Post on 16-Dec-2015
China’s Economic Growth: Past, Present and FutureECON 6470 Economic Growth and Development: Spring Case Study 2015
Professor Dr. Darryl McLeod
Presented By:Chuan Shi, Ph.D. Economics Candidate 2016
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Introduction: China Progression through comparative peers
Stage I – Initial Growth Phase & Absolute Convergence
Fiscal, monetary & socioeconomic reform measures
Historic political & institutional landscape
Reform implementation
TFP: - Regional cooperatives (Township & Village Enterprises)
- Infrastructure
- SEZ’s
- FDI & trade liberalization (export-reliance model)
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Growth Factor Analysis – Steady State (Absolute Convergence)
Jones Chapter 3 Exercise 1-- Where are these economies headed? Page 75 d. U.S. savings rate
To add ctys: Y 9̂7 sk u n x A^90 sk^ X^ h^ (sk^/x^) y*(a) y*/y97 y*(b) y*/y97 y*(c) y*/y97 y*(d) y*/y97
USA 1.000 0.204 11.900 0.010 0.085 1.000 1.000 1.000 1.00 1.000 1.000 1.00 1.000 1.00 1.000 1.00 1.00 1.00
Singapore 0.895 0.348 11.900 6.72 6.795 1.078 1.706 79.941 1.00 0.147 0.158 0.16 0.147 0.16 0.158 0.18 1.08 1.20
India 0.102 0.143 4.52 1.980% 0.095 0.267 0.701 1.115 0.48 0.793 0.101 0.10 0.379 3.72 0.212 2.08 0.13 1.25
Brazil 0.298 0.165 4.45 1.740% 0.092 0.758 0.809 1.087 0.47 0.863 0.310 0.31 0.410 1.37 0.654 2.19 0.36 1.21
China 0.097 0.235 6.110 0.013 0.088 0.106 1.152 1.038 0.56 1.054 0.063 0.65 0.590 6.09 0.112 1.15 0.06 0.61
South Africa 0.227 0.151 6.03 2.280% 0.098 0.460 0.740 1.151 0.56 0.802 0.205 0.90 0.446 1.97 0.369 1.63 0.26 1.13
a. own TFP (A) b U.S. TFP (A) c. U.S. schooling-- u
Compute steady state y* assuming the country has:
Peer countries include BRICS, except for Russia (no data is available), Singapore and US as the base countries to compare
Among peer economies, China had the lowest GDP 0.097 in 1997 comparing to the USA’s GDP as 1
According to absolute convergence, China should have grown the fastest amongst peer countries
Using its own TFP (A) from 1990, China has 0.063 as steady state GDP, which is less than 0.097 GPD level of 1997. If China used its TFP level in 1990, it’d not grow during the 90’s.
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Fiscal, monetary & socioeconomic reform measures1
Fiscal Reform
Collative farming system to household-responsibility system: increased TFP in agricultural sectors
Encourage private companies and non-state sectors to grow: increase TFP in non-agricultural sectors
Special Economic Zones
Monetary
Fixed exchange rate
High interest rate to encourage savings
Socioeconomic
Trade liberalization
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Historic political & institutional landscape
After the death of Mao Zedong, cultural revolution ended. Deng XiaoPing came into power and began the policy of “reform and opening up”
Special Economic Zones
Foreign Direct Investment
Trade Liberalization
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TFP: Regional cooperatives, infrastructure, SEZ’s, FDI & trade liberalization (export reliance model)
China’s overall TFP decreased in 2006-10 partially due to the decrease in capital input (ICT). Brazil, Russia, India, and South Africa, increased capital input (ICT) during this period
China increased capital input (non-ICT) in the period of 2006-10, which was a trend among all the peer economies
India increased TFP between 2006-10, while Russia had the deepest reduction in TFP
Source:
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TFP: Regional cooperatives, infrastructure, SEZ’s, FDI & trade liberalization (export reliance model)
Source: Zhu, 2012, pg. 18 Source: Reuters, Goldman Sachs
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Introduction: China Progression through comparative peers
Stage II – Intermediary Structural Transition Phase to Conditional Convergence
End of export reliant growth; Beginning of fiscal reallocation
SOE reform & new industry champions for higher value-added growth
Socioeconomic reform: social safety net creation
TFP:
- Population growth
- Savings
- “New normal”
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Growth Factor Analysis – Steady State (Conditional Convergence)
Jones Chapter 3 Exercise 1-- Where are these economies headed? Page 75 d. U.S. savings rate
To add ctys: Y 9̂7 sk u n x A^90 sk^ X^ h^ (sk^/x^) y*(a) y*/y97 y*(b) y*/y97 y*(c) y*/y97 y*(d) y*/y97
