WHAT IS “CHINA MODEL”? - FGV/EPGEepge.fgv.br/chinaconference/docs/what-is-china-model.pdf ·...
Transcript of WHAT IS “CHINA MODEL”? - FGV/EPGEepge.fgv.br/chinaconference/docs/what-is-china-model.pdf ·...
WHAT IS “CHINA MODEL”?
MIT Sloan
School of Management
Yasheng Huang
Professor
MIT Sloan School of Management
Founder
China Lab and India Lab
1
AGENDA
What is China Model?
– Beijing Consensus: State capitalism
– Gradualism: Gradual reforms but acceleration over time
– Reversal story: Substantial reforms but followed by reversals
Major challenges
– State capitalism and consumption decline
– Rebalancing Chinese economy
– Personal income, not GDP growth
– Prospects
– Can urbanization contribute to rebalancing?
— Effect of rebalancing on energy demand from China
2
IS CHINA MIRACLE DUE TO STATE
CAPITALISM?
Microeconomic studies contradict this claim
Case study: Zhejiang
Wenzhou model: Capitalism and financial liberalization
Middle of the country in per capita income in late 1970s
Now the richest (outside Beijing, Shanghai and Tianjin)
Higher asset income
Higher personal income/GDP ratio
Business innovations: Alibaba.com, Wanxiang, Wahaha
TFP studies:
TFP growth of private sector outpaced that of state sector
3
BUT STRONG FEATURES OF STATE
CAPITALISM
No democracy
Top-down political controls
– Tightening rather than loosening
– 1980s vis-à-vis 1990s
Funding bias:
– 90% of the stimulus program went to SOEs
– 80% of bank loans to SOEs with 20% of
employment
National champions are overwhelmingly state-
owned
4
A CHINA-INDIA COMPARISON
Boston Consulting Group: “The 2009 100 BCG
New Global Challengers”
– Research on emerging firms based in developing
economies
Of 100 firms selected:
– China: 38
– India: 19
5
THE CHINA-INDIA DIVIDE
The biggest difference between China
and India: India’s growth is far more
driven by private sector.
6
STATE CAPITALISM IS NOT A
CONSTANT
Relatively liberal phase: 1980s
Fast personal income and consumption growth
No mercantilism: Fast GDP growth with an overvalued
exchange rate and trade deficit in several years
Some initial improvement in income distribution
Reversal: 1990s
Intensification and entrenchment of state capitalism:
Since late 1990s
7
THE TRUE CHINA MIRACLE
How did China miracle begin?
Getting the political economy right
Financial liberalization
Reversal of policies in the 1990s
8
POLITICAL ECONOMY PUZZLE
Vibrant rural entrepreneurship but why did rural
entrepreneurs trust the Chinese state?
Many landlords were executed in the 1950s
Cultural Revolution (1966-1976): “Nasty, brutish and
long”
Capricious politics: The Chinese prisoner’s dilemma
Policy credibility hinges on constraints on rulers
Academic literature (Weingast, North, Acemoglu and
Johnson, and many others)
Is China different?
CHINESE POLITICS IN THE 1980S
Statics vis-à-vis dynamics in Chinese politics:
Statics: China is/was not a democracy
Dynamics: A substantial move away from the status quo
ante of the Cultural Revolution
Entrepreneurs’ incentive depends
Not on a convergence with the best-practice political
institutions
But on a dynamic movement toward convergence with
these institutions
THE DENG XIAOPING EFFECT
Final puzzle: How did rural entrepreneurs know that
politics had changed?
Tens, even hundreds of millions of them
Uncoordinated actions
Lack of information and transparency
The Deng Xiaoping effect: Observability of
policy/political changes
Deng was observably different from Mao.
