Transcript Lecture One Introduction to China`s Economic Growth

Lecture One
Introduction to China’s Economic
Growth
Instructor: Xingmin Yin
1
 Part One
Dynamics of Development
 Part Two
China and Development Economics
 Part Three
Conclusions
2
Part One
Dynamics of Development
1. Brief discussion on economic growth
records.
2. Transition: geopolitical standing
3. How to understand the statistics?
4. Analysis of the macroeconomic record
3
1. Brief Discussion on Economic
Growth Records
 A long-term rise in capacity to supply
increasingly diverse economic goods to its
population, this growing capacity based on
advancing technology and the institutional and
ideological adjustments that it demands.
 After 1978, there was a major political shift to
a pragmatic reformism which relaxed central
political control and modified the economic
system profoundly.
 These changes brought a more stable path of
development and a great acceleration of
economic growth.
4
 In the 25 years from 1978 to 2003 GDP rose
nearly seven-fold, labor productivity rose fourfold, population growth decelerated sharply
and per capita income rose nearly five-fold.
 With per capita GDP rising 6.6 per cent a year,
China enjoyed faster growth in this period than
any other country.
 The growth acceleration was mainly due to
increased efficiency.
5
Major Factors for Economic Growth
 Collective agriculture was abandoned and production
decisions reverted to individual peasant households.
 Small-scale industrial and service activities were freed
from government controls.
 The proportionate importance of state enterprise in
industry and services was greatly reduced and there was
a huge expansion of industrial production in urban areas
financed by private domestic savings and a very large
inflow of foreign capital.
 Exposure to foreign trade was greatly enhanced. This
strengthened market forces, made it much easier to
develop and absorb new technology and introduced
consumers to a wide variety of new goods.
6
Growth of GDP, by Sector, at Constant price
(annual average compound growth rates)
1952-1978
Faming, Fishery & Forestry
1978-2003
2.2
4.5
10.1
9.8
Construction
7.8
9.8
Transport& Communication
6.0
10.8
Commerce & Restaurant
3.3
9.9
Other Services
4.2
5.6
GDP
4.4
7.9
Per Capita GDP
2.3
6.6
GDP Per Person Employment
1.8
5.8
Industry
7
Structure of Chinese GDP, 1952-2003
(per cent of GDP)
1952
Farming, Fishery & Forestry
1978 2003
59.7
34.4
15.7
Industry
8.3
33.5
51.8
Construction
1.7
3.4
5.3
Transport & Communications
2.4
3.6
7.0
Commerce & Restaurants
6.7
5.1
8.2
21.2
20.1
11.9
Other Services
GDP
100.0 100.0 100.0
8
GDP Growth in China
160000.0
50
45
140000.0
40
120000.0
35
20
60000.0
15
10
40000.0
5
20000.0
0
0.0
-5
19
78
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
亿元
25
80000.0
百分比 %
30
100000.0
GDP
第一产业增长率
第一产业
第二产业增长率
第二产业
第三产业增长率
第三产业
GDP增长率
9
Discussion: Three Principal Components of
the Definition of Economic Growth
1. The sustained rise in national output is a
manifestation of economic growth, and the
ability to provide a wide range of goods is a sign
of economic maturity
2. Advancing technology provides the basis or
preconditions for continuous economic growth- a
necessary but not sufficient conditions
3. To realize the potential for growth inherent in
new technology, institutional, attitudinal,
and ideological adjustments must be made.
Technological innovation without concomitant
social innovation is like a light bulb without
electricity- the potential exists, but without the
complementary input, nothing will happen.
10
2. Transition: Geopolitical Standing
 The reform period was one of much
reduced international tension.
 China’s geopolitical standing, stature
and leverage were greatly increased.
 China became the world’s second largest
economy.
