Friday 28 March 2008

Poverty is China - RDE Special Issue

The latest issue of "Review of Development Economics" (a decent development journal) has a special section of 3 papers looking at poverty in China.


Special Section: Poverty and Inequality in China
Guest Editor: Guanghua Wan

Introduction to the Special Section: Poverty and Inequality in China
Guanghua Wan
pages 416–418

How Should We Measure Poverty in a Changing World? Methodological Issues and Chinese Case Study
Lars Osberg and Kuan Xu
pages 419–441

Gender Earnings Differential in Urban China
Meiyan Wang and Fang Cai
pages 442–454

Explaining the Poverty Difference between Inland and Coastal China: A Regression-based Decomposition Approach
Guanghua Wan and Yin Zhang
pages 455–467

Wednesday 26 March 2008

On China's Monetary Trap and Inflation

A link to the always excellent "China Financial Markets" posts on China's Monetary Trap and the increasing problem of inflation.

The first article summarises Pettis' arguments as to why he believed China's monetary policy is out of control. He lists eight main arguments which are well made. The only issue is whether his envisaged "revaluation" will ever take place due to the political implications.

China's monetary trap [China Financial Markets]

This whole argument in favor of a maxi-revaluation depends crucially on the assumption that foreign exchange inflows will continue to accumulate at extraordinary levels until the adjustment is made. This is the bet I made four years ago – I argued that reserves would surge. Of course like everyone else I seriously underestimated just how much it would surge. The key argument against continued rapid appreciation is of course the incentive this creates for speculative inflows.

In a second post Pettis deconstructs Chinese inflation to reveal in simple terms just how bad things have got and how quickly.

Deconstructing Chinese inflation [China Financial Markets]

This gives a better idea than do the headline annual figures of how variable inflation has been and how it has accelerated. The first thing to note is that inflation really began to pick up at the end of 2006, but only began showing up in the annual numbers in the summer of 2007. A quick calculation (which is not included in the graph) indicates that from May 2007 to now China has suffered from double-digit inflation (11.1% annualized). The same calculation also suggests that if the next three months show price increases that on average equal the price increases of the past eight months (around 1% month-on-month) we will have double digit year-on-year inflation in China by May.

The second thing is that the February rate of increase in the CPI was very high (35% on an annualized basis), more than twice as high as the already-high January rate of increase. Because of the big jump in February prices, the numbers for March are likely to be distorted. In fact prices could decline significantly in March (by 1.8% on average) while still maintaining a continuation of January’s 7.1% year-on year CPI inflation. If prices do not decline this month, March 2007 year-on-year CPI inflation will reach 9.1% or more.


Tuesday 25 March 2008

Mandarin for all?

I suspect this story, that a small US college will be sending students to China to learn Mandarin, is just the beginning.

The article begins, as is often the case with journalists, with an example of some sixty year old studying in China. I cut to the chase.

Small college sees Mandarin as a must []

With China an ever-growing player in the global economy, educators are searching for ways to prepare students to compete. In recent years, Mandarin Chinese-language classes have taken their place alongside Spanish and French in many American schools, at all grade levels.

More than 7,000 Chicago Public Schools students from preschool up now take Mandarin classes, the largest such enrollment in the country, city school officials say. The College Board offered its first Advanced Placement exam in Chinese language and culture last May. On the college level, the number of students taking a Chinese language class grew by 51 percent from 2002 to 2006, the Modern Language Association reports.


China hosted 8,830 U.S. study abroad students in the 2005-06 school year, up 38 percent from the previous year, according to the Institute for International Education's survey. The United Kingdom topped the list of destinations, but China ranked second behind Argentina's.

"I think China is already a big player right now in international politics, and it's only going to become more so," said Dan Woodall, 23, one of those departing in August for the College of Lake County program. Woodall, of Buffalo Grove, works full time at a luggage and travel store in Skokie. After he returns from studying abroad, he hopes to transfer to the University of Chicago to study international relations.


Tuesday 18 March 2008

Research paper update: "China in the World Economy"

This post is an attempt to document some of the more interesting and recent academic papers looking at "the economics of China".

They also represent a backlog of papers to read for yours truly. This is where this blog takes on part research diary/part blog. However, I hope you might find some of these papers interesting. A friendly academic can be eamiled if PDFs are required and the link requires some sort of cost.


"Trade Integration in East Asia: The Role of China and Production Networks"
World Bank Policy Research Working Paper No. 4160

World Bank - EASPR

Full Text:

ABSTRACT: Production networks have been at the heart of the recent growth in trade among East Asian countries. Fragmentation trade, reflected mainly in the trade in parts and components, is expanding more rapidly than the conventional trade in final goods. This is mainly due to the relatively more favorable policy setting for international production, agglomeration benefits arising from the early entry into this new form of specialization, considerable intercountry wage differentials in the region, lower trade and transport costs, and specialization in products exhibiting increasing returns to scale. The economic integration of China has deepened production fragmentation in East Asia, countering fears of crowding out other countries for international specialization. International production fragmentation in East Asia has intensified intraregional trade but has depended heavily on extraregional trade in final goods. While production networks centered on China have contributed significantly to growth in East Asia, they also breed vulnerabilities. They have not automatically led to technology spillovers and have led to an extreme interdependence across East Asian countries.

