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DANIEL LICHTER: My name is Dan Lichter. Some of you know me I'm the director of the Institute for the Social Sciences. And I'm a professor in Policy Analysis and Management and in Sociology.
A lot of you are familiar already with what the ISS does. We try to promote interdisciplinary research in the social sciences. We have a few signature programs, one of which is ongoing right now in the Fellows Program for young people. So some of you who are out there may be interested in that down the line. We also have a small grants project, a program that we have found to be successful.
And then the third thing we do is we have these collaborative theme projects, which we're going to learn more about today on this particular project on China. We've done I think 11 of these. ISS started I think in 2004 or 2005. So we've been doing this for a long time.
So we're very excited about this particular topic because I know there's a lot of interest in China, a lot of interest in China right now, and a lot of different dimensions of China. So it's good to see so many people here.
Before I start and turn this over to Jeremy and his group, I want to introduce you to the newly titled Associate Vice Provost for the Social Sciences-- did I get that right?
SPEAKER: Yes.
DANIEL LICHTER: He was the Social Science Fellow. He's in the office of the Vice President for Research, our new VP for Research, Emmanuel Giannelis. So he was going to do a little bit of cheerleading, I think, for the social sciences. Because right now is a really-- well, he's going to say this maybe-- a good time to be a social scientist. So I'm going to let him speak here, and then I'll turn it over to Jeremy and his team.
SPEAKER: Great.
[APPLAUSE]
So thanks so much, Dan, thanks for the introduction. You only embarrassed me slightly. But I'm going to get you back at the end of this, so we'll see. So first, I just wanted to welcome all of you on behalf of Vice Provost for research, Emmanuel Giannelis. He and I have talked about this project. And he's really excited about it, excited about the direction things are going in. So I'm sure he'll be happy that I can report back with more knowledge after this.
Second, I just want to say, sort of what Dan was going to say, is that I think this is an incredibly exciting, although also stressful time to be a social scientist here at Cornell. We have the full attention of the provost with the review of the social sciences. And we also have a VP for research who's deeply committed to the social sciences and helping us even increase our excellence further. But of course sometimes that could mean change, and that's stressful for people as we try to manage that.
One of the upshots of the attention that I can talk about today is that Emmanuel is really committed to building our grant portfolio within the social sciences. And so if you have an idea for a data collection project that you think could turn into something big, or you have an idea for a center grant or a training grant, drop me an email. I think this is the part of my job that is actually fun, unlike some of the other parts of the job, as we are now. So please do seek me out. That's something that I really like to talk to folks about.
And so finally I just wanted to thank Dan-- and this is my attempt to get him back-- for his great leadership to the Institute for the Social Sciences, and also for what a great vision he has of what social science should be and could be at Cornell. He's simultaneously an excellent basic scientist, and also really addresses these real world social problems in a way that I think we don't often bridge that divide in the social sciences more broadly.
And so I just wanted to thank him and tell him that I'm looking forward to working more with him in the future. He's not going to die, and I'm not going to hug him. So you can all be relieved about one, and he can be relieved about the other. But thanks again for coming.
[APPLAUSE]
DANIEL LICHTER: I'm just going to turn it over to Jeremy now, and he can make the introductions. And we'll just get on with this, OK?
JEREMY WALLACE: So welcome. Thanks for coming. It's hard to believe that the China Cities Project is nearing its end, that it's already finishing its third year. We applied fully four years ago.
To start, I will say that this process of applying and the grant itself and going forward has been really informative for me. It was something that I did right when I arrived the fall four years ago. And there was a search for applications for proposals, and we applied, and won the grant. And so it's been really great. I'll always be appreciative of that.
I want to thank the ISS staff and Dan and Alisa, and Megan for all their assistance and guidance, including organizing this meal and getting these slides up and everything else. And I want to thank the faculty team Eli Friedman from ILR, Panle Barak from Economics, Jessica Weiss from Government, and Shanjun Li from Dyson-- anyway, the nomenclature has shifted a little bit over the past four years, but I can say that-- and all the various graduate students and undergrads who have participated in the project.
So I think the collaboration, it's fair to say, has been successful. The team's publication page on the ISS website, which I'm sure everyone regularly visits, lists over 20 articles. And there are many more on the way. The grant support has funded a major survey experiment with over 3,000 individuals in China's Cities, many flights across the Pacific, and substantial research assistance, as well as crucially time to think and write for those of us here, as well as some of our students.
Well, the grant is coming to an end. This is a capstone, not a conclusion. Our research on China Cities, is, if anything, I would say growing in scale and scope. And we hope that we are able to share that future work with you.
And I mean that in of two ways. One, that you will read and appreciate the work that we do. And, two, that you will join us in doing the work in collaborative projects going forward. So that's my hope for where I see us. To that end, and while I'm aware that I'm probably preaching to the choir, my presentation is going to be about getting excitement for China's Cities, and then the rest of the team are going to present individual research projects.
So there are a lot of different stories that we tell about China's cities. One is that China's cities are the future. How many science fiction stories begin-- use Shanghai's skyline, like this image. Or Hong Kong's skyline signify that this is a futuristic story, right? China is the next place or the place that looks now what the rest of the world, or at least the urban world will look like in the future.
