¡¡¡¡¡¡¡¡¡¡¡¡Economic Research Journal (Monthly)Vol.43 No.9 September, 2008

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

On the Mode of Economic System Reform with Chinese Characteristics(¢ñ)

ª«...................................................................................The Research Group of CASSª« (ª©4ªª)

Two Papers for the Centennial of the Birth of Professor Luo Gengmo

ª«...............................................................Zhang Zuoyuan, Han Meng and Huang Daª« (ª©16ªª)

Proposed Strategies to Cope with the Global Foodª²Energy Crisis

ª«...................................................................................................................Zhu Lingª« (ª©22ªª)

Banking Structure and Economic Growth: Evidence from Chinese Provincial Panel Da

ta........................................................................................ª«Lin Yifu and Sun Xifangª« (ª©31ªª)

The Effectiveness of China's Monetary Policy: Analyzing from the Viewpoint of Ti

me Inconsistency......................................................................................Tan Xudongª« (ª©46ªª)

China's Exchange Market Pressure and Monetary Policy: A Monetary Model Based on

Empirical Analysis............................................................................Bu  Yongxiangª« (ª©58ªª)

Exchange Rates and Stock Prices Interactions in China: An Empirical Studies afte

r 2005 Exchange Rate Reform

ª«........................................Zhang Bing£¬Feng Sixian£¬Li Xindan and Wang Huijianª« (ª©70)

Noise Trading and Market Quality in Chinese Stock Markets

ª«.............................................................................................................Su Dongweiª« (ª©82ªª)

Endogenous Inefficient Institutions.........................................................Pan Shiyuanª« (ª©96ªª)

An Economic Interpretation of the Strategy of ¡°Two Situations¡±

ª«......................................................................................Cai Guowei and Shu Yuanª« (ª©106ªª)

The Effects of External Risk on Local Government Size of China: Theory and Evidence.....................................................................Yang Canming and Sun Qunliª« (ª©115ªª)

The Role of Firm Effects in the Gender Earnings Gap: Evidence from China

ª«................................................................................Li Liying and Dong Xiaoyuanª« (ª©122ªª)

Nonª²farm Work, Maternal Care and Child Health: Evidence from Rural China

ª«...................................................................................................................Liu Jingª« (ª©136ªª)

A Summary of the 2008 Forum on China's Economic Growth and Business Cycles

ª«..................................................................Zhang Liancheng and Zhou Mingshengª« (ª©150ªª)

A Summary for the 2nd Workshop of Development and Innovation of Marxist Economics

ª«.............................................................................................Li Jianjian and Othersª« (ª©156ªª)

On the Mode of Economic System Reform with

Chinese Characteristics(¢ñ)

The Research Group of CASS

Abstract:This paper summarizes from 9 aspects the mode of economic system reform with Chinese characteristicsª± Firstly, in respect of the theoretical guidanceof reform, China attaches importance to the leading role of theoretical innovation. Secondly, in respect of the attributes of reform, China combines the ¡°second revolution" with selfª²perfection of socialist systemª± Thirdly, in respect of the orientation of reform, China sets the goal of establishing socialist market economyª± Fourthly, in respect of the way to reform, China pushes forward the reform in a gradual and steady wayª± Fifthly, in respect of the relationship between reform and development, China looks upon development as the aim of reformª± Sixthly, in respect of the relationship between reform and stabilization, China turns to stabilization as the guarantee of reform. Seventhly, in respect of the relationship between reform and openingª²up, China stresses the mutual promotion between marketization and internationalization. Eighthly, in respect of the coordination between economic reform and other reforms, China carries forward allª²around reforms. Ninthly and lastly, in respect of the driving force of reform, China joins the forces of the grassroots and the leadership. The paper will be published in two parts.

Key Words:Economic System Reform; China's Economy; Chinese Characteristics; Chinese Mode

JEL Classification:P200£¬P300

Proposed Strategies to Cope with the Global Foodª²Energy Crisis

Zhu Ling

(Institute of Economics, CASS)

Abstract:Based on the statistics from the sample survey data in China referring the year 2006 and 2007, it is found out£¬that the increases in the food and energy prices are lower than that in the international market, however the price hike has already exerted a shock on the livelihood of the low income groupsª± The urban sample households of the low income group substituted the high value food with the low valueª± All of the rural sample households reduced their total consumption expenditure in real terms; the Engel's coefficient enlarged while the proportion of cloth and energy spending declinedª± Farmers' households shifted to more imbalanced diet and the nutrition status of the poor apparently deterioratedª±It is then necessary for the whole society to take actions. The emergencyª²responding measures that the government should implement, is to stop subsidize the biofuel producers with foodstuff as input while provide the poor food aid. The mid term strategies should be antiª²monopoly, improving market environment for right competition, and eliminating distortion of food and energy prices. Furthermore, a midª² and longª²term socioeconomic policy reform must be undertaken to adjust the social structure, correct mechanism of factor price formation, and transform the economic growth pattern.