THE DENG XIAOPING EFFECT
Deng Xiaoping:
Purged three times by Mao
Deaf ear to Mao
His son was crippled by Mao’s red guards
These Deng attributes: Widely known and cognitively
easy to interpret
Implications:
The signaling was unambiguous
More policy credibility than implied by political changes
alone
CHINA WAS NOT LIBERAL; IT WAS
DIRECTIONALLY LIBERAL
Directional liberalism of the 1980s
(All discontinued after 1989)
Substantial media freedom in the early 1980s (by
Chinese standard)
Village elections introduced
Recruiting capitalists into the Party (1981)
Returning confiscated properties to former capitalists
(1979)
Timing matters: The political effects were exogenous
to, not endogenous of, growth.
FINANCIAL LIBERALIZATION AND
REVERSAL15
16
FINANCIAL REVERSAL
DEFINITIONS AND MEASUREMENTS
Rajan and Zingales (2003) Financial development: the ease with which any
entrepreneur or company with a sound project can obtain finance, and the confidence with which investors anticipate an adequate return;
Motive of reversal: an interest group theory where incumbents oppose financial development to deter competition;
Measurements: size of financial system -- Bank deposit/GDP, equity market capitalization, # of listed firms/population, equity issuance/fixed capital formation.
MIT, March 9 2011
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KEY RESULTS (QIAN AND HUANG
2011)
We document a financial reversal that occurred during the early 1990s in rural China.
There were liberal financial policies in the 1980s to encourage market operation and competition, but tight government controls in the 1990s.
As a result, there was a sharp curtailment of credit flows to the rural population and reduced financial resources to fund the nonfarm business operations run by Chinese rural entrepreneurs.
Little support for the view that emphasizes endogenous determinants such as formal/informal loan substitution, labor migration etc
Reversal was due to deliberate policy.
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EVIDENCE FROM BANK
DOCUMENTS
A1: Documentary evidence of financial liberalization during 1980s and reversal during 1990s in rural China.
Features of the financial system 1980s 1990s
Credit rationing of private enterprises
No Yes
Interest rate regulation More flexibility in rate determination
Controlled interested rate
Collateral, guarantee Qualification based Mandated Loan decisions Decentralized Centralized Loan officers Local and elected by members Appointed by top managers Government intervention Give control rights back to
shareholders Put under supervision of local government again
Entry barrier Deregulated, competition from nongovernmental capital is encouraged
Competition is repressed. Informal financing institutions were designated illegal and cracked down upon
Sources: People’s Bank of China (1999, 2001); Agricultural Bank of China (1984, 1985, 1986, 1988a, 1988b,1992a, 1992b,1994, 1995, 1998); State Council (1994, 1996, 1998); China Finance Association (1986, 1997, 2000 ); Chen Muhua (1987); Dai Xianglong (1997); Shi Jiliang (1999); Rural Work Leadership Team of Fujian Communist Party Committee (1997); Editorial Committee of Wenzhou Financial History (1995).
Han Lei, President of the ABC, July 20, 1984
“Rural areas need state-owned banks and credit
cooperatives for finance but at the same time, under
bank supervision, we need to allow the existence of
private (私人) free lending and borrowing.”
Chen Muhua, Governor of PBoC (1987):
“Non-governmental (民间) capital mobilization and
non-governmental rural cooperatives have emerged.
The various methods of financial mobilization have
made a positive contribution to local economic
development.”
19
FINANCIAL LIBERALIZATION IN THE 1980S
Surveys and research in the 1980s:
Average of six surveys of private firms (1987): 41%
received banks loans (Highest=66% in Shaanxi)
World Bank TVE study (1990): Private firms in Tianjin
financing 39-44% of investments with bank loans.
William Byrd: “Banking institutions already see well-
established private enterprises as solid borrowers.”
20
SUBSTANTIAL CREDIT ACCESS IN THE
1980S
THE GREAT REVERSAL
• Chen Muhua (1986):
• Under the banking regulations, individuals are not allowed to engage in financial operations. The emergence of private (私人) credit shows that our financial work falls short of what is needed. This requires that our credit cooperatives and agricultural banks improve their services.
