This document provides an overview of China's economic rise from 1978-2015. It notes that China surpassed the US to become the world's largest economy in 2014 based on purchasing power parity. Key developments included China becoming the world's leading exporter and FDI recipient. The economy experienced rapid wage growth and poverty reduction, growing the middle class. While state-owned enterprises declined, the role of the private sector and economic liberalization in driving growth is debated. The document examines theories attributing China's success to state intervention versus gradual market liberalization and privatization.
This paper takes a systematic look at the economic impact of the crisis that started in earnest in the fall of 2008 across countries and regions. Despite warnings of growing domestic and external imbalances in many countries years ahead of the crisis, the massive impact of the crisis came as a surprise to most. By correlating economic performance in the crisis with an extensive set of early warning, country insurance, and policy indicators, this paper provides some lessons on crisis prevention and management for the future. Although significant efforts have been made to develop robust early warnings systems, the paper shows the mixed success of some commonly analyzed indicators in predicting economic outcomes in this crisis. The only robust early warning indicator was increases in real estate prices while international reserves seem to have insured against the worst crisis outcomes on average. However, much work on building a robust early warning system remains and the analytical and empirical challenges in this area are substantial. The issues confronting early warning systems are also relevant to the more recent field of macro prudential supervision and regulation. Nevertheless, the cost of crises is massive and preventing future ones with better regulation, policies and supervision based on solid research must be a top priority among policy makers and academics alike.
We use newly compiled top income share data and structural breaks techniques to estimate common trends and breaks in inequality across countries over the twentieth century. Our results both confirm earlier findings and offer new insights. In particular, the division into an Anglo-Saxon and a Continental European experience is not as clear cut as previously suggested. Some Continental European countries seem to have experienced increases in top income shares, just as Anglo-Saxon countries, but typically with a lag. Most notably, Nordic countries display a marked “Anglo-Saxon” pattern, with sharply increased top income shares especially when including realized capital gains. Our results help inform theories about the causes of the recent rise in inequality.
Although there exists a vast literature on aid efficiency (the effect of aid on GDP), and that aid allocation determinants have been estimated, little is known about the minute details of aid allocation. This article investigates empirically a claim repeatedly made in the past that aid donors herd. Building upon a methodology applied to financial markets, this article finds that aid donors herd similarly to portfolio funds on financial markets. It also estimates the causes of herding and finds that political transitions towards more autocratic regimes repel donors, but that transitions towards democracy have no effect. Finally, identified causes of herding explain little of its overall level, suggesting strategic motives play an important role.
Despite a voluminous literature on the topic, the question of whether aid leads to growth is still controversial. To observe the pure effect of aid, researchers used instruments that must be exogenous to growth and explain well aid flows. This paper argues that instruments used in the past do not satisfy these conditions. We propose a new instrument based on predicted aid quantity and argue that it is a significant improvement relative to past approaches. We find a significant and relatively big effect of aid: a one standard deviation increase in received aid is associated with a 1.6 percentage points higher growth rate.
This paper takes a systematic look at the economic impact of the crisis that started in earnest in the fall of 2008 across countries and regions. Despite warnings of growing domestic and external imbalances in many countries years ahead of the crisis, the massive impact of the crisis came as a surprise to most. By correlating economic performance in the crisis with an extensive set of early warning, country insurance, and policy indicators, this paper provides some lessons on crisis prevention and management for the future. Although significant efforts have been made to develop robust early warnings systems, the paper shows the mixed success of some commonly analyzed indicators in predicting economic outcomes in this crisis. The only robust early warning indicator was increases in real estate prices while international reserves seem to have insured against the worst crisis outcomes on average. However, much work on building a robust early warning system remains and the analytical and empirical challenges in this area are substantial. The issues confronting early warning systems are also relevant to the more recent field of macro prudential supervision and regulation. Nevertheless, the cost of crises is massive and preventing future ones with better regulation, policies and supervision based on solid research must be a top priority among policy makers and academics alike.
We use newly compiled top income share data and structural breaks techniques to estimate common trends and breaks in inequality across countries over the twentieth century. Our results both confirm earlier findings and offer new insights. In particular, the division into an Anglo-Saxon and a Continental European experience is not as clear cut as previously suggested. Some Continental European countries seem to have experienced increases in top income shares, just as Anglo-Saxon countries, but typically with a lag. Most notably, Nordic countries display a marked “Anglo-Saxon” pattern, with sharply increased top income shares especially when including realized capital gains. Our results help inform theories about the causes of the recent rise in inequality.
Although there exists a vast literature on aid efficiency (the effect of aid on GDP), and that aid allocation determinants have been estimated, little is known about the minute details of aid allocation. This article investigates empirically a claim repeatedly made in the past that aid donors herd. Building upon a methodology applied to financial markets, this article finds that aid donors herd similarly to portfolio funds on financial markets. It also estimates the causes of herding and finds that political transitions towards more autocratic regimes repel donors, but that transitions towards democracy have no effect. Finally, identified causes of herding explain little of its overall level, suggesting strategic motives play an important role.
