Reforming China's Monopolies

From a paper by Peijun Duan & Anthony Saich

A survey conducted in Guangdong province reveals that SOEs [State Owned Enterprises] can enter more than 80 industries, whereas foreign companies can enter only 60 and the private sector only 40.4 p. 1

There are two main views on SOEs in China: one claims that they have been instrumental for growth and that they challenge the "western" growth model. A second one claims that they are the product of path dependence, but that if they were privatised efficiency would increase and growth would reach even further. 

The authors support the second view.  

Curriculum and ideology (China)

This article by Cantoni et al., examines the way in which a new school curricula introduced by the Chinese government in the 2000s persuaded high-school students towards certain attitudes and believes: for example, increased trust on the government and more scepticism of markets - although there are many more categories. The authors explain how important school curricula, and more specifically, textbooks are to shape students (or young people) views. Indeed they are more powerful than traditional media. The authors administered surveys to around 2,000 students at Peking University who came from different provinces and graduated in different years. That temporal and geographic diversity allowed the authors to have several controls and to isolate the effect of the new curricula.  

From the conclusions:

Our findings provide support for three broad theories of the roles played by school curricula in shaping political attitudes. First, and most broadly, they suggest that the state can effectively indoctrinate students. Chinese students who studied under the new curriculum viewed Chinese political institutions as more democratic; trusted a broad range of government officials more; believed in extending influence over government policy to a broader group of (educated) people; and, were more skeptical of free markets. These are precisely the sorts of outcomes that scholars suspicious of elite control of educational institutions would fear (for example, Freire, 1970; Bowles and Gintis, 1976; Lott, Jr., 1999). . .

But there is also a brighter side to our findings: scholars who have argued that education can be crucial to the development of a functional democracy (e.g. Dewey, 1916; Lipset, 1959; Glaeser et al., 2007) also find support in our results, which suggest that educational content can shape students’ views of political institutions. Finally, our results provide weaker support a range of historical work arguing that education can play a crucial role in forming national identities (Weber, 1976; Clots- Figueras and Masella, 2013; Alesina and Reich, 2013): the new curriculum strengthened minority students’ views of themselves as “Chinese” (though not always statistically significantly so).

The directions of the shifts in believes due to the new curricula, as reported in the paper, are good or bad depending mainly on your ideology, but the main message, at least for me, is that textbooks can change the way students think, and they can be manipulated (changed) by governments. 

It might not be an exaggeration to say that the textbooks that high school students are reading now, will determine the political decision to be made a few years in the future. 

The Future of U.S. Economic Growth

A paper (draft) by John Fernald and Charles I. Jones addresses the future of growth in the US. They argue that the contribution to economic growth of traditional sources - capital, labor, and ideas, might decrease. And there will be a shift towards research done in countries such as India and China, and towards artificial intelligence.

An interesting figure from the article: 

Freeman (2009) points out that in 1978, China produced almost no Ph.D.’s in science and engineering, but by 2010, they were producing 25 percent more than the United States.

What are some of the most mind-blowing facts about China?

Before the Communists came to power in 1949, China had only 22 dams of any significant size. Now the country has more than half of the world’s roughly 50,000 large dams, defined as having a height of at least 15 meters, or a storage capacity of more than three million cubic meters. Thus, China has completed, on average, at least one large dam per day since 1949. If dams of all sizes are counted, China’s total surpasses 85,000.

See more here. 

Update: see the comments on MR. 

Protestantism and Economic Growth in China

A controversial and interesting paper by Yuyu Chen, Hui Wang, Se Yan:

Does culture, and in particular religion, exert an independent causal effect on long-term economic growth, or do culture and religion merely reflect the latter? We explore this issue by studying the case of Protestantism in China during the late nineteenth and early twentieth centuries. Combining county-level data on Protestant presence in 1920 and socioeconomic indicators in 2000, we find that the spread of Protestantism has generated significant positive effects in long-term economic growth, educational development, and health care outcomes. To better understand whether the relationship is causal, we exploit the fact that missionaries purposefully undertook disaster relief work to gain the trust of the local people. Thus, we use the frequency of historical disasters as an instrument for Protestant distribution. Our IV results confirm and enhance our OLS results. When we further investigate the transmission channels over the long historical period between 1920 and 2000, we find that although improvements in education and health care outcomes account for a sizable portion of the total effects of missionaries’ past activities on today’s economic outcomes, Protestant activities may have also contributed to long-term economic growth through other channels, such as through transformed social values. If so, then a significant amount of China’s growth since 1978 is the result not just of sudden institutional changes but of human capital and social values acquired over a longer historical period.

