Perspectives on China's economic growth

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presentation by Yingyi Qian, professor, Dean, School of Economics and Management, Tsinghua University, Beijing

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Perspectives on China's economic growth

  1. 1. Perspectives on China’s Economic Growth Yingyi QianSchool of Economics and Management Tsinghua University December 1, 2010
  2. 2. Agenda• China’s growth in international perspectives• What drives China’s growth• What will sustain China’s growth
  3. 3. Growth of GDP per capita: China, India, and Indonesia (2005 US$ PPP) 9000 Indonesia 8000 IndiaGDP per capita at 2005 US$ PPP China 7000 6000 5000 4000 3000 2000 1000 0 1975 1976 1977 1978 1979 1980 1981 1982 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 Source:Penn World Table 6.3, 2005 US$ PPP
  4. 4. China seems to have the highest growth rate (Indices of GDP per capita at 2005 US$ PPP, 1978=100)800 China(1978-2007) $7868 Korea(1978-2007)700 Taiwan, China(1978-2007) Japna(1978-2007)600500400300200100 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Source:Penn World Table 6.3, 2005 US$ PPP
  5. 5. China’s growth is not unique• Continuation of the East Asian growth story – Japan after 1950 – Taiwan after 1958 – South Korea after 1962 – China after 1978• Timing of the Olympic Games – Tokyo: 1964 – Seoul: 1988 – Beijing: 2008
  6. 6. China’s growth is not so special (Indices of GDP per capita at 2005 US$ PPP)1900 Japan(1950-2000)1700 Taiwan, China(1958-2007) Korea(1962-2007)1500 China(1978-2007)13001100900 $7868700500300100 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 Source:Penn World Table 6.3,2005 US$ PPP
  7. 7. China’s fast growth is not so special (Indices of GDP per capita at 2005 US$ PPP)1900 Japan(1950-1990)1700 Taiwan, China(1958-2007) Korea(1962-2007)1500 China(1978-2007)13001100900 (1969) (2007)700 (1991) (1987)500300100 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 Source:Penn World Table 6.3,2005 US$ PPP
  8. 8. Growth comparison between China and other Asian economies (GDP per capita at 2005 US$ PPP)30000 Japan(1950-2007)27000 Taiwan, China(1958-2007) Korea(1962-2007)24000 China(1978-2010)21000 India(1991-2007)1800015000120008000 $786860003000 0 1950 1952 1954 1956 1958 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Source:Penn World Table 6.3, 2005 US$ PPP, post-2007 values for China extrapolated at 1995-2007 growth rate
  9. 9. GDP per capita of China remains lower than the world average (2007 data at 2005 US$ PPP) 4289740,000 31443 3058730,000 2385220,000 15273 13401 10179 964410,000 7868 5186 3825 2341 2024 0 Spain Japan Korea India Kenya Argentina Russia Brazil China Bangladesh US World Indonesia Source:Penn World Table 6.3, 2007 GDP per capita at 2005 US$ PPP
  10. 10. Sources of growth: massive investment (gross fixed investment as share of GDP)5040302010 Japan (1950-1973)* Taiwan, China (1962-1987)* South Korea (1962-1990)* China (1978-2005)**0 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 Year Source:* WDI, **CSY(2006)
  11. 11. The estimated return to capital in China3530 Investment excluding inventory, before taxes2520 Excluding urban residential housing, including inventories, before taxes1510 Excluding urban residential housing, including inventories, after inderect taxes 5 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
  12. 12. China’s expressways• China’s expressways – 1988: 147 km – 2005: 41,000 km – Planned: 85,000 km• U.S. interstate highways system – The National Interstate and Defense Highways Act of 1956 (“Federal Highway Act of 1956”) – 40,000 miles (65,000 km) of interstate highways planned – The biggest public works project, 30 years to complete
  13. 13. China National Expressway Network Plan
  14. 14. China’s high-speed railway network under plan: 13,000km• Four “North-South” routes – Beijing-Shanghai(北京--上海) – Beijing-Shenzhen(北京--深圳) – Beijing-Harbin(北京--哈尔滨) – Hangzhou-Shenzhen(杭州—深圳)• Four “East-West” routes – Xuzhou-Lanzhou(徐州--兰州) – Hangzhou-Changsha(杭州--长沙) – Qingdao-Taiyuan(青岛--太原) – Nanjing-Chengdu(南京--成都)
  15. 15. Budgetary revenue share in GDP 5 10 15 20 25 30 35 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993Source: China Statistics Yearbook. 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Budgetary revenue share of GDP
  16. 16. Ratio of industry SOEs profit to GDP 0 5 10 151978197919801981198219831984198519861987198819891990199119921993199419951996199719981999200020012002200320042005200620072008 SOE net profit as share of GDP2009
