final Exam Rebecca Flashcards
(39 cards)
What are the three trade regimes in China in the post 1949 period? Describe and discuss the major features of each regime.
Pre reform: everything including trade was centrally planned, major trade partners were soviets and other planned economies. This changed after ussr fallout. Import heavy machinery and export food and textile. Trade later shifted towards self reliance during reform.
Post reform: dual trade regime, some open trade, other to support central
WTO：convergence to international standard and true market priorities. ensure market prices with some control
What are the major themes for SOE reform in the 1980s and 1990s respectively, and how do these results compare with the last decade?
Early 80s: expanded enterprise autonomy though limited, managerial contract system, still no privatization and no mass lay off of workers. Contracts were short term and not oriented towards long run profits. Still had soft budget constraints.
1990s: 1994 general policy of grasping large and letting go of small, privatization and layoffs of a lot of workers. State retreated on competitive markets, focused on natural monopolies. Retained some state control but also Diluted state shares and took some companies public.
How did the dual track foreign exchange market work? How did the dual track in foreign trade work?
Dual foreign exchange: official and swap market. Official was state driven and swap is market driven. In 1994 the dual rates unified, no dual track anymore.
Dual foreign trade: one sector deals with import substitution (old or traditional sector) and other is export oriented (processing or new sector)
Why a dual track instead of a single track? Use the examples in foreign exchange and foreign trade to explain the advantages and disadvantages of a dual-track.
Dual track foreign exchange market has two exchange rates, official and swap trade.
Dual foreign trade: old sector, import substitution, and new sector, export oriented processing trade. Exports can keep a portion of profits. Advantage of dual foreign trade was Free market introduced. Foreigners run trade not local.
Why is there a huge discrepancy between the average statutory import tariff and the actual tariff revenue share in import value in China?
Tariffs are declining in China because of smuggling and many exemptions
What are the major structural changes in Chinas’s exports in the last twenty years? What were the forces behind such changes? Explain.
3 broad areas: export commodities, export regions, and production displacement
Why was China so eager to join the WTO? Explain the top three reason?
Trade and growth: remained shallow and growth slowdown after Asian crisis.
Reform and restructuring: WTO as an anchor for further reform, and increasing competition.
Joining the international club: be a part of civilized world and more a part of world affairs
Discuss the special challenges for Chinas’s accession to the WTO both in negotiation and implementation.
Negotiation: China is large and growing fast, but not a complete market economy and still developing.
Domestic challenges include short term costs and long term national interests.
Abroad: economic and political reasons.
What is the “Tariff-Rate Quota” (TRQ) system? What are the three important parameters in TRQ? What is the purpose of TRQ?
TRQ lower tariff up to a certain quota. Initial quota low tariff, alternate quota high tariff.
Under the terms of Chinas’s accession to the WTO, can the US impose quantitative restrictions only on imported goods originating from China? Can the US do the same to other WTO members? Why?
Relatively easy for countries to impose on China for twelve years. A country may impose tariffs on imported goods provided certain conditions at met.
In antidumping cases, why can China not use it’s domestic production costs as a basis for calculating the normal value of its export? What can China do in this circumstance?
China is treated as a non market economy.
Disadvantages to Chinas’s labor intensive
What are the risks for Chinas’s agriculture sector after it enters the WTO? What are the possible solutions?
WTO import grains so projected job losses. China does not have agricultural advantage.
Solution: migrating to more labor intensive product.
Why do economists consider Chinas’s financial sector very fragile after the WTO accession? What are their arguments?
Financial services for banking very fragile because a lot of competition from foreign banks, predict 1 million in job losses from state banks.
Foreign banks can conduct, affect wholesale rather than retail.
What are the distinct patterns of foreign investment in China? Name some government policies that are directly responsible for such patterns? Explain.
Investments are mostly FDI (direct investment into a business in a country by a company in another country, either by buying a company or expanding operations of an existing business in that country), not through stock market due to stock restrictions.