11
China’s Geopolitical Standing,
1820-2003
1820 1890 1913 1952 1978 2003
Share of World GDP
32.9
13.2
8.8
4.6
4.9
15.1
Share of World
Population
36.6
26.2
24.4
22.5
22.3
20.5
Per capita GDP % of
world average
90.0
50.3
41.7
23.8
22.1
73.7
1
2
3
3
4
2
n.a.
1.7
1.6
1.0
0.8
5.9
GDP Ranking
Share of World
Exports
12
Comparative Levels of Economic
Performance, G5 and China
2003 GDP
Per capita
In 1990 $
China
Japan
France
Germany
UK
USA
4803
21218
21861
19144
21310
29037
2003
2003 Energy
2006
Population Consumption Exports
(million)
($ billion)
1288.4
127.2
60.2
82.4
60.9
290.3
1409
969
517
271
347
232
2281
650
485
1126
371
1038
13
 China is still a relatively low-income country,
but this is a favorable position for a nation
which wants to achieve rapid catch up.
 China’s level of income is still much lower than
that of Japan,
 China still has great scope to capture the
advantages of backwardness, and its period of
super-growth can last longer than it did.
14
3. How to Understand the Statistics?
 Chinese experience has been fascinating,
unpredictable and often difficult to
understand.
 Official statistics still exaggerate GDP
growth and understate levels of
performance.
15
4. Analysis of the Macroeconomic
Record
A.
B.
C.
D.
E.
F.
G.
Labor input
Investment rates and capital inputs
Total factor productivity
Structural change
Performance in the rural sector
Industrial policy and performance
The transformation of relations with the
outside world
H. The changing role of fiscal and monetary
policy
16
A. Labor Input
 Employment rose faster than the population of
working age due to increasing participation of
women.
 Under the household system rural residents
were not allowed to migrate to urban areas.
They did not have the social benefits which
urban dwellers enjoyed.
 In the reform period, allocation of labor has
improved, particularly in rural areas, where the
boom in small-scale industry and service
employment absorbed surplus labor from
farming.
17
Vital Statistics, Labor Input and
Education Levels, 1952-2003
Crude Birth
Rate
Per 1000
Life
Per cent of
Expectancy Population
at birth
Employed
Years of
Education
Per person
aged 15 and
older
1952
37.0
38
36.4
1.70
1978
18.3
64
41.9
5.33
2003
13.0
72
49.7
10.20
18
Quality of Labor
 In the reform period, higher education
enrolment has risen very fast, from less than a
million in 1978 to nearly 20 million in 2007.
 There has also been a surge in the number of
Chinese studying abroad.
 From 1952 to 2003, the average level of
education of the population aged 15 and over
increased from 1.7 years to 10.2 years.
 Life expectancy at birth rose from 38 years in
1950 to 72 in 2003.
19
Student Enrollment by Level of Education
China, (000s)
Higher Secondary Primary Pre-school
191
1952
856
1978
2005 15615
2007 18849
632
51100
424
65483
146240
7877
85809
108641
21790
82433
105640
23488
20
The Impact of Human Capital
Improvement to Economic Growth
 The increase in the quality of the labor
force contributed importantly to China’s
production potential, which was further
strengthened by improvements in health.
 Improvements in sanitation, diet and
wide availability of modern drugs have
been the main contributors to increased
life expectancy.
21
B. Investment Rates and Capital Inputs
 The Chinese ratio of inventory change to GDP
fell sharply in 2000-2003, when it averaged
1.55 per cent.
 Since 1978, capital productivity has improved
substantially and capital/output ratio in 2003
was 2.6.
 Although the state continues to have a
significant role in the allocation of investment
funds, the overall impact of greater non-state
participation was to direct investment into
areas where the yield is higher.
22
Investment in Fixed Assets
(1980-2003)
固定资产投资
60000
70
50000
60
50
40
30000
30
百分比 %
亿元
40000
20000
20
10000
10
0
0
1980 1985 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
固定资产投资(亿元)
增长率
23
C. Total Factor Productivity
 After 1978, the rate of growth of labor input
declined, the rate of growth of the education
stock slowed and capital inputs increased at
the same pace.