USA 1.000 0.204 11.900 0.010 0.085 1.000 1.000 1.000 1.00 1.000 1.000 1.00 1.000 1.00 1.000 1.00 1.00 1.00
Singapore 0.895 0.348 11.900 6.72 6.795 1.078 1.706 79.941 1.00 0.147 0.158 0.16 0.147 0.16 0.158 0.18 1.08 1.20
India 0.102 0.143 4.52 1.980% 0.095 0.267 0.701 1.115 0.48 0.793 0.101 0.10 0.379 3.72 0.212 2.08 0.13 1.25
Brazil 0.298 0.165 4.45 1.740% 0.092 0.758 0.809 1.087 0.47 0.863 0.310 0.31 0.410 1.37 0.654 2.19 0.36 1.21
China 0.097 0.235 6.110 0.013 0.088 0.106 1.152 1.038 0.56 1.054 0.063 0.65 0.590 6.09 0.112 1.15 0.06 0.61
South Africa 0.227 0.151 6.03 2.280% 0.098 0.460 0.740 1.151 0.56 0.802 0.205 0.90 0.446 1.97 0.369 1.63 0.26 1.13
a. own TFP (A) b U.S. TFP (A) c. U.S. schooling-- u
Compute steady state y* assuming the country has:
With US TFP to recalculate China’s steady state GDP, China has the highest growth as 6.09 among all peer economies
With US schooling u as 11.9, instead of China’s schooling as 6.11, China has higher growth than that with its own schooling system
With US saving rate n as 0.01, instead of China’s saving rate as 0.013, China has slower growth than that with its own saving rate
To conclude, China needs to improve its schooling and TFP in order to have higher conditional convergence of growth
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End of US export reliant growth
Chinese Exports to US as % of Total Chinese Exports
Source: Zero Hedge, Bloomberg
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SOE reform & new industry champions for higher value-added growth
Private companies in China are gaining more profitable, while state owned enterprises (SOE’s) reinvest: SOE consolidation and asset injection
Source: Bruegel, Egawa.
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Socioeconomic reform: social safety net creation
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10
20
30
40
50
60
Gross National Savings
Brazil China India
Singapore South Africa United States
Source: IMF WEO 2014
China has the highest national savings among peer economies partially due to inefficient social safety net
Source: IMF WEO 2014
China has relatively low government expenditure in comparison to peer countries. To increase social safety net, government will need to continue to increase expenditure
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TFP: From population growth & savings to “new normal”
Source: NBS,CITIC-CLSA Source: United Nations
…
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Introduction: China Progression through comparative peers
Stage III – Future Steady State Growth Rate Normalization
TFP: - Consumption
- Education
- Technology
- Institutional expansion
Positive growth incidence curve
Negative growth incidence curve
TFP: Consumption, education, technology & regional & institutional expansion
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0
100000
200000
300000
400000
500000
600000
700000
800000
1990 2000 2005 2006 2007 2008 2009 2010 2011 2012 2013
Patent Applications, resident
China Singapore South Africa
United States India Brazil
Source: World Development Indicators, World BankSource: Goldman Sachs
China had only 5,832 patent applications in 1990, while the United States had 90,634. China had 704,936 patent applications in 2013, while the United States had 287,831. China’s education and technology has positively contributed to TFP growth
China’s consumption has not increased proportionally to GDP growth. Simulating domestic consumption will contribute to economic growth
China will transition to domestic consumption; India to export-led; Brazil & Russia regress and continue commodity dependency due to institutional erosion
Technology, innovation and highly skilled labor key to conditional convergence for China; Infrastructure and basic education for India
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Positive growth incidence curve
Sustainable reforms (albeit slower than expected)
China – clean energy Less pollution
Economic transformation plan
India – Infrastructure investment / favorable Gini curve impact
Institutional regional and global transformation
AIIB – Asian Investment Infrastructure Bank (China): Global liquidity & risk reduction
Regional Co-integration Source: US News
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Negative growth incidence curve
Pollution: Kuznet Curve impact from rising pollution may impact growth for India & China
How much growth will be sacrificed for better health in India & China?
