Working Papers

China Studies Working Papers

Abstract: The policy process of China's first residential property tax presents interesting centerlocal bargaining dynamics. In 2011, the Chinese government introduced a residential property tax in Shanghai and Chongqing in a concerted effort to curb high housing prices. The bubble inside the housing market that accounted for more than 10 percent of China's GDP in 2009 not only put the whole economy at risk but also exposed the inequitable housing situation where the upper class speculated the housing market while the middle class could not afford quality living space. Since a residential property tax can affect different entities differently though multiple channels, it creates conflicts of interest that put intense frictions on the policy process, potentially widening the gap between the desired policy outcome and the actual outcome through extensive bargaining. This paper analyzes the policy interests and bargaining strategies of the central government and the Shanghai and Chongqing governments and evaluates the policy outcome. Using Dr. David M. Lampton's work on bargaining strategies in policy implementation in an authoritarian state, this paper concludes that the residential property tax represents an unlikely case of coalition building and benefit sharing between the central government and the Shanghai and Chongqing governments achieved through bargaining. Although the resulting policy was left noticeably less stringent than originally proposed, the policy still achieved its main goal of reducing housing prices without being dangerously deflective due to bargaining.

Abstract: China maintains a growing trade surplus with the U.S. at US$273 billion in 2010, and the IMF projects that the current account surpluses will to increase to US$874 billion in 2016. In response to increasing surpluses, the U.S. Senate passed the Currency Exchange Rate Oversight Reform Act of 2011 (S.1619) on October 11, 2011. If enacted, this "currency bill", which is tabled in the House of Representatives, would place further pressure on China to appreciate its currency or face economic consequences such as countervailing duties on U.S. imports from China. The issue is politically charged, but analysis from an economic perspective can inform better policy and hopefully better politics. Through reviewing the history of the bill and analyzing the potential effects of the bill, this paper finds that the currency bill would neither reduce the trade deficit nor raise employment in the U.S. Rather, it would have a negative economic impact overall and lead to a decrease in real wealth and real wages. Evidence suggests that international trade law supports China's case and there would also be significant political costs. This paper concludes that the U.S. should not pursue the currency bill, but that China must make continued credible signals of currency reform in order to prevent U.S. domestic politics from interfering in Chinese economic development.

Abstract: Three factors led to China's overall growth in both imports and exports beginning in 2001, and caused exports to outpace imports by 2005. The first factor is China's economic reforms beginning in the mid-1990s created dramatic productivity gains. Tens of thousands of state-owned enterprises (SOEs) were sold or closed, allowing room for a vibrant industrial private sector to grow. The second factor is China's exchange rate policy of pegging the RMB to the US dollar. China's industrial reforms led to explosive growth in total trade, though imports and exports grew at roughly the same pace until 2005. At this point, exports outpaced imports, indicating the RMB was undervalued. A strong US dollar up until 2002 helped China to maintain balanced trade, though as the US dollar weakened after 2002, the RMB weakened along with it, causing exports to exceed imports. The third factor is China's growing role as the center of world processing trade. China has two trade imbalances, a deficit with East Asia and a surplus with the West. Beginning around 2000, FDI from Japan, South Korea and Taiwan established processing centers for components to be processed and assembled in China and re-exported. A significant portion of this processing trade is made up of cell phones, televisions and computers, and processing trade accounts for over half of China's exports with the world. This paper discusses these three factors influence on the trade surplus, puts them in context and discusses future implications.