China's Economy Final Exam

What is one of the key reasons why China has maintained control over its capital
account despite financial reforms?

To protect against volatile capital flows and financial instability

According to Naughton, what has been a major challenge in liberalizing China’s capital
account?

The potential for large, destabilizing capital outflows

Which was NOT a market liberalization policy in 2014?

Implemented tariffs on goods, services, and stocks from other countries

What role does the financial sector mainly play?

Facilitates investment

How does China's household sector contribute to investment in the business sector?

By generating a surplus after investment and lending it to businesses

In the early command economy period in China, why was financial intermediation
between households and businesses largely insignificant?

Household income was tightly controlled, leaving little surplus for savings.

What was one major reason shadow banking emerged in China after 2009?

Banks looked for ways to bring in money at higher interest rates without breaking
regulatory rules

What is a key feature of wealth-management products (WMPs) offered by Chinese
banks?

They bundle various financial assets into off-balance-sheet investments

What significant reform was implemented in 2007 regarding share circulation in China?

Conversion of noncirculating shares to circulating shares

Which of the following is not one of the three essential functions of equity markets in a
market-based system?

Source of government revenue

China's challenge of avoiding instability while navigating imminent financial
development is largely related to what?

the stability of the banking system

Between 2002 and 2005, China went through the expansionary phase of a
macroeconomic cycle. What did this lead to?

rapid growth of credit and the economy.

Which of these is a fundamental feature of China's bond market?

Almost all sellers of bonds are government actors

The financial system creates new financial assets which increases saving faster than
GDP so the ratio of financial assets to GDP increases. This is referred to as _____________

Financial Deepening

Which of the following best explains how China sustains high levels of investment
without relying heavily on foreign savings?

A high national saving rate across all major economic sectors

What is the primary function of the financial sector in China’s flow of funds system?

To put household savings into business investment

What explains China’s ability to maintain such a high investment effort without
depending on foreign savings?

High saving rate

What was the main funding source for the China Development Bank (CDB)?

CDB bonds predominantly bought by commercial banks

A financially repressed system works in favor of which entity?

Government

What is the diversification of financial assets considered as?

Financial Broadening

What was one of the primary purposes for creating the China Development Bank
(CDB)?

To provide long-term financing for large infrastructure and industrial projects

What is one major reason China's financial system became riskier during its
liberalization?

Rapid increase in debt across corporations, households, and government

Why does hidden leverage increase financial risks in China?

Investors borrow short-term money to fund long-term investments

What was the primary purpose of China's establishment of special economic zones
(SEZs) in the late 1970s and early 1980s?

To serve as experimental sites for market-oriented reforms

What was a crucial step in reducing the differentials between China’s banks and
shadow banks?

Marketization of Bank Interest Rates

What effect did the enforced switch to interest-rate and liquidity management have on banks?

Banks became more interest-rate responsive

Why do large state owned banks choose to bail out WMPs and faulty investments?

To save face and avoid last-minute bailouts by local governments

Which best describes the "internal circulation" aspect of China's dual circulation
strategy?

Boosting domestic consumption and self-reliance in key economic sectors

Why should proxies like patents or scientific publications be analyzed carefully when
measuring technological knowledge?

They have value but also come with limitations and potential pitfalls.

What is the key objective of the "Made in China 2025" initiative?

Upgrade China's manufacturing industry with smart factories

What phrase was used to characterize the objective of enhancing China's autonomous
innovation capacity in the Medium-Long Range Plan (MLP) of 2006?

Indigenous innovation (Zizhu Chuangxin)

What is one key difference between China's industrial promotion efforts and those of
countries like Germany and the United States?

China allocates significantly more funding to industrial promotion than either Germany
or the U.S.

Why did China suddenly boost its number of college students in the late 1990s?

To speed up tech development and deal with rising unemployment

Why did China create the Youth 1,000 Talents Program?