Despite a voluminous literature on the topic, the question of whether aid leads to growth is still controversial. To observe the pure effect of aid, researchers used instruments that must be exogenous to growth and explain well aid flows. This paper argues that instruments used in the past do not satisfy these conditions. We propose a new instrument based on predicted aid quantity and argue that it is a significant improvement relative to past approaches. We find a significant and relatively big effect of aid: a one standard deviation increase in received aid is associated with a 1.6 percentage points higher growth rate.
Realized capital gains are typically disregarded in the study of income inequality. We show that in the case of Sweden this severely underestimates the actual increase in inequality and, in particular, top income shares during recent decades. Using micro panel data to average
incomes over longer periods and re-rank individuals according to income excluding capital gains, we show that capital gains indeed are a reoccurring addition to rather than a transitory component in top incomes. Doing the same for lower income groups, however, makes virtually no difference. We also try to find the roots of the recent surge in capital gains-driven inequality in Sweden since the 1980s. While there are no evident changes in terms of who earns these gains (high wage earners vs. top capital income earners), the primary driver instead seems to be the drastic asset price increases on the post-1980 deregulated financial markets.
This paper studies determinants of income inequality using a newly assembled panel of 16 countries over the entire twentieth century. We focus on three groups of income earners: the rich (P99-100), the upper middle class (P90-99), and the rest of the population (P0-90). The results show that periods of high economic growth disproportionately increases the top percentile
income share at the expense of the rest of the top decile. Financial development is also pro-rich and the outbreak of banking crises is associated with reduced income shares of the rich. Trade openness has no clear distributional impact (if anything openness reduces top shares). Government spending, however, is negative for the upper middle class and positive for the nine lowest deciles but does not seem to affect the rich. Finally, tax
progressivity reduces top income shares and when accounting for real dynamic effects the impact can be important over time.
Version of March 25, 2009. Please check for updates https://www.elsevier.com/
Read more research publications at: https://www.hhs.se/site
This paper presents new evidence on intergenerational mobility in the top of the income and earnings distribution. Using a large dataset of matched father-son pairs in Sweden, we find that intergenerational transmission is very strong in the top, more so for income than for earnings. In the extreme top (top 0.1 percent) income transmission is remarkable with an IG elasticity above 0.9. We also study potential transmission mechanisms and find that sons’ IQ, non-cognitive skills and education are all unlikely channels in explaining this strong transmission. Within the top percentile, increases in fathers’ income are, if anything, negatively associated with these variables. Wealth, on the other hand, has a significantly positive association. Our results suggest that Sweden, known for having relatively high intergenerational mobility in general, is a society where transmission remains strong in the very top of the distribution and that wealth is the most likely channel.
This policy brief covers a discussion on finance for sustainable development held during a full day conference at the Stockholm School of Economics on May 11, 2015. The event was organized jointly by the Stockholm Institute of Transition Economics (SITE) and the Swedish Ministry for Foreign Affairs, and was the fifth installment of Development Day – a yearly development policy conference. With the Millennium Development Goals (MDGs) expiring in 2015, the members of the United Nations are now in the process of defining a post-2015 development agenda. The Sustainable Development Goals (SDGs) build on the eight anti-poverty targets in the MDG but also include a renewed emphasis on environmental and social sustainability. Whatever targets or goals will be agreed upon in the end, we know for certain that reaching the objectives will require substantial financial resources, far beyond the current levels of official development assistance (ODA). To discuss this issue, the conference brought together a distinguished and experienced group of policy-oriented scholars and practitioners from government agencies, international organizations, civil society and the business community.
Dr. Alejandro Diaz Bautista Conference FDI Mexico United States September 2009Economist
“Foreign Direct Investment (FDI) and Economic Growth. The Case of Mexico and the United States".
Dr. Alejandro Díaz-Bautista
Investigador Nacional y Miembro del Sistema Nacional de Investigadores, CONACYT, Nivel II.
adiazbau@hotmail.com
http://www.linkedin.com/pub/alejandro-diaz-bautista/6/619/691
Profesor-Investigador de Economía,
Departamento de Estudios Económicos,
El Colegio de la Frontera Norte.
Preparado para la 1er. Seminario internacional Evaluación del efecto de la Inversión Extranjera Directa (IED) en las economías en desarrollo. El evento se realizara en la Casa COLEF Ciudad de México, con dirección en la Calle Francisco Sosa No. 254, Col. Barrio de Santa Catarina en Coyoacán, México D.F. el 18 de septiembre de 2009.
Skirting the Abyss: From Economic Downturn to Financial Crisis to Long-term M...Llinlithgow Associates
We came right up to the edge of the economic abyss after a year of an accelerating economic downturn and have managed to avoid it but are not out of the woods yet. The risks of a double-dip are growing but the likelihood of a weak recovery and poor job creation is high. A key problem is and was the financial crisis and credit market collapse which has created major lingering problems that will be with us for years. Beyond that a two-decade over-accumulation of debt, drastic declines in Savings and under-Investment have created long-term problems for getting back to sustainable long-term growth. Here we survey the current state of the economy, wade thru the details of the Financial crisis, especially the role of Synthetic Structured Debt and the business performance of the Finance Industry. Then we roll forward to examine the long-term damages created, how we need reduce private debt and what our prospects for reduced long-term growth are. Or, given the decisions to invest in our future and address broader policy problems, how we can return to a path of longer-term high growth and prosperity.