State Council (1998):
Those funds, mutual assistance associations, savings associations, capital service departments, share capital service departments, fund clearing centers, and investment companies established prior to this order and operating above the state law should be restructured with a deadline according to the regulations of the State Council. Those entities that operate after the deadline and continue to engage in illegal financing should be stamped out according to this order. Those with serious violations of a criminal nature should be held accountable for their legal responsibilities.
21
MIT, March 9 2011
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THE SURVEY
A fixed-site rural household survey (FSRHS), conducted by China’s Ministry of Agriculture;
Implemented annually from 1986 to 1991; once in 1993, and again annually from 1995 to 2002.
Nationwide, 300 to 400 villages, stratified by socioeconomic development level and geography, were sampled each year, 20 to 120 households from each village were selected randomly.
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THE SAMPLE
Limiting to the six province data may in fact operate against our hypotheses – i.e., underestimate the degree of the 1990s’ financial reversal.
Two out of the six are among the most developed provinces
Sample average income level is higher than national average, so is the access to bank loans, particularly so in 1990s. (National average values for certain variables are published by the Central Committee, Policy Research Office and the Ministry of Agriculture 2000).
Using the over 100 reconciliation equations to check the quality/consistency of the survey answers.
Our final sample includes 34,571 household* year for the 1986–1991 survey and 32,460 for the 1995–2002 surveys.
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ACCESS TO FINANCE
Figure 1A: % of households receiving formal or informal loans in the two periods.
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
% of households receiving
Bank or RCC loans
% of households receiving
informal loans
% of households receiving
bank, RCC, or informal
Loans
Access to Finance
1986-1991 Survey
1995-2002 Survey
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Baseline result
-- a sharp drop in households’ access to bank loan in the 90s.
Table 3: Baseline results for reduction of credit access as evidence of financial reversal
(1) (2) (3) (4) (5) (6)
Y: Dummy that equals one if loans are obtained from banks or RCCs
Y: log (value of the loan obtained from banks or RCCs)
Y: log (deflated value of the loan obtained from banks or RCCs
Reversal measure
Dummy (1995–2002 period) -1.96** -3.21** -9.30** -13.43** -1.75** -2.30**
[0.45] [0.86] [1.62] [3.40] [0.09] [0.19]
Economic variables
Log(cultivated land) 0.46** 0.52** 2.20** 2.76** 0.15** 0.32**
[0.02] [0.03] [0.12] [0.14] [0.01] [0.01]
Log(number of working 0.27** 0.23** 1.22** 1.06** 0.10** 0.14**
household members) [0.04] [0.05] [0.21] [0.24] [0.02] [0.02]
Investment needs
Log(fixed assets investment) 0.12** 0.12** 0.66** 0.62** 0.09** 0.10**
[0.01] [0.01] [0.03] [0.04] [0.00] [0.00]
Internal and external funding capacity
Log(net household income) -0.42** -0.45** -1.78** -1.90** -0.10** -0.18**
[0.02] [0.03] [0.11] [0.14] [0.01] [0.01]
Log(remittance received) -0.02 -0.02 -0.1 -0.09 -0.01** -0.01
[0.01] [0.01] [0.05] [0.06] [0.00] [0.01]
Education 0.15** 0.11** 0.79** 0.55** 0.08** 0.06**
[0.02] [0.02] [0.09] [0.11] [0.01] [0.01]
Control variables structural changes in the second sample period; Fixed effects: Year, Province, Subsidized family Production category
Observations 66,579 66,579 66,579 66,579 66,579 66,579
Pseudo R2 0.15 0.15 0.08 0.08 0.06 0.06
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Informal loan and household financial assets --- Is the decrease of formal loan due to substitution of informal loan or
households’ increased financial strength?
