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CHINA LINKING MARKETS FOR GROWTH

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Contents

Tables �iFigures �iiiSymbols xiAbbre�iations xiiContributors xi�Acknowledgments x�i

1 LinkingmarketsforChinesegrowth 1 Ross Garnaut2 MatureChinesegrowthleadstheglobalPlatinumAge 9 Ross Garnaut and Yiping Huang3 MarketisationinChina:progressandcontributiontogrowth 30 Xiaolu Wang, Gang Fan and Hengpeng Zhu4 Facingprotectionismgeneratedbytradedisputes:

China’spostWTOblues 45Wing Thye Woo and Geng Xiao

5 ComponenttradeandChina’sglobaleconomicintegration 71 Kunwang Li, Ligang Song and Xingjun Zhao6 Ser�icesectorreformoptions:theexperienceofChina 95 Christopher Findlay, Mari Pangestu and Roy Chun Lee7 IntegratingChina’sagriculturaleconomyintotheglobalmarket:

measuringdistortionsinChina’sagriculturalsector 118 Jikun Huang, Yu Liu, Will Martin and Scott Rozelle8 RegionallabourmarketintegrationsinceChina’sWTOentry:

e�idencefromhousehold-le�eldata 133 Fang Cai, Yang Du and Changbao Zhao9 Howmuchha�ethewagesofunskilledworkersinChina

increased?Datafromse�enfactoriesinGuangdong 151 Xin Meng and Nansheng Bai10 Domesticmarketintegrationandinter-regionalgrowthspillo�ers 176 Jane Golley and Nicolaas Groenewold11 Foreigndirectin�estmentinChina:trendsandcharacteristics 197

afterWTOaccession Chunlai Chen12 China’sdemandforenergy:aglobalperspecti�e 225 Ligang Song and Yu Sheng

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13 crouch�ng bull, h�dden bear: the ch�nese equ�t�es markets �n fat years and lean years 248

Ted Rule14 how effect�ve are ch�na’s cap�tal controls? 267 Guonan Ma and Robert N. McCauley15 reform�ng ch�na’s exchange arrangements: monetary and

financ�al sovere�gnty, sequenc�ng and the fore�gn exchange market 290 Huw McKay16 ch�na’s real exchange rate 316 Jane Golley and Rod Tyers17 An externally dependent economy and real estate bubbles 344 Lijian Sun and Shengxing Zhang18 econom�c open�ng and domest�c market �ntegrat�on 369 Min Chen, Qihan Gui, Ming Lu and Zhao Chen19 stepp�ng stones to market �ntegrat�on: the role of econom�c

and technolog�cal development zones 394 Wei Zhang

20 The �mpl�cat�ons of ch�na’s econom�c transformat�on for modern econom�cs 415 Justin Yifu Lin

index 442

Tables

2.1 Wages by prov�nce, 1999–2006 262.2 Average annual wage rates for agr�culture, manufactur�ng,

construct�on and finance, 1978–2005 273.1 est�mat�on results 403.2 Growth account�ng: factor contr�but�on to econom�c growth 40A3.1 Neri �ndex of market�sat�on for ch�na’s prov�nces, 1997–2005 43A3.2 The structure of the Neri �ndex of market�sat�on 444.1 The d�str�but�on of the global labour force, 1990 and 2000 495.1 ch�na’s trade �n parts and components, 1992–2004 755.2 shares of component �mports trade �n ch�na, by reg�on,

1992–2005 775.3 share of exports of parts and components from ch�na, by reg�on,

1992–2005 795.4 Un�t labour costs across d�fferent countr�es, 1992–2004 825.5 est�mat�on results of equat�on 1: �mports 89

