The document discusses China's economic rise and examines factors contributing to its high growth rates. It finds that in contrast to following a Soviet model based on rapid input growth, China's growth has been led primarily by productivity increases, achieving a rate of 3.9% annually from 1979-1994 compared to 0.4% for the US in that period. This productivity-led growth is seen as more sustainable. China is analyzed as having elements of an East Asian developmental state model, including maintaining a large state sector and controlling financial institutions, while allowing private sector growth. Its future trajectory is uncertain but it differs from past East Asian models in the timing of reforms.

1. Enter the Dragon?Enter the Dragon?
China’s Economic RiseChina’s Economic Rise
Last slide

2. Enter the Dragon?
China’s Economic Rise
Let’s begin
our
examinatio
n of China
by looking
at some
basic
economic
facts and

3. Enter the Dragon?
China’s Economic Rise

4. Enter the Dragon?
China’s Economic Rise
These tables show China’s overall GDP in both nominal and PPP terms
compared to other major economies
These tables show China’s overall GDP in both nominal and PPP terms
compared to other major economies

5. International Comparison: Real GDP Growth
Enter the Dragon?
China’s Economic Rise

6. GDP – real growth rate:
9.8% (2008) country comparison to the world:
13% (2007)
11.6% (2006)
GDP-Per capital (PPP-Purchasing power parity):
$6,000 (2008)country comparison to the world:
$5,500 (2007)
$4,900 (2006)
note: data are in 2008 US dollars
GDP – composition by sector:
agriculture: 10.6%
industry: 49.2%
services: 40.2% (2008)
China – Economic Fact SheetChina – Economic Fact Sheet

7. Education systemEducation system
Growth rate-India@17%, China@13%
Primary, secondary education, vocational education
trainning in china results in 99.1% literacy rate.
Where as in India it is 50 to 60 %
Adult literacy India -61%
China-91%
Expenditure on education India- 10.7%
China -12.8%
But coming to quality education India is far more better
than china

8. Enter the Dragon?
China’s Economic Rise
China’s economic growth (est. only)
1980
1996
2000
Why is China Growing So Fast?
How does the IMF(International Monetary Fund)
Research Team answer this question?
• Is China following the old Soviet model? (Recall that the old
Soviet model was based on a rapid increase in inputs, especially
labor and capital)
• Or, is something unusual happening in China?
• In other words, what is the key source of economic
growth in China, particularly since 1978 (when
the era of rapid growth began)?

9. Continued…
“During 1979-94, productivity gains accounted for
more than 42 percent of China’s growth and by the
early 1990s had overtaken capital as the most
significant source of growth”
Enter the Dragon?
China’s Economic Rise
China’s economic growth
1980
1996
2000

10. Continued…
“[China’s]… explosive growth in
productivity is remarkable--the U.S.
productivity growth rate averaged
0.4 percent during 1960-1989
[compared to 3.9 percent for China]
--and enviable, since productivity-led
growth is more likely to be sustained”
Enter the Dragon?
China’s Economic Rise
From the Economist: “In 2000 China’s workers were about
26% less productive than ASEAN’s. By 2005 the Chinese
had become 5% more productive. The gap is set to widen:
Chinese productivity has been growing at about 6.6% a year,
more than double ASEAN’s 2.9%”
From the Economist: “In 2000 China’s workers were about
26% less productive than ASEAN’s. By 2005 the Chinese
had become 5% more productive. The gap is set to widen:
Chinese productivity has been growing at about 6.6% a year,
more than double ASEAN’s 2.9%”
What’s the significance of this
conclusion by the IMF Research
Team?
What’s the significance of this
conclusion by the IMF Research
Team?

11. Continued…Continued…
According the IMF Research Team, productivity
increases in China were led by …
Introduction of the profit incentive to rural collective enterprises
(which are owned by local governments), family farms, small
private businesses, and foreign investors and traders
Reduction in state intervention
Expansion of property rights in the countryside and
“decollectivization”
Enter the Dragon?
China’s Economic Rise
China’s economic growth
1980
1996
2000

12. Why is China Growing So Fast?
Does a “Getting-the-prices-right” argument seem adequate
to explain China’s extraordinary economic growth? (On this
question, consider the sources of productivity growth)
Is there something missing from the IMF explanation?
How might we answer this question from the standpoint of
the various theoretical arguments we’ve studied in class?
Enter the Dragon?
China’s Economic Rise
Discuss

13. Why is China Growing So Fast?
The Getting-the-prices-right argument suggests quite
strongly that China’s economic development is
largely, if not solely the product of an “unleashed”
private sector
One problem, however, is this: the
Chinese state, while loosening its
grip,
continues to keep the private sector on a
short leash …
Enter the Dragon?
China’s Economic Rise