Table 5: Formal, informal loan and financial strength of the households
(1) (2) (3) (4) (5) (6)
Access to formal credit (banks and RCCs)
Access to informal credit
Access dummy
Log (amount)
Log (deflated amount)
Access dummy
Log (amount)
Log (deflated amount)
Dummy (1995–2002 period) -2.04** -8.26** -1.41** -0.85** -3.02** -1.76**
[0.36] [1.75] [0.11] [0.24] [1.10] [0.17]
Log(amount of 0.18** 0.89** 0.14**
informal loan) [0.01] [0.03] [0.00]
Log(financial assets) -0.05** -0.25** -0.02** -0.25** -1.24** -0.28**
[0.01] [0.05] [0.01] [0.01] [0.04] [0.01]
Dummy (1995–2002 period) * 0.03** 0.14** 0.039**
Log(informal loan amount) [0.01] [0.05] [0.01]
Dummy (1995–2002 period) * -0.01 -0.06 0.01* 0.05** 0.18** 0.11**
Log(financial assets) [0.01] [0.07] [0.01] [0.01] [0.05] [0.01] Other controls (economic, investment, funding capacity) Structural changes in the second sample period Fixed effects: Year, Province, Subsidized family Production category
Observations 66,516 66,516 66,516 66,516 66,516 66,516
0.20 0.11 0.07 0.12 0.21 0.15
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Total loan balance
-- Does the loan decrease because of a high amount of
cumulated remaining balance?
Table 4: Evidence of reversal in the total loan balance
(1) (2) (3) (4)
Remaining balance on formal loans
Remaining balance on total loans
Log (amount)
Log (deflated amount)
Log ( amount)
Log (deflated amount)
Reversal measure Dummy (1995–2002 period) -10.76** -9.30** -1.95** -4.07**
[1.82] [0.72] [0.12] [0.16]
Informal credits and internal financial strength
Log(amount of 0.60** 1.19** 0.10** 0.63**
informal loan) [0.03] [0.01] [0.00] [0.00]
Log(financial assets) -0.69** -0.87** -0.11** -0.36**
[0.05] [0.02] [0.01] [0.01]
Dummy (1995–2002 period) * 0.33** 0.56** -0.02** 0.16**
Log(informal loan amount) [0.05] [0.02] [0.01] [0.01]
Dummy (1995–2002 period) * 0.20** 0.42** 0.10** 0.28**
Log(financial assets) [0.07] [0.03] [0.01] [0.01] Other controls (economic, investment, funding capacity) Structural changes in the second sample period Fixed effects: Year, Province, Subsidized family Production category
Observations 66516 66516 66516 66516
Pseudo R2 0.11 0.18 0.07 0.14
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Interest payment
-- was the cost of loans higher in 90s than in 80s?
Table 6: Robustness check for interest payment
Observation # Mean of interest payment rate Difference
t-test of difference
1st period
Bank and RCC loans only 2,281 5.43%
Informal loans only 5,967 1.63%
Both types of loans 2,288 2.43%
All observations 10,536 2.63%
2nd period
Bank and RCC loans only 643 5.66% 0.22% 0.26
Informal loans only 2,899 1.03% -0.60% -1.38
Both types of loans 503 1.77% -0.65% -0.93
All observations 4,045 1.86% -0.77% -2.23
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Is the reversal due to bad loan performance in the in
the 1980s?
Historical bank performance data
We hand collect historical data on bank lending activities and loan
performance (the Agricultural Bank of China’s Statistical Yearbook 1979–
2008 and the China Finance Associations’ Almanac of China’s Finance and
Banking 1985–2004).
Balance sheet information, annual transaction flows at the province level,
including new loans, pay back rate, and new loans classified by borrower
type, etc for both the Agricultural Bank of China’s (ABC) and the Rural
Credit Cooperatives (RCCs).