Haddad, Mona, "Trade Integration in East Asia: The Role of China and Production Networks" (March 1, 2007). World Bank Policy Research Working Paper No. 4160 Available at SSRN:


"Assessing China's Exchange Rate Regime"
NBER Working Paper No. W13100

Harvard University - John F. Kennedy School of
Government, National Bureau of Economic Research

International Monetary Fund (IMF) - Research
Department, Centre for Economic Policy Research
(CEPR), National Bureau of Economic Research
(NBER), The Brookings Institution

Full Text:

ABSTRACT: This paper examines two related issues: (a) the implicit methodology used by the US Treasury in determining whether China and America's other trading partners manipulate their exchange rates, and (b) the nature of the Chinese exchange rate regime since July 2005. On the first issue, we investigate the roles of economic variables consistent with the IMF definition of manipulation - the partners' overall current account/GDP, its reserve changes, and the real overvaluation of its currency - but also some variables suggestive of American domestic political considerations - the bilateral trade balance, US unemployment, and an election year dummy. The econometric results suggest that the Treasury verdicts are driven heavily by the US bilateral deficit, though other variables also turn out to be quite important. On the issue of China's de facto exchange rate regime, we apply the technique introduced by Frankel and Wei (1994) to estimate implicit basket weights, adding several refinements. Within 2005, the de facto regime remained a peg to the dollar. However, there was a modest but steady increase in flexibility subsequently. We test whether US pressure has promoted RMB flexibility. We also test whether the recent appreciation against the dollar is due to a trend appreciation against the reference basket or a declining weight on the dollar in the reference basket, and suggest that they have different policy implications.


"Das (Wasted) Kapital: Firm Ownership and Investment Efficiency in China"
NBER Working Paper No. W13103

World Bank - Development Economics Group (DEC)

International Monetary Fund (IMF) - Research
Department, Centre for Economic Policy Research
(CEPR), National Bureau of Economic Research
(NBER), The Brookings Institution

Full Text:

ABSTRACT: Based on a survey that we designed and that covers a stratified random sample of 12,400 firms in 120 cities in China with firm-level accounting information for 2002-2004, this paper examines the presence of systematic distortions in capital allocation that result in uneven marginal returns to capital across firm ownership, regions, and sectors. It provides a systematic comparison of investment efficiency among wholly and partially state-owned, wholly and partially foreign-owned, and domestic privately owned firms, conditioning on their sector, location, and size characteristics. It finds that even after a quarter-of-century of reforms, state-owned firms still have significantly lower returns to capital, on average, than domestic private or foreign-owned firms. Similarly, certain regions and sectors have consistently lower returns to capital than other regions and sectors. By our calculation, if China succeeds in allocating its capital more efficiently, it could reduce its capital stock by 8 percent without sacrificing its economic growth (and hence could raise its household consumption and deliver a faster improvement to its citizens' living standard).


"Misallocation and Manufacturing TFP in China and India"
NBER Working Paper No. W13290

University of California, Berkeley - Department of
Economics, National Bureau of Economic Research

Stanford University - Department of Economics,
National Bureau of Economic Research (NBER)

Full Text:

ABSTRACT: Resource misallocation can lower aggregate total factor productivity (TFP). We use micro data on manufacturing establishments to quantify the extent of this misallocation in China and India compared to the U.S. in recent years. Compared to the U.S., we measure sizable gaps in marginal products of labor and capital across plants within narrowly-defined industries in China and India. When capital and labor are hypothetically reallocated to equalize marginal products to the extent observed in the U.S., we calculate manufacturing TFP gains of 25-40% in China and 50-60% in India.


"Big Dragon, Little Dragons: China's Challenge to the Machinery Exports of Southeast Asia"
World Bank Policy Research Working Paper No. 4297

World Bank - Jakarta Office

Full Text:

ABSTRACT: This paper investigates the extent of China's export boom in machinery and analyzes trade in components and finished machinery between China and Southeast Asia. China has increased its world market share in machinery exports. The median relative unit value of its finished machinery exports has also risen. Yet the author finds no evidence that China's expansion in the world machinery market has squeezed the market shares of Southeast Asian machinery exports. Instead, components made by Southeast Asian countries are increasing in unit value and gaining market share in China.


"The Growth of China and India in World Trade: Opportunity or Threat for Latin America and the Caribbean?"
World Bank Policy Research Working Paper No. 4320

World Bank - Development Research Group (DECRG),
World Trade Organization (WTO), University of
Geneva, Centre for Economic Policy Research (CEPR)

World Bank - Latin America and Caribbean Region

University of the Americas, Puebla

Full Text:

ABSTRACT: This paper studies the relationship between the growth of China and India in world merchandise trade and Latin American and Caribbean commercial flows from two perspectives. First, the authors focus on the opportunity that China and India's markets have offered Latin American and Caribbean exporters during 2000-2004. Second, empirical analyses examine the partial correlation between Chinese and Indian bilateral trade flows and Latin American and Caribbean trade with third markets. Both analyses rely on the gravity model of international trade.
Econometric estimations that control for the systematic correlation between expected bilateral trade volumes and the size of their regression errors, as well as importer and exporter fixed effects and year effects, provide consistent estimates of the relevant parameters for different groups of countries in Latin America and the Caribbean. Results suggest that the growth of the two Asian markets has produced large opportunities for Latin American and Caribbean exporters, which nevertheless have not been fully exploited. The evidence concerning the effects of Chinese and Indian trade with third markets is not robust, but there is little evidence of negative effects on Latin American and Caribbean exports of non-fuel merchandise. In general, China's and to a large extent India's growing presence in world trade has been good news for Latin America and the Caribbean, but some of the potential benefits remain unexploited.


