CONTENTS

Greenhouse Gas Emissions Reduction: A Theoretical Framework and Global Solution

Project Team of Development Research Center of the State Council of China¡­¡­¡­.....¡­¡­¡­.(4)

Regulation Performance of the Win-win of Environmental Protection and Economic Development

¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­.....¡­¡­Zhang Hongfeng, Zhou Feng, Yang Hui and Guo Qing(14)

Factor Income Share in China: The Story behind the Statistics

¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­......¡­¡­Bai Chong-en and Qian Zhenjie(27) .

Fragmented Growth: Why Economic Opening May Worsen Domestic Market Segmentation?

¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­.......¡­¡­¡­..Lu Ming and Chen Zhao(42)

Money Demand and Asset Substitution in China

¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­.......¡­¡­¡­¡­¡­¡­¡­.Wu Ge(53)

Big Country Model and the Evaluation of Exchange Rate of RMB vs. USD

¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­........¡­.Zhao Zhijun and Chen Zengjing(68)

Does Chinese Fiscal Policy Increase Total Social Utility?

¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­........¡­¡­¡­.Cai Mingchao, Fei Fangyu and Zhu Baohua(78)

Reform of Enterprise Income Tax, Earnings Management and Its Economic Consequences

¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­........¡­Wang Yuetang, Wang Liangliang and Gong Caiping(86)

Why Does the Operating Performance of the  Chinese Listed Companies Deviate from the Business Cycle?

¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­......¡­¡­¡­¡­¡­¡­¡­Li Yuanpeng(99)

Is Top Management Compensation of Chinese Public Companies Sticky?

¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­.......¡­¡­¡­¡­¡­..Fang Junxiong(110)

Comparative Advantage and Dual Paths of Technological Progress in Backward Countries:

Technological Progress in Modern China

¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­........¡­..Dai Qian and Li Tang(125)

Financial Services Innovation in Marketing: A Literature Survey

¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­........¡­He Dexu and Zhang Xuelan(138)

A Summary for the Forum of Technology Trade Barrier and Standardization

¡­¡­¡­¡­¡­¡­¡­¡­....¡­...Song Mingshun, Zhao Zhiqiang, Zhang Yong and Xiong Minghua(155)

Greenhouse Gas Emissions Reduction: A Theoretical Framework and Global Solution

(Project Team of Development Research Center of the State Council of China)

Abstract:The key to achieve the targets of Greenhouse Gas (GHG) emissions reduction and efficient allocation of global emissions reduction resources is to clearly define and enforce the emission rights of each country, and to establish international emission trading scheme (IETS). This paper develops a theoretical framework on how to define each country's historic and future emission rights, and presents a proposal to succeed Kyoto Protocol. In the proposal, the ¡°common but differentiated responsibilities" of each country are clearly defined, and all countries are covered.

Key Words:Global Warming; GHG Emissions Reduction; Post-Kyoto Proposal

JEL Classification:Q54£¬H23£¬P14

Regulation Performance of the Win-win of Environmental Protection and Economic Development

Zhang Hongfengª¬1, Zhou Fengª¬1, Yang Huiª¬2 and Guo Qingª¬3

(1.Institute of Economics, Shandong Economic University(SEU); 2.School of Busi

ness Management, SEU; 3.School of Economic and Urban Management, SEU)

Abstract£ºEnvironmental protection and economic development along with the existence of environmental threshold declare publicly the need of environmental regulation. It aims to maximize social welfare. But from the positive perspective how about the performance of environmental regulation is in China? Based on the experience of Shandong, this article processes positive test by establishing econometric models and statistic estimate. Firstly, we tested the performance of environmental regulation of Shandong province by measuring the fluctuant track of environmental pollution along with the change of economy growth, the difference of EKC in Shandong province and the whole country; next, because the secondary industry, especially the pollution-intensive industries in it occupied large proportion, and according to experiences, environmental regulation has biggish influence to pollution-intensive industries, so this article chooses the location quotient, impetus value and the contribution rate of economy growth to empirically analyze the developing status of pollution-intensive industries; finally, this art

icle educes the conclusions that the environmental regulation of Shandong province is stricter than the whole country, that systemic policy of environmental regulation can change the figure of EKC curve, and that the gross pollution emission must concert with the adjustment on the policy of distribution of the industry structure.