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Bank activitiesBank performance and growth in lending activities during the 1980s and 1990s
Panel A: Payback rate of loans Variable (rate in %) 1986–1991 1995–2002 t-statistics of difference
Loan payback rate in RCCs 81.65 84.09 -1.46 Loan payback rate in ABC 91.71 84.58 5.41 TVE loans/total loans from ABC 0.87% 1.26% -1.53 Agriculture loans/total loans from ABC 1.20% 4.13% -4.33
Panel B: The growth rate of various type of loans, deposits, and organizations Variable (average growth rate in %) 1986–1991 1995–2002 t-statistics of difference
RCC total loans 33.52 16.23 5.28 RCC new loans 474.03 RCC total deposits 30.24 18.63 2.89 RCC new deposits 85.87 ABC total loans 12.41 18.98 -0.59 ABC new loans 31.89 6.02 3.29 ABC new loans to TVE -260.66 -4.02 -0.95 ABC total agriculture loans 20.85 -4.85 4.47 ABC new agriculture loans 47.89 -19.10 1.64 ABC # of institutions -3.73 ABC # of employees 21.53
MIT, March 9 2011
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Bank performance
Figure 5B: Agricultural Bank of China: Equity net worth
MIT, March 9 2011
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-- Reduction of loan follows good performance.
-- Reversal is worse in provinces that had performed better in the
1st period.
Table 11: Bank loan and bank performance
(1) (2) (3) (4) (5) (6)
Y: A dummy that equals one if loans are accessed from banks or RCCs
Y: log (value of the loan obtained from banks or RCCs)
Bank performance lag 1 year -0.47** -0.56** -0.60** -2.48** -2.85** -3.06** [0.14] [0.15] [0.15] [0.69] [0.71] [0.71] Bank performance forward 1 year 1.54** 1.74** 6.26* 7.44** [0.57] [0.58] [2.54] [2.56] Dummy (1995–2002 period) -3.12** -2.98** -2.79** -13.16** -12.29** -11.19** [0.80] [0.80] [0.80] [3.45] [3.44] [3.46] Better performing provinces 1986-1991 -0.23** -1.33** * Dummy (1995–2002 period) [0.08] [0.38] Economic controls YES YES YES YES YES YES
Structural changes in the controls YES YES YES YES YES YES
Various fixed effects YES YES YES YES YES YES
Constant 0.79** -0.52 -0.67 0.07 -5.21* -0.67 [0.27] [0.55] [0.56] [1.26] [2.47] [0.56] Observations 64,199 62,741 62,741 64,199 62,741 62,741 Pseudo R2 0.16 0.16 0.16 0.08 0.08 0.16
MIT, March 9 2011
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Patterns consistent with with policy changes:
-- sectoral priority, party/government control, and mandatory
collateral requirements
Table 13: Explaining reversal by policy change indicators: political status, sectoral priority, and collateral requirement changes
Access to formal credit (banks and RCCs)
Access to informal credit
Access dummy
Log (amount)
Log (deflated amount)
Access dummy
Log (amount)
Log (deflated amount)
Log(durable goods) -0.28** -1.36** -0.16** -0.02 0.07 0.08**
[0.03] [0.14] [0.01] [0.02] [0.11] [0.02]
Dummy (1995–2002 period) * 0.16** 0.97** 0.16** 0.09** 0.38* 0.02
Log(durable goods) [0.05] [0.23] [0.02] [0.03] [0.16] [0.03]
Days worked on nonfarm business 0.17** 0.91** 0.17** 0.07** 0.39** 0.08**
[0.02] [0.09] [0.01] [0.02] [0.09] [0.02]
Dummy (1995–2002 period) * -0.09** -0.48** -0.13** 0.00 -0.01 -0.01
Days worked on nonfarm business [0.03] [0.12] [0.01] [0.02] [0.11] [0.02]
Political status 0.02 0.12 0.02 -0.01 -0.07 -0.02
[0.05] [0.22] [0.02] [0.03] [0.18] [0.03]
Dummy (1995–2002 period) * 0.17* 0.74* 0.03 0.06 0.37 0.06
Political status [0.09] [0.41] [0.03] [0.06] [0.29] [0.05]
Dummy (1995-–2002 period) -1.89** -9.30** -1.36** -0.89** -3.40** -1.88**
[0.43] [2.49] [0.12] [0.27] [1.22] [0.18]
All other controls; Structural change in the controls; Various fixed effects
Observations 63,017 63,017 63,017 63,017 63,017 63,017
Pseudo R2 0.21 0.11 0.07 0.12 0.06 0.04
34
KEY RESULTS (QIAN AND HUANG
2011)
Rather than simply not having launched any financial reforms, China
actually reversed those were initiated;
The financial reversal was related to exogenous policy changes rather
than to endogenous economic or political economy determinants.
