allocation. Based on IAR-CMM model, which takes into account both cyclical and secular factors, the baseline real GDP growth rate is projected to be 6.5% in 2017 (6.13% using more reliable instead of official data). Counterfactual analyses and policy simulations are also conducted to highlight the convoluted uncertainties surrounding China’s macroeconomy. Through the lens of these analyses, we identify a root cause of the weak outlook as the persistently distorted economic structure due to procrastination in reforms of the institutions and governance, which not only impairs China’s growth potential but also limits the power of its recent stimulating policies while exacerbating their side effects. Key to successful economic restructuring in the face of adversely evolving demographics are market-oriented reforms, with well-designed strategies to balance short-term stabilization and long-run development. Such reforms should hold center stage in China’s transition towards a modern free market economy and regulatory state.

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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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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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