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China’s economic growth model and progress under Gaige Kaifang
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China’s economic growth model and progress under Gaige Kaifang David Dollar Senior Fellow Brookings Institution March 2014
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China’s economic growth model and progress under Gaige Kaifang. David Dollar Senior Fellow Brookings Institution March 2014. Outline. Key features of China’s reform Some comparison with growth records of Japan, South Korea, Taiwan Economic and social outcomes China’s reform 2.0 . - PowerPoint PPT Presentation
Transcript of China’s economic growth model and progress under Gaige Kaifang
China’s economic growth model and progress under Gaige Kaifang
David DollarSenior Fellow
Brookings InstitutionMarch 2014
Outline
• Key features of China’s reform• Some comparison with growth records of
Japan, South Korea, Taiwan• Economic and social outcomes• China’s reform 2.0
GDP per capita in China and East Asian neighbors (Penn version 8)
19601962
19641966
19681970
19721974
19761978
19801982
19841986
19881990
19921994
19961998
20002002
20042006
20082010
6
6.5
7
7.5
8
8.5
9
9.5
10
10.5
11
ChinaJapanKoreaTaiwan
Log GDP per capita
China’s economic reform
• Household responsibility system• Open up to foreign trade and investment
(join WTO in 2001)• Legalize the private sector• Ease up on migration restrictions
Followed the export-led model of Japan, Korea, and Taiwan – but with some differences
• Slower movement of labor out of agriculture• Even higher investment rate• Large trade surplus at an earlier stage• Very low household income and
consumption
China’s agricultural share of the labor force is high for its per capita GDP
5 6 7 8 9 10 11 120
10
20
30
40
50
60
70
f(x) = − 12.4898934373284 x + 133.501949966453R² = 0.601180805339347
GDP per capita (log scale)
China’s investment rate has risen to unprecedented levels
6 6.5 7 7.5 8 8.5 9 9.5 10 10.5 110
0.1
0.2
0.3
0.4
0.5
0.6
Log GDP per capita
I/Y
China developed trade surpluses at an earlier stage of development
6 6.5 7 7.5 8 8.5 9 9.5 10 10.5 11
-0.1
-0.08
-0.06
-0.04
-0.02
0
0.02
0.04
0.06
0.08
Log GDP per capita
(X-
M)/Y
China’s household consumption is very low
6 6.5 7 7.5 8 8.5 9 9.5 10 10.5 110
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
Log GDP per capita
C/Y
Followed the export-led model of Japan, Korea, and Taiwan – but with some differences
• Slower movement of labor out of agriculture• Even higher investment rate• Large trade surplus at an earlier stage• Very low household income and
consumption
China’s unusual institutional features
• Household registration (hukou)• Repressed financial system with
undervalued exchange rate• Open, competitive manufacturing but
closed, uncompetitive services (SOEs)• One-party rule
China’s exchange rate pegged to the dollar until 2005
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 201460
70
80
90
100
110
120
130
140
Nominal Effective Exchange Rate Indexes (2010 = 100)
ChinaU.S.
Good economic outcomes, but…
• Extraordinary growth and poverty reduction
• But rising inequality• Terrible air and water pollution• Increasing corruption• Old model economically and
environmentally unsustainable
Poverty has declined dramatically
1995 1996 2002 2005 2009
54%
36%
28%
16%
12%
Poverty Headcount Rate in China(World Bank $1.25 per day poverty line)
Inequality has risen
Average household Bottom 40% Bottom 20% Bottom 10%
6.5%
4.4%
3.3%
2.0%
China: Growth Rate of Household Income, 1990-2005
“Growth still is good for the poor” in a sample of 118 countries
• Correlation between average income growth and income growth in the Bottom 40% is robust over time– Slope ~1 in both time periods (1967-2000 and 2000-2011)
Growth still is good for the poor
• No worldwide trend in bottom 40% share – in either direction
• Change in inequality uncorrelated with growth• Growth explains 77% of the variation in income of
the bottom 40%• No institutional or policy variables are robustly
correlated with change in quintile share
China’s corruption is high for its level of income (World Bank Control of Corruption Index, 2011)
5 6 7 8 9 10 11 12
-2
-1.5
-1
-0.5
0
0.5
1
1.5
2
2.5
3
GDP per capita (log scale)
China: structural reforms to improve efficiency of investment, spur innovation
and encourage consumption
• Hukou reform• SOE privatization or commercialization• Financial liberalization• Opening up of services more generally• Incentives for local government
Premier Li Keqiang’s speech to the National People’s Congress, March 5, 2014
• 100 million urban registrations for migrants
• Financial liberalization• Opening up services to foreign investment• Broaden incentives for local government
Useful sources of data and information
• Brookings.edu (Thornton China Center)• Penn world tables version 8• World Development Indicators• World Governance Indicators
