Explaining the Persistence of State-ownership in China

In the recent decade China witnessed an upsurge of privatization of small and medium state-owned enterprises (SOEs). In contrast to the consequent sharp reduction in the number of firms, however, the estimated share of broadly-defined SOEs that includes limited liabilities companies controlled by the State has shown virtually no sign of decline. We explain the backgrounds of this seemingly paradoxical persistence of state-ownership by looking into two distinctive types of large SOEs: traditional SOEs that remain dominant in oligopolistic industries and manager-controlled SOEs surviving in competitive industries. The two types exemplify several factors constraining further progress of SOE reform such as, financing the costs of restructuring, redefining the role of the State as the single dominant shareholder, and balancing the interests of the State and managers as entrepreneurs. Sorting these issues out will take time, which means that instabilities associated with state corporate ownership will remain in place in the foreseeable future in China.

Recent trends in Asian integration and Japanese participation

In East Asia, de facto integration is taking place because Free Trade Agreements (FTAs) and Economic Partnership Agreements (EPAs) are flourishing in the region. ASEAN aims to form an ASEAN Economic Community (AEC) by 2015 with the completion of the ASEAN Free Trade Area (AFTA). Surrounding countries have been competing with each other to forge FTAs or EPAs with ASEAN, including China, Japan, Korea, Australia and New Zealand, and India. As a result, ASEAN has become a trading hub in East Asia. Bilateral FTAs/EPAs are also partly in place among 16 countries (ASEAN + 6). These economic ties in trade, services and investment are accelerating this region’s development as the world’s largest production base and biggest consumption market, helping to turn around the global recession in the aftermath of the so-called Lehman Shock. However, some problems also need to be pointed out in the East Asian integration such as the spaghetti bowl effect, severe competition, labor issues, environmental destruction and power struggles.

How serious is the omission of bilateral tariff rates in gravity?

In this paper, using the worldwide dataset of bilateral tariff rates, we explore how serious the omission of bilateral tariff rates in gravity is. Our findings are as follow. Firstly, the omission of bilateral tariff rates seems not to be so serious in terms of omitted-variable biases because the coefficients for the usual gravity variables do not change before or after their inclusion. Secondly, while the widely-used dummy variable of regional trade agreement could not play an alternative role in place of tariff rates, the inclusion of time-invariant pair fixed effects in addition to the time-variant importer fixed effects and exporter fixed effects accounts for the omission of tariff rates. The inclusion of those fixed effects makes the coefficient for bilateral tariff rates insignificant.