The Singapore Economic Review

This paper begins by showing that even after conditioning for factors that might justifiably lead to a country having relatively high leverage, China remains a debt outlier. In this sense, China can be regarded as over-leveraged and its debt levels may present potential risks to growth and financial stability. The corporate sector is central to China’s debt story, accounting for two-thirds of the total. Moreover, the corporate sector has been mostly responsible for China’s leverage cycles, including the leveraging up since 2008 and an earlier deleveraging phase starting in 2003. Two major but under-appreciated drivers of Chinese corporate leverage cycles are then identified. The most important is the share of internally funded corporate capital expenditure, which is a combined consequence of evolving corporate earnings and capital expenditure. The second is the rising importance of real estate and construction firms as holders of corporate debt. China’s corporate leverage landscape is also shown to be more complex than a story of zombie state-owned enterprises in industrial segments with excess capacity being ever-greened with loans from state banks. A balanced mix of policy responses will be needed to manage a warranted and orderly deleveraging cycle in the years ahead.

This paper uses the Global Trade Analysis Project (GTAP) Static Model to predict the potential impact of economic growth in China on bilateral trade between China and Australia in 2025, under three different scenarios representing the business as usual, the successful reform and the stagnation cases, respectively. The results show that exports from Australia to China will continue to increase in both absolute and relative terms, irrespective of which economic growth path China takes, partly due to the strong complementary relationship of production between the two countries. The results also indicate that education service exports will become a new engine of bilateral trade in addition to agricultural and mineral products. Furthermore, comparing the results obtained from the three scenarios shows how successful reform will bring more benefits to both China and Australia in trade, which provides useful insights for policy making to facilitate bilateral economic relationship.

China has enjoyed high economic growth for more than three decades since the initiative of economic reform in early 1980s. This growth has been driven mainly by labor-intensive export-oriented manufacturing activities. Yet, there are remarkably few empirical studies of the link between export diversification and economic growth. In this paper, the effect of export diversification on economic growth in Chinese provinces in the period 2000–2006 is examined. The findings support cross-country evidence that regions with diversified export baskets enjoy higher economic growth. However, it is found that the growth benefits are linked to diversification of export products, rather than geographical diversification of exports. Further, it is also found that the growth effect and export diversification may have a nonlinear relationship. As such, governments promoting export diversification should distinguish the diversification of export products from that of export destinations. Their policies should also change as regional economies develop.

One of the most interesting and debateable topics in China’s economic growth is whether China’s economy would be hindered by a middle-income trap. This paper addresses this topic by analyzing the link between international skilled migration and the middle-income trap. Our study has extended the model proposed by [De la Croix, D. and Docquier F. (2012). Do Brain Drain and Poverty Result from Coordination Failures? Journal of Economic Growth, 17(1) 1–26.] and accounted for the importance of heterogeneity of human capital emphasized by [Jones, F. (2008). The Knowledge Trap: Human Capital and Development Reconsidered. NBER Working Paper No. 14138, Northwestern University.] Results have demonstrated that in the presence of externalities in the formation of human capital, there possibly exist four steady-state development paths in the dynamic system due to coordination failures. These four paths include: (i) the unskilled labor equilibrium which is characterized by low-income and significant loss of skilled labor, (ii) the generalist equilibrium with lower-middle income and significant loss of specialists, (iii) the specialist equilibrium with the characteristics of upper-middle income and significant loss of generalists; and (iv) the skilled equilibrium with high income and insignificant loss of skilled workers. Amongst them, the generalist equilibrium and specialist equilibrium represent two types of middle-income trap.

China has experienced high-speed catch-up growth with an average annual rate of over 8% in per capita GDP in the past four decades. Using growth accounting, Zhu (Understanding China’s growth: Past, present, and future. Journal of Economics Perspectives, 26(4), 103–124) finds that the growth of total factor productivity (TFP) accounts for 77% of China’s per capita GDP growth during 1978–2007, and argues that China’s TFP growth is mainly driven by resource reallocation due to market liberalization and institutional reforms. This paper aims to estimate China’s aggregate productivity growth by applying three leading methods of estimating firm-level production function on Chinese manufacturing firms during 1998–2007, and quantify the contribution of resource reallocation to productivity growth. In addition, we also empirically compare the three estimation methods in this large data set.

