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  • Author: Jie Bai, Jiahua Liu
  • Publication Date: 12-2019
  • Content Type: Working Paper
  • Institution: The John F. Kennedy School of Government at Harvard University
  • Abstract: It is well known that various forms of non-tariff trade barriers exist within a country. Empirically, it is difficult to measure these barriers as they can take many forms. We take advantage of a nationwide VAT rebate policy reform in China as a natural experiment to identify the existence of these intranational barriers due to local protectionism and study the impact on exports and exporting firms. As a result of shifting tax rebate burden, the reform leads to a greater incentive of the provincial governments to block the domestic flow of non-local goods to local export intermediaries. We develop an open-economy heterogenous firm model that incorporates multiple domestic regions and multiple exporting technologies, including the intermediary sector. Consistent with the model’s predictions, we find that rising local protectionism leads to a reduction in interprovincial trade, more “inward-looking” sourcing behavior of local intermediaries, and a reduction in manufacturing exports. Analysis using micro firm-level data further shows that private companies with greater baseline reliance on export intermediaries are more adversely affected.
  • Topic: International Trade and Finance, Political Economy, Reform, Tariffs
  • Political Geography: China, Asia
  • Author: Jie Bai, Panle Barwick, Shengmao Cao, Shanjun Li
  • Publication Date: 11-2019
  • Content Type: Working Paper
  • Institution: The John F. Kennedy School of Government at Harvard University
  • Abstract: Are quid pro quo (technology for market access) policies effective in facilitating knowledge spillover to developing countries? We study this question in the context of the Chinese automobile industry where foreign firms are required to set up joint ventures with domestic firms in return for market access. Using a unique dataset of detailed quality measures along multiple dimensions of vehicle performance, we document empirical patterns consistent with knowledge spillovers through both ownership affiliation and geographical proximity: joint ventures and Chinese domestic firms with ownership or location linkage tend to specialize in similar quality dimensions. The identification primarily relies on within-product variation across quality dimensions and the results are robust to a variety of specifications. The pattern is not driven by endogenous joint-venture network formation, overlapping customer base, or learning by doing considerations. Leveraging additional micro datasets on part suppliers and worker flow, we document that supplier network and labor mobility are important channels in mediating knowledge spillovers. However, these channels are not tied to ownership affiliations. Finally, we calibrate a simple learning model and conduct policy counterfactuals to examine the role of quid pro quo. Our findings show that ownership affiliation facilitates learning but quality improvement is primarily driven by the other mechanisms.
  • Topic: International Trade and Finance, Science and Technology, Developing World
  • Political Geography: China, Asia
  • Author: Jie Bai, Ludovica Gazze, Yukun Wang
  • Publication Date: 10-2019
  • Content Type: Working Paper
  • Institution: The John F. Kennedy School of Government at Harvard University
  • Abstract: Collective reputation implies an important externality. Among firms trading internationally, quality shocks about one firm’s products could affect the demand of other firms from the same origin country. We study this issue in the context of a large-scale scandal that affected the Chinese dairy industry in 2008. Leveraging rich firm-product level administrative data and official quality inspection reports, we find that the export revenue of contaminated firms dropped by 84% after the scandal, relative to the national industrial trend, and the spillover effect on non-contaminated firms is measured at 64% of the direct effect. Notably, firms deemed innocent by government inspections did not fare any better than noninspected firms. These findings highlight the importance of collective reputation in international trade and the challenges governments might face in signaling quality and restoring trust. Finally, we investigate potential mechanisms that could mediate the strength of the reputation spillover. We find that the spillover effects are smaller in destinations where people have better information about parties involved in the scandal. New firms are more vulnerable to the collective reputation damage than established firms. Supply chain structure matters especially in settings where firms are less vertically integrated and exhibit fragmented upstream-downstream relationships.
