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China - Linking Markets for Growth

China - Linking Markets for Growth

Ross Garnaut
Ligang Song
Volume: 2007
Copyright Date: 2007
Published by: ANU Press
Stable URL: http://www.jstor.org/stable/j.ctt24h8xz
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  • Book Info
    China - Linking Markets for Growth
    Book Description:

    China's prosperity is at the core of the emerging Platinum Age of global economic growth. Rapid economic growth has been underpinned by expansion in its domestic markets, and the integration of domestic and international markets in goods, services, capital, labour and foreign exchange. Global commodity prices have reached historic highs, while China's capital outflows have helped to hold down interest rates worldwide. Linking markets, both domestic and international, has been key to China's success. In sustaining its strong economic growth, China has become one of the world's most voracious consumers of energy. The challenge now facing the government and people of China is in achieving cooperation with the international community to avert the costs-both economic and environmental-of accelerating energy consumption. China-Linking Markets for Growth gathers together leading scholars on China's economic success and its effect on the world economy into the next few decades.

    eISBN: 978-1-921313-38-7
    Subjects: Economics, Physics
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Table of Contents

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  1. Front Matter (pp. i-iv)
  2. Table of Contents (pp. v-vi)
  3. Tables (pp. vi-viii)
  4. Figures (pp. viii-xi)
  5. Symbols used in tables (pp. xi-xi)
  6. Abbreviations (pp. xii-xiii)
  7. Contributors (pp. xiv-xv)
  8. Acknowledgments (pp. xvi-xvi)
  9. 1 Linking markets for Chinese growth (pp. 1-8)
    Ross Garnaut

    The world is in its fifth year of extraordinarily strong economic growth and Chinese economic growth is at its centre. Strong growth with low to moderate inflation and historically low real interest rates is the global norm in 2007.

    The linking of markets has been a key to accelerated and sustained growth in China and its transmission to the global economy. The beginnings of the use of markets at the dawn of Chinese reform 29 years ago triggered what turned out to be a long-term lift in the rate of economic growth. The span of time joining the present to...

  10. 2 Mature Chinese growth leads the global Platinum Age (pp. 9-29)
    Ross Garnaut and Yiping Huang

    China’s strong and accelerating growth, with low inflation and growing external payments surpluses, continued in 2007. The longer that strong growth in China continues, the greater is China’s influence on global outcomes. Global growth looks set to exceed 5 per cent in 2007 for the fourth successive year—higher than the 4.9 per cent average of the ‘Golden Age’ from 1950 to 1973. China is now at the centre of what could turn out to be the strongest period of global economic growth the world has seen—a ‘Platinum Age’.

    Investment as a share of Chinese output rose again in...

  11. 3 Marketisation in China: Progress and contribution to growth (pp. 30-44)
    Xiaolu Wang, Gang Fan and Hengpeng Zhu

    China has persevered in its market-oriented economic reform for nearly 30 years. Guided by a reform strategy of ‘groping for stones to cross the river’, China managed to avoid major economic decline and the crises that occurred in other transitional economies such as Russia and Eastern European countries. It successfully transformed the previously centrally planned economy into a mainly market-oriented economy with continued rapid growth, although there are still many conflicts between the new and the old systems.

    As indicated in the NERI Index of Marketisation for China’s Provinces, newly published by the National Economic Research Institute (NERI) (Fan et...

  12. 4 Facing protectionism generated by trade disputes: China’s post WTO blues (pp. 45-70)
    Wing Thye Woo and Geng Xiao

    China’s current account in the balance of payments has been in surplus since 1994 and it has shown a clear upward trend, reaching US$184 billion in 2006, or 9 per cent of gross domestic product (GDP). As China’s capital account is also in persistent surplus because of the large inflows of foreign direct investment (FDI) and capital controls on outflows, its foreign exchange reserves reached US$1.07 trillion in 2006—the largest in the world. China also became the second largest holder of US Treasury securities, holding as much as US$353.6 billion, trailing only Japan, which holds US$648.8 billion.

    At the...

  13. 5 Component trade and China’s global economic integration (pp. 71-94)
    Kunwang Li, Ligang Song and Xingjun Zhao

    A symbol of China’s economic integration into the global economy is its progressive engagement in international commodity trade, with an increasing scale and intensity. From 1992 to 2005, the average growth rate of China’s total trade was 18.5 per cent per annum—twice as high as the growth of gross domestic product (GDP) in the same period. China’s total trade reached US$1.76 trillion in 2006, with a trade dependency ratio (defined as the ratio of total trade over its GDP) rising to about 68 per cent by the national account measures (UNCTAD 2006). Among this increasing trade, China’s engagement in the...