Key Words:Food; Energy; Coping Strategies

JEL Classification:H530£¬O130£¬Q480

Banking Structure and Economic Growth:

Evidence from Chinese Provincial Panel Data

Lin Yifu

(World Bank) and Sun Xifang

(Columbia University)

Abstract:Using panel data for 28 Chinese provinces during 1985¡ª2002, this paper assesses the effect of banking structure on economic growth. Banking structure is defined as the relative importance of banks of different size in the banking sector. The market share of small banking institutions is taken as a proxy to measure the banking structure. To deal with the potential endogeneity problem, we construct an instrumental variable for banking structure with the information on the commercialization reform of stateª²owned banks initiated in 1994. The estimation results from a twoª²way fixed effect model show that increases in the market share of small banking institutions enhance economic growth in contemporary China.

Key Words:Optimal Financial Structure; Banking Structure; Economic Growth

EL Classification:G210£¬L110£¬O430

The Effectiveness of China's Monetary Policy:

Analyzing from the Viewpoint of Time Inconsistency

Tan Xudong

£¨Department of Economics, Xiamen University£©

Abstract:Based on the modification of model of time inconsistency, this paper analyzes the effectiveness of China's monetary policy. The study shows that the effectiveness of China's monetary policy is positively associated with its credibility. Thereafter, implementing monetary policy with regularity, high transparency and strong inertia will play an important role in the improvement of the effectiveness of monetary policy.

Key Words:Time Inconsistency; Effectiveness of Monetary Policy; Rules; Discretion

JEL Classification:E320, E520, E610

China's Exchange Market Pressure and Monetary Policy:

A Monetary Model Based on Empirical Analysis

Bu  Yongxiang

£¨China Center of Economic Research£»Peking University£©

Abstract:Based on a monetary model this study derives a measure of Renminbi foreign exchange market pressure (EMP), and investigates the interactions between EMP, central bank domestic credit, China's relative economic growth rate against US, and domestic interest rate. Also this paper explores the impacts of US monetary base and interest rate on China's EMP. Monthly data for the period 1994ª²01 to 2008ª²01 and a VAR methodology are used. We found some evidence of a negativerelationship between Renminbi appreciation pressure and central bank domestic credit, as well as positive relationships between Renminbi appreciation pressure and economic growth, domestic interest rate respectively. Also there is some evidence that EMP affects domestic credit negatively, while no significant impacts on China's interest rate.

Key Words:Exchange Market Pressure£» Monetary Policy£» Economic Growth

JEL Classification:E580

Exchange Rates and Stock Prices Interactions in China:

An Empirical Studies after 2005 Exchange Rate Reform

Zhang Bingª¬1£¬Feng Sixianª¬2£¬Li Xindanª¬1 and Wang Huijianª¬3

£¨1ª±School of Engineering and Management, Nanjing Univeristy£»

2ª±School of Business, Nanjing Normal University£»

3ª±China Financial Futures Exchanges, Shanghai£©

Abstract:The paper analyzes the relationships between the change of the exchange rate and the fluctuation of the stock market after Chinese exchange rates reform which happened in 2005.The research is important for us to deeply understand the linkages and mechanisms between Chinese foreign exchange market and stock market. The paper finds that the exchange rate is highly related with the stock market, and long term coª²integration existed. It shows, from the long term, the relationship between the two variables can mainly be explained by flowª²oriented models; Shanghai A share index is influenced by the exchange rate in the long run.On the contrary, from the short term, the relationships between the two variables are mainly explained by stockª²oriented models. The relationships between thetwo variables are robust after controlling for other important variables and testing using rolling windows techniques. The paper further analyses the possible influence of sector indexes to exchange rates and finds that finance index, real estate index, civil aviation index, petroleum index, iron and steel index have cointegration relationships with exchange rates. Finally, some advices and policy suggestions are put forward.