How does FDI affect China? Evidence from industries and provinces

Jimmy Rana,
Jan P. Voona and Guangzhong Lic


Using the latest panel data from 19 industries and 30 provinces in China, we found it is not true that more FDI necessarily brings about more output growth across the board. Local industries without foreign participation lose while those with some participation gain from the inflow. Provinces in western and central regions lose while those in the eastern and coastal regions appear to be the major beneficiaries. While the net effect of FDI is still positive, the regional disparity has been growing. It casts doubt on the rationale of haphazard and lavish policies to compete for FDI in China. Journal of Comparative Economics 35 (4) (2007) 774–799.

Keywords: FDI; Economic growth; Spillover; Industries; Provinces; Net impacts

JEL classification codes: C5; F21


"The Shifting Structure of China's Trade and Production"
IMF Working Paper No. 07/214

Contact: LI CUI International Monetary Fund (IMF)

Co-Author: MURTAZA H. SYED International Monetary Fund (IMF)

Full Text:

ABSTRACT: This paper uses disaggregated trade data to assess how the expansion of China's production capacity and its changing production structure may be affecting its trade linkages with other countries. It finds that China is moving away from traditional assembly operations in its processing activities and its exports have started to rely more on domestically sourced components. In turn, China's imports and exports have begun to delink, with increased domestic sourcing contributing to the recent increase in its trade balance. In addition, as China moves up the value chain, both its imports and exports have become more sophisticated than in the past. As a result of these shifts, China may be becoming more exposed to fluctuations in the strength of the global economy, and changes in its exchange rate could have a bigger impact on the trade balance and the domestic economy than commonly believed.


"What Drives China's Growing Role in Africa?"

IMF Working Paper No. 07/211

International Monetary Fund (IMF) - European

Full Text:


What role does China play in Africa's development? What drives China's increasing economic involvement in the continent? This paper attempts to provide a quantified assessment of China's multifaceted influence as market, donor, financer and investor, and contractor and builder. Though in the past official development aid predominated, the paper argues that government policies, markets for each other's exports, Africa's demand for infrastructure, and differences in China's approach to financing have together moved commercial activities - trade and investment - to the center of China-Africa economic relations. While China's public sector, state financial institutions in particular, has been instrumental in the process, the influence of its private sector is increasing. Implications for the future of China-Africa economic relations are briefly noted.


"China's Exports and Employment"

NBER Working Paper No. W13552

ROBERT C. FEENSTRA, University of California, Davis - Department of Economics, National Bureau of Economic Research (NBER)
CHANG HONG, International Monetary Fund (IMF)

Dooley et al (2003, 2004a,b,c) argue that China seeks to raise urban employment by 10-12 million persons per year, with about 30% of that coming from export growth. In fact, total employment increased by 7.5-8 million per year over 1997-2005. We estimate that export growth over 1997-2002 contributed at most 2.5 million jobs per year, with most of the employment gains coming from non-traded goods like construction. Exports grew much faster over the 2000-2005 period, which could in principal explain the entire increase in employment. However, the growth in domestic demand led to three-times more employment gains than did exports over 2000-2005, while productivity growth subtracted the same amount again from employment. We conclude that exports have become increasingly important in stimulating employment in China, but that the same gains could be obtained from growth in domestic demand, especially for tradable goods, which has been stagnant until at least 2002.


"Economic Growth Across Space and Time: Subprovincial Evidence from Mainland China"

BOFIT Discussion Paper No. 21/2007

DECLAN CURRAN, University of Hamburg - Faculty of Economics and Business Administration
MICHAEL FUNKE, University of Hamburg - Faculty of Economics and Business Administration, CESifo (Center for Economic Studies and Ifo Institute for Economic Research)
JUE WANG, Bank of Finland - Institute for Economies in Transition (BOFIT)

This paper considers the persistent differences in economic performance across Chinese regions. We introduce a new county- and city-level dataset that spans all of mainland China and provides a detailed view of Chinese regional growth over the period 1997-2005. Non-parametric kernel density estimation is employed to establish the cross-sectional GDP per capita distribution, and the distributional dynamics are investigated using the probability matrix technique and associated stochastic kernel estimator. A set of explanatory variables is then introduced, and several regressions are run to test for conditional-convergence and to pinpoint influential factors for economic growth across counties and cities.


"What Accounts for the Rising Sophistication of China's Exports?"