  14. 6 Service sector reform options: The experience of China (pp. 95-117)
    Christopher Findlay, Mari Pangestu and Roy Chun Lee

    The gains from reform and liberalisation of services have attracted a growing literature. messerlin and Zedillo (2004), for example, note the effect of service sector reform on competition, market scale, diversity, lower prices and higher quality, as well as the capacity to remove bottlenecks to growth in the infrastructure sector. They remark on the contribution of services to export performance, and they stress the interests of developing economies in market access for services exports.

    Policy reform in services that delivers these benefits has a wider scope than reform programs in the goods sectors. There are services policy measures that apply...

  15. 7 Integrating China’s agricultural economy into the global market: Measuring distortions in China’s agricultural sector (pp. 118-132)
    Jikun Huang, Yu Liu, Will Martin and Scott Rozelle

    Although there has long been an interest in the agricultural economy, it is quite surprising to many observers that China’s agricultural sector has a record that is impressive in many dimensions. Growth rates of gross domestic product (GDP), agricultural gross value added and food per capita increased substantially since the early 1980s. Indeed, agricultural performance in the past two to three decades was more impressive than in any other country in Asia. Markets have boomed and the structure of agriculture has shifted fundamentally. Despite having the largest population in the world and high income growth (which has had a wrenching...

  16. 8 Regional labour market integration since China’s WTO entry: Evidence from household-level data (pp. 133-150)
    Fang Cai, Yang Du and Changbao Zhao

    For an economy in transition, development of the market is a sign of a successful transition and a premise for a sustainable form of economic growth. Development and integration of labour markets are key components that indicate the move towards a market system. Despite wide acknowledgment of success in China’s market-oriented reform, there is disagreement about the effects of marketisation, especially in regard to the level of regional market integration. Reforms of producton factor markets, for instance—especially in the labour and capital markets—have been considered less far reaching than the reform efforts made in commodity markets (Lardy 1994:8...

  17. 9 How much have the wages of unskilled workers in China increased? Data from seven factories in Guangdong (pp. 151-175)
    Xin Meng and Nansheng Bai

    China has experienced strong economic growth for a long time. The sustainability and character of that growth depends, to a large extent, on whether China has exhausted its rural surplus labour. In this chapter, we use un que payroll data from seven large manufacturing factories to show that wages of unskilled labour in these factories have not increased significantly, if at all. These findings could shed some light on whether China has reached a ‘Lewisian turning point’ and the extent to which Chinese economic growth could be sustainable.

    China has had 15 years of unprecedented economic growth, which, to a...

  18. 10 Domestic market integration and inter-regional growth spillovers (pp. 176-196)
    Jane Golley and Nicolaas Groenewold

    While China’s integration into the global economy during the past three decades has been extremely impressive, the integration among regions with in china has been much less so. Domestic market integration has a critical role to play in binding together a country that has suffered from disintegrative tendencies throughout its history. As such, the importance of integration cannot be overstated, particularly in light of recent research that seems ‘to confirm the pertinence of alarming forecasts concerning the danger of China’s move towards internal disintegeration’ (Poncet 2003:17). Numerous other researchers have reached similar—if not quite as dramatic—conclusions in their analyses of...

  19. 11 Foreign direct investment in China: Trends and characteristics after WTO accession (pp. 197-224)
    Chunlai Chen

    Foreign direct investment (FDI) in China has been one of the most significant features of the country’s economic reform and opening up to the outside world. The gradual liberalisation of restrictions on FDI since 1979 and the government’s commitment to further opening up have greatly improved the investment environment. Foreign firms have been attracted by the huge domestic market and pool of relatively well-educated, low-cost labour, which has made China one of the most attractive destinations for FDI in the world.

    China became a member of the World Trade Organization (WTO) in December 2001‚ after 15 years of negotiations in...

  20. 12 China’s demand for energy: A global perspective (pp. 225-247)
    Ligang Song and Yu Sheng

    The surge in China’s demand for energy in recent years raises some questions about the possible causes for the significant shift in the energy intensity of the Chinese economy at this stage of its industrialisation, as well as its long-term implications for future global supply of and demand for energy, and its potential impact on the environment. What has been the overall trend of world energy consumption in the past few decades? How does China’s pattern of demand for energy fit into the normal pattern experienced by some other East Asian economics in the periods during which these economics were...

  21. 13 Crouching bull, hidden bear: The Chinese equities markets in fat years and lean years (pp. 248-266)
    Ted Rule

    When i last visited the Chinese stock exchanges two years ago, they were in dire straits (Rule 2005). The market indices had been in decline since 2001. In May 2005, the shanghai Index stood at 1,060—less than half of its 2001 peak of 2,245. During 2005, the Shenzhen and Shanghai exchanges were two of the three worst performing exchanges in the world, with year-on-year declines of 11.7 per cent and 8.3 per cent respectively. Only the Tehran Stock Exchange performed worse (World Federation of Exchanges 2007a). In terms of market capitalisation, the once great Shanghai Exchange had slumped to...