Just to note here-- this is an image actually from 2010 in Shanghai. It does not even include the tallest building in the city, which is behind. Anyway, China's cities are rapidly growing. So this location is in Shanghai, in Pudong, which is the eastern side of Shanghai's metropolitan region east of the river. And the western banks have been built up for decades. This eastern side is only a phenomena of the past 30 to 40 years.
So another story that we tell about China's Cities is the pollution story. This is an image of Beijing on a polluted day and then on a clean day. In general, this is a story that I think maybe people are very familiar with. It has been getting better, things have been getting better, at least in the Beijing environment for the past few years-- until this past winter, which brings up interesting questions I think about the extent to which environmental issues are a priority in the Chinese society.
We know that there are major, major health effects to this pollution. It's not just something that is visually unappealing, but has real health effects, I think. Shan and Panle have studied this and maybe we'll talk about it a little bit today as well.
China's cities are full of people, which is perhaps obvious. But the scale of this might surprise you. So China's cities are home to one in 10 people on Earth. During the past decade, nearly 200 million people in China migrated from rural to urban areas. Eight million more-- that is New York City-- are moving on an annual basis to Chinese cities, and are expected to join them every year until 2050. This is just an image of what happens when you're trying to take the Beijing subway, and security measures have increased. The lines are really there.
Sometimes, some of those people that are in China's cities are not necessarily wanted. So this is an image following a fire in November of 2017 that killed 19 people. Beijing's city government leapt into action and demolished numerous migrant communities around the city. So this is not an image of the fire itself, but of the actions undertaken by the government to demolish what they thought of as somewhat communities.
At the same time, and paradoxically I would argue, China is building cities that are seemingly devoid of people. So this is the quintessential ghost city phenomenon. And this is Kangbashi in Ordos, which is the origin myth of this story of the ghost city of China. These are new, large scale, often vast urban developments where people have yet to come, live, and work. Rarely do they remain this empty, but there is a real disconnect between the building and the actual arrival of people.
My favorite image of a ghost city, though, is this one, in part because I think just these unicycles. Although I have seen them on campus a little bit. Anyway, they are quite hilarious. And they really to me point to an interesting image-- a disconnect between the idea of what this could be, and futures that are imagined, and what I think are likely futures.
And so this juxtaposition of the slums and ghost cities in China's cities, that is, areas where you have lots of building and infrastructure but no people. And areas where you have lots of people, but less infrastructure, for me is one of the interesting social science questions that I'm trying to address. And this is joint work with Jiwon Baik, who is from our Government department, a PhD student.
And with this, I'll just say that the collaboration is not just spend within the team itself, but within students. So a number of our papers are then co-authored with graduate students. The survey that I mentioned earlier is collaborative work with another government graduate student, as are a number of publications.
So with that hopefully enticing you, I'll turn it over for the real research. First to Jessica Weiss, and then we're going to go in reverse alphabetical order just to switch things. Up so it'll be Jessica, then Shanjun, then Eli, them Panle. So, thanks.
[APPLAUSE]
JESSICA CHEN WEISS: All right, thanks very much for that introduction. So I'm a political scientist, and I mostly study China's foreign relations. But also I'm deeply interested in the question of nationalism in China and what impact rising nationalism in China might have on China's foreign relations.
This is a quintessential example, I think, of a paper that wouldn't have existed without the ISS grant. This is a paper that initially began with all five of us chatting over lunch, throwing out ideas-- more ideas really that I think we could even implement within this short time span. So one of the things I think we'll do next week over lunch is figure out, even though this three-year period is coming to an end, here are the things that we want to continue to undertake going forward.
So what you see here is what we've called some of the commercial casualties of nationalism in China, which is increasingly an urban phenomenon. This is a Toyota dealership that was devastated during the 2012 wave of anti-Japanese protests that took place amid a crisis over disputed and uninhabited islands in the East China Sea.
But this was not just an isolated instance of popular nationalism spilling over. More than 200 cities in China witnessed anti-Japanese protests of varying size and intensity. And so one of the things that we were interested is what impact might, on this urban phenomenon, these nationalist protests have on China's foreign relations. This is a picture of the 2012 protests against Japan that took place in Chengdu on one of China's larger metropolitan areas.
But this question has attracted a great deal of argument on both sides. In brief, what we argue is that boycotts-- these nationalist protests-- shape the desirability of owning foreign goods. So we're looking at the commercial impact here of nationalist protests, which oftentimes people will call for a boycott, but then secretly they defy the boycott because they like whatever iPhones or they like Japanese cars and such.
But what we argue is that these protests really make visible the social penalty of owning or consuming these goods. And that penalty, that socially constructed penalty varies across space, as well as across time. But we're going to leverage then variation in where these protests occur because many, but not all, of Chinese cities witness these protests.
