Chinese Economy

October 24-25, 2014
Hanming Fang, University of Pennsylvania, and Shang-Jin Wei, Columbia University, Organizers

Shanjun Li, Cornell University

Better Lucky Than Rich? Welfare Analysis of Automobile License Allocations in Beijing and Shanghai

Economists often favor market-based mechanisms over non-market based mechanisms to allocate scarce public resources on grounds of economic efficiency and revenue generation. When the usage of the resources in question generates type-dependent negative externalities, the welfare comparison can become ambiguous. Both types of allocation mechanisms are being implemented in China's major cities to distribute limited vehicle licenses as a measure to combat worsening traffic congestion and urban pollution. While Beijing employs non-transferable lotteries, Shanghai uses an auction system. Li empirically quantifies the welfare consequences of the two allocation mechanisms by estimating a random coefficients discrete choice model of vehicle demand to recover consumers' willingness to pay for a license. Rather than relying on the maintained exogeneity assumption on product attributes in the literature, the author employs a novel strategy by taking advantage of a control group as well as information from household surveys to identify structural parameters. The author's analysis finds that although Beijing's lottery system has a large advantage in reducing automobile externalities over auction, the advantage is offset by the significant allocative cost from misallocation. The lottery system forwent nearly 36 billion Yuan ($6 billion) in social welfare in 2012 and a uniform price auction would have generated 21 billion Yuan to the Beijing municipal government, more than covering all the subsidies to the local public transit system.

Mark Rosenzweig, Yale University and NBER, and Junsen Zhang, Chinese University of Hong Kong

Co-Residence, Life-Cycle Savings and Inter-Generational Support in Urban China (NBER Working Paper 20057)

Rosenzweig and Zhang use unique data characterizing individual savings for twins and non-twins in urban China to examine why the savings rates of the young are elevated relative to the middle-aged, despite rising individual life-cycle incomes. The authors show that inter-generational co-residence masks the true life-cycle patterns of individual savings in standard Chinese household data sets, which are aggregated at the household level. Moreover, they show that to understand life-cycle savings behavior it is necessary to take into account inter-generational co-residence, an important phenomenon in China and in many developing countries. To test a model that describes joint life-cycle savings and co-residence decisions by two generations, the authors use a variety of standard twins methods. The estimates provide support for the model, including that individuals born into larger families provide less financial support to parents and are more likely to co-reside with parents when young, but do not have different savings rates. They authors also found that inter-generational co-residence is lower the higher the incomes of the young but higher when the parents have higher incomes and that inter-generational co-residence, net of income, is associated with higher savings for the young but not higher savings for the old. Their results highlight the importance of high housing costs and the prevalence of inter-generational shared housing as key reasons for the higher savings rates for the urban young in China, but also indicate that in urban China neither old-age support by the young nor the one-child policy are major factors.

Shuaizhang Feng, Shanghia University of Finance and Economics; Yingyao Hu, Johns Hopkins University; and Robert Moffitt, Johns Hopkins University and NBER

Unemployment and Labor Force Participation in China: Long Run Trends and Short Run Dynamics

Using nationally representative Chinese household survey data, Feng, Hu, and Moffitt report for the first time China's unemployment rates and labor force participation rates from 1988 to 2009. The unemployment rate averaged 3.4% in 1988-1995, but has since risen sharply during the period of mass layoff from State-owned-enterprises in 1995-2002, and reached an average of 8.4% in the subperiod from 2002 to 2009. Labor force participation rate has declined throughout the whole period, particularly in 1995-2002 when unemployment rates increased most significantly. The authors also report results for different demographic groups, different regions, and different cohorts. Lastly, they use matched monthly data to study labor market dynamics for the period of 2004-2006, and show that the Chinese labor market is characterized by very low mobility among different labor force statuses and the prevalence of long-term unemployment.

Kaiji Chen, Emory University, and Yi Wen, Federal Reserve Bank of St. Louis

The Great Housing Boom of China

Chen and Wen provide a theory to explain the paradoxical features of the great housing boom in China - the persistently faster-than-GDP housing price growth, exceptionally high capital returns, and excessive vacancy rates. The expectation that high capital returns driven mainly by resource reallocation are not sustainable in the long run can induce the very productive entrepreneurs to speculate in housing during economic transition. This creates a self-fulfilling growing housing bubble, which can create severe resource misallocation. A calibrated version of the theory accounts quantitatively for both the growth dynamics of house prices and other salient features of the recent Chinese experience.

Davin Chor, National University of Singapore; Kalina Manova, Stanford University and NBER; and Zhihong Yu, Nottingham University

The Global Production-Line Position of Chinese Firms

A key trend in international trade over the last two decades has been the rising fragmentation of production across countries. Chor, Manova, and Yu use firm-level customs data, matched manufacturing census data, and Input-Output tables from China, to better understand where and how Chinese firms operate along the global value chain. The authors characterize each firm's global production line position by computing the upstreamness of each firm's export and import mix, using a measure of upstreamness that reflects the number of production stages between the product mix in question and final uses. They document the evolution of Chinese firms' global production line position over the 1992-2011 period. They also show how it correlates with firm performance (total exports, sales) and with various underlying firm characteristics (ownership, productivity, capital and skill intensity).