NBER Working Paper No. W13771

ZHI WANG, U.S. International Trade Commission
SHANG-JIN WEI, Columbia Business School, National Bureau of Economic Research (NBER), Centre for Economic Policy Research (CEPR), International Monetary Fund (IMF)

Chinese exports have become increasingly sophisticated. This has generated anxiety in developed countries as competitive pressure may increasingly be felt outside labor-intensive industries. Using product-level data on exports from different cities within China, this paper investigates the contributing factors to China's rising export sophistication. Somewhat surprisingly, neither processing trade nor foreign invested firms are found to play an important role in generating the increased overlap between China's export structure and that of high-income countries. Instead, improvement in human capital and government policies in the form of tax-favored high-tech zones appear to be the key to the country's evolving export structure. On the other hand, processing trade, foreign invested firms, and government-sponsored high-tech zones all have contributed significantly to raising the unit values of Chinese exports within a given product category.

Monday 17 March 2008

A ravenous dragon in Africa

The increasing presence of China in Africa has been a topic of hot debate in the press, blogs and for academics.

The Economist has now entered the debate with a special issue. Better late than never.

There are a whole series of article most of which are worth a read. The quotes include the standard scare stories. There is some truth in these stories but Western companies also fear being frozen out. Is this a race to the bottom taking place? If so the West will find it very hard to compete.

This issue will become increasingly important in years to come and is something I will be working on.

A ravenous dragon [Economist]

Unwelcome advances

But China's sudden global reach is generating as much anxiety as prosperity. In 2005 America's congressmen, citing nebulous national-security concerns, scuppered the proposed takeover of Unocal, an American oil firm, by CNOOC, a state-owned Chinese one. The opposition candidate in Zambia's presidential election in 2006 made a point of attacking the growing Chinese presence in the country. Residents of Russia's far east fear that China is planning to plunder their oil and timber and perhaps even to colonise their empty spaces.

Some non-governmental organisations worry that Chinese firms will ignore basic legal, environmental and labour standards in their rush to secure resources, leaving a trail of corruption, pollution and exploitation in their wake. Western companies fret that the Chinese state-owned firms with which they suddenly find themselves competing have an agenda beyond commercial gain. The Chinese government, they say, is willing to pay over the odds for mining or drilling rights to secure access to physical resources. It also intervenes unfairly on its companies' behalf, they claim, by offering big aid packages to countries that welcome Chinese investment. All this, it is feared, will dent the profits of big oil and mining firms, stoke inflation and imperil the West's access to resources that it needs just as much as China does.

Diplomats and pundits, for their part, fear that the West is “losing” Africa and other resource-rich regions. China's sudden prominence, according to this view, will reduce the clout of America, Europe and other rich democracies in the developing world. China will befriend ostracised regimes and encourage them to defy international norms. Corruption, economic mismanagement, repression and instability will proliferate. If this baleful influence spreads too widely, say the critics, the “Washington consensus” of economic liberalism and democracy will find itself in competition with a “Beijing consensus” of state-led development and despotism.

Such fears are not entirely groundless if the recent conduct of some of Congo's neighbours is anything to go by. Angola, to the south, has been receiving so much aid and investment from China that in 2006 it decided it had no need of the International Monetary Fund's billions and all the tiresome requirements for transparency and sound economic management that come with them. Sudan, to the north, has shrugged off Western threats and sanctions over the continuing atrocities in Darfur, thanks in large part to China's readiness to invest in Sudanese oilfields and buy their output. Farther afield, China's eagerness to do business in Myanmar, and its consequent reluctance to chide the tyrannical generals that run the place, helped to prevent a forceful international response to the violent repression of peaceful demonstrations there last year.


Saturday 15 March 2008

Multinationals and CSR in China

There is a considerable interest in the economics literature as well as in the popular press on the behaviour or multinationals in developing countries. I have done some recent work on China.

It is therefore interesting to see the Chinese popular press jumping on this particular bandwagon. From a political economy perspective, corporate social responsibiluty (CSR) is a good stick for China to beat foreign firms with.

The real issue is not how badly foreign firms behave but how badly relative to their plants in thier domestic market and local firms.

Consumer message to foreign firms: Behave [Shanghai Daily]

CHINESE consumers and workers want transnational companies to exercise more social responsibility following a series of scandals, a survey has revealed.

The survey, by the Guangdong Provincial Situation Study and Investigation Center, polled more than 3,000 respondents - including consumers and employees of transnational companies in Shanghai, Beijing, Guangzhou and Shenzhen - on the firms' image in the nation.

About 70 companies were involved, including drinks giant Coca-Cola and telecommunications major Nokia, both of whom have a high-profile presence in China.

Close to 90 percent of those polled agreed that the companies had made significant contributions to the country's economic development.

However, only about 22 percent of those polled said that the companies had fulfilled their social responsibilities in accordance with profits they had made in China.

Almost 80 percent of the respondents also said there was discrimination against Chinese employees within multinational companies.

Feng Shengping, a researcher with the study and investigation center who led the study, said multinational companies should attach more importance to improving their corporate image among consumers, so they can better integrate into the economy and society.

"The public is paying more attention to whether multinationals are performing in accordance with the law, and whether they realize due social responsibility," Feng said.

"Transnational companies, which were once regarded as exemplary businesses for the Chinese economy, have, to some degree, lost their image among consumers, following a series of business scandals in recent years."

