China & World Economy, Volume 27, Issue 4, July–August 2019
2. Hao Fang Yen-Hsien Lee Chung-Hua Shen Chien-Ping Chung: Motivations for Loan Herding by Chinese Banks and Its Impact on Bank Performance
3.Ting Ji Ningyuan Jia Faqin Lin Hang Wu: Fiscal Subsidy Policy on Home Appliances: Its Effects on Domestic Consumption and Exports in China
4.Jinfeng Ge Jie Luo Yangzhou Yuan: Misallocation in Chinese Manufacturing and Services: A Variable Markup Approach
5.Yongjian Liu Hong Geng：Regional Competition in China under the Price Distortion of Construction Land: A Study Based on a Two‐regime Spatial Durbin Model
Nonlinear Capital Flow Tax: Capital Flow Management and Financial Crisis Prevention in China
Jiandong Ju Li Li Guangyu Nie Kang Shi Shang-Jin Wei
This work was supported by the National Natural Science Foundation of China (No. 71803124) and the Shanghai Pujiang Program (No. 17PJC043). Author names are listed alphabetically, and all authors contributed equally to this manuscript.
Key words: capital account openness, financial crisis, nonlinear capital flow tax
Abstract: How to promote capital account liberalization while preventing financial crises is a challenging task for policymakers. This study proposes a nonlinear (progressive) capital flow tax as a solution. We first demonstrate that the collateral requirement of international borrowing can give rise to multiple equilibria and self‐fulfilling financial crises. We then show that the crisis equilibrium characterized by large exchange rate depreciation, capital flight and welfare loss can be eliminated by imposing a nonlinear (progressive) tax scheme on capital outflows with the marginal tax rate increasing with the size of individual capital outflows. The implementation of such a tax scheme in China is also discussed.
Motivations for Loan Herding by Chinese Banks and Its Impact on Bank Performance
Hao Fang Yen-Hsien Lee Chung-Hua Shen Chien-Ping Chung
This study was supported by the Planning Research Project of Social Science in Shandong Province of China (No. 19CJJJ09).
Key words: financial crisis, irrational herding, loan herding
Abstract: This study uses a dynamic herding model that considers intertemporal and cross‐sectional correlation to confirm that loan herding occurs among joint-stock commercial banks (JSCBs) and city commercial banks (CCBs). We clarify the motivations for bank loan herding. We find that loan herding by both JSCBs and CCBs results more from following the behavior of other same‐type banks than different-type banks because of characteristic herding or reputational concerns. Loan herding by JSCBs is motivated by investigative herding, whereas loan herding by CCBs results from informational cascades. Moreover, loan herding has a significantly harmful impact on the operating performance of CCBs but not JSCBs, which may be explained by the irrational behavior of CCBs. Our results will help Chinese bank supervisors develop appropriate policies for handling loan herding.
Fiscal Subsidy Policy on Home Appliances: Its Effects on Domestic Consumption and Exports in China
Ting Ji Ningyuan Jia Faqin Lin Hang Wu
Ting Ji acknowledges the financial support of the National Natural Science Foundation of China (Nos.71703180 and 71603297). Faqin Lin acknowledges the financial support of the National Natural Science Foundation of China (No. 71773148).
Key words: difference-in-difference estimator, fiscal multiplier, home appliances to the countryside
Abstract: This paper evaluates the effects of the Home Appliances Going to the Countryside (HAGC) policy, a fiscal subsidy program implemented in China to boost private consumption of home appliances in rural areas from 2007 to 2012. Using the policy as a natural experiment and employing the difference‐in‐difference estimator, we find that the policy did not increase domestic sales of relevant goods as expected; instead, it actually reduced domestic sales and significantly promoted exports. These surprising results are robust across regressions of alternative datasets, more controls, and different regions. We further provide detailed information of undisclosed audit data for a county in Zhejiang province to shed light on the underlying mechanism of such unexpected results, suggesting loopholes in the HAGC and changes in export tax rebate rates.
Misallocation in Chinese Manufacturing and Services: A Variable Markup Approach
Jinfeng Ge Jie Luo Yangzhou Yuan
We thank Zheng Song and John Hassler for continued guidance. We are grateful to Paolo Epifani, Gino Gancia, Zhe Li, Shu Lin, Chen Wang, Yongqing Wang, Youzhi Yang, Zhigang Yuan and Bo Zhao for insightful comments. We also thank seminar participants at Fudan University, Chinese University of Hong Kong and Shanghai University of Finance and Economics for their useful comments.
Key words: misallocation, sectoral allocation, variable markup
Abstract: Cross-country comparison reveals an unusually small service sector in China. Using firm-level data from China's 2008 economic census, we find two facts that speak to a novel mechanism of misallocation within service and between manufacturing and service sectors. First, compared with the manufacturing sector, there are more state‐owned enterprises and fewer entrants in the service sector. Second, markups increase with firm size, and the increase is more dramatic among service firms. We interpret these facts through the lens of a monopolistic competition model with heterogeneous firms and variable markups. A multisector model shows a new channel that translates asymmetric barriers to entry across sectors into sectoral markup differences, which in turn cause sectoral misallocation. Quantitative analysis shows that when reducing entry barriers to service firms to the extent observed for manufacturing firms, the model predicts a 12-percentage-point increase in the service employment share.
Regional Competition in China under the Price Distortion of Construction Land: A Study Based on a Two-regime Spatial Durbin Model
Yongjian Liu Hong Geng
This work is the research achievement of the Human Resource Management Research Base in Jiangsu, and was supported by the Fundamental Research Funds for the Central Universities (No. NJ2018030), the Postgraduate Research and Practice Innovation Program of Jiangsu Province (No. KYCX18‐0238), and the Social Science Foundation of Jiangsu Province (No. 18GLB014). We also would like to thank the Division of Economics and the Economic Growth Centre, School of Social Sciences, Nanyang Technological University, Singapore. We especially thank Associate Professor Guiying Laura Wu and Associate Professor Qu Feng for their advice.
Key words: construction land, price distortion, regional competition, spatial Durbin model, two-regime model
Abstract: This study examines regional competition in China by considering the spatial correlation and spillover effect of construction land price distortion using a two-regime Spatial Durbin Model to investigate the patterns and trends of the competition between 285 cities in China from 2006 to 2015. The study finds: (i) price distortion of construction land is a common phenomenon but the distortion index generally shows a declining trend; (ii) regional competition through construction land price distortion shows a weakly intensified pattern, although the competition patterns in the four regions of China varied; and (iii) the intensity of competition between regions was lower during the 12th Five-year Plan compared to the 11th Plan. The intensity of competition between cities was also lower inside than outside urban agglomerations. These results provide policy implications for remedying the price distortion of construction land and promoting regional coordinated development.