In this paper I examine the development effects of military coups. Whereas previous economic literature has primarily viewed coups as a form of broader political instability, less research has focused on its development consequences independent of the factors making coups more likely. Moreover, previous research tends to group coups together regardless of whether they overthrew autocratic or democratically-elected leaders. I first show that coups overthrowing democratically elected leaders imply a very different kind of event than those overthrowing autocratic leaders. These differences relate to the implementation of authoritarian institutions following a coup in a democracy, which I discuss in several case studies. Second, I address the endogeneity of coups by comparing the growth consequences of failed and successful coup as well as matching and panel data methods, which yield similar results. Although coups taking place in already autocratic countries show imprecise and sometimes positive effects on economic growth, in democracies their effects are distinctly detrimental to growth. When overthrowing democratic leaders, coups not only fail to promote economic reforms or stop the occurrence of economic crises, but they also have substantial negative effects across a number of standard growth-related outcomes including health, education, and investment.
Read more: https://www.hhs.se/site
Economic
The recovery since the 2008 Great Recession has been marked by lacklustre growth in credit and has been significantly below trend compared to previous recessions.
Employment economic indicators have also been below trend compared to previous recessions and recovery periods.
We argue that the tilt towards donor interests over recipient needs in aid allocation and practices may be particularly strong in new partnerships. Using the natural experiment of Eastern transition we find that commercial and strategic concerns influenced both aid flows and entry in the first half of the 1990s, but much less so later on. We also find that fractionalization increased and that early aid to the region was particularly volatile, unpredictable and tied. Our results may explain why aid to Iraq and Afghanistan has had little development impact and serve as warning for Burma and Arab Spring regimes.
http://ow.ly/XurT7
The Good Retirement Guide offers clear and concise suggestions on a broad range of retirement-related subjects. The Guide includes information on:
Pensions/ Tax / Investment / Starting your own business / Leisure activities / Paid work / Voluntary work / How to avoid being scammed / Health / Holidays / Looking after elderly parents / Wills. Revised and updated, the 2016 edition is packed with hundreds of useful suggestions and helpful websites to browse. This is an indispensable book that you will refer to again and again.
Realized capital gains are typically disregarded in the study of income inequality. We show that in the case of Sweden this severely underestimates the actual increase in inequality and, in particular, top income shares during recent decades. Using micro panel data to average
incomes over longer periods and re-rank individuals according to income excluding capital gains, we show that capital gains indeed are a reoccurring addition to rather than a transitory component in top incomes. Doing the same for lower income groups, however, makes virtually no difference. We also try to find the roots of the recent surge in capital gains-driven inequality in Sweden since the 1980s. While there are no evident changes in terms of who earns these gains (high wage earners vs. top capital income earners), the primary driver instead seems to be the drastic asset price increases on the post-1980 deregulated financial markets.
This paper studies determinants of income inequality using a newly assembled panel of 16 countries over the entire twentieth century. We focus on three groups of income earners: the rich (P99-100), the upper middle class (P90-99), and the rest of the population (P0-90). The results show that periods of high economic growth disproportionately increases the top percentile
income share at the expense of the rest of the top decile. Financial development is also pro-rich and the outbreak of banking crises is associated with reduced income shares of the rich. Trade openness has no clear distributional impact (if anything openness reduces top shares). Government spending, however, is negative for the upper middle class and positive for the nine lowest deciles but does not seem to affect the rich. Finally, tax
progressivity reduces top income shares and when accounting for real dynamic effects the impact can be important over time.
Version of March 25, 2009. Please check for updates https://www.elsevier.com/
Read more research publications at: https://www.hhs.se/site
This paper presents new evidence on intergenerational mobility in the top of the income and earnings distribution. Using a large dataset of matched father-son pairs in Sweden, we find that intergenerational transmission is very strong in the top, more so for income than for earnings. In the extreme top (top 0.1 percent) income transmission is remarkable with an IG elasticity above 0.9. We also study potential transmission mechanisms and find that sons’ IQ, non-cognitive skills and education are all unlikely channels in explaining this strong transmission. Within the top percentile, increases in fathers’ income are, if anything, negatively associated with these variables. Wealth, on the other hand, has a significantly positive association. Our results suggest that Sweden, known for having relatively high intergenerational mobility in general, is a society where transmission remains strong in the very top of the distribution and that wealth is the most likely channel.