More than 570,000 foreign-invested companies have registered in China since 1982, bringing investment of US$665 billion, the researcher said.

China and global adjustment

This youtube video is entertaining and includes some interesting headline numbers such as graduate levels and little facts such as "China will be the largest English speaking country in the world by such and such a date".

The dynamic adjustment that is required by Western governments is made clear. The flat earth concept is emphasised with special attention paid to education and employment. It is estimated that by the age of 38 today's graduates will have had between 10 and 14 jobs. Compare that will the current "jobs for life" mentality that we currently enjoy.


Thursday 13 March 2008

Corruption in Asia

I have done some work looking at the impact of corruption in China. It was therefore interesting to read a recent ChinaLawBlog post on corruption rankings in Asia.

Corruption In Asia: China Is Ten Out Of Thirteen [ChinaLawBlog]

The Political and Economic Risk Consultancy (PERC) recently asked "over 1,400 expatriates" to rank 13 Asian economies on corruption and the results of that survey, from least corrupt to most corrupt, are as follows:

1. Singapore
2. Hong Kong
3. Japan
4. Macau
5. South Korea
6. Malaysia
7. Taiwan
8. India
9. Vietnam
10. China
11. Indonesia
12. Thailand
13. Philippines

China is a creditable 10th but is pretty much where I would have placed it in this list of countries.


On the Rising Sophistication of China's Exports

I am doing some work in this area. This new NBER paper appears to have some excellent data on product level trade between cities. One to add to the "to read" pile.

From the abstract I am not overly convinced by these results. It all depends on how the authors have attempted to measure sophistication.

What Accounts for the Rising Sophistication of China's Exports?

NBER Working Paper No. W13771

ZHI WANG, U.S. International Trade Commission
SHANG-JIN WEI, Columbia Business School, National Bureau of Economic Research (NBER), Centre for Economic Policy Research (CEPR), International Monetary Fund (IMF)

Chinese exports have become increasingly sophisticated. This has generated anxiety in developed countries as competitive pressure may increasingly be felt outside labor-intensive industries. Using product-level data on exports from different cities within China, this paper investigates the contributing factors to China's rising export sophistication. Somewhat surprisingly, neither processing trade nor foreign invested firms are found to play an important role in generating the increased overlap between China's export structure and that of high-income countries. Instead, improvement in human capital and government policies in the form of tax-favored high-tech zones appear to be the key to the country's evolving export structure. On the other hand, processing trade, foreign invested firms, and government-sponsored high-tech zones all have contributed significantly to raising the unit values of Chinese exports within a given product category.


Blogging in China: " Flatter world and thicker walls?"

Public Choice (a good quality economics journal) recently had a special issue on the topic of blogging. One article concerns China.

Given we are still blocked in China (despite our goal of providing information to students wishing to study abroad) this makes for interesting reading.

Special issue (including PDFs for a limited period)

Flatter world and thicker walls? Blogs, censorship and civic discourse in China

Rebecca MacKinnon
Journalism & Media Studies Ctr, University of Hong Kong, Hong Kong, Hong Kong

Abstract The Internet simply because it exists in China will not bring democracy to China. It is a tool, not a cause of political change. So far, the Chinese government has succeeded through censorship and regulation in blocking activists from using the Internet as an effective political tool. Likewise, blogs may be a catalyst for long-term political change because they are helping to enlarge the space for collaboration and conversation on subjects not directly related to political activism or regime change. However their role in China is more likely to involve political evolution—not revolution.

Keywords China - Internet - Democracy - Blogs

Government Efficiency in China

The New York Times looks at China's atempt to improve government efficiency. This is an interesting area of research and there have been other cross-country studies looking at, for example, the effect of government on FDI. Studies have also been written looking specifically at province level efficiency in China.

China Retools Its Government in Efficiency Push [New York Times]

BEIJING — China announced Tuesday that it would reorganize the central government by creating five so-called superministries, including one responsible for improving environmental protection. But the plan stopped short of creating a single agency to oversee the contentious issue of energy policy.


The plan, submitted Tuesday during the annual session of the National People’s Congress, the legislature run by the Communist Party, is intended to streamline an overlapping array of government agencies, commissions and ministries around core issues: environmental protection; social services; housing and construction; transportation; and industry and information.

China’s complex bureaucracy is widely regarded as inefficient and often ineffective at carrying out policies that flow from Beijing, in part because agencies become enmeshed in turf battles or are focused on protecting their own entrenched interests.


Chinese state media quickly framed the plan, expected to be endorsed this week by the legislature, as a major bureaucratic reform that would improve the way national policies were carried out. But the practical impact is far from certain as China’s bureaucracy struggles to manage soaring energy demand, rampant pollution, rising inflation and an economy that some analysts say is perilously close to overheating.


Despite three decades of market reforms, China’s economy is still heavily shaped by the government’s central planning agency, the National Development and Reform Commission. Some analysts had contended that the government could become more efficient by stripping away some of the commission’s responsibilities, including energy policy. Speculation had centered on whether an independent energy ministry would be established.

The new plan divides authority over energy. A new “high level” energy commission would develop national energy strategies. But an energy bureau under the central planning agency would control administration and oversight of the energy sector.

