Wednesday 10 June 2009

University productivity in China

There is no doubt that Chinese Universities are rapidly increasing in quality. However, there remains a productivity and quality gap with US and UK Universities. This interesting topic is discussed in a recently China Economic Review paper.

I am not keen on the techniques employed in this paper but the results that productivity is increasing but from a low base matches my expectations (always a good sign) :-)

Efficiency and productivity growth in Chinese universities during the post-reform period

Ying Chu NG and Sung-ko LIa


The social science research performance of Chinese universities is examined using panel data. The universities are found to be very inefficient in general, with not much difference between regions. By far the largest single cause of universities′ overall technical efficiency is pure technical efficiency, along with a considerable amount of scale inefficiency and a modest amount of congestion. No obvious regional differences in the universities′ productivity growth are apparent between 1998 and 2002. Decomposition of the Malmquist productivity index indicates that although there has been technological progress over the years, poor scale efficiency and technical efficiency have resulted in deterioration in the universities′ average productivity. There are signs of increasing congestion during the period studied.

Keywords: Technical efficiency; Congestion; Malmquist productivity index; Research; Chinese universities

JEL classification codes: I20; L30

Monday 8 June 2009

Why Do Institutions of Higher Education Reward Research While Selling Education?"

One of the initial motivations for this blog was to ensure that prospective Chinese students wanting to study abroad made sure that they invested wisely in the highest quality education at the top Universities.

To that end, the side bar on the right lists some of the top courses in the UK.

The Universities listed tend to be the "best" Universities in terms of research. That raises the question of why or if the best research Universities offer the best education.

My advice holds. A degree from a "top" University is a signal of the quality of the student (given these Universities are often harder to get into). If a student is to invest heavily in human capital accumulation then the returns need to be maximised. Employers are far more likely to take students from the well known "top Universities".

The following paper sheds light on this interesting topic.

Why Do Institutions of Higher Education Reward Research While Selling Education?"

NBER Working Paper No. w14974

DAHLIA REMLER, City University of New York - Baruch College - School of Public Affairs, National Bureau of Economic Research (NBER)
ELDA PEMA, Naval Postgraduate School

Higher education institutions and disciplines that traditionally did little research now reward faculty largely based on research, both funded and unfunded. Some worry that faculty devoting more time to research harms teaching and thus harms students' human capital accumulation. The economics literature has largely ignored the reasons for and desirability of this trend. We summarize, review, and extend existing economic theories of higher education to explain why incentives for unfunded research have increased. One theory is that researchers more effectively teach higher order skills and therefore increase student human capital more than non-researchers. In contrast, according to signaling theory, education is not intrinsically productive but only a signal that separates high- and low-ability workers. We extend this theory by hypothesizing that researchers make higher education more costly for low-ability students than do non-research faculty, achieving the separation more efficiently. We describe other theories, including research quality as a proxy for hard-to-measure teaching quality and barriers to entry. Virtually no evidence exists to test these theories or establish their relative magnitudes. Research is needed, particularly to address what employers seek from higher education graduates and to assess the validity of current measures of teaching quality.


China and the concept of "speed intensity"

The remarkable growth of China and before that Taiwan and Hong Kong was based on exports. This much is clear. The nature of these exports is however worth looking at more closely.

A recent World Economy paper puts Asian growth in context by considering the concept of "speed intensity". This makes a lot of sense.

The demand for fast and disposable fashion in the West has lead to need for cheap goods that can be made quickly to hit the shops shortly after the catwalk shows.

Speed Intensity and the Rise of the Chinese Economies

Kelly B. Olds 1

National Taiwan University


Producers of speed-intensive goods, e.g. clothing or electronics, face markets that are in constant flux due to changing fashion or technology. Throughout the twentieth century, Chinese business networks have had a comparative advantage in producing speed-intensive goods due to their quick reaction time. This comparative advantage was of relatively little value prior to the Second World War, but since the war, international telephone and air services have made international trade in speed-intensive goods practical. This has caused the demand for speed-intensive goods on the international market to grow at an extremely rapid pace. This growth in demand can explain the post-Second World War economic booms experienced by Hong Kong, Taiwan and finally China.

