Liberal Arts 101 Dr Peter Ibbott Associate Professor of Economics Kings University College at the University of Western Ontario October 2 2012 Readings China 2030 Building a Modern Harmonious and Creative HighIncome Society ID: 343516
Download Presentation The PPT/PDF document "The Chinese Economic Miracle" is the property of its rightful owner. Permission is granted to download and print the materials on this web site for personal, non-commercial use only, and to display it on your personal computer provided you do not modify the materials and that you retain all copyright notices contained in the materials. By downloading content from our website, you accept the terms of this agreement.
Slide1
The Chinese Economic MiracleLiberal Arts 101
Dr. Peter
Ibbott
Associate Professor of Economics
King’s University College at the
University of Western Ontario
October 2, 2012Slide2
Readings:
“China
2030: Building a Modern, Harmonious, and Creative High-Income Society”
published
by the World
Bank and available at
http://www.worldbank.org/en/news/2012/02/27/china-2030-executive-summary
“Supersized cities: China’s
13
megalopolises
“
published by the Economist and available at
http
://www.eiu.com/Handlers/WhitepaperHandler.ashx?fi=Megalopolis_Report_July_2012.PDF&mode=wp&campaignid=Megalopolis2012Slide3
Shanghai: BundSlide4
Shanghai: PudongSlide5
The Chinese Economic Miracle
Q: What preceded the Chinese Economic Miracle?
1949-58:
Mao consolidates power and encourages families to have more children. Introduces China’s first five year plan, adopting the Soviet
model
in which large state monopoly firms pursued heavy
industrial
development.
1958-61:
The second five year plan abandoned the soviet industrial model by focusing on rural development
.
Under “The
Great Leap Forward”
small rural agricultural collectives were merged into large, rural “People’s
C
ommunes” in order to better exploit the gains from the division of labor. The peoples communes were tasked with:
Banning all private holdings/gardens
Introducing new farming techniques that would turn China into a grain exporter
A
ccelerating the construction of state infrastructure,
Increasing steel production by using backyard furnaces.Slide6
The Chinese Economic Miracle
Q: What preceded the Chinese Economic Miracle?
1962:
The result was the “Great Chinese Famine”. Estimates of up to 45 million died of starvation, while 200 million suffered from serious malnutrition. During this time China exported
grain.Mao
is forced by the party to abandon change direction and Deng Xiaoping and others take over economic planning.
1966:
Mao introduces the Cultural Revolution and uses it to purge Deng Xiaoping and other leaders of the CPC who had earlier opposed him. Slide7
The Chinese Economic MiracleQ: What started the Chinese Economic Miracle?
Mao dies in 1976, Gang of Four arrested
Deng Xiaoping seizes power
from Mao's anointed successor Hua
Guofeng
In 1978 Deng introduces significant economic reforms aimed at introducing market socialism Slide8
The Chinese Economic Miracle
Stage 1 (1978-84)
De-collectivization
of agriculture,
and the introduction of the “household responsibility system”. Farmers are granted long term leases and allowed to privately farm and sell their produce in new private markets.
Special Economic Zones were created that permitted foreign investment and encouraged local entrepreneurs
to start up businesses.
But: most
industry remained state-owned
.Slide9
The Chinese Economic Miracle
Stage 2
(late 1980’s to 2010)
the
privatization and contracting out of much state-owned
industry
lifting
of price controls, protectionist policies, and regulations,
But: state
monopolies in sectors such as banking and petroleum remained.
But: The
conservative
Hu Jintao
Administration more heavily regulated and controlled the economy after 2005, reversing some reforms
.Slide10
The Chinese Economic Miracle
Impact of 1978 Economic Reforms
Agricultural output growth dramatically accelerated to 8.2% a year, agricultural prices fell, meat and vegetable production rose dramatically.
Overall the reforms unleashed economic growth that is unprecedented in human history
GDP Growth rate of 9.5
% a
year
China's
economy became the second largest after the
United States
.
