tm 2011 01 Yang-Laike Chinese-economydevelopment-studies.htw-berlin.de/images/teaching...– the big...

Chinese EconomyStructure, Reform and the Challenges

Laike YANGEast China Normal University

Outline

Part I. Chinese Economic Structure

Part II. Chinese Economic Reform

Part III. Chinese Economy: The Challenges

East China Normal University, Shanghai

Part I

Chinese Economic Structure


Origins of GDP (2009) % of total Components of GDP(2006) % of total

Agriculture 9.6 Private consumption 36.4

Secondary industry 46.8 Government consumption 13.7

Service 43.6 Gross fixed investment 40.9

Net Exports 7.8

Economic Structure: Origins and Components of GDP

Sectoral structure of GDP Components of Demand for output

Source: EIU


• The United States– GDP by sector

• agriculture (0.8%), industry (12.6%), services (87.5%)– Components of GDP

• private consumption (69.9%), government expenditure (19.2%), investment (16.4%), Net export (-5.8%)

• Japan– GDP by sector

• agriculture (2.1%), industry (21%), services (76.9%)– Components of GDP

• private consumption (56.8%), government expenditure (17.9%), investment (20.1%), Net export (1.2%)


Compare with that of US, JP



• India – GDP by sector

• agriculture (16.6 %), industry (27.6 %), services (55 %)– components of GDP

• private consumption (62%),government expenditure (12%), investment (28%), Net export (-2%)

Compare with that of India

Source: EIU


Consumption(domestic demand)

Investment(domestic demand)

Net export(overseas demand)

Drive of economic

growth

S

I

FDI

During the stage of economic takeoff, a high savings rate is

needed

China has a high savings rate, but not a good financial system to

transfer the savings to investment

The US has no savings, but they have a good

financial market

So that a big capital

deficit

So that a big capital

surplus

Understand The Economic Structure of China


Savings Rate Of Selected Developing Countries

Gross domestic saving as % of GNP, 2004

05

10152025303540455055%


Net National Savings of the United States% Net National Savings to Gross National Income


Part II

Chinese Economic Reform

China before the reform (video show)


The Chinese Reform: Questions to answer

• What has been reformed and what hasn’t?– politics vs. economy– trade vs. financial system

• What comes first and what comes last?– efficiency or equality first– SEZ (Special Economic Eone)

• Why is it successful?– gradualism vs. big bang– the role of FDI and trade


The Chinese Economic Reform: The Order

• regional reform order– from coast to inland

4 Special Economic Zones (SEZs)

14 coastal cities

Hainan

Pudong, Shanghaicoastal area


Western Development Strategy

Revitalize The Old Northeast Industrial Bases

Rise of Central China Plan

• regional reform order– from coast to inland

The Chinese Economic Reforms: The Order

inland area


Western Development Strategy (launched in 2000）

The policy covers 6 provinces (Gansu, Guizhou, Qinghai, Shaanxi, Sichuan, and Yunnan), 5 autonomous regions (Guangxi, Inner Mongolia, Ningxia, Tibet, and Xinjiang), and 1 municipality (Chongqing). This region contains 71.4% of China's mainland area, but only 28.8% of its population, as of the end of 2002, and 16.8% of its total economic output, as of 2003.


Revitalize The Old Northeast Industrial Bases (launched in 2003)

• Revitalize The Old Northeast Industrial Bases (振兴东北老工业基地), is a policy adopted in 2003 to rejuvenate the industrial bases in the northeastern China. It covers 3 provinces: Heilongjiang, Jilin, and Liaoning.


Rise of Central China Plan

• launched in 2006• it covers 6 provinces: Shanxi, Henan, Anhui, Hubei, Hunan, and

Jiangxi.


The Chinese Economic Reform: The Approach

• The Approach– the big bang theory vs. gradualism– liberalize the economy but control the politics– putting the efficiency first ( “white cat / black cat” theory)

• "I don't care if it's a white cat or a black cat. It's a good cat as long as it catches mice.” (Deng Xiaoping)

• “Let part of the people get rich first” (Deng Xiaoping)– exploring the way

• “Cross the river by feeling the stones” (Deng Xiaoping)

• The Goal: 4 modernizations– modernization of agriculture, industry, science & technology and the military

• The Strategy– socialist market economy


• What is socialist market economy?

• it is practiced in China as well as in Vietnam. – major industries are owned by state entities,

but compete with each other within a set by the market.