Research Paper: "Economics in the Backyard"

This paper by Hughes Hallet and Richter looks at a series of interesting questions related to the Chinese integration of Hong Kong (and indirectly Taiwan).

These results reinforce some of my own previous results. The results are as expected. It is always useful to have ones intuition verified.

Economics in the Backyard: How Much Convergence is there between China and her Special Regions?

Andrew Hughes Hallett 1 and Christian Richter 2
1 George Mason University, University of St Andrews and CEPR; School of Public Policy, Fairfax, USA , and 2 School of Economics, Kingston University, UK


This paper tests the hypothesis that the links and dependency relationships between China and her special regions have changed over the past 20 years with the industrialisation of China, and the emergence of Taiwan as a source of investment and sophisticated manufactures, and Hong Kong as financial centre and supplier of services. Has this changed the size and direction of spillovers in the region, and has it curtailed or eliminated American economic leadership? We use time-varying spectral methods to decompose the links between six advanced Asian economies and the US. We find: (a) the links with the US have been weakening, while those within a bloc based on China have strengthened; (b) that this is not new – it has been happening since the 1980s, but has now been reversed by the surge in trade; (c) that Taiwan is more integrated with, and dependent on, the Chinese economy, while Hong Kong continues her separate development based on specialisation and comparative advantage; (d) that the links with the US are rather complex, with the US able to shape the cycles elsewhere through her control of monetary conditions, but the China zone able to control the size of their cycles; and (e) there appears to be no real evidence that pegged exchange rates encourage convergence; in fact the reverse may be true.


Friday 5 June 2009

Chinese company results - does anyone believe the numbers?

I am glad it not just me. This Chinese stock market rose and then fell and is beginning to climb again.

First, it should never have risen so high (we have previously covered why it did so).

Second, it should have fallen further (and may still do so).

Third, the recent rally will not last.

My personal worries again relate to what Chinese companies are reporting. I have had my doubts and this links in with my view that I simply do not believe the data that these companies are reporting.

It was reassuring therefore to see that the Economist has picked up on this and about time.

The issue of Chinese subsidies is very important. This is the mother of all stimulus packages and it is clearly helping companies survive but to what cost and to what end?

It is tempting to take a large short position on China at the moment.

Red flags [Economist]

CHINA’S stockmarket has been one of the best performing in the world this year, and the country’s firms have so far steered through the global financial crisis better than many of their global peers. Partly they may have been buoyed by robust business conditions in China. But two recent studies, which raise serious questions about the credibility of China’s corporate earnings, suggest that companies may also have had an artificial boost.

The less damning of the two is issued under the auspices of the Hong Kong Monetary Authority and written by Giovanni Ferri, of Italy’s University of Bari, and Li-Gang Liu of BBVA, a bank. It argues that the profits of China’s large state-owned companies are entirely a product of subsidised financing by state banks, which lets them borrow much more cheaply than private or foreign firms (see chart).

To reach that conclusion the authors sifted through government data from 1999-2005. Mr Liu believes that such subsidies may have even increased since last summer, because the big state-owned enterprises have been the main beneficiaries of China’s economic stimulus. In the short term the subsidies will have boosted profits, not least compared with the firms’ credit-starved private peers. But in the longer term Mr Liu believes that the political component of the loans will mean capital is being allocated inefficiently, raising the prospect of future losses.

At least the academics are convinced that the profits are genuine, even if they are subsidised. But an exhaustive working paper by TJ Wong and Danqing Young, of the Chinese University of Hong Kong, and Xianjie He, of Shanghai University of Finance and Economics, reaches a more alarming conclusion. It suggests investors have little faith in the numbers.

To measure this they looked at Chinese firms before and after the country broke with its accounting traditions in 2007, adopting something akin to international accounting standards, which base valuations on market prices. They then dissected earnings in three ways. First, they compared how shifts in earnings correlated with shifts in share prices under the old accounting system and the new. An improvement in accounting practices should have meant a closer correlation between earnings and the performance of the share price. Not only did this not happen—there were some signs that things got worse.