This policy brief covers a discussion on finance for sustainable development held during a full day conference at the Stockholm School of Economics on May 11, 2015. The event was organized jointly by the Stockholm Institute of Transition Economics (SITE) and the Swedish Ministry for Foreign Affairs, and was the fifth installment of Development Day – a yearly development policy conference. With the Millennium Development Goals (MDGs) expiring in 2015, the members of the United Nations are now in the process of defining a post-2015 development agenda. The Sustainable Development Goals (SDGs) build on the eight anti-poverty targets in the MDG but also include a renewed emphasis on environmental and social sustainability. Whatever targets or goals will be agreed upon in the end, we know for certain that reaching the objectives will require substantial financial resources, far beyond the current levels of official development assistance (ODA). To discuss this issue, the conference brought together a distinguished and experienced group of policy-oriented scholars and practitioners from government agencies, international organizations, civil society and the business community.
Dr. Alejandro Diaz Bautista Conference FDI Mexico United States September 2009Economist
“Foreign Direct Investment (FDI) and Economic Growth. The Case of Mexico and the United States".
Dr. Alejandro Díaz-Bautista
Investigador Nacional y Miembro del Sistema Nacional de Investigadores, CONACYT, Nivel II.
adiazbau@hotmail.com
http://www.linkedin.com/pub/alejandro-diaz-bautista/6/619/691
Profesor-Investigador de Economía,
Departamento de Estudios Económicos,
El Colegio de la Frontera Norte.
Preparado para la 1er. Seminario internacional Evaluación del efecto de la Inversión Extranjera Directa (IED) en las economías en desarrollo. El evento se realizara en la Casa COLEF Ciudad de México, con dirección en la Calle Francisco Sosa No. 254, Col. Barrio de Santa Catarina en Coyoacán, México D.F. el 18 de septiembre de 2009.
Skirting the Abyss: From Economic Downturn to Financial Crisis to Long-term M...Llinlithgow Associates
We came right up to the edge of the economic abyss after a year of an accelerating economic downturn and have managed to avoid it but are not out of the woods yet. The risks of a double-dip are growing but the likelihood of a weak recovery and poor job creation is high. A key problem is and was the financial crisis and credit market collapse which has created major lingering problems that will be with us for years. Beyond that a two-decade over-accumulation of debt, drastic declines in Savings and under-Investment have created long-term problems for getting back to sustainable long-term growth. Here we survey the current state of the economy, wade thru the details of the Financial crisis, especially the role of Synthetic Structured Debt and the business performance of the Finance Industry. Then we roll forward to examine the long-term damages created, how we need reduce private debt and what our prospects for reduced long-term growth are. Or, given the decisions to invest in our future and address broader policy problems, how we can return to a path of longer-term high growth and prosperity.
In this paper I examine the development effects of military coups. Whereas previous economic literature has primarily viewed coups as a form of broader political instability, less research has focused on its development consequences independent of the factors making coups more likely. Moreover, previous research tends to group coups together regardless of whether they overthrew autocratic or democratically-elected leaders. I first show that coups overthrowing democratically elected leaders imply a very different kind of event than those overthrowing autocratic leaders. These differences relate to the implementation of authoritarian institutions following a coup in a democracy, which I discuss in several case studies. Second, I address the endogeneity of coups by comparing the growth consequences of failed and successful coup as well as matching and panel data methods, which yield similar results. Although coups taking place in already autocratic countries show imprecise and sometimes positive effects on economic growth, in democracies their effects are distinctly detrimental to growth. When overthrowing democratic leaders, coups not only fail to promote economic reforms or stop the occurrence of economic crises, but they also have substantial negative effects across a number of standard growth-related outcomes including health, education, and investment.
Read more: https://www.hhs.se/site
Economic
The recovery since the 2008 Great Recession has been marked by lacklustre growth in credit and has been significantly below trend compared to previous recessions.
Employment economic indicators have also been below trend compared to previous recessions and recovery periods.
We argue that the tilt towards donor interests over recipient needs in aid allocation and practices may be particularly strong in new partnerships. Using the natural experiment of Eastern transition we find that commercial and strategic concerns influenced both aid flows and entry in the first half of the 1990s, but much less so later on. We also find that fractionalization increased and that early aid to the region was particularly volatile, unpredictable and tied. Our results may explain why aid to Iraq and Afghanistan has had little development impact and serve as warning for Burma and Arab Spring regimes.
http://ow.ly/XurT7
The Good Retirement Guide offers clear and concise suggestions on a broad range of retirement-related subjects. The Guide includes information on:
Pensions/ Tax / Investment / Starting your own business / Leisure activities / Paid work / Voluntary work / How to avoid being scammed / Health / Holidays / Looking after elderly parents / Wills. Revised and updated, the 2016 edition is packed with hundreds of useful suggestions and helpful websites to browse. This is an indispensable book that you will refer to again and again.
A summary of IBM's recent study into CEO's attitudes & mindset, especially focusing on the difference between Australian/NZ CEOs vs the rest of the world, which is marked. I've also made some observations why they are and how agencies should be addressing them.
NB. The full IBM study is well worth a read. Downloadable for free.
Project about Pluto for Planetary Geology 2010
I updated some information and pictures on this powerpoint on 10/16/12
http://www.youtube.com/watch?v=HEheh1BH34Q
An examination of the ccp’s strategies to alleviate discontent after the grea...Luigi Caloi
Despite the fact that the impact of the 2008 recession was bigger on the coastal regions, the CP's stimulus package went primarily to the rural regions in China. On the other hand, our tests show that urban provinces in China are more unstable than their rural counterparts.