There are interesting graphs at the end. This is one of them:

And the authors are from the School of Management at Peking University. 

Insurance coverage and agency problems (China)

I reread Arrow's 1963 classic article on uncertainty in the welfare economics of medical care, where he compares the health care industry with the hypothetical perfectly-competitive market. He talks about many things and one of them is the principal-agent problem. 

From a new published paper by Fangwen Lu (Journal of Development Economics, 2014) on that issue (ungated, here):

This study examines doctors' prescribing decisions using controlled hospital visits with randomized patient insurance and doctor incentive status. The results suggest that, when they expect to obtain a proportion of patients' drug expenditures, doctors write 43% more expensive prescriptions to insured patients than to uninsured patients. These differences are largely explained by an agency hypothesis that doctors act out of self-interest by prescribing unnecessary or excessively expensive drugs to insured patients, rather than by aconsiderate doctor hypothesis that doctors take account of the tradeoff between drug efficacy and patients' ability to pay.

"In China, doctors can pocket profits from selling drugs" (p. 2). 

Many of Arrow's ideas are valid today, but new technologies are changing the industry, and more changes are coming (think about rankings of doctors, and all the examples in Average is Over).

Venezuela is what China was in the early 1980s, in some respects

This excerpt from this book shows that the current ¨reforms¨ in Venezuela are very similar to those implemented in China in the early 1980s 

In the summer of 1982 eight private businessmen, all in different businesses, were charged with ¨profiteering¨ and arrested -- though one was able to escape and remained at large for eight months. Those ¨economic criminals¨did nothing more than profit from private undertakings. By the end of 1982, more than 16,000 cases of economic crimes had been filed nationwide, and more than 30,000 people were arrested. 

Deng Xiaoping started to eliminate those measures. Xiaoping´s China then, and Venezuela now, move in the opposite direction. 

The World’s Biggest E-Commerce Event

Alibaba employees and journalists monitored sales activity at the company’s offices in Hangzhou. 

Shortly after 9 p.m. there, Alibaba said it had reached its target of 30 billion renminbi, or about $5 billion, in sales for the day via its online payment system, Alipay. 

That was two and a half times the total on Cyber Monday, the biggest e-commerce day of the year in the United States, which comes after the Thanksgiving holiday in late November.

There is more here.  

The Importance of Higher Education for China's Economic Growth

I find that industries that employ more human-capital intensive technologies in provinces with larger increases in college graduates experience significantly faster growth in total value-added, employment, and capital stock; moreover, larger and more established firm also experience faster growth in labor productivity and average labor compensation. The estimates are not driven by state-owned enterprises and are robust to the inclusion of an extensive set of control variables.

That is from this paper by Lei Zhang.

Some data (p. 11)

Annual college admission growth averages 4.7% between 1995 and 1998; it grows by more than 40% in both 1999 and 2000 and by about 20% in the next four years before it starts to taper off in 2006 (Figure 4, top Panel). Nationwide college enrolment doubles between 1998 and 2001 and doubles again between 2001 and 2005 (Figure 4, bottom Panel). Statistics are reported in Appendix Table 1. The gross college enrolment rate relative to the 18-22 population increases from 9.8% in 1998 to 24.2% in 2009, the last year for which data are available.

The One-Child Policy and Household Savings (China)

Exploiting the birth of twins as an identification strategy, we provide direct empirical evidence on the micro-channel and show its quantitative relevance in accounting for the rise in the household saving rate since the inception of the policy in 1980. Our quantitative OLG model can explain from a third to at most 60% of the rise in aggregate saving rate; equally important is its implied shift in the level and shape of the age-saving profile consistent with micro-level estimates from the data.

That is an excerpt of the abstract of this paper by Taha Choukhmane, Nicholas Coeurdacier, & Keyu Jin. 

The Lasting Impact of Parental Early Life Malnutrition

From a paper by Seonghoon Kim, Quheng Deng, & Belton M. Fleisher

We investigate whether the effects of parents’ in utero malnutrition extend to the second generation (their children). Specifically, we explore whether the second generation’s level of schooling is negatively impacted by their parents’ malnutrition in utero, using the China Famine as a natural experiment. We find that, the impact of mother’s in utero malnutrition due to the Famine reduced second generation male and female entrance into junior secondary school by about 5–7 percentage points. We measure famine severity with provincial excess death rates instrumented by measures of adverse climate conditions, which corrects for possible biases induced by measurement errors and omitted variables. Our findings indicate the existence of an important second-generation multiplier of policies that support the nutrition of pregnant women and infants in any country where nutritional deficiencies remain today.

