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Frontiers of Economics in China

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, Volume 12 Issue 2 Previous Issue   
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Orginal Article
China under Uncertainty: Outlook, Counterfactual and Policy Simulations, and Reform Implementation—A Summary of Annual Report (2016–2017)
Kevin X. D. Huang, Guoqiang Tian, Yibo Yang
Front. Econ. China. 2017, 12 (2): 167-187.   DOI: 10.3868/s060-006-017-0008-8
Abstract   PDF (660KB)

China’s macroeconomy is surrounded by increased uncertainties while facing persistent downward pressures entering year 2017. Major external challenges are imposed by the chaotic political climate and disorderly retreat from globalization of the US accompanied with the impending FED rate hikes, which may trigger a destructive trade war and exert pressures on RMB depreciation and capital flight. Remaining ingrained in major internal challenges are the gridlock risks accumulated from excessive financialization of real estate sector and swelling housing market bubbles amid escalating debt levels, and more fundamentally, the continued off-real-to-virtual movement in the general economy and ascendancy of government over market in resource allocation. Based on IAR-CMM model, which takes into account both cyclical and secular factors, the baseline real GDP growth rate is projected to be 6.5% in 2017 (6.13% using more reliable instead of official data). Counterfactual analyses and policy simulations are also conducted to highlight the convoluted uncertainties surrounding China’s macroeconomy. Through the lens of these analyses, we identify a root cause of the weak outlook as the persistently distorted economic structure due to procrastination in reforms of the institutions and governance, which not only impairs China’s growth potential but also limits the power of its recent stimulating policies while exacerbating their side effects. Key to successful economic restructuring in the face of adversely evolving demographics are market-oriented reforms, with well-designed strategies to balance short-term stabilization and long-run development. Such reforms should hold center stage in China’s transition towards a modern free market economy and regulatory state.

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A Shift to Isolationism?
Peter Hall
Front. Econ. China. 2017, 12 (2): 188-192.   DOI: 10.3868/s060-006-017-0009-5
Abstract   PDF (221KB)

Developments over the past year have led to serious, widespread concern that the world could be returning to a more isolationist stance. It is perhaps the greatest threat ever levelled at the post-war globalization movement and all of its supporting architecture. This paper argues that due to the unusual nature of the last business cycle, the general public has become impatient with the existing economic and in particular, international trade architecture. It also points out that its typical defenders are unsure of how to do so. In response, what is suggested is that logic puts definite limits on how much change is actually likely to occur, and if so, which strategic responses are most appropriate.

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The Spread of Western Economics in China: Features and Influence (1840–1949)
Lin Cheng, Shen Zhang
Front. Econ. China. 2017, 12 (2): 193-227.   DOI: 10.3868/s060-006-017-0010-9
Abstract   PDF (1345KB)

The spread of Western economics in modern China is a content-rich historical event which has taken more than a century. A complete understanding of this event depends on the analysis and summary of its features. This paper suggests that the spread of Western economics in modern China exhibits five main features: openness, periodicity, applicability, localization and limitation. Openness reflects the active attitude of Chinese scholars to learning and propagating Western economics. Periodicity reflects the changes in its effectiveness and focus over time. Applicability reflects its goal of promoting the development of Chinese economics and providing policy applications for China’s economic growth. Localization of Western economic theories in China follows the trend of selected introduction and modification according to local situations. And limitation is inevitable because of the many difficulties facing the spread of Western economics during early modern times. Furthermore, this spread has a profound impact on China which is embodied in its features: it promotes the establishment of Chinese modern economics, provides appropriate examples for the modernization and evolution of Chinese society, and promotes transformation of the traditional economic system in China.

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Structural Transformation under Trade Imbalances: The Case of the Postwar U.S.
Zongye Huang
Front. Econ. China. 2017, 12 (2): 228-267.   DOI: 10.3868/s060-006-017-0011-6
Abstract   PDF (3548KB)

A striking feature of the structural change literature is that, even though the U.S. economy is often used as a benchmark for calibration, the traditional models cannot account for the steep decline in manufacturing and rise in services in the U.S. since the late 1970s (Buera and Kaboski, 2009). In order to solve this puzzle, this paper develops a three-sector model to evaluate various factors that could have contributed to the structural transformation process from 1950 to 2005. The results show that, in addition to traditional explanations, such as non-homothetic preference and sector-biased productivity progress, international trade is another major source of structural change and is able to explain about 35.5% of the overall employment share decrease in American manufacturing. The quantitative calibration estimates that the inter-sector trade makes a moderate contribution, while trade imbalances dominate the recent contraction of manufacturing employment share. Our results suggest that calibrated models based on U.S. data have to be adjusted by trade factors.

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Competitive Equilibrium in an Overlapping Generations Model with Production Loans
Dihai Wang, Gaowang Wang, Heng-fu Zou
Front. Econ. China. 2017, 12 (2): 268-279.   DOI: 10.3868/s060-006-017-0012-3
Abstract   PDF (343KB)

The paper shows that there do exist two kinds of steady states equilibria in the overlapping generations models with consumption and production loans, similar to the pure exchange economies examined by Gale (1973). Furthermore, the local stability properties of these two (kinds of) steady states are also investigated: In the classical case, the golden-rule steady state is stable and the balanced steady state is saddle-point stable; however, in the Samuelson case, the golden-rule steady state is saddle-point stable and the balanced steady state is stable.

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IPO Pricing Efficiency in China: A ChiNext Board Focus
Qi Deng, Zhong-guo Zhou
Front. Econ. China. 2017, 12 (2): 280-308.   DOI: 10.3868/s060-006-017-0013-0
Abstract   PDF (591KB)

This paper examines what determines the offer price for a ChiNext IPO and discusses how we can improve the current “Chinese-style” bookbuilding process. We establish that the ChiNext IPO underwriter relies upon the institutional investors to discover the issuer’s intrinsic value (in the form of a preliminary price), and that the same underwriter adjusts the preliminary price to establish the final offer price, based on its assessment of the institutional investors’ motivations. Since the underwriter does not have discretionary power in new share allocation, this “Chinese-style” bookbuilding process contains certain pitfalls from an information asymmetry standpoint. The institutional investors mainly use “simple and direct” variables that do not adequately reflect the issuer’s true intrinsic value to develop the preliminary price, while the underwriter adjusts that price downward to establish the offer price to clear the market, as a measure to counter a perceived free-rider issue among the institutional investors. This process, in effect, contributes to initial IPO underpricing and causes principal-agent conflicts between the underwriter and the issuer. We argue that such a pricing inefficiency could be improved by an innovative “bookbuilding plus price discretionary auction” process, which is a combination of the modified OpenIPO and Taiwan-style auctioned IPO approaches.

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Inequality and Crime in China
Jiangli Zhu, Zilian Li
Front. Econ. China. 2017, 12 (2): 309-339.   DOI: 10.3868/s060-006-017-0014-7
Abstract   PDF (706KB)

This paper attempts to investigate comprehensively, a “U”-shaped relationship between income inequality and crime rates in China after building a cost-benefit analysis model, by using time series data from 1981–2012 and panel data from 1999–2012. The empirical results show that: firstly, in the time series model, the U-shaped relationships between inequality and the total crime rate and rates of various crimes except from smuggling, are very significant in the period of 1981–2012, secondly, the panel threshold models show that inequality and crime tend to be correlated positively with each other during 1999–2012, because the inequality level during this period is much higher than the turning points of inequality estimated in the time series models, although three regions with different development levels are located in different parts of a U-shaped curve between inequality and crime.

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