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China’s Domestic Transformation in a Global Context

China’s Domestic Transformation in a Global Context OPEN ACCESS

LIGANG SONG
ROSS GARNAUT
CAI FANG
LAUREN JOHNSTON
Copyright Date: 2015
Published by: ANU Press
Stable URL: http://www.jstor.org/stable/j.ctt16wd0dw
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  • Book Info
    China’s Domestic Transformation in a Global Context
    Book Description:

    The phrase ‘New Normal’ captures the ongoing shift in the pattern and drivers of China’s economic growth. China’s new growth rate is both slower and imposing difficult structural change. These new economic conditions are challenging yet offer opportunities for China and its economic partners. Reforms must be deepened but also make growth more inclusive and environmentally sustainable, over this decade and beyond. This year’s Update offers both global context and domestic insight into this challenging new phase of China’s domestic economic transformation. How are policymakers elevating migrant workers concurrent with increasing consumption? Is China’s government spending enough on education and R&D to ensure it can achieve its aspirations to ascend the global manufacturing value chain and avoid the middle-income trap? Are energy market reforms reducing or increasing the price of gas and electricity in China? What are the consequences of China’s financial reforms and expanding Renminbi trading for foreign banks? What does China’s new growth model mean for the international resources economy and for Africa? Do SOEs face market conditions and are they dominating China’s fast-rising outbound investment? What is China’s strategy for navigating fragmented international trade policy negotiations?

    eISBN: 978-1-925022-69-8
    Subjects: Business, Economics, Political Science, History
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Table of Contents

Export Selected Citations
  1. Ross Garnaut, Ligang Song, Cai Fang and Lauren Johnston

    China is experiencing its most persistent substantial slowdown in economic growth since the early years of reform. Annual growth has sagged from an average of 10 per cent per annum in the first decade of the century to just more than 7 per cent in 2014. As we discussed in theChina Updatesfor 2006 and 2013, some slowing was inevitable and welcome to authorities. The slowdown anticipated in 2006 and 2013 is auspicious—driven by structural factors and necessary to sustain economic growth. The question now is whether we are observing the slowdown that is anticipated, and necessary to...

  2. Part I: Domestic transformation and structural change
    • Ross Garnaut

      We said in the introductory chapter to the 2013 China Update book that contemporary changes in economic policy and structure were so comprehensive and profound that they represented a new model of Chinese economic growth (Garnaut et al. 2013a). We called the volumeChina: A New Model of Growth and Development.

      The new model had conventional economic and more subtle institutional dimensions. Cai Fang, Ligang Song and I (Garnaut et al. 2013b) and Huang et al. (2013) explored the former, and Dwight Perkins (2013) explored the institutional changes.

      We noted in 2013 that these changes in China would have large...

    • Guonan Ma

      This chapter makes a strong case for Chinese monetary policy easing, contributing to the debate over whether China’s latest monetary policy shift is warranted and desirable. Chinese monetary policy was excessively tight in 2014 but started loosening more meaningfully from late 2014, in an attempt to cushion growth, facilitate rebalancing, support reform and mitigate financial risk.

      There are three main reasons justifying this shift in monetary policy stance. First, there is evidence that the Chinese economy has been operating below its potential capacity. Second, among the big-five (G5) economies, both China’s monetary policy stance and its broader financial condition tightened...

    • Ran Li, Xiang Li, Wen Lei and Yiping Huang

      China’s government has recently implemented additional reforms to relax the regulatory environment for foreign banks. Specifically, State Council Order No. 657, signed by Premier Li Keqiang, announced a decision to revise the Regulations of the People’s Republic of China on the Administration of Foreign-Funded Banks, effective from 1 January 2015. Implications of the revised regulations include removal of the requirement that a minimum of RMB100 million operating capital be transferred unconditionally from the overseas parent bank to the newly opened Chinese branch. In addition, in terms of the conditions attached to the right to carry out RMB-denominated activity, foreign banks...

    • Meiyan Wang and Cai Fang

      The 2014 Central Economic Working Conference emphasised that China’s economy has a ‘new normal’, characterised mainly by slower growth. One approach to fostering new sources of growth is to enable consumption to play a more significant role in boosting economic development in China. That potential is large, as the proportions of final consumption expenditure and household consumption expenditure in gross domestic product (GDP) have significantly declined since the period of reform and opening-up. In 2013 these two proportions were 48.2 per cent and 34.1 per cent respectively. In comparison, the proportions of final consumption expenditure and household consumption expenditure in...

    • Qing King Guo, Chi Keung Marco Lau, Kunwang Li and Ligang Song

      Energy price convergence is one of the leading indicators for understanding market liberalisation and integration. The first contribution to the literature on the success of Chinese market reform and market integration is Young (2000). The author uses simple trends in the regional variance of prices to quantify market liberalisation and integration. Fan and Wei (2006), however, cast doubt on Young’s controversial finding that China’s internal markets became less rather than more integrated during the reform period. Fan and Wei used a nonlinear panel unit root test and found ‘strong evidence of price convergence and hence market integration in China. Such...

    • Xunpeng Shi and Hari Malamakkavu Padinjare Variam

      The regional and global impacts of activity in China’s gas sector have become increasingly significant but are a relatively new issue for most energy researchers. Building on the remarkable growth of its economy since the 1980s, China has been an engine for the world economy. China’s impact on the global energy and commodity markets has also been growing and has become significant since the 2000s. While much attention has been focused on the case of oil and minerals such as copper, nickel and iron ore, the emerging impact is evident in the world’s natural gas and liquefied natural gas (LNG)...