  • Topic: International Trade and Finance, Markets, Business , Global Political Economy, Accountability
  • Political Geography: China, Asia
  • Author: Xu Chunyang
  • Publication Date: 08-2019
  • Content Type: Working Paper
  • Institution: Center for International and Security Studies at Maryland (CISSM)
  • Abstract: The Chinese nuclear industry is actively pursuing international trade under China’s new “Go Global” policy. This development could strain Chinese nuclear export control systems in the coming decades. This paper investigates the evolution of the Chinese nuclear export control regime from the late 1970s to the present, describes the current state of the Chinese export control system, and investigates recent Chinese efforts to build a more robust system. It finds that although the Chinese strategic export control systems have grown tremendously since they first took shape and the capacity of the government to implement these controls has grown as well, significant improvements in both the legal basis for the controls and the capacity of institutions involved are still needed, including in how current laws define exports, in how government bodies are equipped to investigate violations, and in how violations are prosecuted. The Ministry of the Commerce is preparing a new “Export Control Law” that is expected to come into effect soon and to provide the basis for more robust controls that address many of the deficiencies identified above. The Chinese government’s growing commitment to undertaking its international obligations and safeguarding the peaceful use of nuclear energy provides reason for optimism, but in the near term, the effectiveness of these corrective efforts will depend on the completion, implementation, and enforcement of the new law.
  • Topic: Diplomacy, International Trade and Finance, Nuclear Power
  • Political Geography: China, Beijing, Asia
  • Author: Yi Huang, Chen Lin, Sibo Liu, Heiwai Tang
  • Publication Date: 04-2018
  • Content Type: Working Paper
  • Institution: Centre for Trade and Economic Integration, The Graduate Institute (IHEID)
  • Abstract: On March 22, 2018, Trump proposed to impose tariffs on up to $50 billion of Chinese imports leading to a significant concern over the "Trade War" between the US and China. We evaluate the market responses to this event for firms in both countries, depending on their direct and indirect exposures to US-China trade. US firms that are more dependent on exports to and imports from China have lower stock and bond returns but higher default risks in the short time window around the announcement date. We also find that firms' indirect exposure to US-China trade through domestic input-output linkages affects their responses to the announcement. These findings suggest that the structure of US-China trade is much more complex than the simplistic view of global trade that engendered Trump's "Trade War" against China.
  • Topic: Economics, International Cooperation, International Trade and Finance, Global Political Economy, Trade Wars, Exports
  • Political Geography: United States, China, Asia
  • Author: Luke Patey, Michal Meidan
  • Publication Date: 11-2016
  • Content Type: Working Paper
  • Institution: Danish Institute for International Studies
  • Abstract: The size and sophistication of Chinese foreign investment is on the rise. In 2014, inbound investment to China was outpaced by outbound investment for the first time. Chinese foreign investment has surpassed the $100 billion mark for the past three years, making China the third largest overseas investor. At the same time, beyond oil and gas, which dominated headlines over the past decade, Chinese state-owned enterprises and private corporations are making multi-billion dollar investments in construction, telecommunications, nuclear, and high-tech across the globe. What political and security implications do these new investment have for host government in North America and Europe? What is the view point of Beijing towards the growing reach of its corporations overseas? A new policy brief by Michal Meidan, research associate at Chatham House and Asia Analyst at Energy Aspects, and DIIS senior researcher Luke Patey explores these questions.
  • Topic: Globalization, International Political Economy, International Trade and Finance
  • Political Geography: China, Global Focus
  • Author: Robert M. Orr
  • Publication Date: 04-2016
  • Content Type: Working Paper
  • Institution: Council of American Ambassadors
  • Abstract: In the past two years, the creation of the Chinese-sponsored Asian Infrastructure Investment Bank (AIIB) has caused considerable attention in many capitals, particularly in Washington and Tokyo. Some view the establishment of the AIIB as a challenge to the supremacy of the post-World War II Bretton Woods order. Others see it as another symbol of shifting regional power in Asia. Some have deep concerns about the AIIB’s willingness to adhere to international safeguards and open procurement.