Yang Fuqiang, director of the Beijing office of the nonprofit Energy Foundation, said the creation of the two energy agencies represented a political compromise. He predicted that they would eventually be merged into a full ministry, but not for a few more years. “This is a first step,” Mr. Yang said.

The plan also puts the country’s food and drug regulatory agency under the control of the Ministry of Health. China’s regulatory system has come under heavy international criticism because of scandals involving contaminated or counterfeit ingredients in food and drugs. The Chinese state news media said the new arrangement “would make for better food and drug safety.”

Mr. Kroeber said one significant change in the restructuring plan was that the central planning agency would no longer have final approval on major construction projects. But he said that calling the new entities “superministries” overstated their power and that they seemed to represent a “half step.” He said the expanded ministry over transportation would oversee civil aviation and urban road transportation, but would not include the current Ministry of Railways, which lobbied strenuously to remain autonomous.

“They haven’t gotten all the way to a coordinated transportation ministry,” Mr. Kroeber said.

The new environmental ministry would seem further proof of the emphasis placed on fighting pollution by President Hu Jintao and Prime Minister Wen Jiabao. Environmentalists have complained that the State Environmental Protection Administration was easily steamrolled in bureaucratic turf battles because it did not rank as a full government ministry. The new plan elevates the agency to ministry status, presumably with greater clout inside the bureaucracy.

Yet it is unclear if that new status will also include an expanded budget for a larger staff to carry out regulatory policies. Currently, the agency has only a few hundred employees to coordinate and regulate environmental protection.


Xie Zhenhua, a vice chairman of the National Development and Reform Commission, said the country was steadily decreasing its energy use, but still not meeting the target of annual 4 percent reductions.

Students in China to get food subsidies

Whenever possible we like to cover the state of education in China and more specifically provide advice to students wanting to study abroad (UK in particular).

It is therefore a sign of the different worlds inhabited by those Chinese students in the UK and the average student in China.

China earmarks more food subsidies to college students []

China yesterday allocated more funds to college students as a temporary food subsidy to offset the burden of rising inflation.

According to the ministries of education and finance, the money will be given out "as soon as possible" to students from financially vulnerable homes.

Several days earlier, the two ministries had channeled a subsidy of 189.28 million yuan to students of universities managed by the central government. The size was calculated by 20 yuan per person during each of the four months from March to June.

Local governments had also been directed to allocate subsidies to colleges they manage in accordance with the same criteria.


Wednesday 12 March 2008

China's CO2 emissions to kill us all?

A new paper has been released that forcasts China CO2 emissions. Written by respected economists Maximilian Auffhammer, (University of California, Berkeley) and Richard T. Carson, (University of California, San Diego) this paper represents a good first pass at predicting CO2 growth in China.

This is a free download paper.

Forecasting the Path of China's CO2 Emissions Using Province Level Information

Maximilian Auffhammer, University of California, Berkeley
Richard T. Carson, University of California, San Diego

Our results suggest that the anticipated path of China's Carbon Dioxide (CO2) emissions has dramatically increased over the last five years. The magnitude of the projected increase in Chinese emissions out to 2015 is several times larger than reductions embodied in the Kyoto Protocol. Our estimates are based on a unique provincial level panel data set from the Chinese Environmental Protection Agency. This dataset contains considerably more information relevant to the path of likely Chinese greenhouse gas emissions than national level time series models currently in use. Model selection criteria clearly reject the popular static environmental Kuznets curve specification in favor of a class of dynamic models with spatial dependence.


Monday 10 March 2008

Aid from China and Human rights abuses

Excellent article reflecting on a recent academic paper on Chinese aid and human rights abuses.

Instead of going through the arguments again I point you to Chris Blattman's Blog that has the appropriate links. I believe the economists have got it about right here - it is crucial to identify the order of causation.

I believe that this will become an increasingly important topic for empirical researchers and something I will be looking at in the near future data permitting.

Do trade and aid from China increase human rights abuses?

Yesterday, the New York Times lamented the worsening war in Sri Lanka, the rise in human rights abuses, and the emasculation of rights observers. "Gone are the Nordic monitors," it writes, "independent journalists are not allowed anywhere near the front lines."

Today, the blame is apportioned. "Take Aid From China and Take a Pass on Human Rights" proclaims the newspaper. The argument: unconditional aid and trade from China insulates regimes from Western mores and threats of sanctions in a dirty war.

China fear-mongering? Taking the story beyond the evidence? Maybe not.

The Times misses a paper posted last week by economists Erik Meyersson, Nancy Qian, and Gerard PadrĂ³-i-Miquel, but it gets the story right. Here newspaper anecdotes get support from some powerful statistics: trade with China predicts human rights abuses. At least in Africa.


Saturday 8 March 2008

China vrs Thailand

The Silk Road International blog posted an interesting little article where a business man compared doing business in China and Thailand.

I am currently writing academic papers on both countries and this sort of post gives one a flavour of what is happening at ground level. These are therefore posted for my own reference but I think they should of interest to all those interested in the economics of China.

Thailand vs. China [Silk Road International Blog]

1. Were here in Thailand for this client because of the tax and export duty savings over China in their specific product line. The cost differences are substantial and the legal requirements for export are not nearly as burdensome here.