 GDP growth accelerated sharply, labor
productivity grew much faster than before,
capital productivity ceased being negative and
total factor productivity increased by 2.95 per
cent a year.
 The improvement in resource allocation……
24
China Basic Growth Accounts
(annual average compound growth rates)
1952-78
1978-2003
Population
2.02
1.20
GDP
4.39
7.85
Per Capita GDP
2.33
6.57
Labor Input
2.57
1.89
Education
4.49
2.63
Quality Adjusted Labor Input
4.87
3.23
Non-Residential Capital
7.72
7.73
Labor Productivity
1.78
5.85
-3.09
0.11
5.02
5.73
-1.37
2.95
2.60
14.42
Capital Productivity
Capital per Person Engaged
Total Factor Productivity
Export Volume
25
 The above table provides a set of
simplified growth accounts for the two
major phases of Chinese growth: 195278 and 1978-2003.
 In both periods there were substantial
advances in educational levels which
improved the quality of the labor force.
 International experience
26
C. Structural Change
 There were massive structural changes in
China between 1978 and 2008.
 Agricultural output and employment grew
much slowly than the rest of economy.
 The most dynamic sector was industry whose
share of GDP rose to 52 per cent.
 The service shares of GDP and employment
grew substantially.
27
Indicators of Sectoral Growth Rates,
GDP and Employment
1952-78
1978-2003
Change
Agriculture
2.20
4.52
2.32
Industry & Construction
9.76
9.76
0.00
Tertiary
4.18
7.60
3.42
Whole economy
4.39
7.85
3.46
Agriculture
2.02
0.51
-1.51
Industry & Construction
5.84
2.83
-3.01
Tertiary
3.20
3.65
0.45
Total employment
2.57
1.89
-0.68
GDP
Employment
28
 The industry made a great contribution to
China’s economy progress.
 The growth rate of industry was 11.1% in 2004.
 How to understand the lower growth rate of
service sector that was taken place in the last
decade?
 Is it sustainable for China’s economy growth?
29
Labor Productivity, Growth Rates
Labor Productivity
1952-78 1978-2003 Change
Agriculture
0.17
3.99
3.82
Industry & Construction
3.70
6.74
3.04
Tertiary
0.96
3.82
2.85
Aggregate Labor Productivity
1.78
5.85
4.07
30
 The large inter-sectoral differences in
labor productivity levels and growth are
due in substantial degree to differences
in the sectoral distribution of physical
capital and education.
 These elements of causality are already
embodied in the aggregate growth
accounts.
31
Discussion
 Structural changes generally reflect two basic
forces which are operative in all countries as
they reach successively higher levels of real
income and productivity.
 The first of these is the elasticity of demand for
particular products.
 The second basic force has been the
differential pace of technological advances
between sectors.
 Both these forces have been operative in China.
32
E. Performance in Rural Sector
 Agriculture
 Rural activity outside agriculture
33
Rural/Urban Distribution of
Population and Employment, million
Rural
Populati
on
Urban
Populati
on
Agricult
ural
Employ
ment
Urban
Employ
ment
Total
Employ
ment
1952
503.19
71.63
173.17
9.50
24.62
207.29
1978
790.14 172.45
283.73
31.50
86.28
401.52
1987
816.26 276.74
308.70
81.30
137.83 527.83
2005
745.44 562.12
318.56
166.30
273.31 758.25
Rural NonAgricultural
Employme
nt
34
F. Industry Policy and Performance
 Rapid industrialization was the top priority for
the new China.
 It was expected to provide the flow of
materials and machinery to raise the rate of
investment and provide the hardware which
would guarantee military security.
 Industry has been much more heavily
capitalized than most other parts of the
economy.
35
 Until 1978, industry was tightly
controlled and investment fully funded
by government.
 In the reform period since 1978,
government has operated with much
looser rein.
