Social scientists analyze the dynamics shaping China’s cities

The faculty fellows of the China’s Cities collaborative project answer a question from the audience at their capstone lecture March 22 at the ILR Conference Center. From left, Shanjun Li, associate professor of applied economics and management; project leader Jeremy Wallace, associate professor of government; Jessica Chen Weiss, associate professor of government; Panle Barwick, associate professor of industrial organization, applied econometrics and applied microeconomics; and Eli Friedman, associate professor of international and comparative labor.

The faculty fellows of the China’s Cities collaborative project answer a question from the audience at their capstone lecture March 22 at the ILR Conference Center. From left, Shanjun Li, associate professor of applied economics and management; project leader Jeremy Wallace, associate professor of government; Jessica Chen Weiss, associate professor of government; Panle Barwick, associate professor of industrial organization, applied econometrics and applied microeconomics; and Eli Friedman, associate professor of international and comparative labor.

By Susan Kelley | April 9, 2019 (Cornell Chronicle)

(Video available on

The cities of China, the world’s most populous country, are growing at an eye-popping rate. Every year, 8 million rural Chinese – the equivalent of New York City’s population – move to urban areas.

China’s enormous cities, their divisions and future plans have been at the heart of five social scientists’ research for the past three years. These faculty fellows of the China’s Cities: Divisions and Plans (2016-19) project, sponsored by the Institute for the Social Sciences, reported on their research at a March 22 capstone lecture at the ILR Conference Center.

“The collaboration, it’s fair to say, has been successful,” said project leader Jeremy Wallace, associate professor of government in the College of Arts and Sciences. The team produced 20 articles, he said, “and many more are on the way.” The project also resulted in a major survey of more than 3,000 people in China’s cities, Wallace said, “and, crucially, time [for the faculty fellows] to write and think.”

Jessica Chen Weiss, associate professor of government, talked about a new collaborative paper written with faculty fellows Panle Barwick, Shanjun Li and Wallace, on the “commercial causalities” of territorial disputes with Japan in 2012. These political tensions prompted Chinese citizens throughout China’s cities to burn Japanese cars and boycott Japanese products.

These consumer boycotts can have a significant and persistent effect, the team found. “These protests really make visible the social penalty of owning or consuming their goods, and that socially constructed penalty varies across cities,” Weiss said.

Countries can use boycotts as a commercial weapon to help resolve or diffuse highly antagonistic disputes, she said. “This is one way that China, in this particular context, signaled to Japan how seriously this issue was being felt by the Chinese public, to encourage Japan to, if not concede, at least diffuse the crisis,” she said.

Shanjun Li, associate professor of applied economics and management in the Dyson School, used big data in four studies to shed light on the effects of pollution, climate change and energy challenges on human health and economic growth.

He conducted three of the studies with Barwick. Their analysis of credit- and debit-card data showed that when air pollution levels are high, people spend more money in pharmacies and hospitals, but less on groceries and other necessities. Similarly, when temperatures are very hot or very cold, people spend more money on health care and reduce their overall consumption. They also travel to other cities to escape the extreme temperatures, with the help of improvements in transportation infrastructure. “This provides another benefit of transportation investment,” he said, “by helping people mitigate extreme weather conditions.”

In a fourth study, Li identified the optimal timing and fees to charge Beijing road-users – for example, 10 cents per kilometer at a particular time of day – to reduce traffic congestion.

Eli Friedman, associate professor of international and comparative labor in the ILR School, talked about his upcoming book, “The Urbanization of People,” which focuses on the question of who gets into which cities and why.

“What the central government wants to do is send elite people to elite cities and the low-end population to low-end cities,” he said. Those who get a state subsidized education are those who need it least; everyone else is relegated to “migrant schools” that lack indoor plumbing, heating and other basics, he said.

He focused on Beijing in 2014, when officials began removing the migrant population by depriving them of education. “Education is a key pressure point,” he said. “ … In the most extreme cases, the government resorts to just demolishing schools.”

Parents and teachers do resist and can sometimes get students placed in better schools. “The good news is that people recognize this as a problem and are doing what they can within a constrained political environment to try to fight back,” Friedman said.

Panle Barwick, associate professor economics, talked about her research on China’s industrial policy, using shipbuilding as a case study. “The magnitude of the industrial policies is massive,” she said. “That’s not surprising. … What we’re watching is, what’s the return?”

She found that for every dollar invested in the shipping industry, China gets back 20 to 30 cents, she said. “It’s a very low rate of return.”

That’s in part because all firms get subsidies to enter the industry, not just ones with good track records. “You’re basically subsidizing everybody,” Barwick said. Timing investments to hit at critical moments in the production cycle would also greatly improve returns, she said.

“We’re hoping to use this analysis to show how we can do better,” she said. “Design of the policy is crucial.”

The 9th China Energy Economics and Management Annual Conference

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Representing Cornell University, Prof. Shanjun Li was a keynote speaker at The 9th China Energy Economics and Management Annual Conference held in Changsha, Hunan Province on October 26-28, 2018.

This conference was co-hosted by the National Natural Science Foundation of China, the Chinese Society of Energy Economics & Management, and the Central South University

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Prof. Li presented his evidence-based research entitled “Building Sustainable Cities: A Balanced Analysis based on Transportation and Real Estate” and was well received by the 500+ participants. 


