Transcript Lecture Note

Global Classroom Lecture
Poverty Alleviation and
Economic Growth in China
By
Geng XIAO
[email protected]
[email protected]
China’s Legacy and Reform Strategy
2
Legacy of the Chinese Civilization
and the China Puzzle
•
200 years ago, which country had the largest economy in the world?
(UK? US? China?)
•
What was China’s historical economic performance?
–
–
Compared to the Roman Empire 2000 years ago
Compared to Europe about 600 years ago
•
•
China’s lead in technological invention included:
–
–
–
–
•
China had a seven-fold increase in population from 1400 to 1950
Water mills, harnesses for horses, paper and porcelain (Han dynasty, 200 BC to 200
AD)
Printing, crossbow, iron, gunpowder, paper money (Tang dynasty, 600-900 AD)
Abacus (Song dynasty, 1000-1271 AD)
Irrigation, drainage, double cropping, seed selection, transplanting, use of manuals,
import of maize and potatoes from new world
Why did China start to decline relative to the West about 500 years
ago and end up in a state of extreme poverty for majority of its
people for more than 100 years until Deng Xiaoping’s reform
beginning in 1979?
Source: Angus Maddison, Monitoring the World Economy 1820-1992.
3
Explaining China Puzzle
and European Miracle
• Domestically unchallengeable Chinese central power led to
high-risk inward-looking policies
• In 1434, Ming Emperor destroyed China’s own internationally
competitive fleet led by eunuch admiral Zheng He and lost the chances
to discover the new world
• In 1793, Qing Emperor Qianlong closed the door for developing
friendly trading relations with the rising Western Europe powers and
led to China’s disastrous and humiliating loss in the Opium War in the
mid-19th century
• For 500 years, the weakening Chinese dynasties spent monopolized
military resources to deal with domestic rebellions and internal
struggles with little outside competitive pressure on advancing
technology until mid-19th century
• European modern civilization and economic miracle emerged
from competition among new nation states
– Emergence of nation-states stimulated competition and innovation
through trade, migration, and intellectual interchange
– End of feudalism led to commercial, property, and financial
institutions protected by a non-discretionary legal systems
separated from the state bureaucracy
– The Renaissance and the Enlightenment encouraged experimental
sciences, technological innovation, and sciences education
4
Three Pillars of China’s Poverty Alleviation and Growth Strategy
• The leadership by the Party
– The Chinese Communist Party was born and grew out of crisis and war
and gained its authority as the only leadership force for a population as
large as 1.3 billion through internal competition and external pressure.
– Over a period of more than half a century, the party developed a
sophisticated and resilient central and local organizational capacity for
defining and enforcing its policies (right or wrong), including defining
and protecting property rights during the reform period
– The Party has become an imperfect but working substitute for whatever
modern institutions China lacks during its long process of modernization
(institutions such as markets and free trade, social safety net,
independent judiciary and rule of law, free press, and democracy)
• The open door policy
– Opening up to international trade and foreign direct investment
– Accession to the World Trade Organization
– Acceptance of globalization
• The market-oriented reform
–
–
–
–
Restoration of family farming and abolishing of communes
Privatization of SOEs and entry of non-state enterprises
Free mobility of labor and free labor market
Development of capital markets and property rights infrastructures
5
Striking Similarity between Meiji Reform in 1867
and Deng Xiaoping’s Reform in 1979
• Traditional Japan: very isolated
– Travel and study abroad prohibited, ships not larger than 75 tons,
trade only through a small depot in Nagasaki of the Dutch East
India Company once a year
– In 1853, American navy opened Japan for trade concession to
U.S. and then other Western powers
• In 1867, the new Meiji regime started sweeping reforms
– Abolished feudalism and legal inequality across old classes
– State taxes replaced feudal levies in kind
– Free to choose occupation, free to produce any crop or
commodities, free to buy or sell land
– Compulsory primary education, textbooks with western contents,
many students sent to study aboard
– A national monetary and banking system established
– Agricultural research and industrial development encouraged
– A program of military modernization
– A family planning habit to check population growth
Source: Angus Maddison, Monitoring the World Economy 1820-1992.
6
What Is Special about China?
– China is big
• Labor force is larger than the sum of all developed economies
• GDP at PPP is second only to U.S.