Key Words£º Win-win; EKC; Pollution-Intensive Industries; Performance of Environmental Regulation; Industry Structure

JEL Classification£ºO13, Q51, Q56

Factor Income Share in China: The Story behind the Statistics

Bai Chong-en and   Qian Zhenjie

£¨School of Economics and Management, Tsinghua University£©

¡¡

Abstract:This paper investigates the change in aggregate labor income share in China since 1995. With provincial GDP by income approach released by NBS, we measure aggregate labor income share in value added at factor cost. The measured labor income share declined by 10ª±73 percentage points during 1995¡ª2004, of which 5ª±25 percentage points occured between 2003 and 2004. We estimate the effect of the changes in the accounting method for GDP by income approach in 2004, and find that these changes cause a drop of 6ª±29 percentage points in the labor share in 2004, more than enough to explain the change in the labor share statistics between 2003 and 2004. For the 1995¡ª2003 period, the structural transformation from agricultural sector to non¡ªagricultural sector and the decreases in sectoral labor income shares respectively account for 3ª±36 and 2ª±12 percentage points of decline in aggregate labor income shareª± Furthermore, around 1ª±65 percentage points of the decline in sectoral labor income share is accounted for by the industrial sector, of which the restructuring of SOEs, the increase in monopoly power, and other forces including technology change and improvement respectively explain 60%, 30% and 10%.

Key Words: Factor Income Distribution; Labor Income Share; National Accounts; Structural Transformation; SOEs' Restructure

JEL Classification:E10£¬E25£¬D33

Fragmented Growth: Why Economic Opening May Worsen

Domestic Market Segmentation?

Lu Ming and Chen Zhao

£¨Fudan University£©

Abstract: This paper studies how market segmentation between neighbouring provinces affects provincial-level economic growth. We find that market segmentation has inverse-U-shape effect on current and future economic growth. For more than 96% of the observations, market segmentation increases growth. We also find that for observations with higher economic opening, market segmentation has stronger pro-growth effect. This means that the provincial governments have given up domestic scale effects when enjoying scale economy from international trade. To avoid the ¡°Prisoner's Dilemma" in the inter-provincial fragmented growth, only coordination from the central government and the development of private economy can integrate domestic market, so that China as a whole may benefit from domestic scale economy.

Key Words: Market Segmentation£» Economic Growth£» Economic Opening£» Scale Economy

JEL Classification:

H770£¬O180£¬R110

Money Demand and Asset Substitution in China

Wu Ge

(The People¬ðs Bank of China, International Monetary Fund)

¡¡

Abstract£ºRecent changes in China financial system, especially the ongoing interest rate liberalization, gradual movement toward more flexible exchange rate regime, and rapid development of capital markets have substantially changed the environment in which monetary policy operates. This paper examines empirically relationship between broad money, consumer prices, real output, interest rates, exchange rate, and stock prices in light of recent changes. This has been done following the General-to-Specific methodology as implemented in the PcGets. We confirm that a stable broad money demand function can still be set up by taking proper account of asset substitution. The income elasticity is smaller than unity in our estimated error correction model. Current inflation has significant negative impact on the real money demand. Money demand is not very sensitive to interest rates, reflecting the fact that some interest rates haven¬ðt been fully liberalized. Changes of the exchange rate do not significantly affect money demand, but

expectations of RMB appreciation since 2005 appears to induce more money demand. Stock prices are statistically insignificant in our short- and long-run models although capital markets have experienced a rapid development. And real assets have been and still are a very important component of the household¬ðs portfolio in China.

Key Words£º Money Demand; Asset Substitution; Exchange Rate; Interest Rate

JEL Classification£ºC50, E41, O53

Big Country Model and the Evaluation of Exchange Rate of RMB vs. USD

Zhao Zhijun(Institute of Economics of Chinese Academy of Social Sciences)Chen Zengjing

(Shandong University)

Abstract£ºIn this paper a big country model of real exchange rate is created according to the characteristics of emerging market economy with high economic growth. Based on the theoretical model, we design a Vector Autoregression Model and conduct empirical analysis to understand the relationship of real exchange rate, economic growth and interest rate. The empirical study shows that currently Renminbi vs. USD exchange rate is no longer undervalued as before 2004 and it is somewhat overvalued. Under current global and domestic macroeconomic situation, the overvaluation of the real exchange rate could be corrected mainly through the adjustment of price level and nominal exchange rate is not necessarily to be changed drastically.

Key Words£º Real Exchange Rate; Economic Growth; Real Interest Rate; Vector Auto-regression Model

JEL Classification£ºF110, F310, F410

Greenhouse Gas Emissions Reduction:

A Theoretical Framework and Global Solution

(Project Team of Development Research Center of the State Council of China)

Abstract: The key to achieve the targets of Greenhouse Gas (GHG) emissions reduction and efficient allocation of global emissions reduction resources is to clearly define and enforce the emission rights of each country, and to establish international emission trading scheme (IETS). This paper develops a theoretical framework on how to define each country's historic and future emission rights, and presents a proposal to succeed Kyoto Protocol. In the proposal, the ¡°common but differentiated responsibilities" of each country are clearly defined, and all countries are covered.