 ……
36
Industrial Competition
 After 1978, competition fro state firms came
from the huge growth of output in low-cost,
low-wage township, village and individual
enterprises in rural areas, from rapid expansion
in the tax-favored special enterprise zones in
coastal areas and from imports which rose
from US$11 billion in 1978 to US$660 billion in
2005.
 Between 1978 and 2003, industrial labor
productivity rose by 6.5 per cent a year.
37
The Service Sector
 Since 1978 retail trade and restaurant activity
has been almost completely liberated and the
ownership structure has reverted to what it
was in 1952.
 After 1978, when the service sector was
released from official constraints, it grew very
fast. The barriers to entry were small.
38
G. The Transformation of Relations
with the Outside World
 Foreign trade was a state monopoly and was
heavily concentrated on imports of capital
goods and technology.
 The new political leadership which emerged
after the mid-1970s decided to abandon the
previous policies of autarkic self-reliance and
open the economy to the benefits several other
Asian countries had derived from an expanding
world economy.
 A major element in the new policy stance was
the creation of special economic zones.
39
 Chinese export volume doubled from
1952 to 1978 and rose 28-fold from
1978 to 2003.
 In 2003 China’s exports were 8 percent
of the world total, a substantial rise on
the 1978 situation when their share was
0.8 per cent.
40
Volume of Merchandise Exports,
annual average compound growth rates
China
Japan
South Korea
Germany
United Kingdom
United States
1952-78
2.6
13.2
26.1
10.0
4.6
5.2
1978-2003
14.3
4.1
11.2
4.8
3.1
5.9
41
Value of Merchandise Exports,
Constant prices, million 1990 dollars
China
Japan
South Korea
Germany
UK
USA
1952
8063
4163
51
20411
45597
51222
1978
16076
147999
21146
241885
148487
190915
2003
453734
402861
299578
785035
321021
801784
42
Trade
 In the 1950s, China’s exports were
concentrated on food, raw materials and
textiles.
 By 2005 the structure of exports was highly
diversified, with 86 per cent consisting of a
range of manufactures.
 Its import structure has also diversified.
 The geographic distribution of trade has been
highly diversified since 1978.
43
FDI
 In 1978 China had no foreign debt and virtually
no foreign direct investment.
 The annual inflow of direct foreign investment
rose from $3.5 billion in 1990 to $60 billion in
2003.
 The total inflow from 1979 to 2005 was more
than $620 billion.
44
Important Issues
in International Activity
 Should large and powerful multinational
corporations be encouraged to invest in the
developing economies, and if so, under what
conditions? How have the emergence of the
“global factory” and the globalization of trade
and finance influenced international economic
relations?
 Are free markets and economic privatization
the answer to development problems, or do
developing country governments still have
major roles to play in their economies?
45
H. Macro-management and the Changing
of Fiscal and Monetary Policy
 Size and structure of government revenue and
expenditure.
 The explosive growth of household savings and
the rapid monetisation of the economy were
the most important elements preventing a
financial crisis.
 In 1978 the money supply was less than a
third of GDP, but by 2005 it was bigger than
GDP.
 Since 1978, the government has created a
much more complex banking structure.
46
Part Two
China and Development Economics
 How does China fit into the received
views of development economics?
1. Economic Development in Theory
2. China’s comparative economic
performance: a quantitative look.
47
1. Economic Development in Theory
 What is the real meaning of
development, and how can different
economic concepts and theories
contribute to a better understanding of
the development process in China?
 What are the sources of national and
international economic growth? Who
benefits from such growth and why?
48
 What can be learned from the historical
record of economic progress in the now
developed world? Are the initial conditions
similar or different for contemporary
developing countries from what the
developed countries faced on the eve of
their industrialization?
 Why do people continue to migrate to the
cities from rural areas even though their
chances of finding a job are very slim?
49
Some Specificities in China
 As 65% of China’s populations still reside in
rural areas, how can agricultural and rural
development best be promoted?