2. Thailand’s infrastructure is at least as good as China’s East Coast’s—ports, airports, toll-ways. Nothing new, I know, but this is one of the major drawbacks of working far inland in China or even close to large cities in Vietnam or Cambodia. The big plus in Thailand is that there are no inter-provincial tariffs or restrictions on the flow of goods like there is in China.

3. Even with the recent wage increases labor is still more expensive in Thailand than in China. I’m seeing cost differences of about $50 to $75 a month between factory workers in China vs. Thailand.

4. The environment is much more “international” in Bangkok than it is in Shenzhen—more so than even Hong Kong, I’d say. Sure there isn’t as much English on signs but the exposure to “the west” is certainly as much or more—To me, Bangkok seems to be becoming more western and Hong Kong more Chinese. There are certainly more foreigners (yes, even in the non touristy sections of town).

5. The advertising is much more sophisticated in Thailand than China where it’s still a relatively immature industry. I was consciously amazed at the higher quality of both radio and out-door media advertising.

6. Nationalism is alive and well in both countries but Thailand’s flavor is much less strident. China seems to be a bit more angry, with something to prove, while Thailand is much more comfortable with it’s unique place in the world.

7. As I work with people in the jewelry industry here I’m constantly being told the same thing when I tell people I live in China, “You know, labor is more expensive here, but you get better quality work too.” Almost to a person, this was the response I heard—more than 10 times in just one day.

8. Thailand has a very well developed export base for automobiles, machinery and electronics, according to the Bangkok Post today. While China does have some of this too, pick-up trucks and hard-drives are especially well developed sub industries in Thailand.

9. Staffing in China is difficult in both retaining top-level local employees as well as low-end factory labor. Thailand has similar tight market in top-level employees. Service levels are much higher in Thailand as is education in general. Professional standards seem, to me, to be higher in Thailand as well.

10. The traffic in both Thailand and China is horrible—but each has it’s own perils. In China you are literally taking your life in your hands when you get into a car—the roads are some of the most deadly in the world. It’s scary, and for good reason. Thailand is completely different—you’re never going fast enough to be in a dangerous situation! The traffic, in Bangkok, is so bad at almost all times of each and every day that estimates are it lowers annual GDP by multiple points!

11. Banking (I can’t believe I’m going to say this); hands down China has better banks—in terms of service and accessibility. In China if you need a bank, you can get one open from 8AM to 5PM 7 days a week. Thailand is 9AM to 3:30PM five days a week and off every holiday known to man.


Economics is the enemy of the community - or is it?

A link to Dani Rodrik's post on a new book out called "The Dismal Science: How Thinking Like an Economist Undermines Community.". Rodrik is not entirely convinced.

Economics is the enemy of the community

Dani has done work looking at Chinese exports and the possible impact of government intervention on the increasingly high tech nature of Chinese trade.

The paper is called "What's So Special About China's Exports?"

Much more than comparative advantage and free markets have been at play in shaping China's export success. Government policies have helped nurture domestic capabilities in consumer electronics and other advanced areas that would most likely not have developed in their absence. As a result, China has ended up with an export basket that is significantly more sophisticated than what would be normally expected for a country at its income level. This has been an important determinant of China's rapid growth. What matters for China's future growth is not the volume of exports, but whether China will continue to latch on to higher-income products over time.


Friday 7 March 2008

Chinese allowed to buy shares abroad?

In a move that could result in a fall in Chinese domestic share prices, the FT today report on the possible liberalisation of share trading in China with Chinese citizens being allowed to buy shares in London, Hong Kong or Tokyo.

That would unleash a wave of money looking for safe havens. This article mentions the fear for local Chinese shares although the government seems keen to push ahead.

China signals it could ease share curbs [FT]

The head of China’s central bank said on Thursday that Chinese citizens could be allowed to invest directly in stocks in London, Tokyo or Singapore as well as in Hong Kong.

A plan to allow the right to invest directly in Hong Kong – which was abruptly suspended late last year – is still on track but could be modified to include markets beyond the territory, Zhou Xiaochuan, governor of the People’s Bank of China said.

He was speaking on the sidelines of the annual meeting of the National People’s Congress, China’s legislature.

The comments from Mr Zhou and other senior officials indicate that Beijing remains committed to reducing controls on offshore investment by its citizens in spite of concern among other parts of the government that such a move could trigger a collapse in the mainland stock market.

Mr Zhou refused to give more details but said that Chinese investors should be allowed to invest directly in other global markets, including London, Japan and Singapore.

“The controls and regulatory approvals we have implemented in the past [on capital flows in and out of China] will be gradually reduced and abolished,” Mr Zhou said. “We will support overseas investments by domestic residents.”

The central bank is trying to encourage outflows of capital from China to relieve pressure on the renminbi and reduce excess liquidity that is feeding rising inflation.


Mr Zhou’s Thursday comments echoed those of Dai Xianglong, chairman of the National Council for Social Security Fund and until last month mayor of Tianjin, who told the Financial Times last week that the government was still planning to allow individuals to convert renminbi into foreign currencies and make investments in overseas stock markets.

And on Wednesday, Xiao Gang, chairman of Bank of China, also said his bank was working on technical details of the scheme.

