Ding Lu

Biased Lending and Non-performing Loans in China's Banking Sector

This article uses a panel data set of public listing companies in China empirically to explore the relationship between banks lending behaviour and non-performing loans. Our results show that state-owned enterprises (SOEs) got more loans than other firms, other things being equal, and SOEs with high default risks were able to borrow more than the low-risk SOEs and non-SOEs. This suggests that Chinese banks had a systemic lending bias in favour of SOEs, particularly those with high default risks, during the period under investigation. The causes and implications of this behaviour are discussed.

China's regional income disparity

Using data on Chinas provincial economies for the period 1978-2005, we decomposed the causes and factors that have contributed to inter-regional per capita income disparity. Variance in capital per employee and variance in capital elasticity are found to be the two main sources of income disparity while the employment labor force ratio is shown to be an important factor in containing the rise of income disparity. An analysis on inter-regional factor reallocation effects reveals their relatively small and insignificant contributions to overall growth performance. It is also discovered that capital has in most years flowed in the right direction to pursue higher marginal productivity across provincial economies. Inter-provincial labor movement, on the other hand, had not displayed significant equilibrating effects until institutional reforms started to allow freer inter-regional labor mobility in later years. Generally, we conclude that market-oriented factor mobility has played a crucial role in equalizing factor returns as well as enhancing growth efficiency across regions.

Shared network investment

This paper discusses the case of inter-firm cost sharing in fixed-capital investment in business-related network. Such cooperation among individual firms differs in nature from the collusive conduct in pricing or production in the sense that decisions on short-term production remain independent. The model in this paper stylized a common network that reduces each member firms variable cost of production. Firms benefit from pooling their investment in this network thanks to cost subadditivity of the investment. Different dues-assignment rules are found to affect firms incentive in achieving collective efficiency.

The entrepreneurs who do both: Production and rent-seeking

Abstract This paper establishes a case that firms seek rent without specializing in rent-seeking business: A government collects taxes and redistributes the revenue among the firms. Firms manipulate their rewards by affecting the way government collects taxes or allocates transfers. Their competitive rent-seeking efforts waste societys entrepreneurial resources and trap the economy in a suboptimal equilibrium. The study examines how the primary tax rate and the entry or exit of firms affect rent-seeking waste.

The Great Urbanization of China

As China rises to become the worlds largest economy, half a billion rural villagers are expected to become urban residents in the coming decades. The great urbanization of the worlds most populated country is sure to be one of the most far-reaching social-economic events in the 21st century. This book provides a clear and comprehensive review of this unfolding event. It presents not only the evolution of public policies and institutional reforms regarding urban development over the past decades, but also an up-to-date survey and in-depth analysis of contemporary social-economic forces that define and contribute to the process of urbanization. Individuals interested in understanding Chinas urban development will find this book useful, informative, and fascinating.

The Economic Consequence of Labor Mobility in China's Regional Development*

Factor mobility plays an important role in the convergence of regional income levels. This paper examines the role of labor mobility in Chinas regional economic development in the context of phases of demographic transition and the existence of institutional barriers. Our findings show that the two most important sources of interregional income disparity are per worker capital stock and technology level. The fact that the richest provincial economies are at the later phase of demographic transition provides a major reason for why those economies have accumulated higher per worker capital stock and achieved higher productivity levels. We also discover that regional per capita income levels have not displayed convergence since the mid 1990s. Two observations explain this phenomenon. One observation is that capital and labor movements have played only a limited role in equalizing their marginal returns across regions despite the fact that labor mobility has substantially strengthened this role since 2000. The other observation is that the impact of demographic changes on income growth has been distinctly uneven between the rich and poor regions. This phenomenon can be attributed to some particular features of Chinas interregional labor migration.

China's Growth Slowdown and Prospects for Becoming a High-Income Developed Economy*

After decades of hyper growth, Chinas economy has slowed significantly in recent years, causing widespread anxiety both within and outside the country. Although economists have not reached a consensus about Chinas growth potential, it is undeniable that the country has switched gears toward a “new normal” of moderate growth amidst ongoing structural change. To assess Chinas growth performance and prospects, this study modifies Masahiko Aokis analytical framework of a unified growth theory into a multi-sector model and applies it to identify the sources of Chinas per capita income growth in recent decades. The analysis confirms Aokis early observation that China entered the so-called “Kuznets phase” of development in the 1980s, which then became overlapped by the H-phase, in which human capital–based growth is characterized by high labor productivity growth. This study provides evidence that Chinas labor productivity growth has been predominantly driven by fixed capital formation. It also reveals that the Kuznets effect (with its labor reallocation effect) has now passed its peak and is fading away. The most alarming finding is that net total factor productivity (TFP) growth in the latest period has slowed to a near halt. This trend is particularly worrisome given that China has exhausted its past demographic dividend and its industrial structure has evolved to the end of industrialization stage. Meanwhile, demographic projections clearly indicate that China has entered what Aoki defined as the development phase of “post demographic transition.” Whether China can reverse the downward trend of TFP growth will determine how soon it can achieve the goal of becoming a high-income developed economy.