The financial reversal in the early 1990s mattered for credit access,
rural entrepreneurship, development of non state-owned financial
institutions, and rural income.
THE BIGGEST CHALLENGE:
CONSUMPTION DECLINE
35
PROBLEMS WITH STATE CAPITALISM
Two functions of state capitalism
– Able to build infrastructures rapidly
– Resource mobilization to target funding
Biggest problem with state capitalism:
– Low personal income growth (relative to GDP
growth)
– Huge and growing imbalances: Declining
consumption
36
37
THE GREAT CONSUMPTION COLLAPSE
0,0
10,0
20,0
30,0
40,0
50,0
60,0
China
Household final consumption expenditure % GDP. From World Bank’s WDI.
38
THE ROOTS OF GLOBAL IMBALANCES:
THE GREAT DIVERGENCE
0,0
10,0
20,0
30,0
40,0
50,0
60,0
70,0
80,0
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
20
05
20
06
20
07
20
08
20
09
China
United States
Household final consumption expenditure % GDP. From World Bank’s WDI
39
CHINA’S UNUSUAL CONSUMPTION
DECLINE
0,0
10,0
20,0
30,0
40,0
50,0
60,0
70,0
80,0
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
20
05
20
06
20
07
20
08
20
09
Brazil
China
South Africa
Household final consumption expenditure % GDP. From World Bank’s WDI.
40
IT IS NOT AN EAST ASIAN
PHENOMENON
0,0
10,0
20,0
30,0
40,0
50,0
60,0
70,0
China
Japan
Korea, Rep.
Household final consumption expenditure % GDP. From World Bank’s WDI.
41
CHINA AND INDIA: CONSUMPTION GAP
0,0
10,0
20,0
30,0
40,0
50,0
60,0
70,0
80,0
China
India
Household final consumption expenditure % GDP. From World Bank’s WDI.
HAS CHINA RELBANCED? 15% RETAILS GROWTH in 2009 and 18% in
2010
42
43
NO.
INSTITUTIONAL RETAIL CONSUMPTION
HAS RISEN SHARPLY
0%
5%
10%
15%
20%
25%
30%
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
% of institutional retail sales
44
45
HOUSEHOLD CONSUMPTION HAS
DECLINED FURTHER IN 2008 AND 2009
0,0
10,0
20,0
30,0
40,0
50,0
60,0
198019811982198319841985198619871988198919901991199219931994199519961997199819992000200120022003200420052006200720082009
China
Household final consumption expenditure % GDP. From World Bank’s WDI.
STABILIZING THE CONSUMPTION
SHARE OF GDP DURING THE
CRISIS PERIOD
46
THE KEY TO REBALANCING IS
PERSONAL INCOME, NOT GDP OR
SAVINGS RATE.
47
48
WHY DID CONSUMPTION DECLINE IN
CHINA?