  • Topic: International Trade and Finance
  • Political Geography: United States, Japan, China, Asia-Pacific
  • Author: Wendy Dobson
  • Publication Date: 02-2016
  • Content Type: Working Paper
  • Institution: Centre for International Governance Innovation
  • Abstract: This paper reviews Indonesia’s economic prospects and what these imply for a closer relationship with Canada. By posing the question “Is Indonesia the next China?,” the author suggests that Indonesia has the considerable economic potential envisaged by foreign investors, but conveys uncertainty as to whether Southeast Asia’s most populous country can make the changes necessary to realize that potential. A review of the economic record and comparison of China’s and Indonesia’s economic structures, endowments and institutions show major differences between the two countries. The paper further questions what it will take to realize Indonesia’s potential, finding the answers to be: human capital development; increased participation in the region’s global value chains; meeting the growing middle-class demand for modern services; raising productivity in agriculture and fishing; and increasing use of the Internet. Failure to make these changes will increase the chances of Indonesia’s growth in per capita incomes slowing and falling into the middle-income trap. Canada’s role will be to monitor closely how Indonesia tackles its five priorities at the same time as it responds to the opportunities to exploit Indonesia’s abundant natural resources, urbanization and its expanding consumer demand for modern services and educational opportunities.
  • Topic: Economics, Emerging Markets, Human Welfare, International Trade and Finance, Natural Resources, Regulation
  • Political Geography: China, Indonesia
  • Author: Saori N. Katada
  • Publication Date: 05-2016
  • Content Type: Working Paper
  • Institution: East-West Center
  • Abstract: In 2015, two mega-initiatives took shape that will affect economic relations in the Asia-Pacific region: the US-promoted Trans-Pacific Partnership (TPP) trade agreement and the China-led Asian Infrastructure Investment Bank (AIIB). Although they address different needs, both are expected to have profound effects on Asia's economic governance in the near future, and will shape economic norms in the Asia Pacific and beyond. Japan has joined the TPP but stayed out of the AIIB, decisions that might seem counterintuitive considering its history of resisting trade liberalization and of promoting infrastructure investment. Is Japan simply favoring its US ally over rival China? Or is it that Japan's position on the TPP and AIIB aligns with its own economic priorities, and enhances its geo-economic advantage? With a US-China competition over economic ideas and regional strategies, Japan occupies a unique position that may allow it to influence the direction of Asia-Pacific economic governance, which is now being battled out by the two "titans."
  • Topic: Economics, International Trade and Finance, Political Economy, Treaties and Agreements
  • Political Geography: China, Asia
  • Author: Choi Nakgyoon
  • Publication Date: 12-2016
  • Content Type: Working Paper
  • Institution: Korea Institute for International Economic Policy (KIEP)
  • Abstract: This paper studied the effects of anti-dumping measures on the imports to investigate whether the trade restriction effect of an anti-dumping duty is dominant in the US, the EU, China, and India from 1996 to 2015. Our results indicate that a 1% increase in the anti-dumping duties decreases the import of the targeted product by about 0.43~0.51%. The actual statistics, however, show that the total import of the targeted products increased by about 30 percent while an anti-dumping duty was in force. That indicates that an anti-dumping duty is just a temporary import relief. This paper also investigated whether an anti-dumping duty is terminated in the case that the injury would not be likely to continue or recur if the duty were removed. The increase in market share, MFN tariff rate, and dumping margin turns out to decrease the hazard of termination of an anti-dumping duty, but the increase in value added increases the hazard of termination. Generally speaking, this result indicates that the WTO member countries have regulated the overuse of an anti-dumping measure. It also implies that anti-dumping duties have been used as a tool for trade remedy.