14. Comparing India and China’s Growth
Stories
Comparing India and China’s Growth
Stories
Indicators India China
Political System Multi-party
Democracy
One-party
authoritarian rule
Speed of Growth Economic reforms
started in 1991.
Average 6% growth
rate in past two
decades.
Economic reforms
started in 1978.
Average 9.5% growth
rate in past two
decades.
Areas of
Specialization
Rising power in
software, design,
services, and
precision industry.
Dominant in mass
manufacturing,
electronics and heavy
industrial plants

15. Comparing India and China’s Growth
Stories
Comparing India and China’s Growth
Stories
Indicators India China
Gini index
(standard measure
of inequality)
36.8
47.0 (up 10 points
from 15 yrs ago)
Foreign Direct
Investment
6.8% (up from 0.3%
in 2004)
17.8%
Future Areas of
growth
R&D, bio-
technology, high-
value IT enabled
services (legal,
medical, engineering
architecture),
manufacturing, agro-
based industry
IT business, services
and continued
manufacturing

16. “GDP Growth 2000 to 2050”“GDP Growth 2000 to 2050”
Source: Goldmann Sachs: The Path to 2050
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
[2003 bn US Dollars]
Germany
Brazil
Japan
Russia
-8-

17. Does China Follow the East Asian
Model?
Of course, there is nothing surprising about China’s
economic model: We have seen it before in Japan,
South Korea, and Taiwan
Yet, while the other East Asian economies
have been gradually dismantling their
developmental state apparatuses, China
seems to be in the process of solidifying
the elements of its developmental state
Enter the Dragon?
China’s Economic Rise
Q: Why has China been able build a
developmental state while other countries
“liberalize”?
Q: Why has China been able build a
developmental state while other countries
“liberalize”?

18. Elements of the East Asian Model in
China
The Chinese state has purposefully created a dual
economic structure: one part is based on an ever-
expanding private sector, while the other part is based on still
prominent state-owned enterprises, or SOEs
The private sector is relatively free of state control, but still
depends on state policies
The state sector, while declining in overall influence, still
plays “a major part in heavy industry and makes up a high
percentage of gross domestic fixed capital formation, gross
output value and the number of employees”
Enter the Dragon?
China’s Economic Rise

19. Elements of the East Asian Model in
China
State-Owned Enterprises
SOEs are concentrated in strategic industries with intermediate
technology
In the mid-1990s, 512 large SOEs were designated as priority
companies; the central government has also promoted “bureaucratic-
led restructuring” in an effort to make these companies globally
competitive
Examples: PetroChina, Sinopec, and China Telecom
Enter the Dragon?
China’s Economic Rise
PetroChina is now the world’s BIGGEST
company, worth about $1 trillion--more than
twice the value of Exxon Mobil
PetroChina is now the world’s BIGGEST
company, worth about $1 trillion--more than
twice the value of Exxon Mobil

20. Elements of the East Asian Model in
China
Government Control in the Financial Sector
Listing in the stock market is still strictly controlled by the
central government
Bank lending continues to be important source of corporate
funding; significantly, the central government owns most
banks (in 2001)
State maintains control over the free movement of
speculative capital
Enter the Dragon?
China’s Economic Rise

21. Elements of the East Asian Model in
China
Industrial Policy
China’s industrial policy is less coherent than other
elements of its developmental state model, but the state
has nonetheless demonstrated a strong interest in
“targeting” strategic industries
One complicating factor: China’s
membership in the WTO, which
prohibits many industry-specific
policies
Enter the Dragon?
China’s Economic Rise
What effect do organizations such as the WTO
have on newly industrialization economies today?
What effect do organizations such as the WTO
have on newly industrialization economies today?

22. Elements of the East Asian Model in
China
Conclusion
China is clearly not following the Anglo-Saxon “model” of
full economic liberalization; indeed, the evidence strongly
indicates that China is another developmental state
The timing of China’s capitalist development, however, is
very different from that of the other East Asian “miracles”:
This very likely means that China’s developmental
trajectory will differ, perhaps in dramatic ways
Enter the Dragon?
China’s Economic Rise

23. The Future of the East Asian Model?
Conclusion and Questions
Can the Chinese economy retain key elements of the
East Asian development model?
What is the likely trajectory of Chinese economic
development?
How does China differ from the other East Asian
models? How significant are these differences?
Enter the Dragon?
China’s Economic Rise

24. Sources of
Productivity
Growth
This figure was prepared by
the New Zealand
government, but it provides a
good overview of how
productivity growth might be
achieved. In this particular
model, the government (along
with other factors) is
considered a potentially
important element of
advances in productivity
The “getting-the-price-right”
model, however, takes for
granted that “free enterprise”
(alone) creates the impetus
for productivity increases