China & the World Economy Week 5: 1 & 2 - China's growth, past, present and future Flashcards
• China’s growth since 1990 in graphs • Key features of China’s recent growth • Policy to promote growth • Explaining China’s past growth using the Solow Model • Using Growth Accounting to explain China’s growth • China’s future growth (16 cards)
Describe & explain China’s GDP annual growth rate history from 1990
The Chinese government made a commitment in the 80s to growth. Hence, a large growth rate spike to 15-16% by 1992. Growth rate is remarkable even in developing countries. Then a slow, fluctuating drop to ~7% by 2000. There was then another surge in growth rates by 2001. This is because China joined the World Trade Organisation (WTO), and was a major focus on how China became critical in the global economy. Huge drop to 8% due to financial crisis in 2008. Followed by a spike, where global demand rose.
Describe China’s GDP % Share by primary, secondary and tertiary sector
The “primary” sector is agriculture & raw materials and played a smaller role in the economy - they weren’t declining, they were growing but not as fast as the rest of the economy. The secondary sector is manufacturing, the red line, it has been growing because its sectoral share grew. The tertiary sector has only increased in growth and importance.
Describe China’s GDP % Share by private vs non-private sector
What’s significant is that the public sector still plays a big part in China. But there’s also great growth in self-employment and private sector. Also, the state-owned sector did shrink significantly during the WTO event because it was the private sector that mainly benefitted from this
State & briefly describe the supply-side reforms which have promoted China’s growth
Supply-side reforms which have promoted growth:
- Labour markets
1. Migration (to Special Economic Zones and to large Cities and switching from agriculture to
manufacturing)
2. Technical development, skills and human capital (funding for Universities, supporting research
and development, encouraging better Schooling)
- Goods and services
1. Enhancing competitiveness (privatisation, management)
2. Market structures (removing price controls, WTO, SOE reform, FDI (foreign direct investment))
3. Innovation (Patents, New products)
- Financial and Capital markets
1. Some structural changes
Describe & explain which model is used to explain China’s growth
Describe & explain, using the appropriate model, the basic idea behind China’s growth as well as China’s inward FDI
- Looking at first graph, the aspects of Chinese growth that matters in the 90s is that China was highly underdeveloped but then grew to high capital stock and output per worker.
- Higher savings at point B compared to point A because income per worker has been increasing quite significantly
- The growth rate at the transition is much higher than the growth rate in the steady state because at the steady state, the transition has already occurred
- The 90s was all about China transitioning from A to B
- Looking at second graph, China joins WTO which brings in large scale FDI because China has cheap production so countries collaborate with China instead of more expensive countries. So savings in China increases (increase in red line). So, steady state is at B* instead of B. Increase in blue line because of increase in tech and management; so g* instead of g. So, WTO brought in more capital to China but also increased the growth rate of efficiency of workers.
- Higher efficiency in workers could be because people moved from agriculture to manufacturing so more value added so higher efficiency
Describe & explain, using the appropriate model, China’s growth due to Migration and Human Capital Accumulation
Describe how Growth Accounting can be used to explain China’s growth experience
Describe, using relevant papers, the results of undertaking growth accounting for China
Describe & explain what will sustain future growth in China
- Technology and Innovation as a driving force
China needs to move to sectors where it can develop its own distinctive products and sell globally - Labour force skills and the move to higher value-added sectors
More innovative sectors of the economy require highly skilled workers - Re-balancing the economy towards the consumer
The focus on high savings, investment and trade surplus distorts the economy. Consumer-led economic
growth will help to balance the economy - Entrepreneurship as a source of development
The importance of small enterprises to economic growth is a critical aspect - Management and decentralisation
The need to improve management, particularly in SOEs
Zhangkai Huang, Lixing Li, Guangrong Ma, and Lixin Colin Xu,2017, Hayek, Local Information, and Commanding
Heights:Decentralizing State-Owned Enterprises in China, American Economic Review, 107, pp. 2455–2478 - Developing new trade and investment opportunities. The One Belt, One Road initiative is a way to build China’s
presence
Boffa, Mauro. 2018. Trade linkages between the belt and road economies,
Policy Research working paper; WPS 8423. Washington, D.C. : World Bank - Financial Sector development and opening up to global markets
A pressing problem is Financial Sector reform - Managing inequalities both at household level and between provinces
Spreading the benefits of economic growth is a challenge. Responding to
the demographics is also important- The fact that China constantly exports will distort the economy and won’t help with interactions with other countries; China need to think about how to be successful not only in the current economic environment but also in the global environment - it cannot expect for things to continue as it is, it should look at internal growth as well as external growth.
Describe the areas of development for China to avoid the Middle Income Trap
Education, Financial Sector reform, Supporting high tech sectors, Innovation and Research and Development, Global
cooperation in Trade and Investment, Protecting resource and energy sources, Working with international partners,
Rule of Law and copyright protection (Aiyar et al., 2013)
Describe Wei et al (2017)’s paper related to this topic
R&D and Patents: How much do Chinese Firms innovate? (1995-2014)
Major increase in funding of R&D from 0.7% to 2% of GDP
Increase of around 150% in researchers as share of population
Rise in number of patent applications and patents granted (annual growth rate 19%).
Patents granted are 40-50% of applications. Internationally comparable (India 20%, S. Korea 60%)
Large increase in invention patents (25% annual increase).
US Patent Office granting more patents to Chinese firms. Growth rate28% for 2005-2014
Large increase in foreign citations (33% annual growth 1994-2005 and 51% 2005-2014)
Private enterprise is much more productive in patent activity, after controlling for size
Firms that export are more innovative. Firms that patent are more productive
Name the source that covers this topic: ‘R&D and Patents: How much do Chinese Firms innovate? (1995-2014)’
Wei et al (2017)
Describe Li et al. (2017)’s paper related to this topic
Education levels in 2015
*Rural: 11.3% had at least high school education
*Urban: 44.1%
Low attendance in rural areas due to:-
*1. Out-of-pocket expenses - $160 per year (27% of rural per capita income)
*2. Opportunity costs
*3. Entrance examination
*4. High stress and dropouts
Issues relating to labour supply and education
*Nearly a third of those with a rural hukou had migrated to a city by 2014
*25% with rural hukou working for local industries and services in rural area
*Those making living in agriculture are mainly over 40 years of age
*Hukou means that migrant children admitted to lower quality schools in urban areas
*Rural schools are lower quality than urban schools
*Low levels of young people graduate from High School (28%) and College (12.5%):2015
*Premium for college-educated workers has fallen
*Very significant effect of years of schooling on per capital GDP and large gains in China
*The results indicate that China has successfully increased human capital
Name the source that made the paper “Human Capital and China’s Future Growth”
Li et al. (2017)
Summarise what we have covered in this topic
- We have examined growth in China over the last 30 years using graphs
- We have considered the key factors that have driven growth
- We have used the Solow Model to explain these key factors
- We have discussed the idea of Growth Accounting and used it to
empirically examine factors that have generated China’s past growth - We have analysed the potential drivers of future growth in China