Key Words: Global Warming; GHG Emissions Reduction; Post-Kyoto Proposal

JEL Classification:Q54£¬H23£¬P14

Reform of Enterprise Income Tax, Earnings Management

and Its Economic Consequences

Wang Yuetang, Wang Liangliang and Gong Caiping

£¨School of Management, Nanjing University£©

Abstract: Corporate tax is an important factor of corporate value. Reducing corporate tax burden has always been an important motivation of earnings management. The implementation of the new enterprise income tax law which was introduced in 2008 resulted in great changes of the enterprises' tax burden. Since changes in the tax rate affected the value of the company, did stock market react to the expectation? Did companies manage earnings because of changes in tax rates? Did stock market react to earnings management of tax avoidance motivation?  We have done a positive research on these problems. The results of empirical tests suggest: The market can identify the effect of changes in the tax rate on the value of the company. As predicted, companies with reduced tax rate managed earnings obviously in response to tax reform; but companies with increased tax rate didn't, this may be due to the transition period for the companies with preferential tax policies. The results of empirical tests also suggest that the market gave a positive response to companies which succeeded in reducing corporate tax burden. The results of this paper not only enrich the literature of earnings management, but also make policy implications to the income tax reform.

Key Words: Reform of Enterprise Income Tax£» Earnings Management£» Economic Consequences

JEL Classification:G380,H210

Why Does the Operating Performance of the  Chinese Listed Companies

Deviate from the Business Cycle?

Li Yuanpeng

(School of Management, Fudan University)

Abstract: Many Economists doubt the integrity about China's Macroeconomic statistics. In the macro-level, GDP and return on investment has being grow up, but, the listed firms' performance had become worse and worse. This paper studies the puzzle. My opinion is that the decreasing of listed firms' performance is the results of IPO effect (By ¡®IPO effect', we mean the decline in a public company'soperating performance following its listing at the point of initial Public offering).In China, accounting-based regulation of IPO results in IPO firms manipulated earnings. But, after IPO, the earnings will revert. In final, listed firms' performance decreased for ten years. If controlling this effect, we can't find the negative relation between business cycle and listed firms' performance.

Key Words: Business Cycle; Operating Performance; IPO£»Earnings Management

JEL Classification:M41£¬M48£¬E32£¬G38

Is Top Management Compensation of Chinese Public Companies Sticky?

Fang Junxiong

(School of Management, Fudan University)

Abstract: This article studies sensitivity of top management compensation-performance in China more completely and timely using 2001-2007 data, and examines the stickiness of top management compensation for the first time. We found that our top management compensation has been correlated with performance during the development of remuneration reform and the compensation been sticky. And, we found that the stickiness of top management compensation was less in private and central government controlled companies compared to local government controlled companies, and the independence of board would weaken the stickiness of top management compensation.

Key Words:Top Management Compensation; Sensitivity; Stickiness

JEL Classification:L320,M120

Comparative Advantage and Dual Paths of Technological Progress

in Backward Countries: Technological Progress in Modern China

Dai Qianª¬a and Li Tangª¬b

(a: Center for Economic Development Research and Economics and Management School

, Wuhan University;b: Economics and Management School, Wuhan University)

Abstract:

We find different industries in modern China were on different paths of technological progress. Some industries could utilize the advanced technique from western countries and improve their technologies in a sudden, while others made technological progress step by step, which is called by us the ª«Dual Paths of Technological Progressª«. We analyze this phenomenon in a simple two-sector model. The paper argues that the principle of Comparative advantage determined the Dual Paths of Technological Progressª« in modern China. Those industries with comparative advantage took the path of gradual technological progress, while others without comparative advantage could jump to the technological frontier. Therefore, development strategy of backwardness countries should follow their comparative advantage.

Key Words:

Dual Technological Progress£» Comparative Advantage£» Industries in Modern China

JEL Classification:

O33, N15, F10

Financial Services Innovation in Marketing: A Literature Survey

He Dexu and Zhang Xuelan

(Chinese Academy of Social Sciences)

Abstract: Market's acceptance is indispensable for financial services innovation to realize its benefits, while marketing has been proved to be a critical incentive. Hitherto, the literature on financial services innovation from a marketing perspective has remained sparse and studied in many independent research traditions. In view of this, an integrated review is made on why a new financial services would be accepted by the market, how to ensure financial services innovation to satisfy market need as well as the measurement of the performance of financial services innovation by sorting out related literatures, research challenges are also highlighted.

Key Words:Innovation; Financial Services; Marketing

JEL Classification:D11, G20, G29, M31