来源:海外网 09-06 07:55


7月15日傍晚起,随着两部机场大巴陆续抵达康奈尔大学学生宿舍区,参加夏令营的老师和同学们总算正式入住舒适的Carl Becker House。近20个小时的辗转旅途不免疲惫,可是一想到期待已久的CICER夏令营翌日就要正式开营,大家内心的兴奋丝毫未减。

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7月16日,CICER夏令营的开学典礼在Physical Science Building的大会议厅举行。CICER的李捷老师作为夏令营项目的策划人向参加第二届夏令营的老师和同学们表达了热烈的欢迎,并向大家介绍了今天出席开学典礼的各位嘉宾。CICER的两位主任,李善军教授和贾攀乐教授向大家细致地介绍了他们领头创办CICER和策划夏令营项目的初衷,CICER一路走来的点滴和未来进一步发展的方向。随后,他们一一向大家介绍了即将在夏令营中为大家授课和做学术研讨会的各位教授,以及他们的专业领域和学术成果。最后,他们表达了对各位同学的期望,期望大家都能充分利用CICER以这次夏令营为平台为大家整合的学术资源,充分体验在康奈尔的大学生生活。


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两周充实而快乐的学习时光很快就过去了,紧张的结业考试之后,大家终于能好好放松一下,以愉快轻松的心情来参加CICER精心准备的夏令营毕业典礼。毕业典礼上,康奈尔大学国际事务教务长Wendy Wolford首先致辞,感谢大家来到康奈尔并鼓励大家将在康奈尔大学度过的这段时光作为下一段重要旅程的新起点,祝愿大家未来的学习生活一切顺利。CICER的李善军教授和贾攀乐教授为同学们颁发了毕业证书并和大家一一合影留念。同学们也纷纷上台,分享了自己在这次夏令营中的收获与感想,感谢朝夕相处的同窗,也感谢CICER全体工作人员为这次夏令营所作出的努力。


Air pollution is making us dumber, study shows


CNN News by James Griffiths

(Study author Xiaobo Zhang is a professor of Peking University, a senior research staff of IFPRI and an external affiliated faculty of CICER)


Air pollution could be more damaging to our health than previously thought, according to a new study, which found that prolonged exposure to dirty air has a significant impact on our cognitive abilities, especially in older men.

According to the study published Tuesday in the Proceedings of the National Academy of Sciences, breathing polluted air causes a "steep reduction" in scores on verbal and math tests.

Researchers at the International Food Policy Research Institute (IFPRI) examined data from the national China Family Panel Studies longitudinal survey, mapping the cognitive test scores of nearly 32,000 people over the age of 10 between 2010 and 2014 against their exposure to short- and long-term air pollution.

The team found that both verbal and math scores "decreased with increasing cumulative air pollution exposure," with the decline in verbal scores being particularly pronounced among older, less educated men.

    "The damage air pollution has on aging brains likely imposes substantial health and economic cost, considering that cognitive functioning is critical for the elderly to both running daily errands and making high-stakes economic decisions," study author Xiaobo Zhang of Peking University said.

    Cognitive decline or impairment, which could be caused by air pollution according to the study, are also potential risk factors in developing Alzheimer's disease or other forms of dementia.

    Pollution exposure was measured using data on air quality, which includes three air pollutants: sulfur dioxide, nitrogen dioxide and particulate matter smaller than 10 micrometers in diameter.

    Air pollution linked to 3.2 million new diabetes cases in one year

    Poor hardest hit

    While the study adds to the already numerous health concerns regarding air pollution, it will be of particular concern to developing nations, whose smoggy cities could be hampering national economic development.

    "The damage on cognitive ability by air pollution also likely impedes the development of human capital. Therefore, a narrow focus on the negative effect on health may underestimate the total cost of air pollution," Zhang said. "Our findings on the damaging effect of air pollution on cognition imply that the indirect effect of pollution on social welfare could be much larger than previously thought."

    According to the World Health Organization (WHO), nine out of every 10 people on the planet breathe air containing a high level of pollutants, with the worst affected regions being Africa and Asia.


    Of the world's top 20 most polluted cities, as measured by the WHO, all are in developing countries. Almost all cities in low to middle-income countries with more than a million residents fail to meet minimum WHO guidelines.

    City dwellers aren't the only ones breathing in smog either, a study in January found that 75% of deaths related to air pollution in India were in rural areas.

    While some countries, including China, are taking measures to address air pollution, this will also potentially effect economic growth.

    Meanwhile, the wealthiest city dwellers are able to buy their way out of smog.

    In Beijing, the rich are specially designing their homes and buying appliances to filter out pollutants in their air and water, while poorer residents are stuck breathing in the unfiltered smog, affecting not only their health but also, according to the new study, their cognitive abilities.


    How smog affects spending in China

    Research findings by Prof. Panle Jia Barwick, Prof. Shanjun Li, Deyu Rao and Nahim Bin Zahur (professors and students at Cornell University) are published in The Economist.  

    A new study suggests the costs of battling the country's toxic air may be larger than previously thought


    WALK down the street in a Chinese city, and you are likely to see nearly as many kouzhao as eyeglasses or wristwatches. Anti-pollution masks that cover the nose and mouth have become ubiquitous on the streets of Beijing and Shanghai, especially during the winter months when coal is burned for heat. Chinese consumers, particularly those living in busy megacities, shell out 4bn yuan ($600m) on masks every year. Many are manufactured in Dadian, a town in Shandong province in eastern China known as “mask village”.

