¡¡¡¡¡¡¡¡¡¡¡¡Economic Research Journal (Monthly)Vol.42 No.12 December, 2007

¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡
¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡¡ CONTENTS

The Internal and External Imbalances of China's Economy

ª«¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­Guo Shuqingª« (ª©4ªª)

Cooperatives Function with Socialist Market Economy

ª«¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­Tang Zongkunª« (ª©11ªª)

Urban Poverty in China: Social Assistance and Its Effects

ª«¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­Du Yang and Albert Parkª« (ª©24ªª)

Social Universal Service£ºAn Empirical Research on China

ª«¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­Wang Jun and Chang Zhongzeª« (ª©34ªª)

Can Equity and Efficiency Coexist: Study on the Marginal Propensity to Consume in China

ª«¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­Yang Rudai and Zhu Shi'eª« (ª©46ªª)

Empirical Research on the Relation between Formation of Human Capital and

Economic Institutional Transition

ª«¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­Zhang Chaoª« (ª©59ªª)

Model Based on Principalª²agent Theory to Design Transaction Contract between

Doctors and Patients

ª«¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­Ma Benjiangª« (ª©72ªª)

Ownership, Institutional Environment and Capital Allocation

ª«¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­Fang Junxiongª« (ª©82ªª)

Vertical FDI or Horizontal FDI?

ª«¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­Xue Mantian and Zhao Shudongª« (ª©93ªª)

Exchange Rate Passª²through to Chinese Export Prices and Exporters'

Capability of Pricing to Market

ª«¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­Chen Xuebin, Li Shigang and Lu Dongª« (ª©106ªª)

The Optimum Number of Funds Held by Institutional Investors: An Empirical Analys

is Based on Chinese Data

ª«¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­Huang Shaoan and Wei Qianª« (ª©118ªª)

International and Domestic Oil Price Volatilities and Their Interrelationship

ª«¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­Wei Weixian and Lin Boqiangª« (ª©130ªª)

Developmental Inosculation between Game Theory and Contemporary Economics from I

nteraction

ª«¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­Wang Guochengª« (ª©142ªª)

Minutes of the Editorial Board Meeting in 2007¡­¡­¡­¡­¡­¡­.Reporterª« (ª©153ªª)

The Internal and External Imbalances of China's Economy

Guo Shuqing

(China Construction Bank)

Abstract:

This article analyzes the internal and external imbalances of China's economy from a global perspective. The author believes that trade surplus and saving surplus are not the absolute metrics to define a country's economic strength. China's balance of payments has continued to maintain a big surplus, which shows China's unique economic structure and growth model and exposes deep contradictions in income distribution, factor prices and resource allocation. While stimulating rapid growth, the imbalances of China's economy at the same time has also long delayed upgrading of industrial structure, aggravated threat of inflationand asset bubble. Although the external and internal imbalances are closely linked to each other, they are quite different in nature. The similar global economic imbalances have existed for a long time, and to a great extent, it is inevitable and rational. However, the internal imbalance which is caused by its own systems and policies would have severe and negative impact on China's economy and even the global economy if it lasted.

Key Words:Economic Balance; Upgrading of Industries; System Reform

JEL Classification:F320£¬F430

Cooperatives Function with Socialist Market Economy

Tang Zongkun

(Institute of Economics, CASS)

Abstract:The paper aims to understand, by studying on cooperatives function, how shall the social function building contribute to the socialist market economy.The socialist market economic system needs to address the relationship between a market economy and a social balance. A balanced society is inevitably a society of functions complement each other by the government sector, the business sector and the social sector. Today China's society lacks in social sector function seriously. Cooperatives are the selfª²help economic organizations united voluntary by their members to meet their common needs. As members jointlyª²owned and democraticallyª²controlled enterprises, cooperatives are enterprises with social function, they have the functions of both business sector and social sector. Cooperatives are the forces of the counter monopolies of bargaining power in transactions. They shall empower farmers, consumers and other weak groups to have bargaining power especially in contemporary China, and they could play an essential role in job creation and community development.

Key Words:Cooperative; Social Function Building; Bargaining Power; Socialist Market Economy

JEL Classification:P130£¬P230

Urban Poverty in China: Social Assistance and Its Effects

Du Yang and Albert Park

(Institute of Population and Labor Economics, CASS; Department of Economics, Uni

versity of Oxford)

Abstract:Using two rounds of micro survey data collected in China's big cities, this paper evaluates the urban poverty reduction system and its efficiency. Theanalysis indicates that the means to poverty reduction has a significant shift during the urban economic restructuring. In contrast to similar programs in other economies, urban poverty reduction system cored by Dibao program is relativelyefficient. The paper also analyzes the response of individuals (households) to

poverty reduction system, and the empirical result shows that improvement on the ways to poverty reduction will be helpful to avoid the negative effects on labor market behaviors.