And then our argument for bringing this then to the literature in international relations, that these boycotts can be used as a commercial weapon in highly antagonistic disputes to help reveal, resolve, and potentially actually diffuse a crisis from going to a more violent or costly form of conflict. So this is maybe one way in which economic relations can actually serve as both a conduit, but also a buffer for states, that this is one way that China in this particular context signaled to Japan how seriously this issue was being felt by the Chinese public, and to encourage Japan to, if not concede, at least diffuse the crisis.
But as I said, many are skeptical of this argument that boycotts matter. This is a picture taken of an anti-Japanese protester. On his back he had a list of the different Japanese brands that should be boycotted. But what is he wearing around his neck? A Canon camera, a Japanese branded camera.
And so this is that tendency by individuals to free ride on this politically motivated boycott. And yet we argue that the distribution of protests across the country, which we'll see here in a minute, helps override this individual incentive potentially to free ride.
So there is three differences-- and very brief-- that distinguish our study and what I think was really amazing about this collaboration from other existing studies of the economic impact of political tensions and boycotts. One, is that the vast majority of foreign branded goods in China are produced locally through Chinese joint ventures. And previous studies have looked only at trade flows.
Second, we have, instead of just looking at a moment in time like many studies have looked at the impact of the lead up to the Iraq war on say US purchases of French wine or French-sounding goods. That was a moment in time. But we were actually looking at spatially disaggregated patterns of protest using the city level variation.
And then finally, we take advantage of some amazing data that Panle and Shanjun through magic that they have worked on all car registrations in China. Over one million observations to really get down to look at the impact of these political events on consumer patterns across China from 2009 to 2015.
Again, this is like an advertisement for our paper. I'm not going to get into the weeds. This is a depiction of which cities, which prefectural level cities witnessed anti-Japanese protests in 2012. And then we use this and then look at the impact on consumer purchases or car registrations.
So again, briefly previewing our results, we find a significant as well as persistent change in consumer purchases of Japanese branded automobiles, even though they were mostly made in China. We estimate there was nearly 1.1 million sales that were lost, or amounting to 200 billion renminbi. And that this effect was much stronger. There was a national effect of the boycott but also it was particularly acute in cities that experienced these anti-Japanese protests.
So with that, a couple of thoughts on why we found such a large effect. One, this was a really severe episode of political tension. The United States and France, even though we have differences over going to war in Iraq, this was never going to end an armed conflict. The situation between China and Japan could still to this day escalate.
And we also saw in China a tacit endorsement for a boycott, in contrast to other episodes. And then again to emphasize, the granularity of the data that we were able to use to detect these changes. So here is I think a marriage of different data sets from different disciplines answering this very important question of how it is that political tensions affect commercial relations. And in turn, how commercial relations can serve as both a conduit but also a buffer for more intense eruptions of interstate conflict.
So thank you, and I will turn it over now to Shan.
[APPLAUSE]
SHANJUN LI: All right, thanks again for joining us today. One very important component of this ISS project is on China's sustainable development in the face of a rapid rise in income and urbanization. So we are going to use a big data and rigorous data analysis to shed light on the impacts of pollution, climate change, and energy challenges on human health, on the quality of life, and on economic growth in general in China.
So this picture shows the consumption of coal in China from '60s to 2017 in China in red versus the rest of the world in blue. So we know coal is the dominant source of energy, but unfortunately it's also very dirty. During the last 10 years also, China has been accounting for about 50% of coal consumption in the world.
As a result, we have pollution issues. This shows greenhouse gas emissions. This is China in red. So China's CO2 emission now is about twice as much as US emissions. So because of the large role China played in the world energy market in greenhouse gas emissions, things that are happening in China, domestic policies in China could have global impacts.
So I'm going to use my seven minutes now to actually talk about four projects instead of doing one project, just to show you that we didn't shirk, we have been working really hard. And also, a fact is that during this three-year period the team had three babies. And another one is on the way, right?
JEREMY WALLACE: Very productive.
SHANJUN LI: Very productive. So this is an article that was reported by The Economist last year from our team. In this paper, we looked at the impact of pollution on human health, in particular, we are going to use the universe of debit card, credit card transactions in China, so this is about 10 gigabyte of data every day for the past several years.
PANLE BARWICK: 100 gigabyte.
SHANJUN LI: So toning it down a little bit. So this shows we correlate the level of pollution to the spending in the overall health care industry in pharmacies. So you can see a positive relation. When pollution gets bad, people spend more money in hospitals, in pharmacies to treat their problems. But if you look at the impact or other consumption categories such as necessities, such as supermarkets, you see a negative impact with higher pollution.
What about climate change, extreme temperatures? So this study, we are looking at how spending is not only the health care industry and in non-health care industry are affected by temperature extremes. So this is temperature extremes. That's spending on the y-axis. So this shows that when it is very cold or very hot, people spend more money in the health care industry, they spend more money in hospitals. So this shows the health consequences of temperature extremes.
But you don't see that pattern in cancer hospitals, in bone hospitals. Because the way that extreme temperature affects human health is not going to give you cancer or bone problems, rather it's through respiratory problems and cardiovascular issues.
What about the impact on the overall economic consumption. So here, these are the temperature extremes again. We look at the impact temperature changes on total consumer consumption. And you see a different pattern, you see an egress, usually better, meaning when it's really cold or really hot, people actually reduce their overall consumption. So this has really important implications for not only human health, as I showed you, but for economic growth in general.
