China Economic Quarterly
Vol.14 No.3
April， 2015
CONTENTS
Papers
Is China‘s Monetary Quantitative Rule Invalid？
………………………………………………………………………………Jilin Wu Erhua Zhang 827
Experimental Economics Bridging to Real World: The Literature Review of Field Experiments
……………………………………………………………………………………Jun Luo Dingding Wang Hang Ye Yefeng Chen 853
Special Economic Zones，Comparative Advantage，and Industrial Structural Transformation
……………………………………………………………………………Lixing Li Guangjun Shen 885
Farm to Market：Dynamics of Food Price in China
…………………………………………………………………………………isheng Yang Juan Xu 911
The Study of Health Insurance on Households’ Portfolio Choice in Urban and Rural China
…………………………………………………………Qin Zhou Yan Yuan Wenbin Zang 931
Determinants of Crude Oil Prices：Driven by Financial Speculations or China‘s Demands？
………………………………………………………………………………Lihui Tian Dekai Tan 961
A Study on Risk Premium and Commodity Futures Pricing: Based on the Perspective of Oil Scarcity
……………………………………………………………………Xuewen Zhang Wensong Sun 983
The China‘s Electricity Structural Reforms and Indusial Growth：1999—2010
……………………………………………………………………………………Rukai Gong 1005
Imports and Firms‘ Productivity：Evidence from China
………………………………………………Jie Zhang Wenping Zheng Zhiyuan Chen 1029
City Size and Labor Productivity：Are Chinese Cities Too Small？—Based on Chinese City-level Data Analysis
………………………………………………Jing Liang Qinghua Zhang Liutang Gong 1053
Productivity Advantages in Cluster Regions：Agglomeration or Selection？
…………………………………………………………Haiyang Liu Yuhai Liu Peng Yuan 1073
“County Administrated by Province” Reform，Fiscal Decentralization and People‘s Welfare：A Difference-in-Differences Estimation
………………………………………………………Zhibo Tan Li‘An Zhou Yue Zhao 1093
Democracy，Political Instability and Fear of Floating
……………………………………………………………………………Xiaohui Liu Jing Zhang 1115
A New Re-examination of the Relationship between Economic Performance and Local Leader Promotion: New Theory andNew Evidence from City-level Data
………………………………………………………Danglun Luo Guoman She Jie Chen 1145
Limited Attention，Industrylevel Information Diffusion and Stock Returns
………………………Conghui Hu Jianming Zheng YuJane Liu Tianqi Wu 1173
The Causes and Properties of Soft Budget Constraint：An Improved Generalized Model
…………………………………………………Zuoshi Xie Shanjie Li 1193
Is China‘s Monetary Quantitative Rule Invalid？
JILIN WU*
（Shandong University）
ERHUA ZHANG
（Fudan University）
Abstract Using instrument variables quantile regression method，this paper explores Chinas monetary reaction function in terms of McCallum rule. We find M1 still plays an effective role in monetary policy，and the reaction function exhibits obvious nonlinearity and asymmetry. Prior to 1996，the central banks operations on M1 can easily lead to large fluctuations in inflation and growth，but due to changes in the operations of monetary policy after 1996，M1 can effectively control inflation，achieve the goal of stimulating GDP growth and maintain stable exchange rates. Additionally，M2 can help iron out fluctuations in output，but can not help manage inflation and real exchange rate，so it is still not suitable as an intermediate target of monetary policy.
Key Words Monetary Policy，Quantile Regression，McCallum Rule
JEL Classification C32，E32，E52
Experimental Economics Bridging to Real World: The Literature Review of Field Experiments
JUN LUO*
HANG YE
YEFENG CHEN
（Zhejiang University）
DINGDING WANG
（Peking University）
Abstract In this paper we summarize the research methods，core ideas，development route，classifications as defined for field experiments in economics，then we introduce some important examples which used field experiments to solve problems in economics in recent years. We also discuss the prospect of field experiment studies in China. Apart from trying to help domestic economists better understand field experiments studies，we also provide plausible ideas and suggestions on how to carry out field experiments to bridge economics studies and the realworld in the complicated and diverse Chinese scenario context.