    Kouzhao may be the most visible expense caused by China’s toxic air, but they are far from the largest one. A new working paper published by America’s National Bureau of Economic Research suggests that the costs of pollution in the country may be far greater than previous studies have suggested. Panle Jia Barwick, Shanjun Li, Deyu Rao and Nahim Bin Zahur, a group of economists at Cornell University, analysed the relationship between air pollution and health-care spending across 367 Chinese cities. Combining hourly pollution readings with debit- and credit-card transactions made between 2013 and 2015, they found that when levels of PM2.5 (fine-particulate matter) are high, consumers tend to spend more on health-care goods and services. A temporary 10 micrograms per cubic metre (µg/m3) jump in PM2.5 is associated with an 0.65% surge in health-care transactions. A permanent increase of this magnitude yields an increase of 2.65%, which the authors estimate to be worth 59.6bn yuan ($9.2bn). While air pollution leads to higher spending at hospitals and pharmacies, it causes spending at supermarkets to fall as shoppers opt to stay indoors (see chart).

    Such findings suggest that efforts by the government to cut air pollution could yield significant savings. Since 2014, when Li Keqiang, China’s premier, declared “war” on air pollution, the country has closed polluting factories, shuttered coal-fired power plants and taken millions of vehicles off the roads. These measures have helped reduce concentrations of PM2.5 in major Chinese cities by 32%. If the country’s PM2.5 levels are cut to 10 µg/m3, a level deemed safe by the World Health Organisation, the study’s authors reckon that Chinese households could save tens of billions of dollars in health-care expenses. That would provide a welcome financial cushion to the vast majority of the country—though the residents of “mask village” might harbour mixed feelings.

    Economics Workshop at Peking University and China Economic Research Presentations at Beihang University

    Representing Cornell University, Prof. Shanjun Li co-organized a Workshop in Economics of Environment, Energy and Climate at Peking University on April 7-8, 2018. He presented his evidence-based research entitled “Transportation Policies and Equilibrium Sorting: Evidence from Beijing.” Shanjun Li's three graduate students from Cornell University (Avralt-Od Purevjav, Rhiannon Jerch and Jing Qian) also participated in the workshop.

    Participants of Workshop in Economics of Environment, Energy and Climate at Peking University

    Participants of Workshop in Economics of Environment, Energy and Climate at Peking University

    After attending the workshop, Shanjun Li visited Beihang University with his 3 graduate students to give presentations on their ongoing China economic research projects (see Beihang University news in English and in Chinese). 

    Research Paper: The Entrepreneur’s Network and Firm Performance

    An article on confirming the transition to modern rational capitalist enterprise in China:

    Title: The Entrepreneur’s Network and Firm Performance (read full paper) by Victor Nee and Lisha Liu from Cornell University, and Daniel DellaPostab from Penn. State University

    Abstract: Diverse organizational forms coexist in China’s market economy, adapting and evolving in intensely competitive production markets. We examine the networks of founding chief executive officers of private manufacturing firms in seven cities of the Yangzi River Delta region in China. Through sequence analysis of ties that entrepreneurs relied on for help in the founding and critical events of their businesses, we identify three discrete forms of network governance: traditional kin-based, hybrid nonkin, and rational capitalist. We find that in traditional kin-based network governance, structural holes are linked to higher returns on assets and returns on equity. By contrast, in the rational capitalist form, structural holes and higher firm performance are not linked. We thus show that the content of the tie matters critically in the relationship between structural holes and firm performance.

    VoxChina column: Air Pollution, Health Spending and Willingness to Pay for Clean Air in China

    Recent VoxChina column by Shanjun Li, Deyu Rao, Nahim Bin Zahur, Panle Jia Barwick
    Aug 23, 2017

    Title: Air Pollution, Health Spending and Willingness to Pay for Clean Air in China

    Abstract: A study shows that reducing PM2.5 in China can lead to significant health benefit. A reduction of PM2.5 by 10 μg/m3 (about 20% from the current level) could result in an annual saving of 75 billion Yuan (or over 2%) in healthcare expenditure. The benefit from improved air quality proposed by recent national policies in China could justify large investment in cleanup activities.


    2017-08-30 09:38:23        来源:海外网

    海外网 2017年夏天,康奈尔大学中国经济研究所迎来了首届暑期夏令营开营。师生学员来自人民大学,中央财经大学,北京师范大学,厦门大学,上海财经大学,南京审计大学,复旦大学,中国农业大学等著名中国高校。




    康奈尔大学主管外事的副教务长Laura Spitz教授以及商学院主管外事的院长Rohit Verma教授也来到了开学典礼的现场,并代表康奈尔大学对夏令营的同学们表示了热烈的欢迎。




    在这次夏令营中,主办方还为同学们请来了重量级的授课嘉宾们。为了更好的让同学们了解在美国的学习生活情况,以及申请北美研究生的第一手资料;主办方除请来了优秀的学长学姐们与大家分享经验之外,院方还邀请了交流会的重磅嘉宾,康奈尔大学应用经济与管理学院研究生项目主任Arnab Basu教授和副主任Calum Turvey教授,两位教授给大家详细讲解了申请研究生的流程以及注意事项。




    两周半之后,参加本次夏令营的同学们参加了结业考试,体验了一次常春藤联盟的考试氛围。考试结束后,同学们参加了毕业典礼。毕业典礼上,康奈尔大学农业与生命科学学院的执行院长Max Pfeffer教授向同学们致辞,他鼓励大家将康奈尔大学作为申请北美研究生的首选,并且祝他们未来的学习生活一切顺利。随后,主办方为同学们们颁发了结业证书。


    在夏令营的最后一周,同学们参访了华盛顿特区和纽约。主办方带领大家游览了如白宫、美国国会山、林肯纪念和堂世界银行 (The World Bank)等名胜及大型商业机构。




    Research: Better Lucky Than Rich? Welfare Analysis of Automobile License Allocations in Beijing and Shanghai

    Prof. Shanjun Li (CICER co-director)'s research on vehicle purchase restrictions and license allocation is accepted by the Review of Economic Studies.    