Moving into the third one, so there are many ways that people can address or mitigate the impact of extreme temperatures or extreme pollution. One of the ways is through short-term migration. When pollution is bad or when it's really hot in Beijing, some people can choose to move to another city or a cleaner city to avoid the damage of pollution. So we are using this credit card data to trace out people's movement within the country.
So this shows the outflow of Beijing residents to other cities. During our data period it shows Beijing residents, when they travel, they traveled to nearby cities, of course. But they also traveled to other cities, as well. For many different reasons-- for business purposes, for recreation purposes.
What are we going to do, we're going to link this migration pattern or short-term travel pattern to extreme weather conditions, to extreme pollution. And our preliminary findings suggest that indeed the short-term migration provides a way for residents in China to mitigate the impacts of these adverse conditions.
And at the same time, we know the transportation infrastructure has been expanding very quickly. This shows the high-speed rail network expansion over time and the improvement in transportation infrastructure, such as high-speed rail, reduces the transportation cost. And this can facilitate people's movement from one city to another in order to mitigate these extreme conditions. So we are trying to, in addition to what I showed you, look at how the improvement in transportation infrastructure actually help in this regard. And this provides another benefit of transportation investment by helping people mitigate extreme weather conditions.
The last one here, traffic congestion is really ubiquitous among urban cities. Not only in developed countries, but now even more so in fast-growing economies such as China, India. The fundamental problem of traffic congestion is that the road which is a resource is not priced, or not priced properly. When a resource is not priced-- it is free to use-- there will be excess demand. That's really the fundamental issue.
So in this paper, we are using about half billion observations on traffic density and traffic speed throughout the city of Beijing from this remote traffic light microwave sensors to understand road pricing or potential policy alternative to address traffic congestion in Beijing. That is road pricing. So we use this data help us to estimate what's the optimal price that we should charge road users during different times of the day, during different part of the city in order to address traffic congestion, and what will be the impacts of that policy on traffic reduction and on social welfare. So this was reported in People's Daily-- Overseas Edition for this particular study.
All right, thanks, very much.
[APPLAUSE]
ELI FRIEDMAN: OK, we're going to go from very big data to very small data. I'm a qualitative sociologist. I'm going to be talking about this book project I've been working on called The Urbanization Of People. Before we get into it and building off of something Shanjun just said about energy challenges, I just want to acknowledge that right now there's a rally going on to demand that Cornell divest from fossil fuels. And I think that it's shameful that this has not happened yet. And I hope that it does happen soon.
I also want to echo something that Jeremy said at the beginning to just acknowledge the support that we've gotten from the ISS, from Anneliese, from Megan, and from Dan. It's been really wonderful. And I've really enjoyed working with this team, and I have learned a huge amount from all of them.
So everyone here knows that China is undergoing a massive transformation. Currently, there are about 300 million people who are migrants who have left their place of official hukou, or household registration, and they're moving somewhere else in the country. The overwhelming majority of these people are going to cities.
This is a chart that probably many of you have seen. This is China's urbanization rate. That's a little bit difficult to read, but in 2011 China famously passed the 50% mark. It is now a majority urban society, and this trend is going to continue certainly into the future.
But this is not free movement of people just chasing opportunities in this more or less flat social and political landscape. The way I think about it is that over the past 40 years China has developed a national labor market, but citizenship is structured at the level of the city. And so this disjuncture between the freedom to sell your labor anywhere in the market, but again citizenship, and specifically social citizenship-- since political citizenship doesn't mean that much in China-- social citizenship being structured at the level of the city is generative of a lot of urban politics.
And when we're thinking about politics, we can look at this urbanization rate in the aggregate. But it doesn't really tell us very much about the underlying politics. And asking the question about who gets into which kinds of cities and why. And that's the problem that I'm addressing, this question of the urbanization of people, asks, who's allowed to stay in the city, under what conditions, not just as a worker but as a full social being, someone who has access to all of the things that human beings need to live a decent life, including housing, education, health care, et cetera.
There's many, many perspectives that one could take on studying this problem. The perspective that I'm choosing to look at is looking at how this problem plays out in megacities. And I'm particularly interested in the question of accessing education. I'm interested in megacities because megacities-- in Chinese parlance, extra large cities are those that have an urban district population of more than five million people. These cities have a larger share of non-local population of migrant population.
And what we can see here is that the larger the city, the greater the percentage of your overall population that is non-local, that is migrant. So there's this clear positive association. If we look at just the top five largest cities in China, this accounts for about 25% of the entire migrant population of the country. So this, again, not the only perspective from which you can study the urbanization of people, but I think a significant one demographically and certainly politically.
And I'm interested in schools because, as sociologists and others have identified for many, many decades, schools are a key-sight of social reproduction. And so this might allow us to anticipate something about future social dynamics if we can see how the children of migrant workers are being incorporated or not into urban society.