• Global market share of many manufacturing products about 50%-80%
– China is young
• China’s population profile is similar to Japan’s but about 25 years younger,
with working age population now among the highest in the world at about
70%
• With one-child policy China’s aging is likely to be quicker than Japan
– China is very open
• OECD capital is moving to China, competing not with China but with other
OECD investors through unprecedented inflows of FDI
• Hong Kong and western economic institutions are replicated in China with
help from large numbers of returning overseas students
– China is doing all the successful things Japan and other Asian
dragons have done before while having unlimited supply of labor for
the last 30 years and at least for next 15 to 20 years
7
China’s Achievements in Poverty Alleviation and Growth
8
China Achieved an Impressive Average Growth Rate of
10% during the 30 Years of Reform
Annual GDP Growth, 1978-2006
16%
14%
Annual Percentage Increase
12%
10%
8%
6%
4%
2%
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
0%
Source: Barry Naughton, The Chinese Economy, Figure 6.1 on page 144, 2007.
9
Both Rural and Urban Income Grew Rapidly with
Significant Rise in Living Standard for Every Chinese
Growth of Real Per Capita Household Income
Rural Net Household Income
Urban Disposable Income
Income in Constant 2004 Prices (RMB)
1978
(About 500)
1,701
1985
1,343
2,728
1991
1,585
3,612
2004
2,936
9,422
1978-1985
(About 15%)
7.0%
1985-1991
2.8%
4.8%
1991-2004
4.9%
7.7%
Average Annual Growth Rate (percent)
In 2004, one RMB was worth $0.12 at the official exchange rate, or $0.55 at PPP.
Source: Barry Naughton, The Chinese Economy, Table 9.1 on page 210, 2007.
10
Rural Poverty as Defined by the World Bank Declined from
more than 65% to about 10% Lifting Several Hundred Million
Chinese Out of Extreme Poverty in Less than 30 Years
Incidence of Rural Poverty in China
70.0
60.0
Percent of Rural Population
50.0
40.0
Ravallion and Chen (World Bank) Estimates
30.0
20.0
Chinese Official Estimates
10.0
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
0.0
Source: Barry Naughton, The Chinese Economy, Figure 9.1 on page 213, 2007.
11
China Achieved Dramatic Improvement
in Human Development Index
(Life expectancy, Literacy, Education, and GDP per capita)
Comparison of Human Development Index 2003
Chinese Provinces
Shanghai
Shandong, Hebei, Jilin
Nations
0.91
0.77-0.78
Shanxi, Hunan, Chongqing
Guizhou
Tibet
Hong Kong
0.92
Thailand
0.78
China 2003
0.75
China 1999
0.72
China 1990
0.63
India
0.60
Myanmar
0.58
China 1980
0.56
Pakistan
0.53
0.64
0.59
Source: Barry Naughton, The Chinese Economy, Edited from Table 9.2 on page 224, 2007.
12
The Role of Public Investment in China’s Growth
13
China’s Green Revolution Started Long before Deng’s
Reform and Never Stopped since 1949
Fertilizer and Irrigated Area
50
60
45
Irrigated Area
50
Million Tons (Fertilizer)
35
40
30
25
30
20
20
Fertilizer
15
Million Hectares (Irrigated Area )
40
10
10
5
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
1966
1964
1962
1960
1958
1956
1954
0
1952
0
Source: Barry Naughton, The Chinese Economy, Figure 11.5 on 259, 2007.
14
The Central and Local Governments Led Massive
Investment in Infrastructure Which Laid Foundation for
the Take-Off of the Private Business
Physical Infrastructure Investment
10%
9%
8%
Electricity
Percent of GDP
7%
6%
5%
4%
Post & Telecommunications
3%
2%
Transportation
1%
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
0%
Source: Barry Naughton, The Chinese Economy, Figure 14.3 on page 346, 2007.
15
China’s Cheap Talents Are Fuelling its Industrial
Productivity Catching Up
Graduates of College and Technical School
4.0
3.5
3.0
Million
2.5
Total
2.0
1.5
1.0
0.5
Science and Engineering
0.0
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Source: Barry Naughton, The Chinese Economy, Figure 15.3 on page 362, 2007.
16
Massive Laid-off from SOEs Did Not Lead to Social
Instability due to Protection Measures Valued Much
Higher than Real Wages of Migrant Workers
Laid-off and Unemployed Workers
16
14
12
Million
10
Laid-off (Xiagang) Workers
8
6
Registered Unemployed
4
Newly Laid-off During Year
2
0
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Source: Barry Naughton, The Chinese Economy, Figure 8.2 on page 187, 2007.
17
Demographic Gifts to East Asian Miracle
Source: Jeffrey G. Williamson, Demographic Shocks and Global Factor Flows
18
China Enjoyed Two Decades of Demographic Dividends
Which May Last for Another Two Decades
Dependency Rates
90
Percent of Working Age Population
80
70
Total
60
50
Seniors
40
30
Children
20
10
0
1990
1995
2000
2005
2010
2015
2020
2025
2030
2035
2040
2045
2050
2055
2060
2065
2070
2075
2080
Source: Barry Naughton, The Chinese Economy, Figure 7.3 on page 173, 2007.
19
China’s Open-Door Policy
20
Trade Liberalization Fuelled both Export and Import but Created
Large Trade Surplus in Recent Years
Figure 16.1 Exports and Imports (Share of GDP)
45%
40%
35%
Exports
Percent of GDP
30%
25%
20%
15%
Imports
10%
5%
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
0%
Source: Barry Naughton, The Chinese Economy, Figure 16.1 on page 378, 2007.
21
China and its Asian Neighbours:
Gaining Export Market
Share in World Exports of Manufactures 1990 and 2000
World
Developed countries
Developing countries
Asia
China
Asia-Six*
Other Asia
1990
100.0%
80.4%
17.5%
12.6%
1.9%
9.1%
1.6%
2000
100.0%
69.4%
27.4%
19.9%
4.7%
12.2%
2.9%
Gain/Loss
-11.0%
9.9%
7.3%
2.8%
3.1%
1.3%
Source: WTO; *Asia six: Taiwan, Hong Kong, Korea, Malaysia, Singapore, and Thailand;
Significant re-exports excluded.
22
Foreign Invested Enterprises Are Driving China’s Exports
Share of Exports from export-process regime and foreigninvested enterprises
60%
Export-processing regime
40%
30%
Produced by foreign-invested enterprises
20%
10%
2007 H1
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
0%
1985
Percent of total exports
50%
Source: Barry Naughton, The Chinese Economy, Figure 16.2 on page 388, 2007.
23
More than Half of China’s Imports Are for Re-Exports
Relating to International Supply Chain
Figure 16.3 Openness Measures of Chinese Economy
30%
25%
Percent of GDP
20%
f
15%
Export Processing and Other Imports
10%
5%
Ordinary Trade Imports
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
0%
Source: Barry Naughton, The Chinese Economy, Figure 16.3 on page 392, 2007.
24
China’s Trade and FDI: Concentrated
in Nine Coastal Provinces
Concentration of Trade and FDI in China's Coastal Provinces
Region
China Total
Population
(%) GDP (%)
FDI (%) Trade (%)
GDP per
capita
(US$)
100.0
100.0
100.0
100.0
1,008
Top 9 Provinces by FDI
31.7
51.8
84.6
89.4
1,647
E.China (Shanghai, Zhejiang, Jiangsu)
S.China (Guangdong, Fujian)
N.China (Beijing, Tianjin, Liaoning, Shandong)
10.6
8.8
12.2
19.9
14.0
17.9
28.9
34.2
21.4
29.2
40.9
19.2
1,882
1,600
1,477
Middle 12 Provinces by FDI
Bottom 10 Provinces by FDI
49.9
17.7
37.4
10.8
13.6
1.8
7.7
2.9
756
614
Source: Statistical Yearbook of China, 2002.
25
At the Start of Reform, China Allowed Wholly Foreign
Owned Enterprises and Created Favourable Legal and
Tax Environments for Foreign Invested Enterprises
Modes of FDI in China
90%
Wholly Foreign Owned
Percentage of Realized Investment
80%
Equity Joint Venture
70%
60%
50%
40%
30%
20%
Contractual JV
10%
Joint Development
2007 H1
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1979-82
0%
Source: Barry Naughton, The Chinese Economy, Figure 17.3 on page 412, 2007.
26
Hong Kong Provided Mainland China not just Money and
Management but also Knowledge of Market Institutions and
their Working
Main Sources of FDI in China
45
40
Billion US Dollars
35
Hong Kong, Taiwan, Macau & Tax Havens
30
25
20
Industrialized Triad: US, EU, Japan
15
10
Other East Asia: Korea, ASEAN-5
5
Other
0
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Source: Barry Naughton, The Chinese Economy, Figure 17.1 on page 403, 2007.
27
China’s Market-Oriented Reform Policy
28
Rural Reform Released Rural Surplus Labour and Made
It Possible for the Decline of Agricultural Employment
from 70% in 1978 to 40% in 2007
Structural Change in Employment
80
70
Primary (Agricultural) Sector
Percent of Total Employed Persons
60
50
40
Tertiary (Service) Sector
30
Secondary (Industrial) Sector
20
10
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
0
Source: Barry Naughton, The Chinese Economy, Figure 6.3 on page 151, 2007.
29
Migration and Floating Rural Population Are Driving
Rapid Urbanization in China
Urban Share of Total Population
45%
40%
35%
Living in Urban Areas
30%
25%
20%
15%
10%
"Non-Agricultural" = Urban Residence Permit Holders
5%
2005
2003
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
1979
1977
1975
1973
1971
1969
1967
1965
1963
1961
1959
1957
1955
1953
1951
1949
0%
Source: Barry Naughton, The Chinese Economy, Figure 5.1 on page 127, 2007.
30
Good Infrastructure and Relaxation on Labour Mobility
Created Probably the Greatest Waves of Rural-Urban
Migration in the World’s History
The Long-distance "Floating Population" in China's Census
90
80
70
Million
60
Interprovincial
50
40
30
20
Within Province
10
0
1982
1990
2000
Source: Barry Naughton, The Chinese Economy, Figure 5.2 on page 130, 2007.
31
Booming Non-State Sector in the Cities Absorbed
Massive Rural Surplus Labour
Urban Labor Force
300
Foreign-Invested
250
Other
Million
200
150
Self-Employed
Collective Enterprise
Private
100
New Corporate
State-Owned Enterprise
50
Government and Official Non-Profit
0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Source: Barry Naughton, The Chinese Economy, Figure 8.3 on page 190, 2007.
32
What Happened to China’s SOEs?
Privatization of the small to get rid of state liabilities
Centralization of the large to secure state monopoly profits
State Industrial Enterprise Profit
16%
14%
Percent of GDP
12%
10%
8%
6%
4%
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
0%
1978
2%
Source: Barry Naughton, The Chinese Economy, Figure 13.1 on 305, 2007.
33
Rapid Privatization of SOEs during 1995-2005
Number of SOEs in Large and Medium-sized Industrial Enterprises
16000
15107
14000
12000
10000
9144
8000
6000
4000
3999
2000
0
1995
2000
2005
Source: National Bureau of Statistics.
34
SOEs Performed Worse than NSEs
but Still Dominated in Large Enterprises
and in Monopoly Sectors
Structure and Performance by Ownership of Top 500
Chinese Enterprises in 2006（%）
Ownership
No. of
Firms
Profits
Assets
Employees
Taxes
Return on Assets
State
69.8
87.94
93.63
89.32
92.69
1.40
Collective
5.80
2.22
4.15
2.35
1.67
0.80
Private
17.8
7.08
1.73
7.00
3.94
6.08
Foreign
6.6
2.76
0.48
1.33
1.70
8.48
Return on Assets（%） Return on Equity (%）
Top 500 Chinese Enterprises
1.82
10.07
Fortune 500 Companies
1.79
16.13
Source: China’s Top 500 Enterprises, 2007.
35
Reading List
1.
2.
3.
4.
5.
6.
7.
Sach, D. Jeffrey. “China: catching up after half a millennium,” chapter 8 in The End of Poverty,
2005.
Sachs, D. Jeffrey and Wing Thye Woo. “Structural Factors in the Economic Reforms of China,
Eastern Europe, and the Former Soviet Union” Economic Policy, Vol. 9, No. 18 (Apr., 1994), pp.
101-145.
Dollar, David. “Poverty, inequality and social disparities during China’s economic reform.”
Policy Research Working Paper, WPS4253, The World Bank, 2007.
http://wwwwds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2007/06/13/000016406_2007
0613095018/Rendered/PDF/wps4253.pdf
Cheong, Young-rok and Geng Xiao. “Global Capital Flows and the Position of China:
Structural and Institutional Factors and their Implications,” Chapter 8 in China’s Role in Asia
and the World Economy - Fostering Stability and Growth, Forum on Debt and Development,
December 2003.
http://www.fondad.org/publications/china
Xiao, Geng. “Reforming the Governance Structure of China's State Owned Enterprises.” Public
Administration and Development, No. 18, 273-280, 1998.
Woo, Wing Thye and Geng Xiao. “Facing Protectionism Generated by Trade Disputes: China’s
Post-WTO Blues,” In Garnaut, R. and L. Song (eds.) China: Linking Markets for Growth, 2007.
Naughton, Barry. The Chinese Economy: Transitions and Growth, The MIT Press, 2007.
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