 Does China educational system really
promote economic development, or is it
simply a mechanism to enable certain
select groups or classes of people to
maintain positions of wealth, power, and
influence?
50
Economic Development
 The development is both a physical reality and
a state of mind in which society has, through
some combination of social, economic, and
institutional processes, secured the means for
obtaining a better life.
 Three Objectives of Development
51
 To increase the availability and widen the
distribution of basic life –sustaining goods
such as food, shelter, health, and protection.
 To raise levels of living including, in addition
to higher incomes, the provision of move
jobs, better education, and greater
attention to cultural and humanistic values,
all of which will serve not only to enhance
material well-being but also to generate
greater individual and national self-esteem.
52
 To expand the range of economic and
social choices available to individuals
and nations by freeing them from
servitude and dependence not only in
relation to other people and nationstates but also to the forces of
ignorance and human misery.
53
2. China’s Comparative Economic
Performance: A Quantitative Look
A.
B.
C.
D.
E.
Demography
Savings rate
Discussion on education
Income distribution
Rural industrialization
54
Demography
 The population growth rates fro China are now
estimated at 0.6 percent a year, approaching
those of high-income countries.
 China displays considerable geographic
variation in population growth among
provinces, but the highest rates are only about
1.1 percent and the lowest close to zero.
 High male-to-female ratio;
 Life expectancy
55
Demographic Variables
China
India
Low
Middle High
Population, billions
1.296
1.08
Population growth,
annual,%
0.6
1.4
1.8
0.9
0.7
Infant mortality, per
1000 live births
26.0
61.6
79.5
30.9
6.1
Life expectancy at birth
71.4
63.4
58.8
70.0
78.7
Males per 100 females,
ages 0-4
120
107
56
Change of Population
人口变化
140000
0.018
0.016
120000
0.014
100000
0.012
0.01
80000
0.008
60000
0.006
40000
0.004
20000
0.002
0
0
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
增长率
人口总数（万人）
57
B. Savings Rate
 China has achieved high savings rates at much
lower levels of per capita income, and
regardless of income levels.
 Like other transition economies, the
composition of savings has undergoing
significant change.
 What is particularly interesting is the
composition of China’s savings and the
differences between income and consumption
versus asset accumulation of households.
58
C. Discussion on Education
 World Bank studies often report that China
spends too little on education compared to
other countries.
 The most common measure of education
spending is the GDP share of educational
expenditures. 2.2 percent for China in 1998.
 Actually, China population looks well educated
in comparison with other developing countries.
 China’s education improvement is especially
evident in the spread of secondary schooling
and university levels.
59
D. Income Distribution
 Regional income differences: coast versus
inland regions.
 Urban-rural income differences: without
migrants, China’s urban-to-rural income ratio is
now at about 3.3, and with migrants, the ratio
declines to about 3.0. Both these ratios are
high by international standards.
60
Hukou,
Household Registration System
 While geographic differences in incomes are
universal, in China these differences seem
relatively large.
 This raises the question of why this is the case,
and what can be done about it.
 China’s hukou system and related policies that
continue to hinder rural-to-urban movement
are the most obvious explanation.
 What can governments do about geographic
income differences?
61
Household Distribution of Income
 The well-known Kuznets (1955)”inverted U”
hypothesis that inequality will first rise and
then fall as countries develop has been the
subject of many theoretical and empirical
studies.
 In the early 1980s China was considered one of
the more equal countries in the world, with
Gini coefficient of less than 0.35. By the 2000,
after more than a decade of rapid growth,
China’s Gini had risen to about 0.45. This Gini
coefficient reflects a level of inequality in the
mid to high range compared to other countries.
62
 In China’s most developed eastern region,
inequality initially increased, but then stabilized
and now is declining.
 The East has consistently been on the forefront
of China’s economic reforms and development.
If other regions follow suit, then the recent rise
in inequality need not be a cause for long-run
concern.