Now my research precedes both in a top down manner and also bottom up. Top down in the sense that I situate this within broader changes to the structure of the economy, the shift from industrialization-led development to a urbanization-led development. And there's also a bottom up perspective. So the most important source of data for me is about six months of ethnographic research, as well as 250 qualitative interviews that have been transcribed encoded. So what I'm going to do is just briefly run through some of the key insights of this research, each one more or less that corresponds to a chapter of the book that I'm writing. But the big question that I'm interested in from a structural perspective is how access to hukou, and particularly schooling for the children of migrants, fits into the shifts in the broader development strategy of the central government.
And the basic idea is this, that the Chinese government for the first time in 2014 is encouraging people to move to cities. They're acknowledging that they want this urbanization-led capitalism rather than the industrialization-led capitalism that's powered them since the 1980s. But in this vision-- and this is a simplification, but I think a politically incisive one-- what the central government wants to do is they want to send elite people to elite cities, and they want to send the low-end population to low-end cities.
And by elite people, I basically mean people who have high levels of education. There's other metrics that they use to determine who counts as an elite person. From the perspective of megacities, they're interested in optimizing the population. This is the term that the state uses. And they believe that optimizing the population is necessary to catalyze the next phase of development that's going to be predicated on service sector and higher value-added forms of production. They want to do IT rather than producing socks.
Now if we look at the structure of the education system in urban China and the way that people are granted access to the public system or denied, what I found in my research-- and this is based on a close reading of all of the policy documents as well as talking to people about how they actually navigate this-- is that people who get access to state subsidized education are precisely the people who need at least. So the more social capital, economic capital, and political capital you have, the more likely you are to be able to access social welfare. And so I call this the inverted welfare state. It's a more or less perfect inversion of the way that welfare states were conceived of, at least in capitalist countries in the 20th century.
And everyone else is left to what I to these migrant schools. And these migrant schools are largely or completely privatized schools. They serve non-local students, and they're badly under-resourced.
You can see some of the lack of resourcing. This is one of the schools that I studied. It's evident even in the physical plant they don't have indoor plumbing. They don't have decent heating, and they certainly don't have decent facilities for the children.
I then proceed from looking at the policy to focusing and interviewing ethnographic data, by interviewing parents about how they access schooling. And I'm particularly interested about what happens in the City of Beijing where most of my research takes place in 2014 when the city government begins making conscious and concerted efforts to remove this low-end population. And education is a key pressure point. And the phrase that the government uses was using education to control the population.
So it's a very conscious strategy to deprive migrants access to education, be it the public state subsidized forms of education, or these informal privatized forms of education. In the most extreme cases, the government resorts to just demolishing schools. And this is an image from 2011 when the Beijing city government destroyed about 30 schools a few weeks before the beginning of the semester, and about 30,000 students were left with nowhere to go to school.
I then look at coping mechanisms in response to this chaos. And these schools are chaotic. There's massive turnover. About a third of the student body turns over every year. About a third of the teachers turn over every year. In some cases, the physical existence of the school of course is threatened.
So what coping mechanisms do families and teachers develop in response to this? Well, I talk about this, I talk about teachers as being affective shock absorbers. Basically, these children are in incredibly precarious emotional states. They attach very intensely onto their teachers. Teachers-- it's a very gendered profession, not surprisingly-- talk about themselves as feeling like they are parents or mothers. Oftentimes, actual parents of the children are not there because they're so busy working, or sometimes even living in other cities.
And then the final form of response of the ground level is thinking about resistance. And in fact, parents and teachers do fight back. And on the left, we see a protest that took place in Shenzhen. You can see that these parents are wearing shirts that say, we want equal education. Their children have been denied access to public schools.
And on the right, we see a father who's lying down in the middle of the street in response to-- this is in Beijing-- his son's school being demolished. So this is not a new civil rights movement yet-- these protests are sporadic. But there is a generalized sense, a keen sense of injustice and inequality that parents and teachers, they understand this. And I think that that is the basis of trying to address it.
So it's not a super optimistic story yet. But in particular cases when people protest, they can get a somewhat better deal. They might be able to get their children resettled into some other school, or, in some cases, even get them into to public schools.
So the big conclusion that I think comes from all of this work is that the state's efforts to urbanize people in specific places more or less in accordance with their levels of human capital has resulted in funneling public resources, the public resource of education, precisely to those who need at least. All that being said, lots of people continue to migrate out of plan. So the state's efforts to put elite people into elite cities is not actually going to work because you need people to clean the streets, you need people to take care of your children, and all of the so-called low-end labor continues to need to happen.
So people are migrating out of plan, but they do so unfortunately at an immense social cost. I think that the model of urbanization the social state is pursuing right now is almost certain to increase educational inequality and probably class inequality, absent some major changes. The good news, again, is that people recognize this as a problem and are doing what they can within the constrained political environment to try to fight back.
So I'll leave it at that. Thanks.
[APPLAUSE]
PANLE BARWICK: So I want to echo some of the many things that the team has said. This has been a wonderful experience, definitely eye opening. And even though we come from different backgrounds, we have different training and discipline, this has to be a truly amazing experience. And then you can see the diversity of our topics.