    Paper: Better Lucky Than Rich? Welfare Analysis of Automobile License Allocations in Beijing and Shanghai

    Abstract: Economists often favor market-based mechanisms (e.g., auction) over non-market based mechanisms (e.g., lottery) for allocating scarce public resources on grounds of economic efficiency and revenue generation. When the usage of the resources in question generates negative externalities that are increasing in willingness-to-pay (WTP), the welfare comparison can become ambiguous. Both types of mechanisms are being used in China's major cities to distribute limited vehicle licenses as a measure to combat worsening traffic congestion and urban pollution. While Beijing employs non-transferable lotteries, Shanghai uses an auction system. This paper empirically quantifies the welfare consequences of the two mechanisms by taking into account both allocation efficiency and automobile externalities post-allocation. Our analysis shows that different allocation mechanisms lead to dramatic differences in social welfare. Although the lottery system in Beijing has a large advantage in reducing externalities from automobile use than a uniform price auction, the advantage is offset by the significant welfare loss from misallocation. The lottery system forewent nearly 36 billion RMB (or $6 billion) in social welfare in Beijing in 2012 alone. A uniform-price auction would have generated 21.6 billion RMB to Beijing municipal government, more than covering all the subsidies to the local public transit system.

    Research: WTO Accession and Performance of Chinese Manufacturing Firms

    Prof. Yifan Zhang (CICER faculty affiliate)'s research on the impact of WTO on Chinese manufacturing sectors is accepted by the American Economic Review.

    Paper: WTO Accession and Performance of Chinese Manufacturing Firms 

    Abstract: We examine the effects of the trade liberalization that accompanied China’s WTO accession on the evolution of markups and productivity of Chinese manufacturing firms. Although these two dimensions of performance cannot be separately identified when firm output is measured by revenue, we show that detailed price deflators make it possible to estimate the average effect of industry-level tariff reductions on both dimensions separately. Several novel findings emerge. First, cuts in output tariffs reduce markups, but raise productivity. Second, the pro-competitive effects are most important for incumbents, while efficiency gains dominate for new entrants. Third, cuts in input tariffs raise both markups and productivity. We highlight several mechanisms operating in liberalized sectors that help explain our findings in the Chinese context. Liberalized sectors saw an increase in the exit of private firms and more frequent replacement of management in badly performing state-owned firms. Both patterns are likely to reduce agency problems. The initial productivity of new entrants is higher in more open sectors. And while lower input tariffs had only a limited role in increasing access to imported intermediates, they had a strong price-reducing effect, even on domestically produced intermediates.

    Prescription for treating urban diseases (治理大城市病的药方)



    2017-06-16 09:53:59       来源:海外网

    (相关学术文章/related academic paper: The Marginal Cost of Traffic Congestion and Road Pricing: Evidence from a Natural Experiment in Beijing









    How Trump gave China’s ‘Belt and Road’ scheme a boost

    Beijing initiative helps Chinese companies explore markets along ancient Silk Road trade route.

    By Cary Huang
    (Read article in PDF format or Read article at South China Morning Post)

    Chinese President Xi Jinping’s ‘Belt and Road’ trade development initiative, always ambitious, has been given a boost by American counterpart Donald Trump’s protectionist trade agenda and isolationist diplomacy.

    In just a few months, the US leader’s populist policy prescription has helped turn something originally envisaged as a scheme to export Chinese overcapacity into a standard-bearer for globalisation.

    Professor Shanjun Li, a Cornell University economist, said Trump’s protectionism could help the belt and road scheme gain legitimacy as a countervailing force promoting international trade in the region.

    The subtle message behind China’s longest round-the-world naval tour

    “China could develop a role as an economic leader, and fill the void left by US protectionism in the international market,” he said.

    That could also increase China’s soft power, Li said, and mark a turning point in its international influence.

    Sinologist Kerry Brown, the director of the Lau China Institute at King’s College, London, described the belt and road initiative as “China’s first real attempt to spell out more proactively what its vision of its regional and global role is”, but cautioned that concrete achievements had so far been hard to spot.

    The idea has certainly gained the interest and engaged with the emotions of those outside China as never before,” Brown said. “In that sense, it can be called a success.”

    The belt and road idea was first raised by Xu Shanda, a former deputy director of the State Administration of Taxation, who proposed in 2009 that China invest in neighbouring countries as a way to promote demand for the country’s exports.

    Xi gave the plan his blessing in a speech to the Indonesian parliament during a state visit in October 2013, and just over a year later announced the creation of a US$40 billion development fund to help finance belt and road projects.

    The whole initiative, officially known as the Silk Road Economic Belt and the 21st Century Maritime Silk Road, comprises a network of ports and naval bases connected by bridges, canals, roads and railway lines – all built and operated with Chinese participation.

    How China’s belt and road is transforming Asean

    The ancient silk road, dating back to the Han dynasty (206BC-AD220), was an East-West trade and cultural exchange network, stretching from Japan to the countries surrounding the Mediterranean Sea, that linked China with Eurasia. But earliest overland routes for that exchanged went unnamed until the mid-19th century, when German geologist Baron Ferdinand von Richthofen dubbed them Die Seidenstrasse (the Silk Road).

    China plans not just to revive the overland trade route, but also a maritime one, befitting its ambition to transform itself from a big continental country to a strong maritime power. That route will encompass more than 20 countries, stretching from the Pacific to the Mediterranean, via the Indian Ocean, Persian Gulf and Red Sea.