Nor were there correlations between the share price and the shift in reported value of investment instruments, goodwill and the impairment of assets—all typically critical to an investor’s analysis. Lastly, the academics examined a nuance in the new standards that allowed Chinese firms to book profits by restructuring debt that was owed to affiliated companies. Before the change in accounting standards, this kind of debt restructuring was rare. Afterwards, it was common: more than 200 companies, or over 15% of those in the study, did it in 2007. This resulted in clear gains to earnings but no impact on share prices. So is there anything in the company reports that investors do consider to be meaningful? That, says Mr Wong, is the subject of the next study.


"Unfair West" threatens climate change progress

Apologies for a lack of recent posting. My senior academic management role is taking up more time that I initially expected. Fire fighting is almost under control now though so hopefully normal service can resume. I have missed some big stories but hope to recap some of them soon.

We begin with a return to the climate change problem. China has a lot to do but the government will is there. Of course this is largely a result of self interest - China is a country that is likely to suffer the brunt of climate change on its economy and environment.

Whilst the EU is doing a fair amount the US is still dragging its feet. Obama is trying but facing the brick wall of congress who are paid by the large lobby groups. Is this how democracy is supposed to work?

Yu is correct to state that it is a matter of political will in the West. The recession and current crisis (that will surely get worse) means this "will" will be in short supply.

INTERVIEW-China to act on climate, warns of "unfair" demands [Reuters]

BONN, Germany, June 2 (Reuters) - China promised on Tuesday to step up actions to fight climate change and cautioned that "unfair" new demands by rich nations could sabotage a new U.N. treaty due to be agreed in December.

"We will continue to focus on the improvement of energy efficiency, expansion of the use of renewable energy, more use of nuclear power and on reforestation," China's climate ambassador Yu Qingtai told Reuters of long-term plans beyond 2010.

And he said China was already doing a lot.

"We are pretty certain that our track record would not pale against anybody else in the world," he said on the sidelines of June 1-12 U.N. climate talks among 181 nations in Bonn.

He said China, for instance, was seeking to raise efficiency by cutting the amount of energy burnt per unit of economic output by 4 percent a year.

Washington says that China, which by most estimates has overtaken the United States as the top emitter of greenhouse gases, must do more to fight climate change under a U.N. pact due to be agreed in December in Copenhagen.

But Yu accused rich nations of introducing proposals that go beyond a roadmap for U.N. negotiations agreed in Bali in 2007.

"Copenhagen is only six months away -- instead of introducing new concepts, controversial concepts, unfair concepts, the world would be better served if we could focus on what is already agreed upon in the Bali roadmap," he said.

"If you start (questioning agreed principles), that can only meant that countries are not serious about future international cooperation. They are trying to create problems to sabotage the whole process," he said.

SINGAPORE Many developed nations, for instance, want a new yardstick that would redefine the existing group of 130 developing nations and demand more actions by the wealthier developing countries in slowing global warming.

Countries in the group of developing nations at the U.N. talks such as Singapore or the United Arab Emirates are wealthier per capita than many countries which have to cut emissions under the existing Kyoto Protocol.

"That would definitely not succeed," Yu said of an effort to redefine developing nations.

He said a 1992 U.N. Climate Convention made a basic split between nations that have caused climate change since the Industrial Revolution 200 years ago and victims -- including those that have recently become rich or major emitters.

Yu said that China's rejection of a new sliding scale did not mean however that all developing countries were able to do the same to slow climate change, such as more droughts, floods and rising seas. Under a separate principle, national circumstances vary. "We are aware that, as a country of 1.3 billion people, as a country that has enjoyed an impressive growth rate, we can do a lot more than a least developed country with a couple of million population," he said.

He said rich nations should focus on keeping pledges to curb greenhouse gases rather than place new demands on the poor. China wants the rich to cut emissions by at least 40 percent below 1990 levels by 2020 -- far deeper than cuts on offer.

A study by the Potsdam Institute for Climate Impact Research on Monday showed that promises by the rich so far amount to cuts of between 8 and 14 percent by 2020.

Asked if 40 percent was realistic when many nations say it would cripple their recession-racked economies, Yu said, "If there is political will...they can certainly do better than 8 or 14 percent. It is basically a question of political will."