Key Words:Urban Poverty; Social Assistance; Poverty Targeting

JEL Classification:I380£¬H530£¬J680

Social Universal Service£ºAn Empirical Research on China

Wang Jun and Chang Zhongze

(School of Public Finance, Central University of Finance and Economics;Institute of Finance and Economics, Central University of Finance and Economics)

Abstract:China's Social Universal Service System should include Cultural Universal Service and Industrial Universal Service. Our analysis indicates that GDP gap of different areas has shown expanding trend since Open-up and Reform Policy put in practice. Human development gaps are narrowed gradually during 1990 to 2003. This indicates Cultural Universal Service of China play an important functionon the reduction of regional development gap. Education has large contribution to human development. Compared with education, public sanitation and social secu

rity are weak parts of Social Universal Service. The government should shoulder the basic responsibility for the provision of Cultural Universal Service in China.

Key Words:Social Universal Service; Cultural Universal Service; Industrial Universal Service; HDI Index

JEL Classification:O150£¬I310£¬H500

Can Equity and Efficiency Coexist: Study on the  Marginal Propensity to Consume in China

Yang Rudai and Zhu Shi¬ðe(1st: Business School, Xiangtan University; CCER, Peking University; 2nd: School of Economics, Central University of Finance and Economics; Center for International Studies, Ohio University)

Abstract£ºIt is demonstrated that equalization of the income distribution will increase aggregate consumption if there is an inverse ¡°U¡± relationship between marginal propensity to consume and disposable income. This study has shown that such a relationship does exist in China at present with the middle class having ahigher marginal propensity to consume than that of the lower and the highest. Therefore, equalizing the income distribution will give rise to the increase of aggregate consumption, which means that now it is not only a social but also an economic problem that matters efficiency as well as equity. Furthermore, a comparison analysis between 1995 and 2002 indicates that expenditure on education and medical treatment has had a more and more sound influence on consumer behavior. Their high input makes the poor still in a plight of them, while the middle class have to reduce their other consumption relatively because they have to allocate a large part of their income to education and medical treatment. This shows thatfurther improvements of China¬ðs reform in education and medical are needed.

Key Words£º Marginal Propensity to Consume; Income Distribution; Aggregate Consumption;  Inverse ¡°U¡± Relationship

JEL Classification£ºD120, D910, P360

Empirical Research on the Relation between Formation of

Human Capital and Economic Institutional Transition

Zhang Chao(Nankai Institute of Economics, Nankai University)

Abstract£ºMost scholars substitute education and training for human capital to reach the aggregation of human capital. But it doesn¬ðt accord with the progress on the relative theory, nor accord with our reality. New Institutional Economics and Theory of Market Transition research the effect of institution on accumulation of human capital. And our reality also showthis effect. Therefore this article analyzed the effect of institutional transition on the accumulation of human capital in China.

Key Words£º Institutional Transition; Human Capital; Education; Coª²integration

JEL Classification£º J240£¬O150

Model Based on Principalª²agent Theory to Design Transaction Contract

between Doctors and Patients

Ma Benjiang

(School of Business; Central South University)

Abstract£ºRegarding the medical costs and the treatment effect as a kind of random output for the first time, this thesis sets up a model of transaction contract between doctors and patients based on principalª²agent theory. The model enlightens us that the integration of hospitals and the medical insurance corporation  to establish insurance and mutual aid Medical Corporation Limited can solvethe moral hazard of the doctors to a large extent because the medical insuranceintegration is equal to a fixed treatment fee paid to the doctors in advance,which can internalize the medical costs and as long as the compensation regulations are established appropriately according to the effect of the treatment, the doctor will have initiative to reduce the cost of the medicine and to improve the curing effect at the same time. From the perspective of the whole society, the mutual aid medical Insurance Corporation Limited means to subsidize the patients with the insurance fee of the healthy people and to subsidize the people losing the capability to work with the insurance fee of those people with capacity to work. This model deserves consideration for our medical system reform, as it is a Pareto Improvement of the present medical system of ¡±hospital¡± or ¡±Insurance Corporation and hospital¡±.

Key Words£ºPrincipalª²agent; Moral Risk; Agent Cost; Transaction Contract Between Doctors and Patients; Medical System Reform

JEL Classification£º C510£¬D120

Ownership, Institutional Environment and Capital Allocation

Fang Junxiong

(Accounting Department, Management School, Fudan University)

Abstract£ºBased on the condition of SOE liability and foreign companies¬ð liability, we found that bank provided more capital to SOE than to foreign companies, and the credit term was longer. We also found that discrimination between different ownership companies was reduced with the decrease of government intervention and improvement of marketization.