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5.6 est�mat�on results of equat�on 1: exports 895.7 est�mat�on results of equat�on 2: export shares �n total

manufactur�ng exports 906.1 examples of restr�ct�on categor�es of trade �n telecommun�cat�ons

serv�ces 98A6.1 Telecommun�cat�ons �ndex components 116A6.2 Telecom �ndex, 1998, 2004 and 2007 1177.1 rural reta�l, urban reta�l and farm-gate sales pr�ces of r�ce

and wheat �n ch�na, 1980–2005 1227.2 Nom�nal rates of ass�stance (NrA) and nom�nal rates of ass�stance

for farmers (NrAf) �n the cereal sector �n ch�na, 1980–2005 1247.3 Nom�nal rates of ass�stance for farmers (NrAf) for soybean,

cotton and sugar crops �n ch�na, 1980–2005 1267.4 Nom�nal rates of ass�stance for farmers (NrAf) for l�vestock and

hort�cultural sectors �n ch�na, 1980–2005 128A7.1 raw numbers for exchange rate analys�s, ch�na, 1980–2005 1328.1 m�grant workers �n the urban labour market, 2000–2006 1418.2 income �nequal�ty measures, 2003–2006 1438.3 inequal�ty decompos�t�on by prov�nces: general entropy, 2003–2006 1448.4 regress�on results of l�near wage equat�on, 2003–2006 1468.5 The�l decompos�t�on based on regress�on 1479.1 industry, reg�on, and s�ze d�str�but�on of the sample factor�es 1539.2 industry d�str�but�on of the data, 2000–2004 1569.3 Wage structures of the sample factor�es 1589.4 monthly and hourly real wages and hours worked, 2000–2004 1609.5 compar�son of wages and �ncomes 1649.6 earn�ngs equat�ons for the total sample and the sample of

product�on workers 168A9.1 c�ty level cPi 17510.1 summary of sp�llover effects 18711.1 Fdi �nflows �nto ch�na, 2001–2005 20411.2 Fdi �nflows �nto ch�na, by prov�nce, 1983–2004 20811.3 Fdi �nflows �nto ch�na, by sector, 2001–2005 21211.4 Total assets of fore�gn-�nvested and domest�c firms �n the

manufactur�ng sector, 2001 and 2005 21512.1 Future growth of ch�na’s economy, energy consumpt�on and co2

em�ss�ons, 2000–2020 and 2020–2050 24413.1 lead�ng �nternat�onal iPos, 2005 25013.2 iPo act�v�ty �n As�a, 2005 251

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14.1 renm�nb�–Us dollar �nterest rate d�fferent�al 28214.2 interbank rate d�fferent�als: renm�nb�–Us dollar and hong kong

dollar–Us dollar 28314.3 interbank rate d�fferent�als: renm�nb�–Us dollar and euro–Us dollar 284A14.1 cred�t default swap rates for People’s republ�c of ch�na and

Br�t�sh Bankers Assoc�at�on’s l�bor panel banks 28916.1 est�mated ch�nese total factor product�v�ty growth,

by sector, 1986–2005 32216.2 The balance sheet of the People’s Bank of ch�na, ca. 2006 32616.3 reg�onal compos�t�on �n the global model 32917.1 est�mat�on of random effect 36018.1 rank�ng of segmentat�on �ndex by reg�on 38218.2 market segmentat�on and �ts determ�nants 38718.3 market segmentat�on and �ts determ�nants (�nstrumental

var�able est�mat�on) 38819.1 GdP of five seZs and nat�onal total, 1980–2005 39719.2 establ�shment of econom�c and technolog�cal development

zones, 1984–2002 40019.3 econom�c �nd�cators of the first group of 14 eTdZs, 1991,

1996 and 2005 40119.4 econom�c �nd�cators of 54 NeTdZs, 2005 40419.5 econom�c �nd�cators of 54 NeTdZs, 2006 40419.6 ma�n econom�c �nd�cators of the first group of 14 eTdZs, 2005 40519.7 Average annual changes �n GdP share of five cseZs �n the

nat�onal total 40719.8 h�gh-tech enterpr�ses �n 54 NeTdZs, 2005 407

Figures

2.1 Quarterly real GdP growth and cPi �nflat�on �n ch�na, 2000–2007 102.2 contr�but�on of var�ous components to GdP growth, 1979–2006 112.3 shares of ma�n components of GdP �n ch�na, 2000–2006 112.4 Growth of reta�l sales and fixed asset �nvestment �n ch�na,