And then so I go from the urbanization and the resource allocation to resource allocation on a grander level among a lot of the cities and industries. So China's industrial policies are arguably one of the most important economic policies. And until very recently, the majority of their resource allocation has been happening in cities in urban places where large firms and strategic industries are located.
And so this also is a very broad topic. And so in this project we are basically looking at one particular industry as a case study to get some insights about the general questions. Are those policies effective? Do they create a lot of distortions?
And then in follow-up projects-- we actually have a few-- we are going to look at the specific feature of those policies happening in different cities. How are they going to influence mobility, for example? That's related to infrastructure that Shanjun has mentioned. How are they going to increase the inequality in different cities and industry structure in different cities? So this is just the beginning of a set of projects that we're working on.
So you probably have seen this pictures in the past, which we included here four industries-- the auto industry, the auto parts, steel, and solar-- that have basically on average increased by 20 to 30 times during a very short 15-year period. This is called exponential growth.
And people have documented the massive increase in Chin's industries. But what is less emphasized is really the stunning speed that is taking place in capital-intensive and knowledge-intensive industries, which is considered not to be the fact that China is abundant with.
And then so there are many reasons that are driving this massive growth. Besides WTO entry, there's reforms and all kinds of other things happening. China's industrial policies play a very major role. And there are many different policies, the industrial policies. You probably have heard about national and provincial and sometimes, even at the city level, five-year plans. And then this is actually something that's quite controversial recently, which is made by China 2025, that outlines the goal to dominate the 10 leading future sectors, including artificial intelligence, aerospace, machine, clean energy cars, and latest generation marine equipments and ships. So that's what we're to studying.
And another consequence that has been documented but less well understood is the one side effect of industrial policies, which is essentially fragmentation. And we'll be able to speak to this a little bit. What you see is that compared to other industries in the US or Europe and some of the other countries, China's industries tend to have very low concentration. And you see the regional duplication of similar industry structures in different places.
And so what we're going to do here is despite the prevalence of industrial policies, now are actually getting popularity among countries in both developed countries and in developing countries. You can name quite a few, even in the US/Europe, they're discussing about different industrial policies. Most of the empirical analysis are descriptive. They basically document what is happening to the targeted industries in terms of output and growth and sometimes productivity, but very little return of investment. Meaning, there's very little cost and benefit analysis that tells us are those policies are effective. Putting in $100 billion, how much do you get back.
This is actually where we step in. We're going to use the ship building industry, a case study, to basically gain some insight about what policies will be effective. And then what we do is we'll collect data on every shipyard worldwide that produce ships for ocean transportation. And then we basically have about 13 years of data from late late '90s to 2013. We have quarterly data on all the ships produced, all of the prices, quantities, et cetera, at the firm level across the world.
But because China, South Korea, and Japan basically account for 90% of the ships produced worldwide, we're going to focus on those first three countries. We're going to use data. First, we document all the timing of the different policies happening in China because the industrial policies, there are much going on in Japan, and in South Korea, much less and much smaller in scale. So we basically focus on industrial policies in China and document exactly the time when those policies take place.
And then use data to quantify what the magnitude of the government policies, how big the support has to be in order to basically explain the patterns we observe. And then with that, then we do counterfactual analysis. We can basically think about alternative policies. One is simply remove them, or perhaps target different set of firms, or maybe use target different peers of the industry. And so then we're going to evaluate the impact of them and look at how do they affect both the domestic firms and the international firms and the welfare allocation.
This basically shows you that shipbuilding has been a very classic recipient of industrial policies for several reasons. In addition to economic reasons, the commercial and military reasons are actually often important. So this is a table on all of the major policies that's implemented. And we are going to use those timelines to basically identify when the policy became effective.
You can see that in China in this short five or six year period, China's market share increased from less than 10% to 55%. It's a very remarkable process. And you can see that we have plotted here the entry of new shipyards across countries. The industry magnitude is actually quite comparable across China, Japan, South Korea, but you can see this massive entry for this period that's relative to maybe three or four entries in Japan and South Korea.
There's no picture that's more telling than this one where you see the investment almost increased by three or four times overnight in 2005, 2006. When the policy became effective, the investment increased from less than $0.5 billion to $4 billion overnight.
And so we have several findings-- and I won't go through the details about how we did this analysis-- but we basically find that the magnitude of the industrial policies is massive. I don't think that's surprising based on the data that I have shown. And then basically the subsidy that went into production investment entry altogether is about 400 billion RMB. And then it is about close to more than half a trillion RMB in a similar period. And then they boost China's investment by double the entry and increased China's world market share by 40%. I don't think that's surprising.
And then we're not purely interested in describing what happened. What we want to know is what's the return. How much has this impacted? How much do actually firms and consumers get back? So this has quite a massive impact on the world price, which is not surprising.
Here's the finding that's actually quite depressing. That for every dollar you put in, you get back on average $0.20 to $0.30. That's a very low rate of return. So we did a lot of analysis trying to figure out, number one, where's the distortion happening place. And second, how can we do better.