Key Words Experimental Economics，Field Experiments，Chinese Context
JEL Classification C91，C92，C93
Special Economic Zones，Comparative Advantage，and Industrial Structural Transformation
LIXING LI*
GUANGJUN SHEN
Abstract Industrial structural transformation is one of the key requirements for economic development. One of the most important policies adopted by the Chinese local governments to transform industrial structure is to set up various types of special economic zones (SEZs).Existing studies mainly examine the effect of SEZs on FDI inflow，productivity，and output level，but have largely ignored the industrial structural transformation，which is the focus of this paper. Matching the Chinese Industrial Enterprises Database with city level data，we find that the set-up of SEZs significantly boosts the structural transformation of manufacturing sectors，especially for those target industries of SEZs. Furthermore，SEZs are more effective when the target industry follows the local comparative advantage. The study provides theoretical support for SEZs，and practical principles for identifying potential industries as well.
Key Words Special Economic Zone，Comparative Advantage， Industrial Structure
JEL Classification L16，L52，O11
Farm to Market：Dynamics of Food Price in China
JISHENGY ANG*
JUAN XU
Abstract The rising food price is the main driving force for recent inflation in China. Based on a panel SVAR with interactive effects model，this paper examines the pricing mechanism of food along the supply chain，taking all factors，including monetary shock，into account. It shows that recent food inflation can be attributed to demand shocks，resulted from monetary policy and expectation，rather than fluctuations in supply or vertical price transmission. Also，realtime control of agricultural production does not help stabilize inflation，it exemplifies output fluctuations instead. The rising food price increases the risk of agricultural producers rather than their benefit.
Key Words Food Price，Vertical Price Transmission，Output Fluctuation
JEL Classification C33，E31，Q11
The Study of Health Insurance on Households‘ Portfolio Choice in Urban and Rural China
QIN ZHOU
（Peking University）
YAN YUAN
WENBIN ZANG*
（Southwestern University of Finance and Economics）
Abstract Under health insurance converge，households may reduce their precautionary saving and adjust their portfolio allocation. In the theoretical framework of precautionary saving，it has been found that health insurance promotes households consumptions in China，but few papers have investigated the effect of health insurance on the structure of households assets. Using 2002 Chinese Household Income Project Survey (CHIPS)，we explore the effect of health insurance on portfolio choices by rural and urban households respectively. We find that health insurance has significant effects on portfolio choices in urban and rural areas. The insured households prefer to assets with higher risk more than households without insurance. This study has theoretical and practical significance in understanding the households investment behavior under uncertainty.
Key Words Health Insurance，Portfolio Choice，Precautionary Saving
JEL Classification G11，I13，D12
Determinants of Crude Oil Prices：Drivenby Financial Speculations or China‘s Demands？
LIHUI TIAN
DEKAI TAN*
（Nankai University）
Abstract Does China’s demand push up the oil prices？ We empirically find that the stock market of the United States plays an important role in pricing the oil. Although the influence of the Chinese demand factor is somehow significant in the short term，the American financial factor is more influential. We further find that the American financial factor has the lead effect as well as the amplification effect on changing oil prices. We argue that it is not the demand from China，but the American financial factor that has shaped the oil prices during the period from 2002 to 2012.
Key Words Energy Finance，Oil Pricing，Demand from China
JEL Classification Q40，Q41，G10
A Study on Risk Premium and Commodity Futures Pricing: Based on the Perspective of Oil Scarcity
XUEWEN ZHANG*
（Shanghai University of Finance and Economics）
WENSONGSUN
（Huazhong University of Science and Technology）
Abstract This paper does both theoretical and empirical study on the scarcity commodity pricing，from the perspective of oil scarcity and by dividing crude oil spot price into “assets”value and “scarcity” price with the Ribeiro and Hodges (2004) model. The results show that the future commodity scarcitys expected change is the determinant of “Samuelson Effect”；the commodityspecific net hedging pressure risk premium and the scarcity risk premium coexist and affect crude oil futures pricing；compared to the two commodityspecific risk factors，asset market risk factors such as exchange rates and stock market shocks affect futures returns and the term structure of futures prices，in a much more homogeneous way；in fact，commodity futures is also a kind of valuable investment.