We provide a theoretical framework and empirical evidence to explain the geographic direction of the CP's stimulus package. In short, we show that the CP's goal was to minimize political instability, by crating an incentive scheme to further encourage the reverse-migration of the “temporary population” back to their Hukou-based jurisdictions.
geopolitics of china, political weight index, governmental weight index, budget, budget per capita, china political economy
http://iilss.net/
http://maynter.com
An Examination of the CCP’s Strategies to Alleviate Discontent After the Grea...Sahaj Sood
The following research project examines the various strategies of the Chinese Communist Party in the aftermath of the Great Recession of 2008, to reduce the discontent of the population.
Trade Liberalization and Economic Growth in China Since 1980iosrjce
The aim of this study is to explore the causality relationship between the foreign trade and economic
growth of Chinese economy using time series data running from 1980 to 2013.Co integration, Granger
Causality analysis and Vector Error Correction Mechanism (VECM) has been used in order to test the
hypotheses about the presence of causality and co integration between the two variables. The co integration test
confirmed that foreign trade and GDP are co integrated, indicating an existence of long run equilibrium
relationship between the two as confirmed by the Johansen co integration test results. The Granger causality
test finally confirmed the presence of bi-directional causality.
Viewing the Chinese economy as a speeding car, there are three types of development that could crash the car: (1) a hardware failure, which is the breakdown of an economic mechanism (analogous to the collapse of the chassis of the car), e.g. a banking crisis; (2) a software failure, which is a flaw in governance that creates social disorders (analogous to a fight among the people inside the car), e.g. the state not being able to meet the rising social expectations about its performance because many of the key regulatory institutions are absent or ineffective; and (3) a power supply failure, which is the loss of economic viability (analogous to the car running out of gas or having its ignition key pulled out) e.g. an environmental collapse or an export collapse.
The fact that China has recently declared that its most important task is to build a Harmonious Society (described as a democratic society under the rule of law and living in harmony with nature) suggests that improvements in governance and protection of the environment are among the most serious challenges to achieving sustainable development. The greatest inadequacy of the Harmonious Society vision is the absence of an objective to build a harmonious world because a harmonious society cannot endure in China unless there is also a harmonious world, and vice-versa. The large amount of structural adjustments in the developed countries generated by rapid globalization and technological innovations has made the international atmosphere ripe for trade protectionism; and environmental degradation has made conflict over the global environmental commons more likely. China's quest for a harmonious society requires it to help provide global public goods, particularly the strengthening of the multilateral free trade system, and the protection of the global environmental commons. Specifically, China should work actively for the success of the Doha Round and for an international research consortium to develop clean coal technology.
Authored by: Wing Thye Woo
Published in 2007
This article was aimed to study the environment and the co-movement of China’s economic growth together with
Thailand under economic and macro-finance dimensions by collecting information from academic literatures, global
organization reports, and historical data from opened source database such as World Bank, United Nations,
International Monetary Fund (IMF), and other relatives. The study found that China’s and Thailand’s economic
activities are related particularly in term of trade but the low investment. In fact, services industry has replaced
industrial manufacture to be the influent factor on gross domestic product (GDP) in both two countries. Moreover,
enhancing to promote world- class capital markets and financial system development in China has drawn attraction
from Thailand investors to invest more than a half of Thailand’s direct investment funds in financial firms and
activities in China in 2017. In the conclusion, Thailand’s economic growth is still relied on China’s demand for raw
materials according to goods and products they have exported to China. The suggestion for Thailand is to create their
own technology like China’s development model in order to produce valuable goods and services productivity. And
for both countries, China and Thailand should also have to focus on income distribution through other areas outside
the city under the principal of economic development to improve the welfare of the population.
All aboard the prosperity train, but who's driving
Essay on Chinese economic power - Tomas Vaclavicek
1. CHINA’S RISING ECONOMIC POWER
Tomas Vaclavicek, SID: 40078080
Essay for Economic Transformation of China
INTRODUCTION
On 2014, newspaper titles around the World announced that in terms of GDP in
purchasing power parity, People’s Republic of China (henceforth abbreviated as China) became
the largest economy in the world. The event came earlier than estimated by most analysts, with
The Economist expecting this event in 2016 in its 2011 infographic. When we look at a number of
other indicators, it seems that this only illustrates a broader trend of China as a rising economic
power – a trend that began around 1978.
The hypothesis of this essay states that China has made remarkable progress in its
economic development over the last 37 years and that this development cannot be explained
purely by state interventions in the economy or “Chinese characteristics” presented under the
flagship of Beijing consensus. To evaluate this hypothesis, the essay briefly describes the
economic progress made by China between 1978 and 2015 and analyzes different viewpoints
explaining why we can observe such a dramatic change in living conditions. Further, it names
some of the key risks to the Chinese model of development1 today and briefly interprets
suggested policy responses based on the framework discussed above.