– the state does not routinely intervene in the setting of prices

Socialist Market Economy


The Chinese Reforms: Agriculture Sector

• Economic Reform :agriculture– chinese economic reform start from rural area– household responsibility system (Cheng Bao system).– TVE’s

• What is TVE?• Where are they now?


The Chinese Reform: SOEs

• SOE reform progress in China can be divided into two periods. – first stage (1978-1992) – relaxing restrictions, give the managers

more decision-making power• 11th National Congress of the Communist Party

(NCCP),1978.• to introduce the responsibility system to industrial sectors - to

let enterprise have self-determination, and let enterprise have more financial capacity through tax reduction.

• separating the governmental function from managerial function

• reform had been carried out for ten years with dissatisfactory results.


– second stage (1992--)---institutional reform: privatization.

• The 14th NCCP, 1992-----“Corporatisation “ the SOEs – Corporatise the SOEs, sell shares to private sector

• The 15th NCCP, 1997-----the new strategy: “Keep the large ones and let go the small ones” (Zhuada Fangxiao).

– control the strategic sectors and release the competitive sectors– control the enterprises but not necessary own the company

(control more than 51% of the share)• In May 2003, China established the State-owned Assets

Supervision and Administration Commission (SASAC). – SASAC acts as a shareholder of state assets to overcome the

fragmentation of state ownership arrangement.– since then, the SOEs are performing very well.

The Chinese reforms: SOEs


The Chinese Reform: Pricing System

• state controlled pricing system– government decides about the input and output prices

• dual-track pricing system– some goods and services were allocated at state controlled

prices, while others were allocated at market prices.– over time, the goods allocated at market prices were increased

• merger the two tracks together– until the early 1990s, almost all products’ price were market

decided.

How to evaluate the dual-track pricing system?It helped SOEs to survive the most difficult time. But it also caused very big

problems particularly the corruption which led to the Tiananmen square event.


The Chinese Reform: Foreign Trade System

• before 1978, foreign trade was under strict state control – state trading system– high tariff rate– numerous non tariff barriers

• reform before WTO accession– liberalizing the state trading system– eliminating trade barriers

• after WTO accession– tariff reduction – designated trading products

‘Designated trading’ refers to the government designating some companies to act on behalf

in the import/export of certain products

‘state trading’ refers to the monopoly of in certain products


Reduction in the average tariff rate level (2000-2008)

The Chinese Reform: Foreign Trade System

year Average tariff for all products

Average tariff for industrial products

Average tariff for agricultural products

2000 15.6 14.7 21.32001 14.0 13.0 19.92002 12.7 11.7 18.52003 11.5 10.6 17.42004 10.6 9.8 15.52005 10.1 9.3 15.52006 10.0 9.3 15.52007 10.0 9.3 15.52008 10.0 9.2 15.1


Part III

Chinese Economy: the challenges and new direction


The Challenges

1. Economic Structure2. Income Disparities3. Macroeconomic Stability4. Trade Conflicts5. Intellectual Property Right Protection and Innovation6. Labor Protection7. Resources, Energy and Environmental Issues8. Economic Development Model


The Challenges

1. Economic Structure– Consumption, Investment, Net Export– manufacturing industries vs. services


The Challenges

2. Income Disparities• although in general, all Chinese people benefit from the fast

economic growth, but the urban-rural income disparity has been increased recently.– urban GDP per capita in Shanghai is more than USD 10,000 per

year, but in west China, the province like Guizhou it is just over $1,000 per year.

– urban incomes are 3.33 times those of rural residents, up from 2.5 in 1978.

– the urban per capita net income stood at 17,175 yuan ($2,525) last year, in contrast to 5,153 yuan in the countryside, with the urban-to-rural income ratio being 3.33:1, according to the latest figures from the National Bureau of Statistics.