A draft is here. 

Intellectual Returnees as Drivers of Innovation (China)

In this paper by Neo Siping Luo, Mary E. Lovely, & David Popp "Intellectual returnees" are defined as 

. . . skilled persons who study or work in an advanced economy and subsequently return to their country of origin to engage in technology-related activities (Mountford, 1997; Kapur and McHale, 2005; Zucker and Darby, 2007) (p. 1). 

And their influence seems to be important. From the abstract 

Using nonlinear methods, we find robust evidence that returnees positively influence patenting activity and also promote neighboring firm innovation.

The authors analyze photovoltaic energy production in China, which the authors argue went from being almost non-existent to the world third largest in less than a decade. 

 More specifically

During China’s PV industry development process, intellectual returnees played a crucial role in mastering the technology and techniques needed to produce for export. Pioneers in the industry are the well known “three returnees of China’s photovoltaic,” Huaijin Yang, Zhengrong Shi, and Jianhua Zhao. These three men, originally from Jiangsu province, studied photovoltaic technology in Australia in the 1990s, and then returned to China with advanced technology and foreign capital to start firms using China’s relatively low-wage skilled labor force (p. 5).

Besides the three famous returnees, there are many more working in that sector. 

A draft of the paper is here. 

Telecommunications and Outmigration (China)

This paper uses a unique natural experiment in Chinese villages to investigate whether access to telecommunications-- in particular, landline phones -- increases the likelihood of outmigration. By using regional and time variations in the installation of landline phones, the difference-in-differences estimation shows that access to landline phones increases the ratio of out-migrant workers by 2 percentage points, or about 50 percent of the sample mean in China. The results remain robust to a battery of validity checks. Furthermore, landline phones affect outmigration through two channels: information access to job opportunities and timely contact with left-behind family members. The findings underscore the positive migration externality of expanding telecommunications access in rural areas, especially in places where migration potential is large.

That is from this paper by Yi Lu, Huihua Xie, & Lixin Colin Xu.

Landline phones is not be the first thing that comes to mind as a determinant of migration. It is surprising to see how significant that is though, and it makes sense. Leaving home knowing that one can keep in touch with relatives makes a difference. I can't imagine how it feels to leave family behind knowing that communication will be very difficult, and that is precisely the situation that many immigrants have faced. Phones reduce the costs of leaving. 

If we follow the argument we should see an increase in outmigration from poor regions due to cheaper Internet communication. Internet however have other effects such as outsourcing which increases employment in developing countries and as a consequence might reduce outmigration. 

Bullet Trains in China

Li Xiaohung, a shoe factory worker, rides the 430-mile route from Guangzhou home to Changsha once a month to visit her daughter. Ms. Li used to see her daughter just once a year because the trip took a full day. Now she comes back in 2 hours 19 minutes.

And effects on productivity

. . . Chinese workers are now more productive. A paper for the World Bank by three consultants this year found that Chinese cities connected to the high-speed rail network, as more than 100 are already, are likely to experience broad growth in worker productivity. The productivity gains occur when companies find themselves within a couple of hours’ train ride of tens of millions of potential customers, employees and rivals. 

The full article is here.  

Do Kinship Networks Strengthen Private Property Rights? Evidence from Rural China

This paper finds that the existence of strong kinship networks tends to enhance property rights in rural China by protecting villagers against unwanted government land takings. It then distinguishes kinship networks from other kinds of social networks by showing that their deterrence effect against coercive takings is far more significant and resilient under conditions of prevalent rural-urban migration than deterrence by neighborhood cooperatives and religious groups. Finally, the paper attempts to identify and differentiate between various possible mechanisms behind these effects: It argues that kinship networks protect property rights mainly through enabling repeated social interaction between members, which facilitates collective action against coercive takings. Kinship networks are more effective than neighborhood cooperatives or religious groups at sustaining repeated social interaction over long distances and, therefore, are less affected by rural-urban migration. Altruism between kinsmen, however, does not emerge from the data as a major factor.

More specifically:

We find that stronger kinship networks, measured by the prevalence of active lineage registries (zupu) and ancestral halls (citang) in a village, strongly correlate with lower levels of land taking, even after controlling for potential endogenous variables such as per capita landholding and proximity to urban centers. Because the danger of reverse causation is low here, we argue that kinship networks protected property rights against unwanted land takings. We also find that China’s massive rural-urban migration over the past three decades has eroded the protective effect of kinship networks much less severely than those of neighborhood organizations and religious groups. P. 2.

That is from a paper by Taisu Zhang & Xiaoxue Zhao.