  • Topic: International Political Economy, International Trade and Finance
  • Political Geography: China
  • Author: Geetima Das Krishna, Ankit Bhardwaj
  • Publication Date: 02-2016
  • Content Type: Working Paper
  • Institution: Centre for Policy Research, India
  • Abstract: After three decades of double-digit growth, China is slowing as it is rebalancing its economy from export-driven to less-volatile domestic consumption driven economy. The paper looks at the impact of China slowdown on India through different channels. Even though India is usurping China as the fastest growing major economy in the world, Indian economy being a fifth of the Chinese economy and also less material intensive can hardly substitute for China as a global growth driver. China has emerged as the largest trading partner of India but India’s trade still remains less vulnerable to Chinese slowdown directly as India’s services exports account for as much as 50% of India’s overall exports (merchandise and services). On the other hand, China’s total FDI investment in India has been miniscule $1.2 billion till September 2015 and India’s infrastructure sector, with its massive investment needs, can be the natural destination for Chinese investments. India reaped the indirect benefit of lower commodity prices in terms of narrower CAD, softening inflation, lower interest rate, increased government fiscal bonanza, all of which contributed to greater macro-stability in India. It was also found that a 50bps decline in China’s growth rate is likely to lower India’s growth by 30bp in the short run.
  • Topic: International Trade and Finance, Bilateral Relations, Economy, Economic growth, Regional Integration
  • Political Geography: China, South Asia, India, Asia
  • Author: Anthony H. Cordesman, Steven Colley
  • Publication Date: 09-2015
  • Content Type: Working Paper
  • Institution: Center for Strategic and International Studies
  • Abstract: China’s emergence as a global economic superpower and as a major regional military power in Asia and the Pacific, has had a major impact on its relations with the United States and its neighbors. China was the driving factor in the new strategy the United States announced in 2012 that called for the U.S. to “rebalance” its forces to Asia-Pacific region. At the same time, China’s actions on its borders, in the East China Sea, and in the South China Sea have shown that China is steadily expanding its geopolitical role in the Pacific, and having a steadily increasing impact on the strategy and military developments in other Asian powers. As a result, the People’s Republic of China (PRC), the United States, and China’s neighbors face a critical need to improve their understanding of how each state in the region is developing its military power, and find ways to avoid the kind of military competition that could lead to rising tension or conflict.
  • Topic: Arms Control and Proliferation, Industrial Policy, International Trade and Finance, Power Politics
  • Political Geography: China, East Asia
  • Author: Robert D. Blackwill, Henry A. Kissinger, Ashley J. Tellis
  • Publication Date: 04-2015
  • Content Type: Working Paper
  • Institution: Council on Foreign Relations
  • Abstract: "China represents and will remain the most significant competitor to the United States for decades to come. As such, the need for a more coherent U.S. response to increasing Chinese power is long overdue," write CFR Senior Fellow Robert D. Blackwill and Carnegie Endowment for International Peace Senior Associate Ashley J. Tellis in a new Council Special Report, Revising U.S. Grand Strategy Toward China. "Because the American effort to 'integrate' China into the liberal international order has now generated new threats to U.S. primacy in Asia—and could result in a consequential challenge to American power globally—Washington needs a new grand strategy toward China that centers on balancing the rise of Chinese power rather than continuing to assist its ascendancy." The authors argue that such a strategy is designed to limit the dangers that China's geoeconomic and military power pose to U.S. national interests in Asia and globally, even as the United States and its allies maintain diplomatic and economic interactions with China.