Key Words: Exchange Rate;  Stock Prices;  Cointegration;  Robustness

JEL Classification:F31, G15, C22

Noise Trading and Market Quality in Chinese Stock Markets

Su Dongwei

(College of Economics and Institute of Research in Finance, Jinan University)

Abstract£ºWhether and to what extent noise trading and market quality affect each other has been an active research topic in finance during the past several decades. For the first time, this paper provides timeª²series estimates of noise trading in the emerging Chinese stock markets by regressing highª²frequency returns of 32 Shanghai 50 index companies on a control sample composed of industry, size, leverage and bookª²toª²market matched firms. The paper finds that private information is persistent and highly correlated; noise trading enhances stockª²market turnover, but increases trade execution costs and price volatility at the same time; noise trading and information asymmetry are not correlated, although information asymmetry can increase trade execution costs substantially; noise trading reduces realized spread, and as a result, market is not price efficient. Based on the aforementioned empirical findings, the paper proposes that to enhance market quality, Chinese government must deepen market microstructure reform, promote value investment strategies, improve information disclosure practices and strengthen trade monitoring.

Key Words£º Noise Trading; Market Quality; Information Asymmetry; Market Efficiency; Market Microstructure

JEL Classification£ºG10, G15, C32

Endogenous Inefficient Institutions

Pan Shiyuan

(College of Economics, Center for Research of Private Economy, Zhejiang University)

Abstract£ºFollowing Acemoglu (2006), we construct a simple model to investigate how the elite¬ðs preference for high intermediate good price translates into inefficient economic institutions and political institutions. Price manipulation mechanism implies that the elite prefer to high profits through monopoly pricing. An increase in tax rate declines the demand for intermediate good from the middle class, hence reducing monopoly profits, hence the price manipulation motive always decreases taxes to below the pure revenueª²maximizing level, which is opposite to the case in Acemoglu (2006).

Key Words£º Monopoly; Institutions; Economic Development; Regulation

JEL Classification£ºH2, N10, N40, O10, P16

An Economic Interpretation of the strategy of ¡°Two Situations¡±

Cai Guowei and Shu Yuan

(Lingnan School, Sun Yatª²sen University)

Abstract£ºIn the eighties of twentieth century, Deng Xiaoping brought forward the strategy of ¡°Two Situations¡± which directed the policy arrangement of Chinas regional development. This paper sets up a game model included central government, local government and multinational, and tries to explain the rationality of the strategy. The model suggests that under the condition of local government¬ðs competition for economic growth, the central government should choose thelocationwhere FDI brings more externality as preferential regions in order to maximize the national welfare, and the preferential power must exceed the degree at which the preferential local government can win the FDI without any subsidy to the multinational. Compare to the development strategy of ¡°Easter Region Preference¡±,the central government needs to give more support to ¡°Western Region Development¡±, ¡°Northeast Region Revitalization¡± and ¡°Middle Region Rising¡±.

Key Words£º Two Situations; Game Model; Central Government; Development Strategy

JEL Classification£ºC72, O21, R58

The Role of Firm Effects in the Gender Earnings Gap: Evidence from China

Li Liying and Dong Xiaoyuan

(Henan University of Finance and Economics; University of Winnipeg, Canada)

Abstract:This paper analyzes the gender wage gap in the postª²reform Chinese industry using a unique employerª²employee matched dataset. The analysis shows that the sexª²related wage premiums at the firm level account for almost all the portion of the gender wage gap that is not explained by observed personal characteristics. It is found that firms which have a larger pay gap between men and women are more likely to operate in the market with fierce competition, subject to a hard budget constraint, adopt piece rates, and have a lower degree of employees' influence and a higher degree of internal wage dispersion.

Key Words:Gender Wage Discrimination, Economic Transition, Firm Effects, China

JEL Classification:I30£¬J16£¬J21£¬J64£¬J71£¬O10£¬R20

Nonª²farm Work, Maternal Care and Child Health:Evidence from Rural China

Liu Jing

(Institute of Population and Labor Economics, CASS)

Abstract:China's rural economy has undergone dramatic structural changes since the country embarked on the path of market reforms in the late 1970s. These changes have altered patterns of women's labor force participation, with consequences for children's welfare. In this paper we examine the effects of maternal labor supply on children's health in rural China. With data from the China Economic, Population, Nutrition, and Health Survey (CHNS), We find that that an increase of a mother's working hours reduces her time available for children and consequently has a negative effect on child health, while the additional income it generated contributes to improving child's nutritional status. With the labor hour effect outweighing the income effect; maternal work overall shows a small negative effect on child health, and the effect is more pronounced for nonª²farm work than farm activities. These results suggest that economic structural changes have intensified he conflict of women's dual roles as income earners and as caregivers.

Key Words:Labor Supply£» Child Health

JEL Classification:I12£¬J13£¬J22