2005–2007 132.5 some components of cPi, 2001–2007 132.6 monetary cond�t�ons �ndex of ch�na, 2001–2007 142.7 Growth of property pr�ces and shangha� A-share pr�ces, 2005–2007 172.8 Profit/asset rat�os of selected �ndustr�es �n ch�na, 2000–2006 172.9 ch�na’s trade surpluses, 2001–2006 192.10 ch�na’s current account and trade balances, 1989–2008 20

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2.11 ch�na’s monthly �ncrease �n fore�gn reserves and sum of Fdi and trade surplus, 2005–2007 22

2.12 renm�nb� exchange rates: b�lateral rates and real effect�ve exchange rate, 2005–2007 25

2.13 increases �n nat�onal real wages and labour product�v�ty, 1999–2006 25

3.1 Neri �ndex for progress �n market�sat�on �n ch�na’s prov�nces, 2001 and 2005 31

3.2 market�sat�on �n ch�na, 2005 324.1 Us–ch�na trade defic�t: d�screpancy between Us and ch�nese

data, 1980–2006 534.2 ch�na trade account balance, 1980–2006 534.3 Us trade �mbalance, 1980–2006 565.1 ch�na’s �mports and exports of parts and components, 1992–2005 745.2 share of parts and components trade �n manufactur�ng trade,

1992–2005 745.3 Number of c�v�l av�at�on a�rl�ne routes �n ch�na, 1986–2005 845.4 scale of seaport trade �n ch�na, 1985–2005 845.5 Number of telephones per 1,000 people �n ch�na, 1992–2004 855.6 ch�na’s ut�l�sed Fdi, 1983–2005 856.1 An �llustrat�on of the results from the trade restr�ct�veness �ndex 996.2 opt�ons for pol�cy reform 1006.3 ch�na’s telecommun�cat�ons reform 1046.4 Ta�wan’s telecommun�cat�ons reform 1056.5 reform of barr�ers to trade �n �nsurance serv�ces, 1997–2004 1079.1 monthly and hourly earn�ngs by gender, 2000–2004 1629.2 income gap among urban workers, m�grant workers and

rural workers, 2000–2004 1659.3 Tenure earn�ngs profile for m�grant product�on workers 1679.4 Wage growth s�mulat�on, hourly earn�ngs, 2000–2004 1719.5 Wage growth s�mulat�on, monthly earn�ngs, 2000–2004 17110.1 The s�x reg�ons of ma�nland ch�na 18410.2 irFs for a shock to se 18810.3 cumulat�ve irFs for a shock to se 18811.1 Fdi �nflows �nto ch�na, 1980–2006 19911.2 Fdi �nflows �nto ch�na, by source, 1983–2005 20311.3 Fdi �nflows �nto ch�na, by reg�on, 1983–2004 20711.4 share of fore�gn-�nvested firms �n manufactur�ng, 2001 and 2005 21711.5 structural changes of fore�gn-�nvested firms �n manufactur�ng,

1995, 2001 and 2005 219

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12.1 Worldprimaryenergyconsumption,1965–2005 22712.2 Worldprimaryenergyconsumptionstructure,byproduct,2005 22712.3 Worldprimaryenergyconsumptionstructure,bycountry,2005 22812.4 Worldprimaryenergyconsumptionstructure,byproduct,

1965–2005 22912.5 Worldprimaryenergyconsumptionstructure,bycountry,

1965–2005 23112.6 Worldrealpriceofcrudeoil,1965–2007 23112.7 Internationalrealpriceofnaturalgas,1985–2007 23212.8 Realpricesofinternationallytradedthermalcoal,1967–2007 23312.9 China’sprimaryenergyconsumptionstructure,byproduct,

1965–2005 23312.10 Shareofprimaryenergyconsumptiongrowth,byproduct,

2000–2005 23512.11Comparisonofinvestmentsharesinprimaryenergysectors

betweenChinaandtheworldaverage,1992–2004 23512.12 Productionofcrudeoil,coal,naturalgasandelectricityinChina,