KEY DEVELOPMENTS IN CHINESE ECONOMY
Even before 2014, signs of catching up with the US economy were numerous. As soon as
2004, the contribution of Chinese economy to World economic growth surpassed that of the USA
(Huang, 2011), as the fast growth rate of the economy paired up with an ever higher economic
base. In 2010, China overtook USA in terms of value added by the manufacturing sector. (KKR,
2012) Coupled with China’s rise to the role of World’s leading exporter, FDI recipient and net
lender (Morrison, 2015), the global rise of China’s economic importance in undeniable. Therefore,
the following paragraphs will focus more the economic situation of the people of China, to see
whether it confirms this story.
Just in 8 years between 2002 and 2010, hourly wages in manufacturing in China have risen
by stunning 231%, compared to only 26% in the US, leading to a major improvement in living
1
Some authors claim that there is no single Chinese development model. For simplicity, this debate is omitted
here. Further discussion of this issue may be found in M. Pearson’s essay Variety within and without in Kennedy, S.
(2011). Beyond the Middle Kingdom. Stanford, Calif.: Stanford University Press.
2. standards. (KKR, 2012) This in turn also means that Chinese labor costs are on the rise and that
for China to sustain its growth, it cannot hope to compete only in terms of “cheap labor”.
The poor people whose conditions have improved are strengthening the middle class,
which is reported to be strongly rising as a percentage of the population. McKinsey (2013) defines
the middle class as people earning between 9 000 and 34 000 USD per year and reports that as of
2012, full 68% of urban households belong to this income band, up from only 4% just 12 years
before. (McKinsey, 2013) This is accompanied by a large growth of private consumption,
averaging 8.9% p.a. between 2005 and 2014. (Morrison, 2015)
Since economic conditions in China have favored urban residents, it might be useful to
look also on the poor people, concentrated mainly in rural areas of China. As a result of the
reforms, China has also achieved an enormous success in lifting as much as 679 million people
out of extreme poverty. (Morrison, 2015) Even in rural areas, poverty rate has decreased
significantly. In 1985, 12% of rural population were below poverty line, while in 2003 this
percentage shrinked to 3.5%. (Chow, 2010)
On the other hand, one economic factor in which China has underperformed other
“Miracle economies” of the past such as Japan or South Korea is the global competitiveness of its
companies, which Kroeber (2011) interprets as a result of the government efforts to keep control
of large corporation in the hand of the state, which probably resulted in the loss of economic
potential.
Some economists say that Chinese statistical data provide a largely mistake picture of the
Chinese economy, either due to significant mistakes with collecting data or as a result of
deliberate falsification. If true, that would mean that we could not rely on the official statistics
presented above to evaluate China’s economic progress in last decades. While Gregory Chow
(2010) acknowledges possible mistakes in collection of data, he largely refutes the idea that the
average growth rate of Chinese economy over the last decades could be overestimated by
analyzing a rival theory in depth and showing how large and visible consequences would a slightly
lower growth rate have when accumulated over time. Therefore, it looks like the evaluation of
key trends based on official data suffices for this essay and overall, these data show a very
convincing support for calling the economic development of China a successful growth story.
THEORIES EXPLAINING CHINESE GROWTH
What policies have led to this impressive improvement in economic conditions? In
economic literature, there are two major streams of literature on Chinese economic
transformation. One approach is the traditional economic viewpoint of Washington consensus,
associated with free markets and favoring flexible exchange rates. The rival approach is so-called
Beijing consensus, a view promoted by Ramo which gained a large following in China.
3. Washington consensus views Chinese growth as a result of liberalization, decline of state
influence and interventions in the economy and the rise of private sector. (Huang, 2011) The
Beijing consensus instead claims that state-led industrial upgrading towards the most advanced
technologies is critical for a developing country and suggests that this is the major reason for
China’s fast pace of development along with a different, home-made globalization. (Ramo, 2004)
A comparison of qualitative factors influencing growth of China and India in a text by Wolf
(2011) seems to support the idea that China has been growing despite, rather than thanks to the
private sector, as it has weaker property rights and institutions. This might look even more
convincing when paired with data from the Index of Economic freedom, which shows that both
China and India have been placed consistently below the world average, with China currently
occupying 139th place out of 178. (Heritage Foundation, 2015) So perhaps one might feel tempted
to close the case, claiming that the Beijing consensus can better explain the Chinese economic
miracle. But is it so clear indeed?
First of all, we must distinguish a particular state – such as a present standing of China in
terms of economic freedom – from a process of transition, in which the country evolved from an
initial state towards a different constellation. From the point of view of the “state” variables, we
can indeed see that China does not yet embrace private property rights to the level corresponding
to the policies promoted by the Washington consensus and that in a number of ways if differs
from a model of market economy. On the other hand, if we look at the “flow”, the process through
which China is developing, we can see a gradual liberalization of the economy and evaluate its
pace, drivers and to what degree this liberalization has been a driver of economic progress.