  • Topic: Foreign Policy, Defense Policy, Diplomacy, International Trade and Finance
  • Political Geography: China
  • Author: Tristram Sainsbury
  • Publication Date: 10-2015
  • Content Type: Working Paper
  • Institution: Lowy Institute for International Policy
  • Abstract: The G20 engagement groups represent a cross-section of society at the G20. They have an important role in publicly holding the G20 to account, assessing the forum’s performance, and contributing to the G20 agenda. The groups have differing agendas and vastly different priorities ahead of the Antalya Leaders’ Summit in November. However, there are some areas of overlap, such as calls from several groups for G20 leaders to respond to the Syrian refugee crisis and be more active in addressing gender inequality. Open and effective outreach to broader society should be an important priority of the 2016 Chinese G20 Presidency. China should look to improve the efficiency of the engagement processes in 2016, so that engagement groups are more focused on recommending fewer, but more pragmatic and high-impact policy solutions.
  • Topic: Foreign Policy, Diplomacy, International Cooperation, International Organization, International Trade and Finance
  • Political Geography: China
  • Author: Daniele Fattibene
  • Publication Date: 11-2015
  • Content Type: Working Paper
  • Institution: Istituto Affari Internazionali
  • Abstract: Russia’s “pivot to Asia” has come to the fore in the wake of the crisis over Ukraine. Growing tensions with the West over the common neighbourhood, coupled with economic sanctions, have accelerated this trend, with China gaining in strength as both an economic and military partner to Moscow. The Kremlin’s propaganda has sought to convince the broader public that Russia’s strategies in Eastern Europe, Central Asia and the Arctic region are a complement to China’s new Silk Road Economic Belt. Nonetheless, behind the headlines huge potential problems jeopardise the emergence of a durable Sino-Russian consensus in Eurasia. Against this backdrop, the EU should opt for “strategic patience.” This would be a far more effective policy choice than finger pointing, which only deepens the mutual ideological clash between the EU and Russia.
  • Topic: Diplomacy, Economics, International Trade and Finance, Bilateral Relations, Sanctions
  • Political Geography: Russia, China, Asia
  • Publication Identifier: 978-88-98650-69-9
  • Publication Identifier Type: DOI
  • Author: Nicola Casarini
  • Publication Date: 10-2015
  • Content Type: Working Paper
  • Institution: Istituto Affari Internazionali
  • Abstract: With the One Belt One Road (OBOR), arguably Beijing’s major diplomatic outreach in decades, a process towards greater Sino-European connectivity has been put in place. The implementation of the OBOR in Europe has focused so far on financing infrastructure projects, in particular railways in Southeast Europe and ports in the Mediterranean Sea. This has been complemented by growing monetary linkages between the People’s Bank of China and European central banks through the establishment of currency swap agreements and yuan bank clearing – so-called “offshore renminbi hubs” – with the aim of lowering transaction costs of Chinese investment and bolstering the use of the Chinese currency. While there are undoubtedly great economic opportunities, China’s OBOR initiative also presents the EU with a major political challenge. There is the risk, in fact, that a scramble for Chinese money could further divide EU member states and make it difficult for Brussels to fashion a common position vis-à-vis Beijing. Furthermore, China’s economic penetration into Europe may lead – if not properly managed – to a populist backlash as well as a strain in relations with Washington. All these elements should be taken into consideration by EU policymakers, as China’s OBOR makes inroads into the Old Continent.
  • Topic: Development, International Trade and Finance, Bilateral Relations, Infrastructure
  • Political Geography: China, Europe
  • Publication Identifier: 978-88-98650-64-4
  • Publication Identifier Type: DOI
  • Author: Roman Muzalevsky
  • Publication Date: 07-2015
  • Content Type: Working Paper
  • Institution: The Strategic Studies Institute of the U.S. Army War College
  • Abstract: China’s emergence as a global actor has questioned the position of the United States as the strongest power and the future of the Washington-led global order. To achieve the status of a truly global player wielding influence in all dimensions of power would require China to leverage its regional influence in Central Asia. This region is increasingly representing China’s western leg of economic expansion and development, and is of a growing strategic importance for Beijing. It is also a region that should be of greater strategic importance to Washington, which seeks to preserve its leading position in the international system and ensure China’s peaceful integration in the global political, security, and economic architecture.