    • Stephen Wilson, Yufeng Yang and Jane Kuang

      Electricity is essential for both human and national development. China’s leaders—many of them engineers—have long understood this. Indeed, improved and increased electricity supply were integral to at least two of the ‘four modernisations’ in Deng Xiaoping’s landmark closing speech at the Third Plenary Session of the Eleventh Party Congress on 18 August 1977.

      At the founding of the People’s Republic in 1949, China had just 1.85 GW of installed electricity generation capacity and a population of more than 540 million (Jowett 1984). To put this in context, 1.85 GW is less than 2,000 MW—the capacity of a...

  3. Part II: China’s participation in global integration
    • Rod Tyers

      Fundamental to China’s global impact is the ‘unbalanced’ nature of its growth surge since the 1990s. The expansion of merchandise production at a faster rate than consumption in particular has had direct, and much analysed, effects on the terms of trade facing other regions.² By having created a parallel excess supply of savings, however, this also changed the global financial terms of trade. That in turn contributed to the observed trend decline in asset yields in the same period.³ These improvements in both the product and the financial terms of trade of the advanced economies have, however, been partially offset...

    • Liqing Zhang and Qin Gou

      Recent decades have witnessed a global wave of financial liberalisation unprecedented in both intensity and scope. This follows the breakdown of the Bretton Woods fixed exchange rate system in the early 1970s. The wave first appeared in high-income economies, following which, during the 1990s, a large number of emerging economies undertook profound financial reforms. Most but not all high-income economies introduced gradual reforms implementation characterised by domestic financial reforms and then capital account opening. In contrast, the process of reforms for developing economies lacked a clear sequence (see Figure 10.1).

      As the 1990s unfolded, some developing economies undertook rapid, aggressive...

    • William Nixon, Eden Hatzvi and Michelle Wright

      The status of the Chinese renminbi (RMB) as an ‘international’ currency has developed considerably over recent years. This is evidenced by the increasing use of the RMB as a settlement currency for transactions between Chinese residents and non-residents. To date, the internationalisation process has been largely policy-driven. Chinese authorities are, for example, actively encouraging residents to increase their use of RMB in international trade transactions and, more recently, providing non-residents with greater access to RMB investment in the Chinese mainland (and vice versa).

      It is apparent, however, that there is still a considerable way to go before the RMB becomes...

    • Kevin H. Zhang

      China’s sustained economic growth in the 37 years from 1978 is a story of manufacturing industry success. China has enjoyed rapid structural transformation and a process of deep development (Gereffi 2009; Lin and Wang 2012; Zhang 2006). As a factory to the world, China is also the world’s number one producer of manufactured goods and manufactured exports. Recently, China has also been seeking to upgrade its production frontier towards more capital and technology-intensive industries.

      China is evidently a manufacturing giant, but is it really an industrial power? And if it is an industrial power, what drives its industrial competitiveness? While...

    • Mei (Lisa) Wang, Zhen Qi and Jijing Zhang

      The rapid rise of China’s outbound direct investment (ODI) in the past decade is a significant economic phenomenon. According to China’s Ministry of Commerce, in 2014 Chinese companies invested US$116 billion in 156 countries—about 45 times more than in 2002. If new investments by Chinese companies with an existing foreign presence abroad were included, China’s ODI in 2014 would have exceeded inbound FDI by about US$20 billion—that is, China became a net capital exporting country in 2014 (Ministry of Commerce 2015).

      The surge in China’s ODI has in fact encountered a lot of resistance in some destination countries....

    • Chunlai Chen

      One of the most successful aspects of China’s economic reform and open-door policy implemented since late 1978 has been attracting inflows of foreign direct investment (FDI). By the end of 2014, China had attracted US$1.5 trillion in FDI inflows, making it the largest FDI recipient in the developing world. Coastal and inland regions vary in their attractiveness as locations for FDI, and Chinese policies have favoured coastal regions through the establishment of special economic zones (SEZs) and various preferential treatments (Chen 2011). FDI inflows have therefore been concentrated in the coastal regions, which account for about 80 per cent of...

    • Fan He and Xiaoming Pan

      China’s opening and reform process that began in the late 1970s has induced a great era during which the Chinese economy has been incrementally integrating with the world economy. Outbound trade and inbound foreign direct investment (FDI) served as the twin engines of growth. China’s contemporary economic story is ‘a classical demonstration of the potential of export-oriented industrialization’ (Krugman and Obstfeld 1991: 247). An acceleration of that process arrived with China’s accession to the World Trade Organization (WTO) in 2001. China enjoyed tremendous gains by facing lower tariffs and fewer trade restrictions in accessing the extensive markets of WTO member...

    • Lauren Johnston

      Multiple domestic structural factors underlie China’s lower ‘new normal’ growth target of 7 per cent: reduced export demand growth, an ageing and higher-cost workforce, environmental priorities and constraints, and diminishing returns to physical capital relative to human capital. With the middle-income trap still to be avoided and China home to some 100 million citizens living below the RMB2,300 per annum national poverty line at the end of 2012 (World Bank 2015), finding ways to ensure growth is sustainable and delivers the livelihoods of a high-income country is now an objective of government.

      Economic ties with Africa are one source of...

    • Gao Xiang and Huiqin Jiang

      The China (Shanghai) Pilot Free Trade Zone (SPFTZ) was approved by the State Council in August 2013 and established on 29 September of that year (Central Government of the PRC 2013; Xinhuanet 2013). It is located in the district of Pudong in Shanghai, and is the integration of four existing special customs supervision areas (SCSAs): Shanghai Waigaoqiao Free Trade Zone, Waigaoqiao Free Trade Logistics Park, Yangshan Free Trade Port Area and Pudong Airport Comprehensive Free Trade Zone.¹

      The establishment of the SPFTZ was designed to meet the needs of China’s economic and legal development, and is consistent with China’s long-time...