    The shadow of a participant is seen on a map illustrating the ‘Belt and Road Initiative’ at the Asian Financial Forum in Hong Kong in January 2016. Photo: Reuters

    Analysts said Xi’s plan aimed to kill three birds – economic, political and diplomatic – with one stone.

    Economically speaking, the plan is seen as promoting free trade, investment and economic globalisation by reducing trade barriers and increasing opportunities for investors. Policymakers in Beijing want it to help Chinese companies explore overseas markets along the ancient trade route, promote development of the country’s underdeveloped west, export China’s industrial overcapacity and unearth new sources of economic growth amid a slowdown that started in 2010.

    Politically, as the world’s last major communist-ruled nation, China needs friends and political allies to offset its post-cold-war ideological isolation following the collapse of the Soviet Union and Soviet client states in Central and Eastern Europe in the early 1990s. Beijing also wants to restore its leadership status in the developing world by reviving the non-aligned movement.

    On the belt and road, the Chinese civilisation is on the march

    Diplomatically, China aims to use its rising economic clout to expand its regional and global influence so that it rivals that of the United States, the world’s sole superpower, thus restoring China’s historic position as a global centre of trade, culture and politics.

    In concrete terms, the plan aims to create a network of improved infrastructure spanning 65 countries and encompassing 60 per cent of the world’s population and about a third of its economic output.

    Li said Chinese policymakers viewed the initiative as a way of facilitating and speeding up economic growth in the country’s less-developed western region, which would benefit the whole country.

    Many less-developed countries in the region are also likely to welcome China’s offer to help solve their infrastructure woes. Countries covered by the initiative include Mongolia, Laos, Cambodia, Kyrgyzstan, Pakistan, Tajikistan, Bangladesh, Nepal and Myanmar – all of which rank among the bottom 40 countries for infrastructure quality, according to the World Economic Forum. India, the second-most-populous nation in the world, is also known for its infamously inadequate infrastructure.

    Armed with about US$3 trillion in foreign exchange reserves, Beijing has dramatically scaled up its loan book to developing economies that have been largely ignored by international investors and Western lenders. Besides the US$40 billion Silk Road Fund, China has also played a leading role in the launch of the Beijing-based, US$100 billion Asian Infrastructure Investment Bank (AIIB) in October 2014 and the Shanghai-based, US$50 billion New Development Bank in July 2015, which was jointly funded by the five big developing economies – Brazil, Russia, India, China, and South Africa – collectively known as the BRICS.

    Belt and Road points the way to a 21st-century Renaissance, if China stays true to its vision

    Some economists said China’s initiative might help spur other lenders into action, with borrowers speaking approvingly of growing competition in both bilateral and multilateral financing. But Alicia Garcia-Herrero, chief Asia-Pacific economist at Natixis, who will be speaking at next week’s Belt and Road Forum for International Cooperation in Beijing, expressed doubts about the huge amount of investment financing required, especially given the AIIB’s relatively small size. The World Bank borrows US$40 billion to US$50 billion a year, which it then lends out.

    “The key issue about the belt and road is not really whether it makes sense – it does – but rather whether such a massive project can be financed easily,” Garcia-Herrero said, noting that US$5 trillion was needed in next five years and more after that.

    Louis Kuijs, head of Asia economics at consultancy Oxford Economics, said that while the impact on short-term economic growth in other countries was likely to be small, the belt and road initiative could have a significant impact on their growth and development in the longer term if the projects were well run.

    However, Kuijs said, “in countries with relatively weak governance and accountability, the risk of projects going bad is substantial”.

    How China’s belt and road can be a pathway to more equitable globalisation

    By the end of last year, more than 100 countries and international organisations were supporting the initiative, according to the Communist Party mouthpiece People’s Daily. China has now signed memoranda with more than 40 countries, cooperation agreements with more than 40 countries in the belt and road region and industrial capacity cooperation agreements with more than 30. Construction of the China-Pakistan Economic Corridor is in full swing, guidelines for the China-Mongolia-Russia Economic Corridor have been signed and the building of the rail links that will comprise the New Eurasian Land Bridge is being steadily promoted.

    Some diplomatic observers also view the belt and road initiative as a new, China-led mechanism for land-based and maritime security cooperation.

    China, eager to secure the energy supplies needed to fuel its manufacturing-based economy, gets more than half its crude oil from belt and road in countries. It views better land transport connections with Central Asia and the Middle East as a way to secure a stable, long-term supply of energy.

    Unlike other current and former great powers, such the US and Britain, which relied heavily on control of maritime sea lanes for global clout, China’s geographic position means its supply network will be largely land-based.

    Professor John Ciorciari, director of the International Policy Centre at the University of Michigan, said

    Belt and Road projects offer huge opportunities, but also present sources of risk for Chinese banks

    China needed to “avoid undue reliance on trade by sea, where China’s major rivals will likely enjoy superior military capabilities for some time”.

    Some also see the plan as part of Beijing’s efforts to combat terrorism and separatism, because boosting the economic development of underdeveloped western China, where most of the country’s Muslims live, would help address conditions that can fuel social and political unrest. In Xinjiang, where Turkic-speaking Uygurs are the biggest ethnic group, the East Turkestan Islamic Movement is seeking independence from China. Xinjiang borders eight belt and road countries: Mongolia, Russia, Kazakhstan, Kyrgyzstan, Tajikistan, Afghanistan, Pakistan and India.

    But Ciorciari cautioned there would be winners and losers from trade and investment, and the increased movement of goods and services would also create many more links between people, including some opposed to the government in Beijing.

    He said the main value of the initiative to China was that it was laying the foundation – quite literally – for expanded Chinese economic and political influence across the Eurasian landmass.