And then so it turned out that among the several dimensions-- entry, production, investment-- investment and production are way better than entry part because entry subsidies are given to firms without any track record. You're basically subsidizing everybody. While investment are only firms that are good, that basically have a long horizon. And then they are the firms that are likely to take investment.
We also find that a lot of industries have massive business cycles. And when your target turns out to be crucial, if you target at the right moment, which is actually downward period, then you can increase the rate of return to 70% or 80%.
And then there's also targeting and sorting crucially important. You don't want the most wasteful policies to basically give it to everybody, but rather you want to design it such that you can target it to more efficient firms. And that also makes a huge difference.
So I will leave the empirical analysis here. But I think broadly, and to be fair, it's not the most successful industrial policies that are happening in China, but we basically are hoping to use as analysis to show how can you do better and what are the distortions they are creating in the design of this process.
And then for the follow-up projects, we're basically zooming in to the cities and to the industrial structures in different locations and try to see, how can you-- and then the important policies where we're focusing, one is the R&D, which arguably China is actually investing massively, encouraging R&D. How does that influence the future trajectory of the industries and Cities
And I will return the podium to Jeremy.
[APPLAUSE]
So as you see, I think the team's success is perhaps obvious from the beginning, given the talent of the team, at least excepting myself. And so I think it's unsurprising that it's been a successful collaboration. It's been really great working with everyone. And so I think we're right on schedule. And so we have 10 minutes for Q&A. And so I'll go and sit down and we can just have a discussion about any of the individual research projects or general directions for China's Cities.
So again, thanks for your attention. Thanks.
[APPLAUSE]
AUDIENCE: Yes, I have a question about Shanjun Li's presentation.
SHANJUN LI: Yes.
AUDIENCE: I think some of the reasons you showed are very compelling, especially comparing [INAUDIBLE] standing. But if I remember correctly, you're using credit card data. By using credit card data, are you capturing only a subset of the population, And is there risk of a selection bias?
SHANJUN LI: No, that's a good question. So credit card, debit card spending in 2015 accounted for about 50% of total national consumption. So it's a very big part of consumption component. But there is indeed selection in the sense credit card, debit card use more often in cities in higher income areas. So we actually look at the issue and thinking about the potential bias that it could create.
PANLE BARWICK: On the other hand, 70% of the population have credit cards. And this is actually including debit cards as well. Which is, if you have a bank account, then you have debit cards. And prior to 2016, and even now, they don't have checks. So this is one of the most important payment instrument if you want to buy large items.
AUDIENCE: Thank you.
I have a question about the boycott against Japan. This is a very interesting year for China. So many things happened. And I want to hear your opinion about some other things. So Huawei's president's daughter was arrested in Canada at the airport. And do you know--
SHANJUN LI: Wanzhou Meng [INAUDIBLE].
AUDIENCE: It's a huge thing. And there is a discussion about boycotting Canadian--
SHANJUN LI: Canadian Goose.
AUDIENCE: Canadian Goose, winter coats. But the funny thing is actually Canadian Goose winter coats, they got a collaboration I think with Taobao. Actually, the sale on Taobao [INAUDIBLE]. So it was really interesting. There was a discussion of boycotting, but actually it's not happening.
And also the other case was Dolce Gabbana. They put out an advertisement, and lot of people consider that was racist. And then Dolce Gabbana, their sales in China tanked. And the two owners, they fell off the list of billionaires in the top. Just a comparison, what's your comment-- why Chinese people react differently to different things, like rub Chinese people in different ways. So in the same way, actually.
JESSICA CHEN WEISS: Right, right, right, this is something that Shan may also want to comment on since we have many other papers also on the topic of boycott. I think here it's important to think about the historical context in which the boycott against Japan arose in 2012 and the severity of the issue at hand. Huawai may yet rise to that level, but it's complicated because this is the Canadians helping US extradition request.
And in some ways Canada's a relatively new target of Chinese animosity. There's no historical grievance against Canada in the way that there was against the legacy of Japan's invasion and occupation during World War II. So my expectation is that in each of these cases, the firms will try to do things to offset those political damage or risk.
So even in the Japanese case, firms were scrambling to offer discounts and other ways in which to avoid the brunt of this, not as successfully in that case. I don't know exactly the details of what Canada Goose did with Taobao. Maybe you have some more insight there.
SHANJUN LI: That's really a very interesting point you made. And there are a lot of studies that look at the impact of boycott in economics and other areas. And then people find different evidence. Sometimes it works, sometimes it didn't.
For example, in the US there was a boycott of French wine before the first Gulf War because the French wasn't on board. And it didn't work because the product is quite different. Think of cars, that's very visible. You drive and your neighbors will see what kind of products you will be using.
AUDIENCE: So we need to cut out the logo then.
SHANJUN LI: Yeah, yeah, that's right. But also think about the competitions you have, whether you really have a close competitor you can switch to or not. So there are all kind of factors that affect the specific context of the study.
AUDIENCE: So what is Canadian Goose? Oh, geez.
[LAUGHING]
JEREMY WALLACE: Yes.
AUDIENCE: Oh, I have two questions, one for Panle and one for Shanjun. For Panle is why do you choose the shipbuilding industry. Because I think that industry is going down. They actually suffer badly from the economic downturn. So why do you choose that?