Key Words Risk Premium，Commodity Futures Pricing，Underlying Commodity Scarcity
JEL Classification G11，G13，G15
The China‘s Electricity Structural Reforms and Industrial Growth：1999—2010
RUKAIGONG*
Abstract This paper provides an econometric assessment on the effect of structural reforms on the growth of electricity industry in China from the perspectives of competition，ownership and regulations. The empirical results show that，(a) the competition，ownership reform and regulation policy have all improved productivity，thereby contribute to the rapid growth of the industry. In particular，the effect of ownership reform is more significant than others；(b) during the period of 1999 to 2010，the reforms account for 937% of the indusial growth，and this contribution has risen from 720% in the initial stage，which is from 1999 to 2004，to 1067% in the deepening stage，which is from 2005 to 2010. The results are robust to different models combined by various performance and reform variables，and have very important policy implications for further reforms in the electricity industry.
Key Words Competition，Ownership Reforms，Regulation Policy
JEL Classification L43，L52，O43
Imports and Firms’ Productivity：Evidence from China
JIEZHANG
WENPINGZHENG
ZHIYUANCHEN*
（Renmin University of China）
Abstract We use combined data of Chinese industrial enterprises database and customs trade statistics from 2000 to 2006 to study the effect of imports on productivity in the perspectives of intermediate goods and capital goods. The results of various tests show that，the scale of intermediate goods and the scale of capital goods imports have significant positive correlation with productivity respectively，which means the imports of intermediate goods and capital goods are promoting the productivity of firms. This proves that import is an important channel to promote Chinas economic development. From the estimation results of subsample，the imports of intermediate goods have more obvious effect in promoting productivity on nonexport，positive R&D and private enterprises，while the imports of capital goods have more obvious effect on positive export，positive R&D and private enterprise. In particular，exports show a very prominent negative effect on firmsproductivity when taken imports in consideration.
Key Words Import of Intermediate Goods，Import of Capital Goods，Firms Productivity
JEL Classification F00，C10，D24
City Size and Labor Productivity：Are Chinese Cities Too Small？—Based on Chinese City-level Data Analysis
JING LIANG*
QINGHUA ZHANG
LIUTANG GONG
（Peking University）
Abstract This paper derives the relationship between city size and labor productivity in a new economic geography model from which we get the econometric model. Based on the data analysis to a sample of prefecturelevel cities from 2003 to 2009，this paper shows an inverted U shape of labor productivity against city size in prefecturelevel cities. Using a comparative method，we find that there are less undersized cities in China and the size of most cities are near the optimal size，but at the same time the oversized cities have increased. In addition，compared with eastern and central cities that develop more rapidly，western cities show significantly positive correlation between city size and labor productivity.
Key Words Agglomeration Economies，Labor Productivity，Optimal City Size
JEL Classification D62，O18，R12
Productivity Advantages in Cluster Regions：Agglomeration or Selection？
HAIYANGLIU*
YUHAILIU
（Dalian University of Technology）
PENGYUAN
（Southwestern University of Finance and Economics）
Abstract Firms in cluster regions tend to have productivity advantage. New Economic Geography considers that it comes from agglomeration effect，while New New Economic Geography also admits selection effect. We prove the coexistence of the two effects，then use firm level data and find firms of cluster prefectures have these features：(1) they have productivity advantage；(2) however，there are fewer firms with either lowest or highest efficiency；and (3) they have high startup productivity，high elimination rate and low growth rate. As a conclusion，the productivity advantage in cluster region comes from selection effect instead of agglomeration effect.