    News: Can Xi, Trump seal a Sino-US grand deal?

    Victor Nee says that, despite their starkly different personalities, Donald Trump and Xi Jinping actually have much in common. Now, with reciprocal visits all but sealed, it remains to be seen how the two presidents steer the bilateral relationship.

    By Victor Nee
    via South China Morning Post

    US President Donald Trump has embarked on an unprecedented form of foreign policy, using his Twitter account to remake the world order. One pole of any emergent world order is China. Here, his provocations, including the phone call with Taiwan’s president, Tsai Ing-wen, off-the-cuff remarks on rethinking the US stance on the one-China policy, and campaign charges labeling China a currency manipulator, are nothing less than confrontational.

    Yet, Trump has had what he describes as a very friendly phone conversation with his Chinese counterpart, Xi Jinping (習近平). What does this mean for the future of an uncertain US-China relationship?

    Politics aside, Trump and Xi could bond as ‘strong men’

    Under the surface of Trump’s bluster and China’s quiet diplomacy are two countries led by men who have much in common. Both are nationalists seeking to restore their country’s greatness. Trump’s campaign to “make America great again” and Xi’s “Chinese dream” both aim to achieve nationalist restoration.

    Both men inherited the capital that launched their careers. Trump came into his financial capital from his father’s real estate business, and Xi was a princeling and heir to the political capital of his father, a respected leader of the Chinese communist revolution.

    Both men used their inherited capital to launch ambitious careers in their own ways. Trump built a global brand, and far-flung real estate and brand-name empire. Xi turned to a political career after graduating from Tsinghua University, first serving as personal secretary to a powerful member of the Politburo and then taking an unusual turn in assuming a job in Hebei ( 河北 ) province, as a deputy party secretary of a rural county. From there, he began a swift ascent from provincial leadership to the commanding heights of the country’s political elite.

    However, though Trump and Xi inherited their respective forms of capital, both believe they are self-made. Of course, similarities in personal background come with obvious differences in personality. Trump is impulsive in responding to perceived criticism. He is thin-skinned, and quick to hit back with insults and counterpunches vented through hyperbole. Xi, by contrast, is an engineer by training, and is methodical and detailed in his planning and political moves.

    Trump, as the self-proclaimed consummate dealmaker, and Xi as the chemical engineer, see in their newfound relationship an opportunity for a grand deal between the US and China. This is, after all, what was behind their mutual invitations to visit each other’s countries, with Xi reportedly set to visit Trump at his Mar-a-Lago estate in Florida early next month.

    The outline of a bilateral deal has yet to be negotiated, but there is little doubt that it will involve Taiwan, bilateral trade and national security.

    How can Xi Jinping project strength in first handshake with Trump?

    What will be the elements of a grand deal revitalising a strained relationship between the US and China? First, that there won’t be a war between the two over shoals in the South China Sea or the uninhabited Diaoyu, or Senkaku, islands, claimed by both China and Japan. Second, Trump will have the bilateral trade deal he wants from China, even while the Chinese economy gains momentum, stimulated by free-trade agreements with other countries in the Asia-Pacific

    Taiwan will not become independent and, with other East Asian “tigers”, will move towards closer social and possibly political accommodation with the mainland. Taiwan’s economy is already closely linked with that of the mainland.

    North Korea’s nuclear blackmail will be curbed, if not checked, through effective sanctions imposed by China and the US. This could make the installation of a US-South Korea anti-missile shield (THAAD) a lower priority, given reduced tension on the Korean peninsula.

    Why the US won’t label China a ‘currency manipulator’

    What contributes to the likelihood of a grand deal boils down to good feng shui shared structurally by the two Pacific Rim superpowers. The US and China are separated by a vast ocean, but their economies are tethered by an increasingly wide range of mutual interests and dependence – and by two leaders who surprisingly share much in common.

    Victor Nee is the Frank and Rosa Rhodes Professor at Cornell University. He is completing a decade-long study of the emergence of modern capitalism in China, and author of Capitalism from Below: Markets and Institutional Change in China.

    Read more at South China Morning Post

    New Book Launch - Gaining Currency: The Rise of the Renminbi by Eswar Prasad

    Gaining Currency: The Rise of the Renminbi (Oxford University Press, October 2016;, a new book by Eswar Prasad, will be launched at the Brookings Institution on Friday, September 23rd, 2:00-3:30 p.m. 


    Caroline Atkinson, Head of Global Public Policy, Google, and former Deputy National Security Advisor, White House

    Ben Bernanke, Distinguished Fellow, Brookings Institution, and former Chair of the Federal Reserve Board

    Jin Zhongxia, Executive Director for China at the IMF, and former Director General of Research Institute, People’s Bank of China

    Eswar Prasad, Cornell University and Brookings Institution

    Moderator: Greg Ip, Chief Economics Commentator, Wall Street Journal


    The event will be webcast live (and will also be archived at):

    ISS Project to Study Economics, Politics of China Urbanization

    By Lori Sonken

    via Cornell Chronicle

    One in 10 people on Earth live in China’s cities. Over the past decade, nearly 200 million people in China have moved from rural to urban regions, and 8 million more are expected to relocate every year between now and 2050. Just what this means for China and the world has the attention of the Institute for the Social Sciences’ newest collaborative project, China’s Cities: Divisions and Plans.

    “Our lens into China’s cities is focusing on the economic, political and social phenomena at play in China’s urbanization,” says Jeremy Wallace, project leader and associate professor of government.

