Chinas Economic Prospects: 2006 – 2020 Li Shantong.

China’s Economic Prospects:2006 – 2020

Li Shantong

Growth Prospects for 2006 - 2020

• Areas of uncertainty– International

• Rise in protectionism• Dollar crash• Worsening terms of trade (cost of imports v. exports)• Financial liberalization leading to volatility

– Domestic• Savings patterns of aging of population• Persistent rural poverty• Sluggish employment generation• Shortage in strategic resource reserve and

environmental capacity will be of increasing constraints to economic growth

2005-2020 Population Growth

9

10

11

12

13

14

15

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

0.8

0.9

1

1.1

1.2

1.3

1.4

1.5

1.6

1.7

1.8

Total population

Population aged 15 to 64

Population aged 65 and above（left axis）

2000-2020 Population Growth

Year Total

Population (100m)

Labor-age Population

(100m)

Ratio of Labor-age Population

(%)

Aged above 65 (100m)

Ratio of the Aged

above 65 (%)

2000 12.67 8.89 70.2 0.88 7 2005 13.06 9.18 70.3 0.99 7.6 2010 13.47 9.68 71.9 1.12 8.3 2015 13.87 9.97 71.9 1.33 9.6 2020 14.19 9.95 70.1 1.69 11.9

The Challenges of Economic Development in the Future

China total

Share（relati ve to the world,％） Per capi ta

Ratio to world average（％）

Populati on 12.8 20.7

Cul ti vated l and (104 hectare) 13004 9.3

0.101（hectare/person） 45

Water Resource (100 mi l l i on m3) 28255 7.0 2186（m3/person） 25.4

Forest Resource（100 mi l l i on m3） 124.9 2.3 9.7（m3/person） 11.1

The Challenges of Economic Development in the Future

Mining Resource per capita

Reserves Ratio to the World (%)

Production

Ratio to the World (%) consumption

Ratio to the World (%)

Crude Oil（kg） 1800 11 125 22 181 26 Natural Gas（m3） 1063 4.5 22 4.8 16.8 4.6 Coal (kg) 125000 79 822 110 990 133 Iron Ore (kg) 9880 42 187 113 230 129 Copper (kg) 13.2 18 0.41 20 1.06 46 Aluminum（kg） 283 7.3 6.9 33 2.3 60

Model Dimension

• 34 production sectors and 2 representative households– 1 agricultural sectors, 24 industrial sectors, 9

service sectors,– 2 representative households by rural and urban

• 5 production factors – agricultural land, capital, agricultural labor,

production worker, and professionals

• Emission of Pollutant– SO2, NOX,TSS, Soot

Recursive Dynamics

• The benchmark year: 2002

• Factor growth and accumulation– Labor and land growth

– Capital accumulation

• Change in productivity

Business-as-Usual

• Labor moves from agriculture to non-agricultural sectors at the rate of 1.21 percent per year

• Technological and intermediate input changes continue the trend of recent years

• Total factor productivity (TFP) growth follows the pattern of past 25 years, at 2.0-2.5 percent

Optimistic Scenario Labor moves from agriculture to non-

agricultural sectors at the rate of 1.36 percent per year

Technological and intermediate inputs reflect increased demand for service and high technology goods; the rate of value-added increases

TFP growth rate of service sectors is 1percent higher than BAU in 2005-2010 and 0.5 percent higher in 2010-2020

Energy utilization efficiency is 0.2-0.5 percent higher than BAU

Risk Scenario

Labor moves from agriculture to non-agricultural sectors at the rate of 0.91 percent per year

Household saving rate is lower than BAU TFP growth rate is lower than the level of

the past 25 years, at 1.5-2.0 percent

Economic Growth and Structure 2002-2020 (% ， BaU)

2002-2005 2006-2010 2011-2015 2016-2020 2002-2020 2006-2020

GDP 10.1 8.9 8.3 7 8.4 8.1

Sources of growth

Labor 0.4 0.4 0.2 0 0.2 0.2

Capital 7.7 6.5 6.1 5 6.2 5.9

TFP 2 2 1.9 2 2 2

Source: DRCCGE2004

Economic Growth and Structure 2002-2020 (% ， BaU)