Some authors identify distinct phases of the economic liberalization. Huang (2011) states
that while China embraced policies related to the Washington Consensus in the first years after
Deng Xiaoping took power, it moved towards a more statist model in 1990s. While this
classification provides an important insight, it might not be so simple, as data show that the share
of SOEs has been further decreasing in terms of number of companies, assets or value added.
(The Economist, 2011) Another classical measure of the level of state interventions in the
economy, Government consumption as percentage of GDP, suggests an almost unchanged level
with its hardly noticeable decline from 15% in 1981 to 13.6% in 2013 with no major trends up or
down. (World Bank, 2015) This measure however may not reflect government intervention in the
economy fully, as it would mean that the Chinese government plays a lower role in its economy
than its counterparts in the USA or UK. The overall level and trend in state interventions in the
economy in the last decades is hard to judge, as it seems to depend largely on which indicator we
use.
What can be explored more closely are counter-arguments against the Beijing consensus.
Fo instance, many authors mention township and village enterprises (TVEs) as an example of a
4. highly efficient production organized outside of the private sector and use this example to defend
the hypothesis that the state sector, rather than the private sector, has been the main growth
engine for China. In defence of the Washington consensus viewpoint, Huang (2011) demonstrates
that the majority of largely efficient TVEs have actually been owned privately and that privately
owned TVEs have been much more profitable. He supports these statements by micro-data on
TVEs. (Huang, 2011, p. 5)
Global Innovation Index also seems to speak against Ramo’s viewpoint, as he mentiones
state-led innovation as a key engine of the economy. But China is nowhere near the top in this
metric according to the data. (GII, 2015)
Further, Chow (2010) mentions that the decrese of rural poverty happened mainly due to
the introduction of household responsibility system and that their situation was further improved
when taxes on farmers were abolished and governance at local level was improved. All of these
features are typically associated rather with the Washington consensus approach and thus
support the idea that China has grown mostly due to gradual liberalization. Further, by my own
assessment, Ramo’s theory seems inadequately suported by micro-level data, while
counterarguments by his critics such as Huang go far to present convincing local-level
information.
Kennedy (2010) also attempts to refute the Beijing consensus, stating that it fails to
account for similarities of the Chinese model to growth models of other countries. While no
country can be considered as going exactly the same path as China, which countries might be the
most comparable? Political scientists interpret China’s progress most commonly in terms of
„Developmental state“ or „Patrimonialist state“ and their features. For instance, Kroeber (2011)
provides quite a comprehensive comparison of China with the developmental state model of 20th
century Japan or Korea. He finds a number of similarities, but also points out important
differences in policies and conditions, such as the rivalry with USA or much larger role of foreign
investments. (Kroeber, 2011) Together, this evidence suggests that it is hard to interpret China
purely through the lens of either developmental states or the Beijing consensus.
While there is disagreement on the policies that have driven the transformation, both
strings of literature agree that China has greatly risen its economic power since 1978 and that the
people of China have mostly benefited from this process. This clearly supports the first part of the
hypothesis and shows that evidence also generally supports its second part.
Also, since the developmental states of the 20th century often centred their efforts on a
creation of a strong private sector, there might be more common points between the two streams
of literature than the proponents of either are willing to admit. This way, it seems possible that
China has developed rapidly in the last decades due to a creation of a dynamic private sector with
5. the assistance of the state and amids a very gradual liberalization, which enabled the
entrepreneurial spirit of Chinese people to find ventures where it can flourish without opening
the economy too fast to a wide range of economic and political risks. Headey, Kanbur and Zhang
(2008) also perceive both explanations as intertwinned, mentioning that incentives, comparative
advantage, investment in human capital and other classiacal explanations play a role in China’s
economic development, but that both occured in the context of a strong state.
RISKS FOR THE FUTURE?
Between June and August 2015, Shanghai stock market has fallen by 43%, bringing
attention to growing risks in the Chinese economy. (Morrison, 2015) Chinese companies are
certainly not as dependent on capital market as their US counterparts, but since the importance
of capital markets has been rising in the last years (OECD, 2012) and since some of the problems
are connected to the banking sector, policy makers must take these signs seriously.
Huang (2011) points out that Chinese financial system has been overly supporting loss-
making state-owned enterprises instead of private companies, which could drive growth more.
Total debt in China has also grown dramatically in the years following the Global financial crisis,
reaching 282% of GDP in 2014, which is much higher than the average for developing countries.
(MGI, 2015) Only a handful of countries have witnessed such a fast rise in debt levels since 2007.
This probably helped to spur growth in the last decase, but now it can be viewed rather as a risky
development for the future. The reason would be that a resulting misallocation of resources can
bring about bad investments and bank losses. OECD (2012) highlights the trade linkages with
other countries which also make China more vulnerable to external development, even though
the rebalancing efforts happening since then can also decrease this dependence. At the same
time, as we could see in late summer 2015, concerns about Chinese growth sustainability can
have impacts around the globe.
