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Rebalancing and Sustaining Growth in China

Rebalancing and Sustaining Growth in China OPEN ACCESS

Huw McKay
Ligang Song
Volume: 2012
Copyright Date: 2012
Published by: ANU Press
Stable URL: http://www.jstor.org/stable/j.ctt24hd16
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  • Book Info
    Rebalancing and Sustaining Growth in China
    Book Description:

    The idea that China's economy needs to rebalance is no longer controversial inside or outside the country. Whether it be the increasing recognition of income inequality at home; the still large external surplus; the focus on consumption and industrial upgrading in the policy discourse; the economic, political and social tensions associated with the major decline in housing affordability; the profound conflict between industrialisation, urbanisation and the biosphere; the profitability gulf between the top SOEs and private firms; or the uni-directional pressures pushing on the real exchange rate; the evidence in favour of a highly imbalanced structure is omnipresent. Rebalancing and Sustaining Growth in China brings together some of the world's leading observers of the Chinese economy to debate the multifarious questions pertaining to rebalancing. How are we to make sense of the many, often contradictory, proposals that seek the same ultimate objective of a more sustainable growth model? What mix of policies will be most effective in addressing the required structural change without sacrificing prosperity along the way? Where should we look for root causes, and how can we avoid getting distracted by symptoms? How do China's unique internal migration dynamics - and the Lewis turning point - constrain its options? What role will and should financial, fiscal and welfare reform play in the process? Where do water and energy security fit in? Can China innovate before it gets old - or can China get smart before it gets rich? And are intergenerational issues being taken into account?

    eISBN: 978-1-921862-80-9
    Subjects: Economics
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Table of Contents

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  1. Huw McKay and Ligang Song

    The call to rebalance economic growth in China is primarily motivated by the structural problems within China as well as in its economic relations with the rest of the world. China’s international payments surpluses during the first decade of the twenty-first century have corresponded with deepening domestic structural risks to China’s economic growth and development. These structural challenges include the composition of growth resulting from China’s dynamic internal transformation, China’s trade orientation, the trajectory of resource use and carbon dioxide emissions, welfare problems of distribution and international constraints. It is thought to be necessary for China to confront these challenges...

  2. PART I. REBALANCING ECONOMIC GROWTH:: SIGNIFICANCE, REQUIREMENTS AND IMPACT
    • Rod Tyers

      There is wide agreement outside China, and more recent concurrence inside, that China’s growth will, and should, be increasingly underpinned by rising home consumption rather than exports.² The foreign viewpoint is notwithstanding the considerable contributions of China’s export-led growth to improvements in the foreign terms of trade and to cheaper financing of investment and government spending. The dominant political force behind this view seems to be concern over declining overall economic performance, at least compared with China, comparatively high unemployment and the very visible nature of manufacturing ‘offshoring’.³

      Yet the global gains conferred by China’s growth are fragile and the...

    • Anders C. Johansson

      China’s impressive growth over the past three decades has come under scrutiny from both domestic and international economists. Most observers as well as the Chinese leaders themselves now agree that the economy needs to rebalance in order to sustain high levels of growth in the long run.¹ Economic imbalances such as high levels of investment and saving and low levels of consumption, external imbalances, high and increasing levels of inequality, and increasing environmental problems need to be addressed. This chapter argues that these imbalances and challenges, while pressing, are primarily symptoms rather than root causes. I propose that repressive financial...

    • Guonan Ma, Robert McCauley and Lillie Lam

      The widening of the Chinese current account surplus from the neighbourhood of 2 per cent of GDP about the turn of the century to as much as 10 per cent before the global financial crisis in 2008 led to calls for the renminbi (RMB) to be revalued. The rationale was that a stronger renminbi would make Chinese exports less competitive and imports cheaper for Chinese consumers. This rationale sees the external surplus as a function of relative prices so that exchange-rate appreciation can narrow the surplus to a desired level.²

      Another, and in many ways richer, conception of China’s external...

    • Yue Qu, Fang Cai and Xiaobo Zhang

      In the past three decades, the Chinese economy has experienced phenomenal growth in large part thanks to rapid expansion in the labour-intensive manufacturing sector, mostly concentrated in the coastal areas. In 2009, China’s per capita GDP reached $3774, qualifying it for status as a ‘middle-income country’. Along with economic development, wages and other factor prices tend to increase over time. Consequently, labour-intensive industries will eventually lose their traditional comparative advantage, pushing enterprises to move to other regions or countries with lower costs. The existing literature focuses mainly on the patterns of industrial relocation across countries: as factor prices go up...

    • Miaojie Yu and Wei Tian

      The processing trade, which has become hugely popular in China, involves domestic firms obtaining raw materials or intermediate inputs from abroad, processing them locally and exporting the value-added goods. Governments usually offer tariff reduction or tariff exemption to encourage the development of processing trade. The current chapter aims to provide a comprehensive review of various trends, characteristics and productivity levels of processing trade as opposed to ordinary trade in China.