Precautionary savings hypothesis:
– High and rising savings rate is the problem
– Measures to reduce the savings by 1) product
marketing and distribution and 2) social protection
Cautionary spending hypothesis
– Low income growth, not high savings rate
– Policy and institutional reforms to improvement
employment and income growth
NO EVIDENCE ON RISE OF SAVINGS
RATE
Rural income and consumption growth:
– 1980s and since 2003: Consumption growth matched
income growth
– 1990s: Income growth exceeded consumption growth but by
a slim margin
Zhou Xiaochuan (07/09, governor of China’s central
bank)
– No increase in household savings rate in recent years
No support for the pre-cautionary savings hypothesis
49
CAUTIONARY SPENDING HYPOTHESIS
Cautionary spending hypothesis:
– Low personal/household income growth relative
to GDP growth
– Low expectations of future income growth
The case of rural migrant workers
– Low consumption due to both precautionary
savings and cautionary spending
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51
GDP AND PERSONAL INCOME
DIVERGENCE
GDP AND HOUSEHOLD INCOME
GROWTH: 1978-200852
REAL RURAL CONSUMPTION GROWTH
(1978 PRICES)
53
DATA INCONSISTENCIES
National Bureau of Statistics data
– Moderate growth in the 1990s but still there was
growth
– Relative decline of income at the lowest income
group but absolute gains
Ministry of Agriculture household survey data:
– No income (nominal) gains from 1995 to 2000 at
the lowest quintile
54
Ministry of Agriculture data: No income (nominal) gains
from 1995 to 2000 at the lowest quintile
56
RURAL ECONOMY AND
URBANIZATION
WHY RURAL SECTOR MATTERS
Demand side:
– 721 million rural residents in 2008
– 230 million rural migrants (NBS 2009)
– There are many “rural cities” in China (contrast with India)
Supply side (=Entrepreneurship):
– Rural China is more entrepreneurial due to lack of social protection and less
political control
– Households=business units in rural China
– Households are unambiguously private
Global crisis:
– Huge supply effect of rural migrant workers but almost no consumption effect
– Policy discussions to revive rural entrepreneurship and rural finance
57
URBANIZATION AS THE KEY?
Most policy makers and economists believe
that urbanization is the key to the rural
development
But China’s urbanization is:
– Politically driven due to state ownership of land
– Instigating substantial social conflicts due to land
disputes
– Accompanied by a sharp consumption decline and
stagnant service sector
58
A VERY SMALL SERVICE SECTOR
59
60
URBANIZATION AND
PERSONAL INCOME:
SURVEY EVIDENCE
IS URBANIZATION A SOLUTION TO
IMBALANCE?
Features of Chinese urbanization
State ownership of land
No recognition of incumbency rights
Substantial institutional rigidities during fast
urbanization (such as Hukou system)
No evidence that urbanization has boosted
household consumption
61
URBANIZATION (CHINESE STYLE)
Agglomeration effects of market-based urbanization
Reduce transaction costs and lower the provision costs of
public goods.
Raise income and consumption: Middle class
Political urbanization
Geographic expansions
Government pricing of land transactions
62
SPATIAL MEASURE: URBAN AREA (市区)
0
500
1000
1500
2000
2500
1996 1997 1998 1999 2000 2001 2002 2003 2004
Size of urban area: KM2
Mean
Median
Standard deviation
SPATIAL MEASURE: CONSTRUCTED AREA (
城建区)
0
20
40
60
80
100
120
1996 1997 1998 1999 2000 2001 2002 2003
Completed construction area: KM2
Mean
Median
Standard deviation
65
CONSUMPTION DECLINED SHARPLY
AFTER 2000
0,0
10,0
20,0
30,0
40,0
50,0
60,0
China
Household final consumption expenditure % GDP. From World Bank’s WDI.