  22. 14 How effective are China’s capital controls? (pp. 267-289)
    Guonan Ma and Robert N. McCauley

    Competing interpretations of the interaction of domestic monetary policy and the foreign exchange rate in China often arise from different assumptions regarding the effectiveness of capital controls. At one end of the spectrum is the view that capital controls merely alter the form of capital flows without altering their magnitude. In this view, the heavily managed renminbi exchange rate implies that china imports its monetary policy and lacks control over local short-term interest rates. At the other end is the view that capital controls are still binding enough to allow the Chinese government to set short-term interest rates,despite the limited...

  23. 15 Reforming China’s exchange arrangements: Monetary and financial sovereignty, sequencing and the foreign exchange market (pp. 290-315)
    Huw McKay

    China’s choice of foreign exchange regime has been a topic of busy debate for more than a decade (Goldstein 2004; Eichengreen 2004; Frankel 2004; Prasad et al. 2005; McKinnon 2006; and McKay 2003, among many others). This discussion has been entwined logically with the question of capital account reform (Prasad et al. 2005; McKay 2005a) and the degree of monetary sovereignty China enjoys under its evolving international financial arrangements (Ma and McCauley forthcoming; Cheung et al. 2003; Ma et al. 2004; He Dong et al. 2005; McKay 2005b). A less populated field applies current, historical and projected regime parameters to the developement...

  24. 16 China’s real exchange rate (pp. 316-343)
    Jane Golley and Rod Tyers

    There is increasing international pressure for the Chinese authorities to allow the currency to float more freely. It has been argued that the appreciation of the renminbi since 2005 is just the beginning of a necessary upward trend, given the belief that the currency is currently undervalued, by margins ranging from ‘small’ to as high as 50 per cent (Frankel 2004; Wang 2004; Goldstein 2004; Coudert and Couharde 2005). Expectations that China’s underlying real exchange rate will appreciate in the future are based commonly on the Balassa (1964)-Samuelson (1964) hypothesis. This implies a positive relationship between economic growth and the...

  25. 17 An externally dependent economy and real estate bubbles (pp. 344-368)
    Lijian Sun and Shengxing Zhang

    The two prominent phenomena in the world economy in recent years have been excessive monetary liquidity and asset price bubbles (Bank for International settlements 2004; United Nations 2006; OECD 2006). In the past, Western industrialised countries experienced different kinds of bubbles, for example: information technology (IT) stock bubbles from 1996 to 1999; bond price bubbles from 2000 to 2002; and real estate bubbles from 2002 until now. Although each bubble had specific characteristics (Hunter et al. 2005),¹ the latest research shows that excessive monetary liquidity is an indispensable factor in explaining recent price bubbles in capital markets—for example, stock,...

  26. 18 Economic opening and domestic market integration (pp. 369-393)
    Min Chen, Qihan Gui, Ming Lu and Zhao Chen

    Does economic opening lead to international as well as domestic market integration? The objective of this chapter is to examine whether China’s policy of opening promotes domestic economic integration. Do the growing external links work against the local protectionism and market segmentation? Particularly since the beginning of the Chinese economic reformat on, regional protectionism and segmentation have blocked a unified national market, brought about inefficiency in inter-regional resource allocation, distorted the market mechanism and disturbed the price signal. Ultimately‚ they weaken macroeconomic policies. Therefore‚ it is necessary to understand the causes of domestic market segmentation and to find the ways...

  27. 19 Stepping stones to market integration: The role of economic and technologcal development zones (pp. 394-414)
    Wei Zhang

    China’s National People’s Congress passed the Enterprise Income Tax Law of the People’s Republic of China in March 2007. This new law unified enterprise income tax rates applied to domestic and foreign-invested firms. The passage of the new law is part of the Chinese government’s efforts to provide a level playing field for business competition between domestic and foreign-invested firms. This legislation is also a significant step towards China fulfilling its World Trade Organization (WTO) obligations. After a short transitional period‚ the changes in tax rates and taxing practice will end most of the privileges enjoyed by foreign-invested enterprises located...

  28. 20 The implications of China’s economic transformation for modern economics (pp. 415-441)
    Justin Yifu Lin

    China started its transition from a planned economy to a market economy at the end of 1978. In the past 28 years, China’s average annual gross domestic product (GDP) growth rate was 9.7 per cent and the trade growth rate averaged 17.2 per cent. China’s GDP, measured by the official exchange rate, now ranks fourth and, by purchasing power parity, second in the world. China’s trade volume is currently the third largest in the world and its foreign reserves, which exceed US$1.2 trillon, are the largest.

    In the first 12 years of reform, from 1978 to 1990‚ China’s GDP grew...

  29. Index (pp. 442-450)