GDP Employment

2002 2010 2020 2002 2010 2020

Primary Industry 13.6 8.1 4.8 50.0 40.1 34.6

Secondary Industry 45.2 46.2 45.6 21.4 22.9 21.5

Mining 4.9 4.3 3.4 0.9 1.0 0.9

Manufacturing 34.9 36.1 37.1 14.1 14.3 13.3

Consumer Goods 9.7 8.4 7.0 4.2 3.7 3.1

Intermediate Goods 13.8 14.6 16.9 5.0 4.9 4.5

Capital Goods 11.4 13.1 13.2 4.9 5.7 5.7

Construction 5.4 5.7 5.1 6.4 7.6 7.3

Tertiary Industry 41.1 45.7 49.6 28.6 37.0 43.9

Economic Growth and Structure 2002-2020 (% Optimistic Scenario)

2002-2005 2006-2010 2011-2015 2016-2020 2002-2020 2006-2020 GDP 10.1 9.5 8.8 7.6 8.9 8.6 Sources of growth Labor 0.4 0.4 0.2 0 0.2 0.2 Capital 7.7 6.6 6.1 5.1 6.2 5.9 TFP 2 2.5 2.4 2.5 2.4 2.5 Source: DRCCGE2004


GDP Employment

2002 2010 2020 2002 2010 2020



Mining 4.9 4.1 2.8 0.9 1.0 0.8

Manufacturing 34.9 35.3 35.9 14.1 14.3 13.6

Consumer Goods 9.7 8.2 6.6 4.2 3.7 3.1


Capital Goods 11.4 13.1 14.0 4.9 5.9 6.6

Construction 5.4 5.7 4.8 6.4 7.7 7.1



2010 2020

SO2 -2.4 -10.2

NOx -2.2 -12.3

TSS -4.2 -5.6

Smog -1.7 -2.7

Source: DRCCGE2004

The changes in pollutant discharges for the optimistic scenario compared to the

baseline scenario

Economic Growth and Structure 2002-2020 (% Risk Scenario)

2002-2005 2006-2010 2011-2015 2016-2020 2002-2020 2006-2020 GDP 10.1 8.4 7.1 3.8 7.6 7.1 Sources of growth Labor 0.4 0.4 0.2 0 0.2 0.2 Capital 7.7 6.5 5.4 4.2 5.7 5.3 TFP 2 1.5 1.5 1.6 1.6 1.5 Source: DRCCGE2004

Economic Growth and Structure 2002-2020 (% Risk Scenario)

GDP Employment

2002 2010 2020 2002 2010 2020



Mining 4.9 4.4 3.4 0.9 1.0 0.8

Manufacturing 34.9 36.2 36.7 14.1 14.3 13.0

Consumer Goods 9.7 8.6 8.1 4.2 3.8 3.6


Capital Goods 11.4 13.0 12.0 4.9 5.6 5.2

Construction 5.4 5.8 4.8 6.4 7.7 6.6



• It is still possible for China to maintain its relatively fast economic growth in the next 15 years.

• Numerous challenges confronting future development• The opportunities and challenges in the next 15 years

will be not evenly distributed, and the period from 2005 to 2010 will be critical to the reform and development in China

Growth Prospects for 2006 - 2020Baseline Scenario

Labor

Capital

Total FactorProductivity

Optimistic Scenario

Labor

Capital


Risk Scenario

Labor

Capital


• Sources of Growth: 2006-2020– In all scenarios, capital accumulation

continues to drive growth– Growth in TFP varies according to

gains in efficiency– Contribution of labor does not grow

in any scenario (demographics)


• The industrial structure will continue to be adjusted and become more rational thanks to deepening industrialization and urbanization. At the end of the 11th Five-Year Plan, the proportions of the primary, secondary and tertiary industries could be 8.1:46.2:45.7. During the 2010-2020 period, the main changes in industrial structure will be higher efficiency and greater proportion of the service industry. The proportions of the primary, secondary and tertiary industries will be 4.8:45.6:49.6


• The simulation results indicate that if the national economy can post a coordinated and sustainable development, the damage of economic growth to the environment will be much smaller. Take 2020 for example. The discharge of the four major pollutants in the coordinated development scenario will be 2.7-12.3 percent lower than in the baseline

scenario • China still faces a possible slowdown in economic growth,

the negative impact of trade frictions on import and export, the slower rate of capital accumulation and the higher system costs arising from system contradictions could reduce China’s economic growth rate to about 7 %

Growth Prospects for 2006 - 2020• Returns to labor in 2020 relative to 2002

(percent change)

• Agricultural workers stand to gain the most but also face greatest losses relative to baseline if risk scenario materializes

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Agricultural labor

Growth Prospects for 2006 - 2020• Projected changes in household income in 2020 relative to

2002 (percent change)

• Rural households stand to gain the most but also face greatest losses relative to baseline if risk scenario materializes

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Chinas Economic Prospects: 2006 – 2020 Li Shantong.

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