      We begin with an overview of processing trade, focusing on its size and main types. Thereafter, we analyse why processing trade has developed rapidly in China in the past three...

    • Bijun Wang

      A key concern regarding China’s economy, among others, is the quality of growth. The surprisingly rapid economic growth over the past 30 years in China has resulted from reliance upon extensive growth, which has been at the expense of the environment and resources. The situation has worsened in the twenty-first century. The industrial sector—the largest contributor to the country’s economic growth—has experienced an obvious heavy industrialisation process since the middle to late 1990s. Within the industrial sector, manufacturing is still at the low end of the international value chain since a majority of profits flow to foreign multinationals...

  3. PART II. SUSTAINING ECONOMIC GROWTH:: POLICY CHALLENGES AND IMPLICATIONS
    • Tsun Se Cheong and Yanrui Wu

      Many studies have been carried out to investigate China’s regional inequality, which has increased considerably since the initiation of economic reforms. Most of the studies in the literature, however, are based on provincial-level data while intra-provincial inequality has not been examined thoroughly (Cheong 2012). In particular, the patterns and trends of inequality between the county-level units (CUs, including counties and county-level cities) within the provinces are virtually unknown. In order to get a full grasp of the pattern and dynamic trend of the inequality between the county-level units, the data have to be continuous and must have a long time...

    • Sylvie Démurger

      China’s rapid economic development and government policy changes towards higher inter-regional labour mobility have encouraged a massive rural–urban labour force exodus since the mid-1980s. The National Bureau of Statistics of China estimated the total number of rural migrants working in cities in 2011 at about 158 million.¹ Compared with developed countries, where similar population movements occurred in the nineteenth and twentieth centuries, in China, the much larger scale and pace of population movements confront the Chinese authorities with extremely challenging policy issues that call for a better understanding of the motives of and constraints to labour mobility.

      Rural-to-urban migration...

    • Jane Golley and Sherry Tao Kong

      During the six decades of the People’s Republic, China has made great achievements in raising national average standards of educational quality and attainment. These achievements have, however, been distributed unevenly across the country. According to one recent study, by the late 2000s, while more than 90 per cent of primary school students in rural China went on to junior high, less than 20 per cent made it through to high school, with a mere 1.3 per cent entering tertiary-level education. As a result, children born in Beijing, Shanghai or Tianjin were 35 times more likely to attend college than children...

    • Funing Zhong and Jing Xiang

      Rural–urban migration and labour mobility are major drivers of China’s recent economic growth. Despite the importance of migration to China’s continuing economic success there have been few attempts to understand what is happening on the ground.¹ This chapter will look at questions such as how and to what extent China still enjoys the benefits of large-scale internal migration after three decades, and the extent of rising wages in rural areas. Parallel with these questions, the negative impacts of long-term large-scale migration on agriculture and predictions for the future of the rural labor force will be discussed.

      The futures of...

    • Andrew Watson

      Rapid growth and structural reforms since 1978 have transformed the economic and social basis of China’s welfare system. A sedentary population serviced through the unit of employment has been replaced with a mobile labour force, a market economy and greater reliance on user-pays principles. Until the 1980s, China’s welfare provision was based on the planned economy model, whereby the employer was responsible for all aspects of the employee’s welfare, including old-age retirement income. In urban areas this revolved around the work unit—be it enterprise or government organisation—and in the countryside the people’s communes provided for their members (Dixon...

    • Zhiyun Zhao and Chaofeng Yang

      Since the reform and opening up, the growth mode of China’s economy has essentially featured a heavy reliance on investment and exports and intense input of low-cost resources and factors. Such a mode was reasonable to some extent when China lagged behind in economic development and its economic aggregate accounted for a relatively small proportion of the world economy. With China’s continuous economic growth, however, the costs of this growth mode have become increasingly large, including resource depletion, environmental damage, a gradually widening wealth gap, significantly increased social conflicts and more frequent international trade friction. The international financial crisis and...

    • Hong Yang, Zhuoying Zhang and Minjun Shi

      With the astonishing speed of its economic growth during the past four decades, China has made unprecedented progress in national development and improvements in the living standard of its people. Alongside this achievement, however, there has been a continued intensification of water shortages and deterioration of water quality. Between 1980 and 2010, total water use increased by 35.8. per cent, from 443.7 billion cubic metres to 602.2 billion cu m (Liu and Chen 2001; MWR 1997–2010). Total industry and household wastewater discharge doubled during the same period.

      China’s water endowments are, overall, unfavourable. Average water resources per capita are...

    • ZhongXiang Zhang

      China was the world’s second-largest carbon emitter behind the United States for years. On the trends of the 1980s and 1990s, the US Energy Information Administration (USEIA 2004) estimated that China’s carbon dioxide emissions would not catch up with those of the United States until 2030. China’s energy use has surged, however, since the turn of this century, almost doubling between 2000 and 2007. Despite similar rates of real economic growth, the rate of growth in China’s energy use during this period was more than twice that of the last two decades of the twentieth century (NBS 2009). As a...