Key Words£º Ownership; Institutional Environment; Capital Allocation

JEL Classification£ºE590£¬P280

Vertical FDI or Horizontal FDI?

Xue Mantian and Zhao Shudong

(School of Economics; Nanjing University)

Abstract:

Using dynamic panel data model and the data of FDI amount into China during 1992¡ª2004 from the major countries or regions, this paper analyzes the motive of the FDI. Primarily, in the sample session, the FDI from the tax havens appeared to have the features of horizontal FDI, while the FDI from other regions appeared to have the features of vertical FDI. As a whole, the vertical FDI played the major role in the FDI into manufacturing sector. Since 2004, the structure of FDI into China has significantly changed. Based on the analysis, we make some policy suggestions.

Key Words:Tax Haven; Horizontal FDI; Vertical FDI; Panel Data

JEL Classification:F230£¬H320

Exchange Rate Passª²through to Chinese Export Prices

and Exporters' Capability of Pricing to Market

Chen Xuebin£¬ Li Shigang and Lu Dong

(Fudan University)

Abstract:Based on the panel data of all 22 categories of exports under HS Classification, this paper reclassifies these exports according to their industry attributes, calculates the exchange rate passª²through to the aggregate export price and specific industries export prices,and then discusses the exporters' capability of pricing to market from Jan 2001 to Aug 2007.The conclusion is that£¬attributed to differences in the comparative advantages, processing trades, market structures and the degree of competition in the world market, exchange rate passª²through has different effects in different industries, and exporters located in various industries show distinct capability of pricing to market: laborª²intensiveindustries which have the traditional comparative advantages exhibit superª²strong capability of pricing to market, where exporters can lower the export prices in domestic currency when facing the RMB appreciation. Characteristic of processing trades, some highª²tech manufactures have the phenomenon of incompleteness of exchange rate passª²through effect.

Key Words:RMB Exchange Rates;Passª²through;Pricing to Market;Panel Data  

JEL Classification:E310, F410, F310

The Optimum Number of Funds Held by Institutional Investors:

An Empirical Analysis Based on Chinese Data

Huang Shaoan  and  Wei Qian

(Center for Economic Research£¬Shandong University)

Abstract:

This paper selects 39 closeª²end funds and 67 openª²end funds as samples which have been established before June 30th, 2004. We choose the weekly rationof return as the index. According to the data from January 1st, 2005 to December 31th, 2006, we examine the relations between the risk and return of the portfolio and the number of funds involved in portfolio. Then, we study the problem ofoptimum number of funds from only considering the factor of risk and from comprehensive consideration of risks and returns respectively. We also comparatively examine which one is better between the portfolio which have different investment style funds and those which is chosen randomly in equal. At last, we use data to examine three different optimum number models: Evans and Archer's, Latane andYoung's and Markowitz's.

Key Words:Securities Investment Fund; Optimum Number of Funds; Portfolio Risk; Portfolio Return

JEL Classification:G110,  G290,  G310

International and Domestic Oil Price Volatilities

and Their Interrelationship

Wei Weixian and Lin Boqiang

£¨School of International Trade and Economics, University of International Business and Economics; China Center for Energy Economics Research, Xiamen University£©

Abstract:Based on an analyzing of international and domestic oil prices formation mechanism, several new econometric methods are applying to the volatilities in oil prices and their relationship. The empirical results show that the oil price volatilities show clustering, continuance and risk ¡°spillover effects¡±, andthe international oil price volatility has absolutely leading effect to the dom

estic market; longª²term cointegration between the two markets is prominent, butthey have different shortª²term volatility processes.

Key Words:Oil Price; Volatility; GARCH Model; Spillover Effects; Cointegration

JEL Classification:Q410£¬Q430

Developmental Inosculation between Game Theory and Contemporary

Economics from Interaction

Wang Guocheng

(Institute of Quantitative & Technical Economics, CASS; Institute of Game Theory and Decision, Yanshan University)

Abstract:

Character of human behavior is the focus of both game theory and modern economics, and they mainly research strategic behaviors and individual rational behaviors respectively. From perspective of interaction, it is briefly introduced in this paper that there are some new theoretic views with advanced game theory and contemporary economics, such as thought source of game theory, nature ofmultiª²gameª²equilibrium, foundational types of economic behaviors, and behavior oriented of economics. It is foreseeable that interaction will drive the development of both game theory and contemporary economics.

Key Words: Interaction; Game Theory; Contemporary Economics; GameEquilibrium

JEL Classification:C700, B410, A120