Since there is a widely reported imbalance between investments and consumption, the
Chinese government is trying to implement policies aiming at closing this gap. But KKR (2012)
suggests that there is a trade-off between consumption level and GDP growth in China, which
would mean that the rebalancing can be very costly. From the economic perspective, this could
be explained by the Solow model of economic growth, under the assumption that savings rate is
still suboptimal. But given the extraordinarily large share of savings in China, I find this explanation
quite hard to believe. Therefore, the findings by KKR reflect the need for further research in the
topic, which could shed more light on the costs of rebalancing and provide useful policy guidance.
New policy responses have been announced very recently, in late November 2015. In
short, more liberalization measures are planned. The measures should include removal of internal
berriers to foreign and domestic trade, reform of the Hukou system and steps to improve market
6. access. (Shanghai Daily, 2015) Evaluating the reform plan based solely on the viewpoints
discussed in this essay such as the conclusions made by Huang (2011), this policy response seems
like a step in the right direction.
CONCLUSIONS
This short essay shows that China has evolved dramatically since 1978 and that its growing
economic power has also been reflected in growing incomes, living standards and economic
conditions. Since the impressive growth levels achieved in the last decades are not likely to be
sustainable in the future, some key risks to the Chinese model of economic development which
have appeared earlier this year are discussed as well.
The main viewpoints on the causes of the rise are discussed and compared with one
another, showing that there is strong evidence against the Beijing consensus paradigm which has
been popular among Chinese researchers since 2004. Private sector in China has played an
important role in its rapid economic development; a fact which some authors seem to
underestimate. One reason for this might be a false perception of township and village
enterprises (TVEs), which is reveled by Huang’s seminal work. This does not have to be with odds
with some other theories explored by economists and political scientists alike, as developmental
states of the 20th century also centred their bureaucratic efforts on the creation of a strong
private sector. Some features, such as the large role of SOEs after 37 years of economic transition,
can be considered uniquely Chinese, but there is vast evidence that what some would call
„Chinese economic miracle“ cannot be explained purely by such characteristics.
7. REFERENCES
Chow, G. (2010). Interpreting China's economy. Singapore: World Scientific.
Global Innovation Index (GII), (2015). The Global Innovation Index. [online] Available at:
https://www.globalinnovationindex.org/content/page/data-analysis/ [Accessed 30 Nov.
2015].
Headey, D., Kanbur, R. and Zhang, X. (2008). China’s Growth Strategies. [online] Available at:
http://www.arts.cornell.edu/poverty/kanbur/China'sGrowthStrategies.pdf [Accessed 30
Nov. 2015].
Heritage.org, (2015). Index of Economic Freedom. [online] Available at:
http://www.heritage.org/index/ [Accessed 30 Nov. 2015].
Huang, Y. (2011). Rethinking the Beijing Consensus. Asia Policy, [online] (11), pp.1-26. Available
at: http://archives.cerium.ca/IMG/pdf/Huang_-_Beijing_Consensus.pdf [Accessed 30 Nov.
2015].
Kennedy, S. (2010). The Myth of the Beijing Consensus. Journal of Contemporary China, 19(65),
pp.461-477.
KKR, (2012). The World in Rebalancing Mode: A Marathon, Not Sprint. Insights: Global Macro
Trends. [online] Available at:
http://www.kkr.com/sites/default/files/KKR_Insights_120615.pdf [Accessed 30 Nov. 2015].
Kreober A. (2011). Developmental Dreams: Policy and Reality in China’s Economic Reforms, in
Scott Kennedy (ed.), Beyond the Middle Kingdom:
Comparative Perspectives on China’s Capitalist Transformation (Stanford: Stanford
University Press), pp. 44-65.
McKinsey Global Institute (MGI), (2015). Debt and (not much) Deleveraging. [online] Available at:
http://www.mckinsey.com/insights/economic_studies/debt_and_not_much_deleveraging
[Accessed 30 Nov. 2015].
McKinsey, (2013). Mapping China’s middle class. [online] Available at:
http://www.mckinsey.com/insights/consumer_and_retail/mapping_chinas_middle_class
[Accessed 30 Nov. 2015].
Morrison, W. (2015). China’s Economic Rise: History, Trends, Challenges, and Implications for the
United States. Congressional Research Service Report. [online] Available at:
https://www.fas.org/sgp/crs/row/RL33534.pdf [Accessed 30 Nov. 2015].
8. OECD (2012), China in Focus: Lessons and Challenges, OECD, Paris.
http://www.oecd.org/china, htttp://www.oecdchina.org
Ramo, J. (2004). The Beijing Consensus. [online] Available at: http://fpc.org.uk/fsblob/244.pdf
[Accessed 30 Nov. 2015].
Shanghai Daily, (2015). China in new moves to boost economy. [online] Available at:
http://www.shanghaidaily.com/business/economy/China-in-new-moves-to-boost-
economy/shdaily.shtml [Accessed 30 Nov. 2015].
The Economist, (2011). The long arm of the state. [online] Available at:
http://www.economist.com/node/18832034 [Accessed 30 Nov. 2015].
Wolf, C. (2011). China and India, 2025. Santa Monica, CA: RAND.
World Bank, (2015). The World Bank DataBank. [online] Available at:
http://databank.worldbank.org/data/home.aspx [Accessed 30 Nov. 2015].