More
than 500 million people lifted out of
poverty
Now
the world’s largest exporter and
manufacturer
In
transition from middle-income to high-income status.Slide11Slide12
China and India ComparedSlide13
2011 Nominal GDP in US$ billions (Source: IMF)Slide14
Basic Education1950: 20
%
over age 15 are literate
2007:
93.3%
over
age 15 are
literate while 99% of 15-24 year olds are literate
2009, PISA (Program for International Student Assessment) international rankings of 15 year olds placed Shanghai students first in the world in mathematics, science and literacySlide15
Health1949: Average Life Expectancy of 35 years
2012: Average Life Expectancy of 74.8 years
But life expectancy would be much higher if respiratory illnesses (cigarettes, air pollution) could be reduced, water quality improved and food safety increased.
Improvements to public health should provide huge gains in life expectancy. Slide16
Q: In what ways has China’s economic miracle failed to improve society?
Pollution
Corruption
Consumerism
Endless pursuit of status goods
Rising Search for spiritual alternative (Christianity is growing very fast)
Vice (drugs, gambling, prostitution) is a rising menace.
CongestionSlide17
100-km Chinese traffic jam enters Day 9
Last Updated: Monday, August 23, 2010 | 1:43 PM ET
CBC News
External Links
Xinhua: Highway jam enters its 9th day, spans 100km
(Note: CBC does not endorse and is not responsible for the content of external sites - links will open in new window)
(
David Gray/Reuters)
A nine-day traffic jam in China is now more than 100
kilometres
long and could last for weeks, state media reported Monday. Thousands of trucks en route to Beijing from
Huai'an
in the southeast have been backed up since Aug. 14, making the National Expressway
100 impassable, Xinhua News reported. A spokesman for the Beijing Traffic Management Bureau reportedly told China's Global Times newspaper that the backup was due to "insufficient traffic capacity … caused by maintenance construction.“ The construction is scheduled to last until Sept. 13.Stranded drivers appear to have few options when it comes to dealing with the jam. At least some drivers have complained that roadside vendors have increased their prices to take advantage of the traffic jam. One truck driver said he bought instant noodles from one vendor for four times the original price.Slide18
Nanjing Road: ShanghaiSlide19
Q: In what ways has China’s economic miracle failed to improve society?
Failure to introduce meaningful political and legal reform.
Tiananmen Square Protests of 1989
Internet and press are subject to heavy handed censorship
Courts and police are corrupt and serve interests of the party
Despite this, the government is having difficulty resisting change:
Failure to introduce national history curriculum in Hong Kong
Need for legal reform to sustain
investment
Inequality
Chinese market socialism has failed to deliver distributive justice.Slide20Slide21
Gini-coefficient of national income distribution around the world Slide22
Culture does not determine inequality.Canada:
Gini
=
32.1
Korea:
Gini
= 31.4
Taiwan:
Gini
= 34.2
Peoples Republic of China:
Gini
= 41.5
Hong Kong: 53.3
Politics matters!!!Slide23
Overpopulation
One child policy introduced in 1978
Less impact on growth than is commonly believed and has caused a number of unintended consequences of enormous importance:
Increased the proportion of males to females
Encouraged the state to use its power to violently intervene in the most important decisions made by ordinary families.
Has caused China to have a rapidly aging population which will soon increase the dependency ratio and further weaken the already weak social safety net
Will put increasing pressure on the health care industry and further reduce access to primary health care for most ordinary Chinese families. Slide24
Population and Population Growth RateSlide25
http://upload.wikimedia.org/wikipedia/commons/3/3e/China_Pop_Pyramid_Forecast.gifSlide26
Population and Population Growth Rate
2
AD:
86,000,000
1000
:
87,000,000
1500
:
110,000,000
1800
:
260,000,000
1900
:
400,000,000
1950: 546,815,000
1982: 1,008,065,000 (reaches 1 billion)
2010: 1,337,825,000
(almost 1 in 5 people live in China)
2020: 1,387,792,000
2030: 1,393,076,000
2040: 1,360,906,000
2050: 1,295,604,000Slide27
Where do all these people live? Population DensitySlide28
Where do all these people live?
Rural-urban
migration
has dramatically reshaped China:
Urban growth was slow rising from According
to the 1953 and 1982 censuses, the urban population as a percentage of total population increased from 13.3
in the 1953 census to 20.6
percent
in the 1982 census.
From
1982 to 1986,
the urban
population increased dramatically to 37 percent of the total
population
as rural agricultural workers left the land in the largest rural urban-migration in human history.
By 2000 this had risen to 50% of the total population (650 million)
Between 2010 and 2025 an additional 300 million people are expected to leave the countryside and move to the cities taking the urban population to 75%.