SURVEY EVIDENCE ON RURAL
MIGRANT WORKERS
4 waves of survey data
2006
2008
2009
2010
Key results:
One-time increase from rural to industrial reallocation
of labor
No or modest subsequent wage increase until 2005
Wage growth substantially lagged GDP growth
66
2009 SURVEY ON RURAL MIGRANTS IN
GUANGDONG
Wage growth is very recent
95% of respondents experienced first on-job wage
increase in 2005
53% of the sample migrated before 2000
Wage increase through job change: 3 times on average
10% wage growth between 2005 and 2008
A small decline in 2009: Survivor bias
Stagnant wage growth in the 1990s
German survey in Shenzhen (1993)
Real annual wage growth between 1993-2005: 1%
67
GUANGDONG’S GDP PER CAPITA
(DEFLATED BY CPI)
0
5000
10000
15000
20000
25000
30000
35000
40000
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Real GDP per capita
Real GDP per capita
68
GDP AND WAGE DATA IN
GUANGDONG (SURVEY DATA)
0
5000
10000
15000
20000
25000
30000
35000
40000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Real GDP per capita
Real annual starting wage
Rural migrant survey data from Zhongshan University
69
2009 SURVEY ON RURAL MIGRANTS IN
GUANGDONG
Consumption:
High savings rate:
40% (Urban: 20%)
But 47% with zero deposit balances
Very economical on food: 10 yuan per day
But substantial spending on children education: 1/3
spent on private education on children
2010 survey
Average electricity consumption: 70 kwhs
Median electricity consumption: 45 kwhs
70
2009 SURVEY ON RURAL MIGRANTS IN
GUANGDONG
Hukou system and precautionary savings
27% have expectations for a hukou change
#2 savings motivation: Build house and return to home
village
Exclusion of public goods
Barred from access to local public schools
Education of children ranked #1 savings motivation
71
2009 SURVEY ON RURAL MIGRANTS IN
GUANGDONG
Human capital trap
But almost no expenditure on skill training
No public investments in private schools for migrant
children
Substantial achievement gaps
Public/private school teacher pay: 5:1
Barred from college entrance examination in
Guangdong
Forced to return to and attend inferior high schools in
home provinces
72
REBALANCING CHINESE ECONOMY:
WHAT IS REQUIRED
Matching personal income growth with GDP
growth
Reforms, not government spending
– Land reforms
– Urban registration reform
– Social provisions
– Political reforms
73
ENERGY INTENSITY OF GDP
74
75
PER CAPITA ENERGY USE: CHINA AND
INDIA
0
200
400
600
800
1000
1200
1400
1600
19
71
19
72
19
73
19
74
19
75
19
76
19
77
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
20
05
20
06
20
07
China
India
ELECTRIC POWER CONSUMPTION
0,0
500,0
1000,0
1500,0
2000,0
2500,0
China
India
kWh per capita. World Bank’s WDI.
76
“CHINA EFFECT” ON ENERGY MARKET
China vis-à-vis India
– Energy consumption gap
between the two countries
dated to the 1970s
– Bigger GDP
– Faster growth
– More energy intensive
– Despite smaller share of
imported energy
Net import of energy use (World Bank WDI)
77
KEY FEATURES OF CHINESE ENERGY
CONSUMPTION
Acceleration of energy intensity since the 1998-
2001 period
– Not due to consumption boom
– But due to urbanization and intensification of state
capitalism
China’s energy use is dominated by
industry/commerce rather than by household
sector
– The household energy consumption only experienced
modest growth over time
78
% OF HOUSEHOLD ELECTRIC
CONSUMPTION PEAKED IN 2000
0,00%
2,00%
4,00%
6,00%
8,00%
10,00%
12,00%
14,00%
16,00%
1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
% Share of personal electricity consumption
National Bureau of Statistics, Statistical Yearbook,, 2009
79
PERSONAL ENERGY CONSUMPTION
SURGED VERY RECENTLY
0,0
50,0
100,0
150,0
200,0
250,0
1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Personal energy consumption
NBS data; kg coal equivalent
80
MODEST HOUSEHOLD ELECTRIC
CONSUMPTION
0,0
500,0
1000,0
1500,0
2000,0
2500,0
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
20
05
20
06
20
07
Personal electricityconsumption
Total electricityconsumption
NBS data; kWh per capita
81
WOULD CHINA’S ENERGY
DEMAND FALL SUBSTANTIALLY IF
CHINA SUCCEEDS IN
REBALANCING?
82
83
THANK YOU!