    Joined by Jessica Chen Weiss, also in government; Shanjun Li, Dyson School of Applied Economics and Management; Panle Barwick, economics; and Eli Friedman, international and comparative labor, the interdisciplinary team is examining the factors that divide migrants and native city dwellers, including access to social services, crime, environmental policies and health consequences.

    “When migrants move to cities, they face economic as well as cultural and discriminatory barriers that make the move and integration even harder [than in other countries],” Wallace says.

    Using surveys, ethnographies and interviews, the team intends to get a better understanding of the issues and attitudes at play in China’s lesser-known cities, such as Zibo and Shenzhen, similar in size to Philadelphia and Chicago, respectively, but practically unknown to anyone outside China. Using interviews, Wallace, Friedman and Chen Weiss will explore attitudes toward social inclusion and exclusion in urban China and their connections with nationalism.

    The project also will examine whether environmental policies in China’s cities are effective in curbing pollution and the impact that regulations are having on firms’ behavior and economic policies.

    Lori Sonken is the staff writer at the Institute for the Social Sciences.

    Read full article at Cornell Chronicle

    Ownership Is Key to Fixing China’s SOEs --- Eswar Prasad

    Increasing competition and private ownership would help spur the changes needed to reform the country’s state-owned enterprises.

    By Eswar Prasad
    via The Wall Street Journal

    China’s state-owned enterprises remain one of the biggest challenges facing Beijing today. SOEs play an outsize role in the country’s economy, even though they are a major source of corruption and inefficiency. So it was encouraging when the Communist Party’s Third Plenum in late 2013 announced new reform plans.

    But Beijing has been going about things the wrong way. Instead of forcing SOEs to operate as commercial entities free of political interference, Beijing is increasing state control. Recent reforms with Chinese characteristics do more to impede rather than promote the changes that are needed

    Consider some steps the government has taken. Beijing has increased SOE oversight by Party committees, which play critical roles on the ostensibly independent boards of SOEs. Among other things, this is meant to prevent asset-stripping by unscrupulous managers.

    But Party officials themselves are often well-connected and have little relevant managerial or technical expertise. They are hardly the buffers needed against political interference and have little interest in promoting competition.

    The government has also cut the salaries of top bosses. The CEOs of major SOEs now make about one-third of their previous salary, equivalent to less than $100,000 a year. Those in the U.S. who support government-mandated egalitarianism would salivate at the prospect of cutting CEO pay to such levels. But there is a cost. Pay compression has led competent middle- and senior-level managers to decamp to the private sector. And pay cuts have hardly improved the incentives facing CEOs.

    Beijing has tightened SOE budgets by reducing direct government subsidies, but this is not a viable reform strategy by itself. In the mid-2000s, this led to millions of workers being laid off. The process was then left incomplete, and the surge of bank-financed investment during the global recession of 2009 and 2010 effectively rolled back the changes.

    China’s reluctance to reform SOEs is in part related to concerns about social stability. Laying off even tens of thousands of workers, a fraction of the necessary retrenchment, without a strong social safety net and at a time when other employment opportunities are limited could lead to social upheaval.

    China should target spending toward a better safety net, one that could provide a buffer for laid-off workers. SOEs aren’t the venue for subsidizing employment and social services such as education and health care.

    But Beijing has been reluctant to do this. Instead, it emphasizes fiscal restraint, which makes the government’s fiscal position look stronger than it actually is but has some undesirable side effects.

    One consequence is that fiscal costs are diverted through the financial system in the form of cheap and abundant credit, perpetuating inefficiencies. The International Monetary Fund estimates that the traditional SOE sector accounts for about 20% of China’s employment and output but soaks up more than 50% of bank loans. This leaves the more dynamic, employment-generating parts of the economy, such as small- and medium-size firms and service-sector firms, starved of bank credit.

    It also distorts the market. Many SOEs are state-sanctioned monopolies and receive subsidized energy and land from provincial governments eager to boost investment. These are the state firms that are most likely to show a profit.

    Beijing needs to reduce both its explicit and implicit subsidies to SOEs and open them up to a greater share of private ownership. Opening up protected sectors to more domestic and foreign competition would also spur change.

    The financial sector, too, needs reforms. Reducing the incentives for banks to lend to SOEs, including those already technically insolvent, and making corporations more reliant on equity and bond markets, would over time drive them to improve their corporate governance and adopt better auditing and accounting practices.

    Allowing corporate defaults would bring discipline to both SOEs and bond markets. But fear of financial-market turmoil appears to be holding back Beijing. In fact, such defaults could force both firms and financial markets to more carefully scrutinize the balance sheets and financial operations of both SOEs and banks.

    China’s government has said all the right things about the necessity and urgency of SOE reforms. Now it must act. If these reforms don’t take hold, the country’s financial liberalization and opening of its capital account could end badly.

    Mr. Prasad is a professor in the Dyson School at Cornell University and a senior fellow at the Brookings Institution. His new book, “Gaining Currency: The Rise of the Renminbi,” will be published in September 2016 (Oxford).

    Read more at The Wall Street Journal

    Professor Shanjun Li Chosen for the ACSF Faculty Fellowship

    Professor Shanjun Li is chosen for the Faculty Fellowship for Social Sciences, Humanities and Arts supported by Atkinson Center for a Sustainable Future (ACSF). This fellowship program supports Cornell faculty in the social sciences, humanities, and arts who are working in the sustainability arena. The in-residence fellowship provides faculty with teaching leave for one semester and a small research budget as well as opportunities to engage with a broad, interdisciplinary audience on and off campus.