63
Regional GDP per capita
人均GDP
50000
45000
40000
35000
30000
25000
20000
15000
10000
5000
0
1978
1980
1982
1984
1986
1988
上海人均GDP
1990
1992
河南人均GDP
1994
1996
1998
2000
2002
四川人均GDP
64
Rural and Urban Cases
 The rural Gini went from 0.24 to 0.36 and the
urban from 0.18 to o.33, and across-the board
increase in inequality.
 While inequality in China has risen, poverty has
declined.
 China’s poverty headcount at $1 per day has
fallen from 64 to 17 percent between 1981 and
2001.
65
Income Gap between Urban & Rural
Areas
城乡差别
16000
14000
12000
10000
8000
6000
4000
2000
上海城市居民收入
河南农村居民收入
上海农村居民收入
四川城市居民收入
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
河南城市居民收入
四川农村居民收入
66
E. Rural Industrialization
 Economists have long recognized the potential
ole of rural industry in the development
process.
 Rural industry, because of its geographical
location and reliance on labor-intensive
technologies, can generate employment for
underemployed rural workers, increase rural
incomes, promote balanced and equitable
growth, and provide an alternative to overurbanization, with its attendant problems of
congestion and dislocation.
67
The Role of Rural Industry
 Rural industry in China is generally equated
with township and village enterprises (TVEs).
As defined here, China’s TVEs are businesses
located in townships and villages that are
owned collectively or privately, mainly by rural
units and individuals.
 They include collectively owned township and
village enterprises, joint venture enterprises
with significant local owners, and household
businesses.
68
 The pattern of TVE ownership has evolved over
time. Initially, collective ownership was
dominant, but since the 1990s expansion of
private TVEs has been rapid, and many
collective TVEs have converted to private
ownership.
 TVEs operate in all sectors but are
overwhelmingly in industry, albeit with a
significant presence in the service sector.
69
 China’s TVE sector has indeed contributed
significantly to China’s overall growth and has
generated both employment and income for
the rural population.
 The share of TVE net value added in China’s
total GDP has increased from only 6 percent in
the early 1980s to more than 30 percent.
 Employment in the TVE sector has shown
similar, rapid growth. Between 1980 and 2002,
TVE’s share of rural employment rose from 9 to
27 percent.
70
Explaining the Rise of China’s Rural
Industry
 What factors explain the growth of China’s
rural enterprises, and to what extent are they
particular to China?
 Can we compare China’s factors for rural
industry with other developing countries?
71
The Key to the Success of Rural
Industry
 The availability of cheap rural labor;
 The decentralization of production through
subcontracts with urban enterprises and
traders. Subcontracting is important because it
provides access to capital funds, technology,
and markets, which are often inaccessible to
small-scale rural entrepreneurs. It requires to
depend on public investments in roads,
communications and other infrastructure.
 The presence of rational contracting,
maintained by personal ties, mutual trust and
community obligations……
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 Local governments at the township and village
levels were key to the initial success of TVEs.
 Private entrepreneurs often sought
bureaucratic sponsors and registered their
businesses as collective firms. This
phenomenon was as common that it gave rise
to the phase “wearing the red cap.”
 Some of these institutional factors have since
changed.
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Lessons from the Chinese
Experience
 The factors underlying growth in China’s rural
industry can be found in other economies.
 China’s experience has important ways,
reflecting the evolution of institutions in the
process of economic transition. Thus, China
does not provide a model that can be easily
transferred elsewhere.
 Will China’s rural industry eventually decline?
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Part Three: Conclusions
 Development economics is a district yet very important
extension of both traditional economics and political
economy.
 It is concerned with efficient resource allocation and the
steady growth of aggregate output overtime both
developed and developing countries.
 The world economy will be prosperous in the coming
years, which provides many opportunities for developing
country to increase their exports.
 China will continue to experience the high growth rate
and expand its industrial capacity.
 China is facing many challenges and issues, which may
be turned into the opportunities for development.
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 Thank You!
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