PANLE BARWICK: So in Made in China 2025, that's actually one of the 10 sectors. And we spent quite some time trying to figure out what's the motivation. Clearly, and as I said, there are other industrial policies that are slightly more successful. The high-speed rail is definitely much more successful than this one for various reasons that were discussed.
But in this by here, there are probably a lot of national security and military reasons. And the magnitude, this policy is also massive. Starting from 2002 in China was a very small player to 2005, when 12 in the '05 till '10 period, and then 16 from '11 to '15 year period. That not only at the national level, but provinces are listing those industries as the strategic industry. So the impact is actually massive, and we see a huge increase in market share.
So indeed after 2015, overcapacity is a big problem. And then so China started to promote consolidation policies. And then that led to facility exit of firms. But China, there's no doubt, is now one of the dominant players. Much, much stronger than five or 10 years ago.
So that's why in the media discussion, on one hand, it's a successful policy because China now is the leading producing country. But on the other hand, you see all of the consequences of perhaps not allocating the resources efficiently. There's a large number of shipyards going bankrupt. And there is actually coastal, environmental issues, et cetera.
So I think this is a good example of a policy that's massive and has the desired impact, but it's very wasteful. And so that's why we did a lot of studies to argue, if you want to achieve certain political or military objectives, that actually there are better ways. There are ways that lead to much less distortion. So I think that's the message that we want to send out-- the design of the policy is crucial. Not all policies are equally good, and how do you design it can have massive different consequences.
AUDIENCE: My question to Shanjun is that you showed the spending as a functional of the air pollution. And then another one is the--
SHANJUN LI: Spending.
AUDIENCE: Spending on the fluctuating temperature. But I just want to point out, the air pollution or the temperature may be correlated with each other.
SHANJUN LI: Interacting with each other. That's right. So in the study that I show in the first study where we look at spending on pollution, we actually controlled temperature. So temperature is one of the regresses I didn't show you. In the other study, we controlled pollution, but we focused on temperature there.
AUDIENCE: OK.
SHANJUN LI: Yeah, yeah, exactly. So you are right. We controlled all other weather conditions, rainfall, precipitation, all those things as well.
AUDIENCE: So what do you think? If we look at extreme temperature, so typically in the summer if you have a very high temperature, you typical have a very high ozone concentration.
SHANJUN LI: Yeah.
AUDIENCE: And typically in the winter generate particle matter concentration higher because of heating, burning coal. I think you did the right thing by taking out the temperature, by separating the two. But I think this somehow just so closely related to each other.
SHANJUN LI: Yeah, ozone is formed with sunlight, hydrocarbons, stuff like that. So the way we control is we control seasonalities, for the summer or the winter, for different seasons we control those things. So the spending pattern varies also with season as well.
PANLE BARWICK: And also across different categories. Some of the categories might be more affected than others. So you see how the different consumption patterns respond to temperature in addition to some of the other pollutants that you're worried about.
DANIEL LICHTER: I want to be mindful of everyone's time. Maybe we have time for one more question and then we can-- yes?
AUDIENCE: I noticed something about China's cities, across them, which is this [INAUDIBLE], which is this so-called policy diffusion. So physically this means some cities have these demonstration zones where certain policies, which is supposed to be this example [INAUDIBLE]. But in the end they just turn out to be so similar and almost the same with each other. And I was just wondering maybe if you can comment on this phenomenon, and then what's the implication of that, what's driving it?
JEREMY WALLACE: I mean, I think a lot of individual decisions in China's cities are responses to central government directives from higher levels. And so in no way are the 287, or however many China cities you think about, each independent actor is making decisions on their own. And so we should think about them in separate ways.
They are part of a broader system. Part of that system is like you are going to be an example and a leader or a model, it's often the Chinese term, in this sector or in this example type of projects. So for instance, in the control of the reform of the hukou system, household registration system, some locales have been examples and tried to reform and change access to social services earlier than others. And sometimes those experiments go really well and those experiments get spread across the country. And sometimes those experiments go really poorly, in which case they're folded and no one talks about it again.
So it's a general phenomenon. And so one of the things that it makes it hard to do when you study Chinese cities broadly is that how do you think about these as individual units of analysis versus part of a broader system. So that's one of the challenges of inference that we have when we study urbanization issues in this big country.
I don't know if that answers the question for other people.
DANIEL LICHTER: Some people have [INAUDIBLE]. So why don't you join me in thanking the team.
[APPLAUSE]
The Institute for the Social Sciences' China’s Cities project (2016-2019) brought together a group of interdisciplinary scholars to examine developments in the urbanization of the world’s largest country. Drawing on expertise from sociology, economics, and government, the team employed quantitative and qualitative methods to assess the divisions that dominate China’s cities and the plans that will shape their futures.
Faculty fellows Jeremy Wallace (Government), Panle Barwick (Economics), Eli Friedman (International and Comparative Labor, ILR), Shanjun Li (Applied Economics & Management), and Jessica Chen Weiss (Government) outlined the progress of their research and future plans at a capstone event on March 22, 2019.