The Impact of Foreign Bank Penetration on the Domestic Banking Sector in China

Abstract:

Using a newly constructed disaggregated measure, the foreign bank branch influence index (FBBII), to proxy the domestic banks’ foreign exposure, this study investigates the influence of foreign entry on the performance of local banks based on a sample of 107 Chinese commercial banks during the period of 2002 to 2011. It was found that the increased presence of foreign banks has improved the profitability of domestic banks and that this might be due to the higher efficiency achieved by the latter. In addition, the domestic banks were also found to increase their non-interest income when faced with greater foreign exposure and such a positive relationship is found to be most significant among the joint stock banks. Finally, this study also found consistent evidence that foreign bank penetration could help the domestic banks improve their risk management capacity, in particular among banks with foreign strategic investors.

That is from a new paper by Luo et al (June 2013).  
From the conclusions:

Based on four performance indicators, it could be concluded that increased foreign entry has generated a significant positive impact on the Chinese banking sector and banks, with foreign strategic investors (FSI) tending to react more actively to the changing operational environment. Nevertheless, the state-owned banks are hardly influenced. Despite all the reforms, they retain the monopoly power over the whole industry and hence are less sensitive to the additional competitional pressure exerted by foreign banks. To enable the Chinese banking sector to continue to improve its efficiency, restrictions imposed on foreign banks should be further relaxed. Particularly in the case of the FSIs, they should be allowed to acquire a larger banking stake so as to gain more effective control. P. 28.

Confucianism in the laboratory (Taiwan and China)

This paper investigates how Confucianism affects individual decision making in Taiwan and in China and whether the Cultural Revolution in China, which denounced Confucian teaching, has had a long-lasting impact. We found that Chinese subjects in our experiments became less accepting of Confucian values, such that they became more risk loving, less loss averse, and more impatient after being primed with Confucianism, whereas Taiwanese subjects became more trustworthy and more patient after being primed by Confucianism. Combining the evidence from the incentivized laboratory experiments and subjective survey measures, we found evidence that Chinese subjects and Taiwanese subjects reacted differently to Confucianism. The paper is by Liu, Meng, & Tao-yi Wang.

The Dalai Lama Effect on International Trade

Is political compliance a precondition for healthy trade relations with China? The Chinese government frequently threatens that meetings between its trading partners’ officials and the Dalai Lama will be met with animosity and ultimately harm trade ties. We run a gravity model of exports to China from 159 partner countries between 1991 and 2008 to test the extent to which bilateral tensions affect trade with autocratic China. In particular, we empirically investigate whether countries that receive the Dalai Lama despite China’s opposition experience a significant reduction in their exports to China. In order to account for the potential endogeneity of meetings with the Dalai Lama, the number of Tibet Support Groups and the travel pattern of the Tibetan leader are used as instruments. Our empirical results support the idea that countries officially receiving the Dalai Lama at the highest political level are punished through a reduction of their exports to China. However, this ‘Dalai Lama Effect’ is only observed for the Hu Jintao era and not for earlier periods. Furthermore, we find that this effect is mainly driven by reduced exports of machinery and transport equipment and that it disappears in the second year after a meeting took place.

Source. A draft of the paper is here.  

Cross-border Marriages (HK - China)

We study the rise in marriages between residents of HK and China following the handover of HK to China in 1997. Cross-boundary marriages accounted for almost half the marriages registered in HK in 2006. Because of large differences in male income between China and HK, marriages of HK men with Mainland women outnumbered those of HK women with mainland men sevenfold. Following the handover, HK women had lower marriage, higher divorce and higher emigration rates. These outcomes are predicted by our matching model and contradict the hypothesis that cross-boundary marriages were driven by rising education of HK women.

Source: Weiss, Yi, & Zhang (March 2013).
HT: Zheng Fang.

The economic impact of Special Economic Zones (China)

The paper exploits a unique Chinese municipal dataset to assess the impact of Special Economic Zones on the local economy. Comparing the changes between the municipalities that created a SEZ in earlier rounds and those in later waves, I find that the SEZ program increases foreign direct investment not merely through firm relocation, and does not crowd out domestic investment. With dense investment in the targeted municipality the SEZ achieves agglomeration economies and generates wage increases for workers more than the increase in the local cost of living. The effects are heterogeneous: for zones created later the benefits are smaller while the distortions in firm location behavior are larger than those for the early zones. Municipalities with multiple SEZs experience larger effects than those with only one SEZ.

From a new published paper by Jin Wang (Journal of Development Economics, March 2013). A 2009 draft is here.  

A graph from the paper: