China`s Economic Rise - Cal State LA
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POLS 459 Politics of East Asia
Enter the Dragon? China’s
Economic Rise
Professor Timothy C. Lim
California State University, Los Angeles
[email protected]
Last slide
Enter the Dragon?
China’s Economic Rise
Let’s begin our
examination of
China by looking at
some basic
economic facts and
figures
Enter the Dragon?
China’s Economic Rise
Enter the Dragon?
China’s Economic Rise
International Comparison: Real GDP Growth
Enter the Dragon?
China’s Economic Rise
These tables show China’s overall GDP in
both nominal and PPP terms compared to
other major economies
Enter the Dragon?
China’s Economic Rise
China’s Growing Exports and Major Markets
Enter the Dragon?
China’s Economic Rise
Why is China Growing So Fast?
How does the IMF Research Team answer this
question?
• Is China following the old Soviet model? (Recall that
the old Soviet model was based on a rapid increase in
inputs, especially labor and capital)
• Or, is something unusual happening in China?
• In other words, what is the key source of economic
growth in China, particularly since 1978 (when 1996
the era of rapid growth began)?
China’s economic growth (est. only)
1980
2000
Enter the Dragon?
China’s Economic Rise
Why is China Growing So Fast?
2000
“During 1979-94, productivity gains accounted for
more than 42 percent of China’s growth and by the
early 1990s had overtaken capital as the most
significant source of growth”
What’s the significance of this conclusion by the IMF
Research Team?
1996
China’s economic growth
1980
Enter the Dragon?
China’s Economic Rise
Why is China Growing So Fast?
“[China’s]… explosive growth in
productivity is remarkable--the U.S.
productivity growth rate averaged
0.4 percent during 1960-1989
[compared to 3.9 percent for China]
--and enviable, since productivity-led
growth is more likely to be sustained”
From the Economist: “In 2000 China’s workers were about 26% less
productive than ASEAN’s. By 2005 the Chinese had become 5% more
productive. The gap is set to widen: Chinese productivity has been growing at
about 6.6% a year, more than double ASEAN’s 2.9%”
Enter the Dragon?
China’s Economic Rise
Why is China Growing So Fast?
2000
According the IMF Research Team, productivity
increases in China were led by …
Introduction of the profit incentive to rural collective
enterprises (which are owned by local governments), family
farms, small private businesses, and foreign investors and
traders
Reduction in state intervention
Expansion of property rights in the countryside and
“decollectivization”
China’s economic growth
1980
1996
Enter the Dragon?
China’s Economic Rise
Why is China Growing So Fast?
“Further, the post-1978 reforms granted greater autonomy
to enterprise managers. They became free to set their
own production goals, sell some products in the private
market at competitive prices, grant bonuses to good
workers and fire bad ones, and retain some portion of the
firm’s
earnings for future investment”
The Upshot? Sounds as if China succeeded simply by
the prices right
getting ______________________.
Enter the Dragon?
China’s Economic Rise
Why is China Growing So Fast?
Does a “Getting-the-prices-right” argument seem
adequate to explain China’s extraordinary economic
growth? (On this question, consider the sources of
productivity growth)
Is there something missing from the IMF
explanation?
How might we answer this question from the
standpoint of the various theoretical arguments we’ve
studied in class?
Discuss
Enter the Dragon?
China’s Economic Rise
Why is China Growing So Fast?
The Getting-the-prices-right argument suggests quite
strongly that China’s economic development is
largely, if not solely the product of an “unleashed”
private sector
One problem, however, is this: the
Chinese state, while loosening its grip,
continues to keep the private sector on a
short leash …
Enter the Dragon?
China’s Economic Rise
Does China Follow the East Asian
Model?
The significance of state control, according to SeungWook Baek, was particularly evident during the Asian
crisis. In fact, unlike other Asian economies, China’s
economy
was hardly affected by the Asian crisis …
1998 • “China escapes Asian crisis”
From the Economist: “Most of Asia is engulfed in a
currency crisis that swept from Thailand to Korea,
leading to a sharp economic downturn. China and its
special administrative territory of Hong Kong escape
and avoid devaluation …. The strong Chinese
economic growth encourages even more foreign
investment to flood into China.”
Enter the Dragon?
China’s Economic Rise
Does China Follow the East Asian
Model?
According to Baek, China avoided the Asian crisis for the
following reasons …
Strict capital control by the state
The absence of capital convertibility (again, controlled by
state policy)
Manageable short term external debt (managed by the state)
A large trade surplus (encouraged by state policy, especially
devaluation of Chinese currency)
Large foreign exchange reserves (controlled by state)
Enter the Dragon?
China’s Economic Rise
Does China Follow the East Asian
Model?
The degree of state intervention in China
underscores a paradox of East Asian economic
development, which is the intersection of …
… a market-based economy with a dynamic
private sector and a“Hybrid
strong “developmental
Economy”
Market-based
state”
economy
Developmental State
Enter the Dragon?
China’s Economic Rise
Does China Follow the East Asian
Model?
Of course, there is nothing surprising about China’s
economic model: We have seen it before in Japan,
South Korea, and Taiwan
Yet, while the other East Asian economies
have been gradually dismantling their
developmental state apparatuses, China
seems to be in the process of solidifying
the elements
of itsbeen
developmental
state
Q: Why has China
able build a developmental
state while other countries “liberalize”?
Enter the Dragon?
China’s Economic Rise
Elements of the East Asian Model in
China
The Chinese state has purposefully created a dual economic
structure: one part is based on an ever-expanding private
sector, while the other part is based on still prominent stateowned enterprises, or SOEs
The private sector is relatively free of state control, but still
depends on state policies
The state sector, while declining in overall influence, still plays
“a major part in heavy industry and makes up a high
percentage of gross domestic fixed capital formation, gross
output value and the number of employees”
Enter the Dragon?
China’s Economic Rise
Elements of the East Asian Model in
China
State-Owned Enterprises
SOEs are concentrated in strategic industries with intermediate
technology
In the mid-1990s, 512 large SOEs were designated as priority
companies; the central government has also promoted
“bureaucratic-led restructuring” in an effort to make these
companies globally competitive
Examples: PetroChina, Sinopec, and China Telecom
PetroChina is now the world’s BIGGEST
company, worth about $1 trillion--more than twice
the value of Exxon Mobil
Enter the Dragon?
China’s Economic Rise
Elements of the East Asian Model in
China
Government Control in the Financial Sector
Listing in the stock market is still strictly controlled by
the central government
Bank lending continues to be important source of
corporate funding; significantly, the central government
owns most banks (in 2001)
State maintains control over the free movement of
speculative capital
Enter the Dragon?
China’s Economic Rise
Elements of the East Asian Model in
China
Industrial Policy
China’s industrial policy is less coherent than other
elements of its developmental state model, but the
state has nonetheless demonstrated a strong interest
in “targeting” strategic industries
One complicating factor: China’s
membership in the WTO, which
prohibits many
industry-specific
What effect do organizations such as the WTO have
policies
on newly industrialization economies today?
Enter the Dragon?
China’s Economic Rise
Elements of the East Asian Model in
China
Conclusion
China is clearly not following the Anglo-Saxon “model” of
full economic liberalization; indeed, the evidence strongly
indicates that China is another developmental state
The timing of China’s capitalist development, however, is
very different from that of the other East Asian “miracles”:
This very likely means that China’s developmental
trajectory will differ, perhaps in dramatic ways
Enter the Dragon?
China’s Economic Rise
The Future of the East Asian Model?
Conclusion and Questions
Can the Chinese economy retain key elements of the
East Asian development model?
What is the likely trajectory of Chinese economic
development?
How does China differ from the other East Asian
models? How significant are these differences?
Sources of
Productivity
Growth
This figure was prepared by
the New Zealand
government, but it provides a
good overview of how
productivity growth might be
achieved. In this particular
model, the government (along
with other factors) is
considered a potentially
important element of
advances in productivity
The “getting-the-price-right”
model, however, takes for
granted that “free enterprise”
(alone) creates the impetus