In a follow up post, the FT also report on the massive revenues that the Chinese government earnt from its share purchase tax.

Beijing reaps rewards of shares tax [FT]

The increase in a turnover tax on share trading introduced at the height of China’s stock market boom last year has delivered the government a windfall of Rmb182bn in new revenues.

Most of the money, equal to nearly half of the country’s official defence budget, was collected in just seven months following the increase in the stamp tax from 0.1 per cent to 0.3 per cent on each share trade last May.

According to figures released on Wednesday, Beijing collected a total of Rmb200.5bn ($28.2bn, €18.5bn, £14.1bn) in stamp tax on share trading for all of last year, compared with Rmb17.9bn in 2006, an increase of 1,000 per cent year on year.

The surge in collections made the share market nearly as bountiful a source of revenue for the Chinese taxman as the nation’s 1.3bn citizens.


Tuesday 4 March 2008

US says "China to build up military"

A clear placement story in the FT of all papers. The US says that China is to build up it military. Why would it do anything less? Has US spending on defence increased/slowed/remained the same?

With China growing at over 10% a year it is inevitable that some of the tax dollars will be spend upgrading China's military capacity. We have covered this issue before back in September.

The US also complains about a lack of transparency. How much do we really know about US spending?

Chinese Military: Hacking and Transparency

Here is the FT article:

China looks to build up military, says US [FT]

The Chinese military is increasingly developing capabilities, including counter space programmes, to conduct military operations beyond any conflict in the Taiwan Strait, the Pentagon said on Monday.


The Congressionally mandated report also stressed US concerns about a lack of transparency from China about its military build-up.

“The real story is the continuing development, the continuing modernisation, the continuing acquisition of capabilities and the corresponding and unfortunate lack of understanding, lack of transparency about the intentions behind those and the way they’re going to be deployed,” David Sedney, the deputy assistant secretary of defence for East Asia, said at the Pentagon.

“So what is China going to do with all that?”

The report raised concerns about China’s expanding naval power, saying the Chinese navy was gaining familiarity with open-water operations, and conducting exercises in international waters. It added the Chinese air force was improving the potential strike range of its bombers by enhancing radar systems and aerial refuelling.


“China recently agreed to begin submitting an annual report to the United Nations on its military expenditures, which would be a positive step toward increasing transparency,” said Mr Skelton. “Also, China’s growing focus on professional military education suggests the U.S. should be pursuing possible opportunities for increased US-China engagement in this area.


Monday 3 March 2008

Is China Trapped in Transition?

This is not only an interesting question but one covered by a new report from the Foundation for Law, Justice and Society at Oxford.

Follow the link below to get free access to all of these papers [PDFs].

I believe that China, if it is in any trap at all, will be able to extract itself. The commodity price inflation and environmental decline will not go away but the energy and vitality of the Chinese people should see growth continue apace for a while yet.

Is China Trapped in Transition?

Volume 2: Is China Trapped in Transition? Implications for Future ReformsFront cover of Trapped in Transition Volume

This special report brings together a selection of leading experts to critically evaluate the controversial thesis that China's transition is stalled. The collection of policy briefs addresses how China compares with other countries at a similar level of development; whether China's gradualist approach to reforms has been successful or produced entrenched vested interests capable of blocking further reforms; and the consequences for China and the world were China to become trapped in transition.

Is China Trapped in Transition?
Introduction: Randall Peerenboom

Is China's Transition Trapped and What Should the West Do about it?
Policy Brief 1: Minxin Pei

The Political Economy of China's Transition
Policy Brief 2: Joseph Fewsmith

China's Transition: Predatory State or Developmental Autocracy?
Policy Brief 3: Barry Naughton

China: Suffering from Growth Pains or Doomed to Stagnation?
Policy Brief 4: Dali L. Yang

Are China's Legal Reforms Stalled?
Policy Brief 5: Randall Peerenboom

Traps, Gaps, and Law: Prospects and Challenges for China's Reforms
Policy Brief 6: Jacques deLisle

China's Transition and the Limits of the American Constitutional Perspective
Policy Brief 7: Michael W. Dowdle

The Chinese Banking Sector
Policy Brief 8: Victor Shih

The Role of Foreign Investment in China's Transition
Policy Brief 9: Lester Ross

China's Trapped Transition Reconsidered
Policy Brief 10: Minxin Pei

The truth about profits in China

It is about time that this article was written. For all the talk of China's new billionaires it is clear that many firms are not making profits and that the roads are not paved with gold.

Buying shares in Chinese firms is not a licence to print money - margins are being squeezed and will continue to be so. Once you examine low wage, low skill sectors the problem worsens.

The FT reports:

Margins squeeze bites into China textiles [FT]

One in six Chinese textile companies lost money last year even though prices for the country’s clothing exports increased 8 per cent, according to the chairman of the China National Textile and Apparel Council.

At an industry conference in the southern province of Guangdong, where much of the textile industry is concentrated, Du Yuzhou said 17 per cent of the 44,200 textile companies tracked by the council lost money over the first 11 months of last year. This was in spite of companies benefiting from a fifth ­consecutive year-on-year rise in export prices for textiles.