1965–2005 23712.13 China’snetimportsofcrudeoilandcoal,1965–2005 23712.14Estimatedaverageprimaryenergyconsumptionpercapitaacross

differentstagesofeconomicdevelopment 24012.15 PrimaryenergyconsumptionintensityinEastAsia,1965–2005 24012.16Comparisonofprimaryenergyconsumptionintensitybetween

Chinaandtheworld,1971–2005 24112.17StructuralchangeofChina’sprimaryenergyconsumption

(CUSUMinde�),1968–2005 24212.18Primaryenergyconsumptionefficiencyacrosscountries,

1965–2005 24414.1 China’sgrosscross-borderflows,1982,1990and2005 26914.2 Averageabsoluteonshore–offshoreyieldspreads,1999–2001and

2002–2004 27414.3 Theonshorelessoffshorerenminbiyields,basedonthree-month

CHIBOR,1998–2006 27514.4 OnshorelessoffshoreNDF-impliedyields,2004–2007 27714.5 DomesticrenminbiyieldslessUSdollaryields,1997–2005 28015.1 Asianforeigne�changeturnover,bytransactiontype,2004 29315.2 Sharesofforeigne�changeturnover,bytransactiontype,2004 29315.3 Foreigne�changemarketdepthandincomelevel,2004 29515.4 Foreigne�changemarketdepthandscale,2004 29515.5 Foreigne�changeturnoverandrealdemand,2004 296

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15.6 The tr�angular dynam�cs of reg�me parameters 29715.7 loophole strategy dr�ves b�g fore�gn exchange reserve accret�on 29815.8 ster�l�sat�on effort �s the pr�ce of sovere�gnty 30015.9 reserve rat�o h�kes take the pressure off bond �ssuance 30015.10 Flex�b�l�ty has �ncreased, apprec�at�on pace gradual, 2005–2007 30215.11 outward d�rect �nvestment st�ll the poor cous�n, 2002–2006 30415.12 The financ�al asset stock �n selected countr�es 30515.13 The c�rcular�ty of the flex�b�l�ty argument 30715.14 Bank�ng sector strength and fore�gn exchange volat�l�ty 30716.1 As�an real exchange rates aga�nst the Un�ted states, 1980–2006 32016.2 ch�nese sectoral pr�ce �nd�ces, 1979–2005 32216.3 ch�na’s �nvestment–sav�ng and external balances, 1985–2010 32416.4 ch�na’s projected populat�on and labour force, 1995–2035 33016.5 elast�c�t�es of the projected real exchange rate to the rate of total

factor product�v�ty growth �n each sector, 1995–2035 33216.6 elast�c�t�es of the projected real exchange rate to the fert�l�ty rate

and the sk�ll acqu�s�t�on rate, 2000–2035 33416.7 elast�c�t�es of the projected real exchange rate to trade openness

(penetrat�on rate), the sav�ngs rate and �nterest prem�um decl�ne, 2000–35 335

16.8 elast�c�t�es of the projected real exchange rate to �ts key determ�nants, 2000–35 337

17.1 Growth rate of res�dents’ sav�ngs, 1995–2006 34817.2 Tw�n surplus of balance of payments, 1990–2005 34917.3 compar�son of growth rates of m1, m2 and bank loans, 2001–2006 35017.4 Growth rate of real estate pr�ces, 1999–2005 35018.1 domest�c goods market segmentat�on, 1985–2001 37918.2 market segmentat�on �ndex by reg�on, 1985–2001 38118.3 The rat�o of dependence on �nternat�onal trade by reg�on,

1985–2001 38419.1 d�str�but�on of state-level eTdZs �n ch�na 40119.2 GdP share of five seZs �n the nat�onal total, 1980–2005 41020.1 relat�ve pr�ce of product�on factors and techn�que cho�ce 420

Symbols used in tables

.. not ava�lablen.a. not appl�cable- zero. �ns�gn�ficant