Russian – Geopolitical tensions; Brazil – Lack of fiscal austerity and inflation;
Corruption
Source: http://g.foolcdn.com/editorial/images/26223/kuznets-curve-china_032213_large.png, Kuznets
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Negative growth incidence curve (cont.)
Aging Population: China & Russia face major Gini deficiency in working age population
Will India emerge as the dominant force of global growth?
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Conclusions
High TPF growth due to education and science, and economic system improvement
Domestic consumption needs to further grow
Inequality has increased
Social safety net is needed to address inequality and domestic consumption
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Sources
1. Zhu, Xiaodong. “Understanding China’s Growth: Past, Present, and Future”. Journal of Economic Perspectives, Volume 26, Fall 2012, page 103-124. http://homes.chass.utoronto.ca/~xzhu/paper/JEP2012.pdf
2. Rodrik, Dani. “What’s So Special About China’s Exports” . Jan 2006,, Harvard University. https://www.sss.ias.edu/files/pdfs/Rodrik/Research/Whats-special-China-exports.pdf
3. IMF World Economic Outlook (WEO) update: http://www.imf.org/external/pubs/ft/weo/2015/update/01/
4. World Development Indicators (World Bank ): http://data.worldbank.org/data-catalog/world-development-indicators
5. Egawa, Akio Decoded BRIC, “The Old emerging economies and their “new” attractiveness as the centre of consumption power”, 8 th January 2014: http://g.foolcdn.com/editorial/images/26223/kuznets-curve-china_032213_large.png
6. UNCTAD, World Investment Report, 2012, http://unctad.org/en/Pages/DIAE/World%20Investment%20Report/WIR2012_WebFlyer.aspx
7. Durden, Tyler, “Watch Out For Falling Objects: US Share Of Total Chinese Exports Plunges To All Time Low “, 9/2013, http://www.zerohedge.com/news/2013-03-09/watch-out-falling-objects-us-share-total-chinese-exports-plunges-all-time-low
8. Keohane, David,” SOE this is what passes for reform”, /2014 http://ftalphaville.ft.com/2014/04/14/1828032/soe-this-is-what-passes-for-reform/
9. Murphy, David – Zhang, Nancy – Zhang, Xiao, “ Mr. & Mrs. China dare to dream”, CITIC/CLSA, 2013 (Unpublished Bank Research)
10. UN Population Division Database: http://www.un.org/en/development/desa/population/theme/trends/index.shtml
11. Goldman Sachs Report, Global Sherpa, ”Globalization, Sustainable Development and Social Impact in World Rankings, Countries and Cities”, http://www.globalsherpa.org/bric-countries-brics
12. Magill, Bobby, “ World’s Most Polluting County Leads in Clean Energy Investment”, 2014, Bloomberg http://www.bloomberg.com/news/2014-04-04/world-s-most-polluting-country-leads-in-clean-energy-investment.html
13. Kuznets, Simon, “Economic Growth and Income Inequality”, The American Economic Review, March – 1955, Vol. XLV.
14. Scrutinio, Vincenzo, “ A Gray Future for the BRIC’s, 2013, http://www.openpop.org/?p=661