Li-An Zhou

Income and Consumption Inequality in Urban China: 1992–2003

Using the nationally representative Urban Household Income and Expenditure Survey (UHIES) conducted by the National Bureau of Statistics (NBS) of China, we document a steadily rising trend in income and consumption inequality during the period from 1992 to 2003 in urban China. Despite the rising urban inequality over time, the social welfare of urban residents unambiguously improved because every income group saw their income and consumption increase over this period (higher income groups experienced faster increases). Moreover, consumption inequality follows income inequality very closely. Labor income inequality accounts for about two‐thirds of total income inequality quite consistently over time. We find that only about one‐third of urban inequality can be attributed to observable individual choices and characteristics, of which education has increasing explanatory power, while regional differences become less important over time. We also find that restructuring of the SOE sector, urbanization, and globalization are important contributing factors to rising overall urban inequality and the within‐group inequality not accounted for by observable individual choices and characteristics.

Demystifying the Chinese Housing Boom

We construct housing price indices for 120 major cities in China in 2003-2013 based on sequential sales of new homes within the same housing developments. By using these indices and detailed information on mortgage borrowers across these cities, we find enormous housing price appreciation during the decade, which was accompanied by equally impressive growth in household income, except in a few first-tier cities. While bottom-income mortgage borrowers endured severe financial burdens by using price-to-income ratios over eight to buy homes, their participation in the housing market remained steady and their mortgage loans were protected by down payments commonly in excess of 35 percent. As such, the housing market is unlikely to trigger an imminent financial crisis in China, even though it may crash with a sudden stop in the Chinese economy and act as an amplifier of the initial shock.

Family Ties and Organizational Design: Evidence from Chinese Private Firms

Analyzing data from a unique survey of managers of Chinese private firms, we investigate how family ties with firm heads affect managerial compensation and job assignment. We find that family managers earn higher salaries and receive more bonuses, hold higher positions, and are given more decision rights and job responsibilities than nonfamily managers in the same firm. However, family managers face weaker incentives than professional managers, as seen in the lower sensitivity of their bonuses to firm performance. Our findings are consistent with the predictions of a principal-agent model that incorporates family trust and endogenous job assignment decisions.

Incentive contracts and bank performance

This paper, using unique survey data from the banking industry in rural China, investigates the effect of incentive contracts on performance. In the context of Chinas economic transition, we find that the incentive contracts have a positive effect on the bank managers performance in deposit taking and non-performing loan reduction. This finding is robust when we control for the endogeneity of incentive contracts. Our empirical results present evidence on the positive effects of incentive-based banking reforms in rural China. Copyright (c) 2007 The Authors Journal compilation (c) 2007 The European Bank for Reconstruction and Development.This paper, using unique survey data from the banking industry in rural China, investigates the effect of incentive contracts on performance. In the context of China`s economic transition, we find that the incentive contracts have a positive effect on the bank manager`s performance in deposit taking and non-performing loan reduction. This finding is robust when we control for the endogeneity of incentive contracts. Our empirical results present evidence on the positive effects of incentive-based banking reforms in rural China.

Incentives, equality and contract renegotiations: Theory and evidence in the chinese banking industry

Renegotiation plays an important role in contract theory, but the empirical study of renegotiation is almost non-existent in the literature. Using a unique dataset from the Chinese banking industry, we find that the large majority of managerial incentive contracts are renegotiated after performances are realized. We develop a model of contract renegotiation where supervisors and managers sign incentive contracts and then renegotiate them. In the unique equilibrium of the model, incentive contracts are almost always renegotiated ex post. Even though renegotiation is fully anticipated, incentive contracts affect performance. The predictions of the model find strong support from our empirical results.

Parental childcare and children's educational attainment: evidence from China

This paper examines the determinants of child educational attainment. In addition to those examined in previous studies, it is found that maternal childcare is another important determinant of child educational attainment. The results are robust after controlling for endogeneity. The IV estimates show that once childcare time is controlled for, child health does not have an effect on school enrolment age. This finding suggests that omitting the childcare time may have biased the estimated effect of child health on school enrolment in previous studies.

Political Competition at a Multilayer Hierarchy: Evidence from China

The most salient feature of China’s economic development in the past three decades is the remarkably high and sustained level of economic growth: China’s real GDP growth rate was on average 9.6 per cent during the period 1978–2010. Even when the world economy was hit by the global financial crisis in 2007–08, the Chinese economy, which initially suffered a big drop in the growth (from 12 per cent in 2007 to 8 per cent in 2008), quickly recovered its normal strength, recording 8.7 per cent in 2009 and 10.4 per cent in 2010. The other important feature of the Chinese economy is the positive role played by local governments at the different levels (Oi 1992; Montinola et al. 1995; Walder 1995; Qian and Weingast 1997; Che and Qian 1998; Blanchard and Shleifer 2001; Li and Zhou 2005; Xu 2011). While bureaucrats tend to grab private business in many developing and transition countries, Chinese local officials have served as a helping hand to their local economies by building infrastructure, encouraging local business entrepreneurship and attracting foreign investment (Frye and Shleifer 1997; Easterly 2005).

Market Expanding or Market Stealing? Platform Competition in Bike-Sharing

The recent rise of dockless bike-sharing is dominated by two platforms: one started first in 82 Chinese cities, 59 of which were subsequently entered by the second platform. Using these variations, the paper studies how the entrant affects the incumbent’s market performance. To our surprise, the entry expands the market for the incumbent, not only boosting its total number of trips but also allowing the incumbent to achieve higher revenue per trip, improve bike utilization rate, and form a wider and more evenly distributed network. These market expansion effects dominate a significant market-stealing effect on the incumbent’s old users. The findings suggest that platform entry can divert the perceived path to winners-take-all in a market with positive network effects, and competition with the outside goods is at least as important as the competition between platforms, especially when users multi-home across compatible networks.

Target Setting in Tournaments: Theory and Evidence from China

Motivated by the prevalence of economic targets at all levels of territory administration in China, this article proposes a Tullock contest model to study optimal target setting in a multi-layered tournament-based organisation. In our model, targets are used by upper-level officials to convey the importance of economic growth and incentivise subordinates in the tournaments. Our model predicts a top-down amplification of economic growth targets along the jurisdiction levels, which explains the observed pattern in China. Using both provincial and prefectural-level data, we test the model predictions and find consistent evidence.

Does Raising Family Income Cause Better Child Health? Evidence from China

Few studies have attempted to identify a causal link between family income and child health, especially in developing countries. This article takes advantage of an exogenous income shock created by China’s rural tax reform between 2000 and 2003 to study the causal impact of household income on child health. The analysis finds that an increase in family income significantly raises children’s height-for-age z-scores. These effects are robust to alternative specifications and a comprehensive set of controls. The article also investigates possible mechanisms generating this result. We find that with a higher income level, better nutritional intake partially accounts for the improvement in child health.