Key Words New New Economic Geography，Agglomeration，Selection
JEL Classification O18，R12，P25
“County Administrated by Province” Reform，Fiscal Decentralization and People’s Welfare：A Difference-in-Differences Estimation
ZHIBOTAN*
（Fudan University）
LI‘ANZHOU
（Peking University）
YUEZHAO
（The People‘s Bank of China）
Abstract Using a large dataset about provinces，cities and counties in China during 1999—2010，this paper employs DID to evaluate the impacts of “County Directly Administrated by Province” reform on fiscal decentralization and peoples welfare. We find that the reform significantly increases the fiscal decentralization，middle school student enrollment ratio and social assistance at the county level，but the cities are hurt in terms of fiscal decentralization. The reform also decreases the urbanrural income gap. Moreover，the effect is lasting. This paper provides systematic evidence about the impacts of reform and evaluates its effects on counties and cities comprehensively.
Key Words County Administrated by Province Reform，Fiscal Decentralization，Welfare
JEL Classification E65, H52, H53
Democracy，Political Instability and Fear of Floating
XIAOHUILIU*
JINGZHANG
（Southwestern University of Finance and Economics）
Abstract Fear of floating prevailing in developing and new emerging market economies in the past twenty years is an important subfield in international finance. Why are these economies more interested in such a policy？The paper explores the underlying forces contributing to the phenomenon from perspectives of democracy and political instability. It is hypothesized that a more democratic and politically unstable country is more associated with fear of floating. Using a panel data sample covering 150 developing and new emerging countries in 1974—2007，the paper tests these hypotheses and finds evidences supportive of the hypotheses.
Key Words Democracy，Political Instability，Fear of Floating
JEL Classification F41，F33，F59
A New Re-examination of the Relationship between Economic Performance and Local Leader’s Promotion: New Theory and New Evidence from City-level Data
DANGLUN LUO
（Sun Yat-sen University）
GUOMAN SHE
（Fudan University）
JIE CHEN*
（Shanghai University of Finance and Economics）
Abstract Founded on the perspectives of “political legibility and authoritative government”，the study discusses the relationship between local leader’s promotion and economic growth in Chinese cities from 1999—2009. The research confirms that better economic growth significantly boosts the promotion probability of the secretary，while the economic performance of the immediate predecessor acts as a benchmark. Meanwhile，secretaries with both work experiences at university or state-owned enterprise and rotating experiences are more likely to be promoted. Nonetheless，these elements dont contribute to weaken the strong relationship between economic performance and promotion. Furthermore，the economic rise stimulated by TFP is linked closely with the promotion.
Key Words Tournament Competition Hypothesis，Economic Growth，Economic Efficiency
JEL Classification H76，H77，O16
Limited Attention，Industry-level Information Diffusion and Stock Returns
CONGHUI HU*
JIANMING ZHENG
（University of International Business and Economics）
YUJANE LIU
（Peking University）
TIANQI WU
（HSBC，Hong Kong)
Abstract We exploit segment sales information contained in the appendix of listed firmsannual financial report to quantify the frictions in the diffusion of information in the stock market and investigate how investors limited attention impacts information incorporation into stock prices. The results show that conglomerate firms respond more slowly to industrylevel information than standalone firms. A long/short strategy based on this effect generates returns of around 14% per month. We further show that this return predictability is not driven by stock momentum，industry momentum or investors overreaction. The predictability becomes more pronounced for firms with poor market performance，lower turnover，lower fraction of sophisticated investors ownership and firms that are harder to value，indicating the impact of limited attention and limited processing ability on information diffusion and stock prices.
Key Words Limited Attention，Information Diffusion，Return predictability
JEL Classification G10，G11，G14
The Causes and Properties of Soft Budget Constraint：An Improved Generalized Model
ZUOSHIXIE*
（Zhejiang University of Finance and Economics）
SHANJIELI
（American Da Tang Group）
Abstract This article builds a dynamic commitment inconformity model which includes the cost of project selection and institutive choice. In this model we converges traditional and latest explanations to the causes and properties of soft budget constraints into a uniformed analyzing framework. The suggested possible ways to harden the budget constraint include：privatizing ownership to individuals as clarified as possible，lowering transaction cost and bringing price mechanism into full play in the operation of privatebased economy；dividing political rights，increasing negotiation costs on how to use public assets，and minimizing government interference in public organizations and realms.
Key Words Soft Budget Constraint，Dynamic Commitment，Cost Separation
JEL Classification A10，D01，P20