Most loans are short term loans and few are from foreign banks, which is due to banks being state owned and giving preference to certain companies.
Currency isn’t convertible.
In what aspects are Special Economic Zones in China special? How are SEZ in China compared with Export Processing Zones in other Asian countries?
SEZ have tax incentives for foreign investors and simplified administrative procedures.
Differences : SEZ were experiments in a market economy. Fundamentally different from rest of country, windows to the rest of the world, could form joint ventures with foreigners.
localities were laboratories for futre
What are the three major forms of foreign direct investment in China? What are the dynamics in the relative importance of each form over time? Explain the reasons.
Contractional joint venture: a service contract between Chinese and foreign entity to team up.
Equity joint venture, 80s-90s: create new entities
Wholly owned foreign investor: foreigners getting more used to China and rule of law.
Trend reflected relaxation of policies.
What are the comparative economic advantages of Hong Kong and Taiwan respectively in the near future?
Legal environment in Hong Kong is very attractive to foreigner investors. A lot of investing still channels through Hong Kong. Some talk of being overtaken by Shanghai.
Taiwan: direct investment in mainland soared. Taiwan deindustrialized and outsourced production to mainland. Comparative advantage is that high market services reflective for higher developed economy.
What are the three categories of government fiscal revenue in China? How should one calculate the true government debt in China?
Budgetary (20%)
extra budgetary (fees, i.e. DMV)
Off budgetary revenue.
NPL problem, AMCs All liabilities, also pension structure unfounded pension liability is major.
Is it true that fiscal contracting practiced in China between 1980 and 1993 has led to a significant increase of the share of local government expenditure in total government expenditure? What is the major feature of the contracting between central and local governments, and what is the economic rationale?
Yes.
Period before that, the tax revenue locals captured was not directly correlated with the amount spent.
80s the correlation of revenue and money spent increased and power was decentralized - fiscal discipline, better incentives for local governments.
Major features: fixed revenue allocation, sharing scheme, marginal revenue retained by locals was high (some instances 100%), originally a 5 year scheme.
How did local government respond to the fiscal contracting between 1980 and 1993?
1980s: increase in the amount of marginal revenue that could be retained by locals. If they performed well, they could reap benefits. Massive growth in revenue, and in employment. Locals had incentive to encourage enterprises to do well in order to tax.
This stimulated non gov performance because local gov has incentive for non state enterprise to succeed. Tax incentives really important for inducing local growth.
What are the major components of fiscal and tax reform of 1994?
Fiscal contracting and separating taxes, national/local level.
Fiscal federalism: decentralization of fiscal policy. Local government can dictate fees while taxes are determined by gov. Simplified and Uniformity amongst taxes, Value added tax. Taxes shared between local and central.
Compare value-added tax, sales tax, and personal income tax. Explain the major advantages and disadvantages of each in the context of today’s China from the prospectives of efficiency and equality
Value added tax: flat tax, assessed at each stage of transaction, very common in Europe, kind of similar to sales tax. VAT is at every stage of value. Can get a rebate if export goods. Benefits: easier to collect, harder to evade. Problem is that it is like a consumption tax, everyone pays same price (regressive). Want to improve quality since rich and poor have same rates with high inequality not good.
income tax is more progressively distributed.
Explain the two basic economic roles of law in the modern economy. Why does one make a distinction between rule of law and rule by law?
Guanxi - connections
Rule of law creates conducive environment and parameters, sets rules and facilitates investment. Advantages: reducing transaction costs, increasing transparency and predictability.
Distinguishment: Gov will use law to maintain order, rule of law applied in accordance to rule by law
On what legal basis can the Chinese gov be sued by its citizens and organizations? What are the major limitations in such a lawsuit?
Ministry of law reestablished in 1982. Government can be sued by its people in terms of environment, class action possible. But Big businesses in China have lots of power because give lots of taxes.
