Yanqun Zhang

Is there a Bubble in the Chinese Housing Market

For many analysts, the Chinese economy is being spurred on by a bubble in the housing market, probably driven by the fiscal stimulus package and massive credit expansion, with potentially adverse effects on the real economy. The house price development is investigated by panel cointegration techniques. Evidence is based on a data-set for 35 major cities. Cointegration is detected between real house prices and a set of macroeconomic determinants. The results indicate that the bubble is less than 15 per cent of the equilibrium value implied by the fundamentals at the end of 2010. The bubble is particularly huge in the cities in the south-east coastal areas and special economic zones. While the spillovers from real house prices to consumer price index (CPI) inflation are significant at the margin, gross domestic product (GDP) growth may not be heavily affected. Thus, a decline of the bubble will likely have only modest effects on the real economy.

The Chinese Impact on GDP Growth and Inflation in the Industrial Countries

The integration of China into the global economy is one of the most spectacular events in economic history. This paper investigates to what extent this process affects output growth and inflation in the advanced countries. A GVAR model is specified to explore interdependencies between business cycles in China and industrial countries, including the US, the euro area and Japan. For robustness, the results are compared to those obtained from leading structural models, such as NiGEM and OEF. Evidence is based on the responses to a Chinese demand shock arising from the recent fiscal stimulus program. The results show that the impact on output growth in the advanced economies can be quite substantial, especially for the Asian region. The expansionary effects in the US and the euro area responses are lower, as trade linkages are less intensive. The multipliers are also reduced by a sizeable effect on inflation, as Chinese firms participate in international production chains.

Understanding Chinese Consumption: The Impact of Hukou

The Chinese growth miracle was based on exports and investment in recent years. While strong output growth has been maintained even during the financial crisis, the imbalances within the country increased. To return to a more sustainable path of development, policies are directed to improve the role of private consumption. However, the institutional framework is an impediment to the transformation, as it weakens the incentives of households to consume. Besides a low degree of social security and highly regulated financial markets, we stress the relevance of the hukou system as the main driver for modest consumption, especially in recent years. After controlling for different income levels, the average propensity to consume is significantly lower for migrants, as their access to public services is limited. The downward pressure on consumption will increase in the future. The urbanization strategy of the government will likely raise the number of migrants with limited hukou rights, if it is not accompanied by respective reforms. Therefore, the transformation towards consumption driven growth is endangered without further reforms.

On the relevance of exports for regional output growth in China

Despite high economic growth during the last decades, China is still vulnerable to shocks arising from industrial states. The advanced economies determine Chinese export performance, with subsequent effects on output growth. Using a production function approach, this paper examines to which extent regional GDP growth in China is export driven. In a panel of 28 Chinese provinces, series are splitted into common and idiosyncratic components, the latter being stationary. The results indicate cointegration between the common components of GDP, the capital stock and exports. In equilibrium, exports increase GDP by more than their impact expected from the national accounts. While exports and capital are weakly exogenous, GDP responds to deviations from the long run. An adjustment pattern can be detected for almost all regions, except of some provinces in the Western part of the country.

The Hukou Impact on the Chinese Wage Structure

Faster urbanization plays a key role in the Chinese economic transformation. However, at the Lewis turning point, the hukou institution constitutes a serious risk to the process, as it restricts the access of migrants to public services offered by cities. To attract further migration, firms started to accept a premium on top of the wage. Thus, the social discrimination introduced by the hukou system is partially compensated by the reactions of market participants, as migrant workers receive additional pay. Based on huge cross sections of private households, this paper provides insights into the size and the evolution of the wage premium. After controlling for standard wage determinants, such as sex, education, experience and ownership of firms, we find that the premium amounts to 7 percent of the hourly wage. Because of the premium, the share of non-wage labor costs is on the rise, especially for low-skilled migrants. To avoid further distortions and reduce inefficiencies, the hukou status should be unified. Migrants should obtain urban hukou as long as they live in cities. They should keep their land use rights when they are in the rural areas. Otherwise, the system could constitute a significant barrier for further urbanization. The removal of institutional bias could restore the link between wages and productivity and improve the allocation of labor.

Determining Minimum Wages in China: Do Economic Factors Dominate?

Minimum wages may be an important instrument to reduce income inequality in a society and to promote socially inclusive economic growth. While higher minimum wages can support the Chinese transformation towards consumption driven growth, they can worsen the price competitiveness in export markets. As they differ throughout the country, this paper investigates their determinants at the regional level. In addition to a broad set of economic determinants, such as per capita income and consumption, consumer prices, unemployment and industrial structures, spatial effects are taken into account. They might arise for different reasons, including competition of local policymakers. The results show that the impact of economic variables declines, once spatial spillovers are considered. Although the minimum wage regulation pursues the relevance of economic factors in the determination of the appropriate levels, the actual development is largely driven by regional dependencies. As minimum wage standards set by local officials do not fully reflect the regional economic development, further reforms should be on the agenda.

Inflation in China Increasingly Driven by Domestic Factors

The article investigates the determinants of consumer price inflation in China. While inflation has been entirely driven by international factors, such as food and energy prices, in the period preceeding the financial crisis, domestic drivers like monetary developments and nominal wages have become increasingly important since then. Due to tight trade linkages and the presence of Chinese firms in international production chains, the changing pattern is also relevant to other countries.