A Long Period Observation


3. Macroeconomic Stability– stock market---still far from a mature market

• speculation vs. investment• transparency (false information exploded)• policy influence• less supervised

The Challenges


3. Macroeconomic Stability• stock market---still far from a mature market• real estate market

– the housing prices in big cities went up about 3 -10 times variously in last 10 years

– the prices of real estate are far too high for the ordinary people

• international standard: house price= 6 x annual family income• in Shanghai: it is about 20 times

The Challenges


2,000~5,000 RMB /M2

10,000-25,000RMB /M2

18,000-60,000RMB/M2

13,000-35,000RMB/M2

The housing pricesin Shanghai

(within inner ring road)

Real Estate Market — like crazy

2007

2004

2000

200925,000-100,000RMB/M2

2008


1,31,51,41,9

2,82,2

2,73,333,4

4,4

5,66,56,26,56,96,5

7,1

8,78,38,57,7

7,16,3

4,94,64

2,4

1,21

-1,6-1,2-1,5-1,4-1,7-1,8-1,2-0,8-0,5

0,6

1,91,5

2,72,42,83,1

-4

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CPI

CPI

3. Macroeconomic stability• stock market---still far from a mature market• real estate market• inflation threat

The Challenges


The Challenges

4. Trade Conflicts• trade balance• China’s currency issues• trade and unemployment• anti dumping, countervailing and safeguards• textile & apparel


The Challenges

5. Intellectual Property Rights

• IPR infringement: not only hurt the foreigners– between 15% and 20% of all products made in China are copies,

about 8% of China’s annual GDP.

– it is estimated that China’s domestic film industry lost about $1.5 billion to piracy in 2005. about 50% of pirated films in China are Chinese movies.

– a study estimates that a 10% reduction in China’s PC software piracy would raise its GDP by $20.5 billion and create an additional 355,179 jobs.


• on average, Chinese immigrate workers work 6.29 days/week, 8.93 hours/day.

• the average wage is 966 Yuan per month (about 100 Euro or 130 USD), more than 50% of them earn less than 800 Yuan/month, 19.67% earn less than 500 Yuan per month.

The Challenges

6. Economic Growth and Labor Abuse


7. Resource Energy and Environment Issues

The Challenges

Behind the economic miracle…..

• China is now the largest SO2 and CO2 emitter in the world

• the only target which was not reached in china’s 10th

FYP was the emission-reduction target.

• in China’s 340 cities，more than 30% of them with an air quality below level 3，it covers about 40% of china’s city population, and about 100 million people


Literature• Asian Development Bank, 2010, “Asian Development Outlook 2010: the People’s Republic of China”, Asian

Development Bank, Manila.• Angus Maddison, 2007, “Chinese Economic Performance in the Long Run”. Chapter 3 and Chapter 4, OECD

Publishing, Paris.• Tom Rawski, 2001, “What Is Happening to China’s GDP Statistics?”, China Economic Review, 12(4). • Thierry Apoteker Consultant, 2006, “Reading Between the Lines of China’s New GDP Statistics”. • Dilip K. Das, 2008, The Chinese Economic Renaissance, Palgrave Macmillan, New York.• Mona Harddad, 2007, “Trade Integration in East Asia: The Role of China and Production Networks”, World Bank Policy

Research Working Paper 4160.• Dick K. Nanto, Emma Chanlett-Avery, 2006, “The Rise of China and Its Effects on Taiwan, Japan, and South Korea:

U.S. Policy Choices”. Congress Research Service.• Loren Brandt and Thomas G. Rawski, 2008, “China’s Great Economic Transformation”, Cambridge University Press.• Wing T. Woo, 2006, “The Economic Impact of China’s Emergence as a Major Trading Nation”, in Lok Sang Ho and

Robert Ash (eds), China, Hong Kong, and the World Economy, Palgrave. • Chad P.Bown and Rachel McCulloch, 2009, “U.S.-Japan and U.S.-China Trade Conflict: Export Growth, Reciprocity,

and the International Trading System”, World Bank, Washington D.C.• K.C. Fung, Hitomi Iizaka, Sarah Tong, 2002, “Foreign Direct Investment in China: Policy, Trend and Impact”. In: Global

Economic Review 33:2 (2004), pp. 99-130.• Joanne Guth and Melissa Ginsberg, 2004, “Energy Use in China: Trends in Oil Demand and Imports”, International

Economic Review (Washington, D.C.) / Nov-Dec, 2004. • Yongding Yu, 2007, “Global Imbalances: China’s Perspective”, paper presented at the Peterson Institute for

International Economics, Washington, D.C. • Vivien Foster, William Butterfield, Chuan Chen, and Nataliya Pushak, 2008, “China’s emerging role in Africa”,

GRIDLINES, No.42.• Barry Naughton 2007, “The Chinese Economy. Transition and Growth”. MIT Press, Cambridge MA and London.


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