  • Topic: Economics, International Cooperation, International Trade and Finance, Hegemony, Global Markets, Global Security
  • Political Geography: China, Eurasia, Asia
  • Publication Date: 10-2015
  • Content Type: Working Paper
  • Institution: Economist Intelligence Unit
  • Abstract: After the plunge in commodity prices in 2015, the outlook for raw materials remains highly uncertain amid slowing economic growth in China and looming interest rate rises in the US. In China—which gobbles up nearly one-half of the world’s consumption of aluminium, copper and coal—demand for base materials risks moderating further as the economy moves away from an investment-driven growth model. This will continue to have knock-on effects on the performance of commodity-exporting economies, weighing down on global consumption of raw materials. However, supply responses are beginning to emerge from commodity producers worldwide. Coupled with less favourable weather prospects, this will lead to some market tightening next year, allowing for some price stabilisation after four years of decline. This report provides a snapshot of The Economist Intelligence Unit’s current commodity price indexes, exploring the changing prices for industrial raw materials and food, feedstuffs & beverages. Each article provides analysis and forecasts across a number of key commodities, helping you to assess the fast-changing environment of commodity markets and influence key decision-making processes.
  • Topic: Economics, Emerging Markets, Industrial Policy, International Trade and Finance, Monetary Policy
  • Political Geography: China
  • Publication Date: 01-2015
  • Content Type: Working Paper
  • Institution: East-West Center
  • Abstract: China, the world's leading exporter of electronic products, faces a fundamental dilemma. It is the largest and fastest-growing market for semiconductors, the core component of those electronics products. Yet, at least 80 percent of the semiconductors used in China's electronics products must be imported. As a result, China's trade deficit in semiconductors has more than doubled since 2005 and now exceeds the huge amount it spends on crude oil imports. To correct this unsustainable imbalance, China's new strategy to upgrade its semiconductor industry seeks to move from catching up to forging ahead in semiconductors. The strategy calls for simultaneously strengthening advanced manufacturing and innovation capabilities in China's integrated circuit (IC) design industry and its domestic IC fabrication, primarily through foundry services. Drawing on policy documents and interviews with China-based industry experts, this study takes a close look at the objectives, strategy, and implementation policies of China's new push in semiconductors and examines what this implies for China's prospects in this industry. The study shows that China's new policy resorts to private equity investment rather than subsidy as the tool of industrial policy. The government participates in equity investment and claims it will do so without intervening in management decisions. This policy is expected to reduce the cost of investment funds for a selected group of firms, which is to form a "national team" in the semiconductor industry. China's new policy to upgrade its semiconductor industry through innovation does not represent a radical break with its deeply embedded statist tradition. Within these boundaries, however, the study detects important changes in the direction of a bottom-up, market-led approach to industrial policy. In response to the rising complexity and uncertainty of today's semiconductor industry, the government seems more open to experimentation with new approaches to investment finance and flexible, bottom-up policy implementation, based on multilayered industrial dialogues with private firms. China's policies to forge ahead in semiconductors, thus, provide an interesting example of its current efforts to move from investment-driven catching up to an innovation-driven development model.
  • Topic: Economics, International Trade and Finance, Oil, Science and Technology, Financial Markets
  • Political Geography: China
  • Author: Derek M. Scissors
  • Publication Date: 02-2014
  • Content Type: Working Paper
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: Reactions to the Chinese Communist Party's announcement of major economic reforms in November have ranged from unbridled optimism to skepticism about the party's ability to implement sweeping change. In fact, the reforms themselves are flawed in multiple ways-most are inauthentic, uncredible, or nonviable. However, the areas of land and finance offer more limited prospects for true reform. The primary means of judging reform progress should be progress in reducing excess capacity. The most likely outcome is that the party will claim success but the economy will slowly stagnate, harming China's partners.
  • Topic: Economics, International Trade and Finance, Reform
  • Political Geography: China, East Asia