  17. 17. World ranking of China’s 8 largest banks (market value on April 28, 2010)Banks Market Value (US$ World Ranking billion)ICBC(工商银行) 226 1CCB(建设银行) 187 2BoC(中国银行) 145 7BoCom(交通银行) 53 26CMB(招商银行) 45 33CITIC(中信银行) 32 45SPDB(浦发银行) 26 50Minsheng(民生银行) 22 57ABC(中国农业银行)went IPO on July 15, 2010.
  18. 18. China’s 10 largest firms by revenue in Fortune 500 (2009)1 Sinopec(中国石化) 2 State Grid(国家电网) 3 China National Petroleum(中国石油) 4 Industrial and Commercial Bank of China(工商银行) 5 China Mobile(中国移动) 6 China Life(中国人寿) 7 Bank of China(中国银行) 8 China Southern Power Grid(中国南方电网) 9 China Construction Bank(中国建设银行)10 China Telecomm(中国电信)
  19. 19. Conditions of China’s economy overtaking the U.S. by 2030• China’s economy is the second largest in 2010• China’s economy was 35% of US in 2009 (US$4.9 trillion vs. US$14 trillion)• China’ economy will overtake the US by 2028 under the condition that the sum of the following is greater or equal to 6%: the growth differential, RMB appreciation rate, and inflation rate differences (for example, China’s growth rate is 7%, the US is 3%, RMB appreciates at 2% per year, and the inflation rates are the same)
  20. 20. Sustainability of growth• Two ways of economic growth – Increase of the use of resources (capital and labor) with the available technology – Development of new technologies (innovation)• Innovation is the only way to sustain growth after the initial stage of development
  21. 21. Can innovation be planned?• “The National Medium- and Long-Term Plan for the Development of Science and Technology (2006-2020)” (published on February 9, 2006)• Campaign for “indigenous innovation”• R&D spending as % of GDP – 1% in 2000 – 1.54% in 2008 – Target: 2.5% in 2020• Focusing on 16 megaprojects
  22. 22. Lessons from the past• Lessons from the Soviet Union in 1950s- 1980s• Lessons from Japan in 1980s – High definition televisions – The fifth generation computers• Lessons from China in 1960s and 1970s – Atomic and hydrogen bombs and man-made satellites
  23. 23. Being an entrepreneur in China• Advantages – The first generation pioneers (like the US in the 19th century) – Enormous size and scale of the domestic market (20% of the world population)• Disadvantages – Insecure property rights (including IP) and poor legal institutions – Opportunity costs: the strong government and state sector
  24. 24. Total college enrollment (million) and raw college enrollment rate (%) 24 24 total college enrollment (left) raw college enrollment rate(right)total college enrollment (unit, million) raw college enrollment rate (unit, %) 21 21 18 18 15 15 12 12 9 9 6 6 3 3 0 0 1978 1979 1980 1981 1982 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 2008 2009 Source: China Statistical Yearbook 2010, China Populatoin Statistical Yearbook(various years) Notes: raw college enrallment rate calculated for population of 18-21 year old
  25. 25. The talent development plan• “The National Medium- and Long-Term Talent Development Plan (2010-2020)” (published on June 6, 2010)• “The Thousand Talents Program”: Bring back to China 2,000 top talents within five to ten years
  26. 26. The plan for educational reform and development• “The National Medium- and Long-Term Plan for Educational Reform and Development (2010-2020)” (published on July 29, 2010)• Targets: – Raw enrollment rate of college students: 40% in 2020 – Government fiscal expenditure on education as % of GDP: 4% in 2012
  27. 27. Difficulties in nurturing creativity• Students lack of – Curiosity – Imagination – Critical thinking• Institutional and cultural constraints on – Free inquiry – Independent thinking
  28. 28. Career aspirations by Chinese college graduates• A survey of college graduates in August 2010: What is your most desirable job? – Government agencies: 63% – State-owned enterprises: 11% – Start-up companies: 10% – Non-profit organizations: 8% – Foreign and joint ventures: 5% – Private enterprises: 1%
  29. 29. Unprecedented challenges• Institutional transformation – Unfinished reforms on the economic system – So little change in the political system• Backlash from the current financial crisis – Reversal of market-oriented reforms – Delay of structural adjustments (consumption, investment, service sector, export, etc.) – Expansion of the state sector and retreat of the private sector

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