To bring in young talent early and strengthen research for the long run

What was a key goal of the “1,000 Talents Program”?

To bring experienced Chinese scholars working abroad back to China

Why did the rapid expansion of Chinese tertiary education potentially lower the average quality of graduates?

Because expansion outpaced the capacity to maintain high educational standards

In 2013 the Chinese government carried out a broad, closed-door reassessment of
what?

Technology Policy

Enterprises that qualify for "high-technology" status enjoy what benefit?

lower corporate income tax

After the Soviet Union and China split, how did the technological gap between China
and the world change?

The gap grew as China lost its tech patron and its access to market tech was reduced

Why were SEIs seen as a chance for China to compete globally?

Global leaders had not come out in these sectors.

What is the primary reason for the rise in Chinese patent applications?

Government policy and enterprise incentives, including tax breaks and bonuses for
patent filings

Since knowledge creation cannot be measured directly, what are two important
indicators for assessing knowledge creation as part of China’s enormous technology
effort?

Patents and scholarly articles

What effect did the massive entry into the Chinese solar-panel industry have on unit
production costs?

They experienced a rapid reduction

A fundamental characteristic of Chinese technology policy today is an emphasis on…

Domestic investment and protecting domestic firms

Which of the following best describes China’s approach to technology development
after 1992?

It opened the market to foreign direct investment to encourage technology transfer.

What was a key purpose of the “863 Program” launched by China?

To fund targeted research teams in priority technology areas.

What was a primary goal of the Medium-Long Range Plan for Science and Technology
(MLP) introduced in 2006?

To promote indigenous innovation and reduce reliance on foreign technology

How does “Made in China 2025” differ from Germany’s “Industry 4.0” initiative?

It involves a larger technological leap and significantly more government spending

What was the primary goal of China’s hukou (household registration) system when it
was first implemented?

To restrict labor mobility and control urbanization

Complete the statement: Technological knowledge…

Combines capital, labor, and human capital to yield higher productivity

Which choice best reflects China’s shift in economic priorities during the mid-2000s?

Focusing on domestic consumption, environmental sustainability, and reducing
inequality

On a population pyramid, what does a narrowing bottom indicate?

declining fertility

What country typically has a triangle shaped population pyramid?

Developing country

What happened to the age gap at first marriage since the mid-1990s?

Increased

What is a major social consequence of China’s unbalanced sex ratio caused by the one-child policy?

Millions of men are unable to find wives

What is one key reason China’s younger age groups are much smaller starting in
the1990s?

Declining fertility

For a market economy to function, an investment that increases social productivity must also provide what?

A reward to the individual

What were the main causes of the high death rate within China in 1960?

Starvation and Disease

What are the two influencing factors that fuel the growth of the urban labor force?

Rural to urban migration and population growth

Which of the rules are enforced to care for the elderly population?

Children are legally obligated to take care of their parents

What could hinder the economic benefits caused by a demographic dividend?

Poor job markets for the younger populations

With high fertility, why was the population growth in premodern China slow despite this
quality?

Reoccurring issues like war and famine

What was China's population growth rate like between the early 1950s and 1970?

It was growing extremely rapidly

Compared to other successful East Asian developing countries, China's rapid fertility
decline is noted for happening...

Suddenly and at a much lower level of income

What was the main goal of the "later-longer-fewer" (wan-xi-shao) policy introduced in
1971?

To encourage later marriages, wider spacing between children, and fewer children
overall

Which of the following best describes the implementation of the One-Child Policy in the
early 1980s?

It included forced sterilizations and abortions for unauthorized births

What is one reason China’s social security system faces major challenges?

China is aging quickly while still being a middle-income country

Why is it hard for China to create a single, national pension system?

Local systems use different rules and contribution rates

What effect does an aging population have on China’s social system?

It causes significant strain on the social system

Gender imbalance creates hardship for males, specifically through the operation of the “_______”.

Marriage market