China's economic

Enter the Dragon? Enter the Dragon? China’s Economic RiseChina’s Economic Rise

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Enter the Dragon?China’s Economic RiseEnter the Dragon?China’s Economic Rise

Let’s begin our examination of

China by looking at some basic economic

facts and figures

Let’s begin our examination of

China by looking at some basic economic

facts and figures


These tables show China’s overall GDP in both nominal and PPP terms compared to other major economies

These tables show China’s overall GDP in both nominal and PPP terms compared to other major economies

International Comparison: Real GDP Growth


GDP – real growth rate:

9.8% (2008) country comparison to the world:13% (2007)11.6% (2006)

GDP-Per capital (PPP-Purchasing power parity):

$6,000 (2008)country comparison to the world:$5,500 (2007)$4,900 (2006)note: data are in 2008 US dollars

GDP – composition by sector:

agriculture: 10.6%industry: 49.2%services: 40.2% (2008)

China – Economic Fact SheetChina – Economic Fact Sheet

Education system Education system

Growth rate-India@17%, China@13%

Primary, secondary education, vocational education trainning in china results in 99.1% literacy rate.Where as in India it is 50 to 60 %

Adult literacy India -61% China-91%

Expenditure on education India- 10.7% China -12.8%

But coming to quality education India is far more better than china


China’s economic growth (est. only) 1980

1996

2000

Why is China Growing So Fast? How does the IMF(International Monetary Fund)

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 (whenthe era of rapid growth began)?

Continued…

“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”


China’s economic growth 1980

1996

2000

Continued…

“[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%”

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%”

What’s the significance of this conclusion by the IMF Research Team?

What’s the significance of this conclusion by the IMF Research Team?

Continued…Continued…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

2000

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?


DiscussDiscuss

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 …


Comparing India and China’s Growth Stories


Indicators India ChinaPolitical System

Multi-party Democracy

One-party authoritarian rule

Speed of Growth

Economic reforms started in 1991. Average 6% growth rate in past two decades.

Economic reforms started in 1978. Average 9.5% growth rate in past two decades.

Areas of Specialization

Rising power in software, design, services, and precision industry.

Dominant in mass manufacturing, electronics and heavy industrial plants



Indicators India ChinaGini index (standard measure of inequality)

36.8

47.0 (up 10 points from 15

yrs ago)

Foreign Direct Investment

6.8% (up from 0.3% in 2004)

17.8%

Future Areas of growth

R&D, bio-technology, high-value IT enabled services (legal, medical, engineering architecture), manufacturing, agro-based industry

IT business, services and continued manufacturing

“GDP Growth 2000 to 2050”

“GDP Growth 2000 to 2050”

Source: Goldmann Sachs: The Path to 2050

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

[2003 bn US Dollars]

GermanyBrazil

JapanRussia

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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 its developmental state


Q: Why has China been able build a developmental state while other countries

“liberalize”?

Q: Why has China been able build a developmental state while other countries

“liberalize”?

Elements of the East Asian Model in ChinaThe 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 state-owned 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”


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

PetroChina is now the world’s BIGGEST company, worth about $1 trillion--more than twice the value of Exxon Mobil


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



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-specificpolicies


What effect do organizations such as the WTO have on newly industrialization

economies today?

What effect do organizations such as the WTO have on newly industrialization

economies today?


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


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

GrowthThis 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 for productivity increases

China's economic

Environment

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