Perspectives on China’s Economic Growth Yingyi Qian School of Economics and Management Tsinghua University December 1, 2010
Jan 12, 2015
Perspectives on China’s Economic Growth
Yingyi QianSchool of Economics and Management
Tsinghua UniversityDecember 1, 2010
Agenda
• China’s growth in international perspectives• What drives China’s growth• What will sustain China’s growth
Growth of GDP per capita: China, India, and Indonesia (2005 US$ PPP)
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
GD
P p
er c
apita
at 2
005
US
$ P
PP
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
IndonesiaIndiaChina
Source:Penn World Table 6.3, 2005 US$ PPP
China seems to have the highest growth rate(Indices of GDP per capita at 2005 US$ PPP,
1978=100)$7868
100
200
300
400
500
600
700
80019
7819
7919
8019
8119
8219
8319
8419
8519
8619
8719
8819
8919
9019
9119
9219
9319
9419
9519
9619
9719
9819
9920
0020
0120
0220
0320
0420
0520
0620
0720
08
China(1978-2007)Korea(1978-2007)Taiwan, China(1978-2007)Japna(1978-2007)
Source:Penn World Table 6.3, 2005 US$ PPP
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
China’s growth is not so special (Indices of GDP per capita at 2005 US$ PPP)
$7868
100
300
500
700
900
1100
1300
1500
1700
1900
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51
Japan(1950-2000)Taiwan, China(1958-2007)Korea(1962-2007)China(1978-2007)
Source:Penn World Table 6.3,2005 US$ PPP
(2007)(1969)
(1991)(1987)
100
300
500
700
900
1100
1300
1500
1700
1900
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
Japan(1950-1990)Taiwan, China(1958-2007)Korea(1962-2007)China(1978-2007)
Source:Penn World Table 6.3,2005 US$ PPP
China’s fast growth is not so special (Indices of GDP per capita at 2005 US$ PPP)
Growth comparison between China and other Asian economies (GDP per capita at 2005
US$ PPP)
$7868
0
3000
60008000
12000
15000
18000
21000
24000
27000
3000019
5019
5219
5419
5619
5819
6019
6219
6419
6619
6819
7019
7219
7419
7619
7819
8019
8219
8419
8619
8819
9019
9219
9419
9619
9820
0020
0220
0420
0620
0820
10
Japan(1950-2007)Taiwan, China(1958-2007)Korea(1962-2007)China(1978-2010)India(1991-2007)
Source:Penn World Table 6.3, 2005 US$ PPP, post-2007 values for China extrapolated at 1995-2007 growth rate
GDP per capita of China remains lower than the world average (2007 data at 2005 US$ PPP)
42897
31443 30587
23852
1527313401
10179 96447868
51863825
2341 2024
0
10,000
20,000
30,000
40,000U
S
Spa
in
Japa
n
Kor
ea
Arg
entin
a
Rus
sia
Wor
ld
Bra
zil
Chi
na
Indo
nesi
a
Indi
a
Ban
glad
esh
Ken
ya
Source:Penn World Table 6.3, 2007 GDP per capita at 2005 US$ PPP
Sources of growth: massive investment (gross fixed investment as share of GDP)
0
10
20
30
40
50
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29Year
Japan (1950-1973)* Taiwan, China (1962-1987)* South Korea (1962-1990)* China (1978-2005)**
Source:* WDI, **CSY(2006)
5
10
15
20
25
30
35
1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
Investment excluding inventory, before taxes
Excluding urban residential housing,including inventories,before taxes
Excluding urban residential housing,including inventories, after inderect taxes
The estimated return to capital in China
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
China National Expressway Network Plan
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)
510
1520
2530
35B
udge
tary
reve
nue
shar
e in
GD
P
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
Budgetary revenue share of GDP
Source: China Statistics Yearbook.
SOE net profit as share of GDP0
510
15R
atio
of i
ndus
try S
OEs
' pro
fit to
GD
P
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
World ranking of China’s 8 largest banks (market value on April 28, 2010)
5722Minsheng(民生银行)
5026SPDB(浦发银行)
4532CITIC(中信银行)
3345CMB(招商银行)
2653BoCom(交通银行)
7145BoC(中国银行)
2187CCB(建设银行)
1226ICBC(工商银行)
World RankingMarket Value (US$ billion)
Banks
ABC(中国农业银行)went IPO on July 15, 2010.
China’s 10 largest firms by revenue in Fortune 500 (2009)
China Telecomm(中国电信)
China Construction Bank(中国建设银行)
China Southern Power Grid(中国南方电网)
Bank of China(中国银行)
China Life(中国人寿)
China Mobile(中国移动)
Industrial and Commercial Bank of China(工商银行)
China National Petroleum(中国石油)
State Grid(国家电网)
Sinopec(中国石化)
1098765432
1
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)
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
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
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
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
Total college enrollment (million) and raw college enrollment rate (%)
0
3
6
9
12
15
18
21
24
raw
col
lege
enr
ollm
ent r
ate
(uni
t, %
)
0
3
6
9
12
15
18
21
24
tota
l col
lege
enr
ollm
ent (
unit,
milli
on)
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
total college enrollment (left)raw college enrollment rate(right)
Source: China Statistical Yearbook 2010, China Populatoin Statistical Yearbook(various years)Notes: raw college enrallment rate calculated for population of 18-21 year old
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
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
Difficulties in nurturing creativity
• Students lack of– Curiosity– Imagination– Critical thinking
• Institutional and cultural constraints on– Free inquiry– Independent thinking
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%
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