Franklin Allen, University of Pennsylvania and NBER, and Jun Qian, Susan Shan, and Julie Zhu, Shanghai Advanced Institute of Finance

The Best Performing Economy with the Worst Performing Market: Explaining the Poor Performance of the Chinese Stock Market

The size of the Chinese stock market is the second largest in the world. The poor performance of this market, relative to developed and large emerging markets as well as unlisted firms in China, has been striking. This is despite the fact that the Chinese economy, also the second largest in the world, has been the fastest growing globally for the past three decades. With a large cross-country, firm-level sample for the period 2000-2013, Allen, Qian, Shan, and Zhu find that the poor performance cannot be explained by risk or undervaluation of firms in China. Problematic IPO and delisting processes exacerbate the adverse selection of listed firms. With much higher levels of investment compared to US firms, Chinese firms have not generated positive net cash flows since 2000. These findings indicate low investment efficiency and corporate governance deficiency including tunneling.

Bei Qin and David Stromberg, Stockholm University, and Yanhui Wu, University of Southern California

Media Bias in Autocracies: Evidence from China

What is the political value of media control for government in an autocracy? To address this question, Wu, Stromberg, and Qin study the content of 110 mainstream newspapers in mainland China from 1998 to 2010. Using principal factor analysis, the authors construct a novel measure of media bias, which positively predicts the probability of a newspaper being a party mouthpiece and negatively predicts a newspaper's advertising revenue. The authors find that more-biased newspapers 1) more intensively cover political leaders and cite official articles to facilitate top-down communication within governments; and 2) more actively report on corruptions and disasters to implement the function of monitoring bureaucrats. Their findings show that newspapers in regions with larger advertising markets and those that were historically more exposed to Western culture are less biased, while newspapers in regions at higher administrative levels and those that were historically more exposed to the Communist ideology are more biased. Moreover, they find that the growth of advertising market does not affect media bias of the existing newspapers, but induces more entries of commercial newspapers, which reduces readers' exposure to media bias.

Nancy Chau, Cornell University; Yu Qin, National University of Singapore; and Weiwen Zhang, Zhejiang University

Networked Leaders in the Shadow of the Market : A Chinese Experiment in Allocating Land Conversion Rights

Concerns over the loss of cultivated land in China have motivated a system of centrally mandated annual land use quotas effective from provincial down to township levels. To facilitate efficient land allocation, a ground-breaking policy in the Zhejiang Province permitted sub-provincial units to trade land conversion quotas. Chau, Qin, and Zhang theoretically model and empirically estimate the drivers of local government participation in this program to shed light more broadly on the drivers of local government decision-making. The authors find robust support for three sets of factors at the sub-provincial level: market forces, administrative autonomy, and prior network connections of local government leaders.

Davide Cantoni, University of Munich; Yuyu Chen, Peking University; David Yufan Yang, Stanford University; Noam Yuchtman, University of California, Berkeley and NBER; and Y. Jane Zhang, Hong Kong University of Science and Technology

Curriculum and Ideology (NBER Working Paper 20112)

Cantoni, Chen, Yang, Yuchtman, and Zhang study the causal effect of school curricula on students' stated beliefs and attitudes. The authors exploit a major textbook reform in China that was rolled out between 2004 and 2010 with the explicit intention of shaping youths' ideology. To measure its effect, the authors present evidence from a novel survey they conducted among 2000 students at Peking University. The sharp, staggered introduction of the new curriculum across provinces allows the authors to identify the effects of the new educational content in a generalized difference in differences framework. They examine government documents articulating desired consequences of the reform, and identify changes in textbook content and college entrance exams that reflect the government's aims. These changes were often effective: study under the new curriculum is robustly associated with changed views on political participation and democracy in China, increased trust in government officials, and a more skeptical view of free markets.

Zhibo Tan, Fudan University; Shang-Jin Wei, Columbia University and NBER; and Xiaobo Zhang, International Food Policy Research Institute

Deadly Discrimination: Implications of "Missing Girls" for Workplace Safety

In the absence of gender discrimination, millions of more girls would have been born and grown up in China, India, Vietnam, South Korea and other countries. The "missing girls" phenomenon itself is a consequence of gender discrimination, and has been well studied by Sen and others. In this paper, Tan, Wei, and Zhang look into an indirect but potentially deadly consequence of "missing girls" phenomenon. Due to unnaturally low ratio of girls to boys at birth, the subsequent shortage of brides causes many parents with sons of marriageable age to be more tolerant of unsafe workplace practices than they otherwise would. In response, employers may underinvest in workplace safety, which in turn could increase work-related mortality. Using four data sets and taking advantage of large regional and temporal variations in sex ratios in China, the authors demonstrate that in areas with a more severe shortage of marriage-age women, the parent cohort suffers a higher incidence of accidental injuries and death.

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