This study explores the efficiencies of firm’s R&D investment depending on the degree of reliance on government funding relative to firms’ private funding. Stochastic frontier analysis is applied on a sample of 30 provinces with data on R&D inputs and innovation outputs by all large- and medium-sized industrial firms in these provinces from 2000 to 2013. It is found that R&D investment financed by firms’ private funding is more efficient than that by government funding in generating new products, whereas R&D investment financed by government funding is more efficient than that by firms’ private funding in producing new patents.

Enhanced innovation capacity has become imperative to China’s growth and development. Patent quantity and quality indicators are benchmark measures of innovative capacity. This paper utilizes data from the 2013 Chinese Patent Survey to explore self-evaluated firm-level patent quality in China. Focus is placed on the effects of technological accumulation and also patent motivation on four multi-dimensional self-evaluation indices: technical quality, writing quality, right stability and market value. The results: (i) verify the proposal that in high patent intensity industries “strategic patent behavior will reduce patent quality”; (ii) suggest that reducing administrative-driven patent behaviors could improve patent quality and (iii) find patent structure but not quantity to be positively correlated with patent quality. This serves to enrich understanding of China’s patent system and the one-dimensional “inventive step” analysis deriving from analyses of European Patent Survey data.

Potential demand for consumer goods and services is enormous in China. Turning such potential into real effective demand will play a crucial role in sustaining China’s future economic growth. Based on most recent consumption data of major categories of goods and services by consumers of different income groups, this study empirically evaluates the potential of the market for goods and services in China using the panel data of 18 provinces over the period 2002–2012. The results indicate that (1) compared to developed countries, Chinese urban residents have much potential for consuming goods including medical care, transportation and communication, education and entertainment; (2) the profile of the expenditure elasticity for necessities such as food change is hump-shaped. Residents in middle-income groups are more income-elastic than the low- and high-income groups; (3) expenditure elasticity of medical care decreases as income level rises, while the trends of transportation and communication, education and entertainment share a similar profile across income groups.

The objective of this paper is to investigate the impacts of urbanization on influencing the rural–urban consumption disparity in China, a research gap which has not been bridged so far. Adopting a provincial dataset from 1997 to 2014, a generalized method of moments (GMM) estimator is employed to reveal the impact of urbanization on the ratio of per capita consumption expenditure of the urban households to the rural households, along with other socioeconomic variables. Empirical results show salient relationship between increasing urbanization ratio and declining rural–urban inequality. Significant impact of education costs on increasing the rural–urban inequality is also observed. Other factors that increase the disparity include foreign investment and gross regional product (GRP) indices. Industrial structure, costs of housing and health care are insignificant factors. The results of this study help in understanding China’s new urbanization development strategy in a better way.

Foreign direct investment (FDI) in China is heavily concentrated in coastal region, which has attracted large amount of rural migrant workers from inland region. This type of population migration associated with FDI may have an impact on China’s inland urbanization. There is however little research on this topic. This paper aims to investigate the interregional impact of FDI on China’s inland urbanization. The study finds that on average FDI has negative interregional impact on inland urbanization. However, FDI in coastal and inland regions engaged in different trade modes (processing versus ordinary trade) has different interregional impact on China’s inland urbanization.

This paper investigates the location strategies of Chinese energy firms over the period 2003–2013. The results confirm that market-seeking and resource-seeking are two significant motivations behind Chinese energy firms’ outward foreign direct investment (OFDI). As expected, a higher level of the host country’s energy resource reserves attracts more energy resource related projects and the host country’s renewable energy output influences Chinese firms’ renewable energy investment. However, for OFDI in energy resources, the political stability of the host country is not a significant factor while when investing in renewable energy, it is a significant consideration. Interestingly, for OFDI in energy resources, trade integration measured by the share of exports sold in the host country in China’s total exports, is not statistically significant while for OFDI in renewable energy, trade integration affects the investment decision.

This paper examines the pattern and evolution trend of foreign investment in China through combining decomposition analysis and framework of transitional dynamics. It is recognized that inter-regional disparity contributes the most to China’s disparity in foreign investment. Stochastic kernel analyses are then performed for the country and the economic zones regarding the foreign investment trend. It is concluded that convergence of foreign investment to the country’s mean cannot be attained and continues to locate at the lower end. This analysis offers illuminating insights on the evolution of foreign investment in China across time.