    Professor Shanjun Li's  recent research leverages big data to investigate the causes and consequences of China’s most pressing environmental and urban challenges such as air pollution and traffic congestion and examine policy options. During the ACSF residence program, he will evaluate the effectiveness of rapid and large-scale subway expansion in Beijing on reducing traffic congestion and air pollution.

    Testimony at U.S. China Economic and Security Review Commission --- Eswar Prasad

    Public Hearing on China’s 13th Five-Year Plan: Fiscal and Financial Reforms
    China’s Economy and Financial Markets: Reforms and Risks


    By Eswar S. Prasad

    Chairman Shea, Vice Chair Bartholomew, and honorable members of the Commission, thank you for the opportunity to share with you my views on the status of market-oriented economic reforms in China, with particular emphasis on financial market reforms and capital account liberalization, along with a discussion of the risks the economy faces. In this testimony, I will also discuss China’s efforts to expand the international use of its currency, the renminbi (RMB), and how this is tied in to the domestic reform agenda.

    These developments have taken place against the backdrop of a challenging domestic environment. Over the past year, China’s GDP growth has slowed significantly, producer prices continue to fall, and various other indicators of economic activity have weakened, including growth in industrial production, investment, and imports. However, the most recent data on GDP growth as well as industrial and services sector activity suggest that the economy has stabilized. Still, some further macroeconomic stimulus might be necessary to hit the government’s growth target of 6.5 percent.

    On a more positive note, there has been some progress over the last 2-3 years on growth rebalancing, an important objective of the 12th five-year plan. The consumption to GDP ratio has gone up slightly, the service sector’s share in the economy has risen to over 50 percent, and the household saving rate has declined. China’s current account and trade surpluses have declined from their levels in 2007, although the merchandise trade surplus has climbed back to nearly 6 percent of GDP in the last half of 2015. 

    Read full testimony       
    Read more about Hearing on China’s 13th Five-Year Plan

    Elevating the Yuan’s Global Status --- Eswar Prasad

    Ultimately its international value will be determined by the market, but this could help spur further reforms in China.


    By Eswar Prasad
    via The Wall Street Journal

    A burning question in international finance is whether China’s yuan should be inducted into the highly selective group of currencies that constitutes the International Monetary Fund’s reserve currency basket, known as the Special Drawing Rights (SDR). The group now includes only the U.S. dollar, euro, Japanese yen and British pound sterling. By the end of this year, the IMF will decide on the yuan’s fate.

    This has far-reaching implications, but not, as many believe, because it will signal the yuan’s challenge to the dollar as the dominant global reserve currency. The yuan won’t become a safe-haven currency unless China undertakes the substantial political, legal and institutional reforms necessary to build trust among foreign investors. These changes are unlikely to happen anytime soon, so the dollar’s position is secure for now.

    But the IMF’s decision could effect China’s progress on banking and other market-oriented economic reforms. These reforms will determine whether China’s economy gets on a better, less-risky growth path. If China’s reforms stall, global markets will feel the pain.

    Chinese leaders have lobbied for inclusion in the SDR basket. Perhaps they hope to free themselves from reliance on the U.S. dollar by elevating the yuan, but the more immediate endgame is their domestic economy. Economic reformers in China have built public support around the idea that the yuan’s status in global finance should match China’s size and prominence in the world economy.

    For the yuan to become a major international currency, China needs a raft of domestic reforms. These include a better and well-regulated banking system and a broader range of financial markets, including basic currency derivatives, fewer restrictions on capital flows and a truly market-determined exchange rate. Such reforms would improve financial markets and the allocation of resources in the Chinese economy, yielding more balanced and sustainable growth.

    But there is fierce opposition to these reforms, which challenge vested interests that have enormous political clout. The government has used globalization of the yuan as a rallying cry to overcome this opposition and push forward with reforms.

    The People’s Bank of China has already committed to fully freeing up interest rates on bank deposits in 2015. This will increase competition for deposits, driving up rates and benefiting savers. Small banks will be able to compete more effectively with large banks. Large banks oppose these reforms, but the PBOC has noted that market-determined domestic interest rates are an important criterion for the yuan’s inclusion in the SDR basket.

    In principle, this entire debate is a nonstarter. Since the yuan isn’t freely convertible and its exchange rate isn’t fully market-determined, it is technically not a viable reserve currency. But this matter is more about international geopolitics than economics.

    For the IMF, however, the decision is a matter of its own long-term survival. The IMF has had a contentious relationship with China on currency matters, and ignoring China’s explicit desire to join the SDR would create more bad blood.

    The agency also wants to avoid another knock on its legitimacy, already tainted by the lack of progress on giving emerging markets their rightful voting shares. Excluding the yuan from the SDR could crystallize the concerns of policy makers in emerging markets that the IMF remains an institution run by and for the benefit of advanced economies.

    The IMF’s imprimatur would certainly help, but ultimately market forces will drive the yuan to be adopted as a reserve currency. Foreign investors, including foreign central banks, will hold the yuan if they are convinced of its worth. Unless China develops its financial markets, the IMF’s seal of approval won’t do much for the yuan’s stature.

    The U.S. government should welcome the yuan’s claims to reserve-currency status. After SDR inclusion, China’s central bank would find it harder to manage or manipulate the value of its currency to gain a competitive edge for its exports. China will also have more reason to maintain the primacy of the IMF, where the U.S. has considerable influence, in international finance. And China’s financial market opening could create opportunities for U.S. firms, from banks to insurers.

    The yuan’s inclusion in the SDR basket might be premature on technical grounds but is timely given its broader ramifications. A positive outcome would be good for China, the U.S. and the international monetary system. There is no good reason to delay.

    Read more at The Wall Street Journal