Rural urban migration has caused the
rise of
super-megalopolises
Guangzhou: ≈ 41 million
Beijing-Tianjin
:
≈ 30
million
Shanghai: ≈ 25
millionSlide29
What do all these people want?Middle class lifestyle:
Car (already world’s largest automobile market)
TV, Internet, Music, Movies, Mobile phones
http
://
www.youtube.com/watch?v=9bZkp7q19f0
Consumer goods
Global brands are coveted
Status recreational activities
Quality Education in the Arts and Science
Home ownershipSlide30
Can this continue?
Even if growth moderates, China is likely to become a high-income economy and the world’s largest economy before 2030.
Notwithstanding
this rosy outlook, per
capita income
is still
a fraction of the average in advanced economies.Slide31
T
wo questions:
Can
China’s growth rate still be among the highest in the world even if it slows from its current
pace?
Can
it maintain this rapid growth with little disruption to the world, the environment
, and
the fabric of its own society
?
The
World Bank report answers both questions in the affirmative, i.e., by 2030, China has the
potential
to be a modern, harmonious, and creative high-income society.
Achievable but neither certain nor easy. Slide32
What are the risks and challenges
?
Internal Risks and Challenges
depletable
resources
demand
-pull and supply-push inflation
demography
, aging population
pace
of human capital
accumulation
2. External
Risks and Challenges
global
economic slowdown
high
resource prices
new
emerging competitors
Slide33
What does China need
to do?
Implement
a NEW long term
strategy
for the next
phase
of development.
The
12th Five Year Plan an excellent
place to start. The IMF Report recommends that China seek to implement policies that:
Complete the transition to a market
economy
Accelerate
the pace of open
innovation
Go
green
Expand Individual Opportunities and Improve Social
Services
Fiscal
Reform
Become
a
responsible Global PlayerSlide34
1. Complete
the transition to a market economy
Implement structural reforms,
Strengthen the foundations for a market-based economy,
Redefine the role of government its relationship to markets and the private sector,
Reform and restructuring state enterprises, developing the private sector,
Promote competition,
Provide more intangible public goods and services like systems,
rules,
Introduce modern corporate governance practices, e.g., separating ownership from management
Slide35
Financial sector reform:
Allow commercializing the banking system,
Allow interest rates to be set by market forces,
Deepening the capital market,
Developing the legal and supervisory infrastructure to ensure financial stability,
Build the credible foundations for the internationalization of China’s financial sector. Slide36
Labor
market reform:
Ensure workers can move in response to market signals,
Introduce measures to increase labor force participation rates, and
Use social security instruments (pensions, health, and unemployment insurance
).Slide37
Land
reform:
Increase efficiency of land use,
Reform policies for acquisition of rural land for urban use, and
Reduce local government dependency on land-related revenues.Slide38
2.
Accelerating the pace of open innovation
Needed: An
open innovation
system that fosters both Product and Process innovation
How? Increasing Chinese domestic R&D
By participating
in global
R&D
By establishing
a research and development infrastructure
via:
increase
the technical and cognitive skills of
university graduates,
build
a few world-class research universities with strong links to
industry
,
and
foster
research parks, innovative cities.
Slide39
3.
Go
green
Why
?
Increased efficiency,
Improve
the level of well-being,
Sustain comparative advantage,
Achieve and sustain economies of scale, and
Sustain rapid growth
.
How ?
Public education and awareness,
market incentives,
Regulations,
Public investments,
Industrial policy, and
Institutional development.
Slide40
4. Expand Individual Opportunities
and
Improve Social Services
Expand opportunities and promote social security,
Facilitate equal access to jobs, finance, quality social services, and portable social security,
Help households manage employment, health, and age-related risks,
Increase labor mobility,
Manage the large rural-urban differences in access to jobs, key public services, and social protection. Slide41
4. Expand Individual Opportunities
and
Improve Social Services
Deliver
more and better quality public services to under-served rural areas and migrant,
Restructure social security systems to ensure secure social safety
nets
Mobilize all segments of society, public and private, government and social organizations, to share responsibilities in financing, delivering and monitoring the delivery of social services.Slide42
5. Fiscal Reform
Three
key dimensions:
Mobilize
additional fiscal resources to meet rising budgetary
demands,
Reallocate
spending toward social and environmental
objectives
Ensure
that budgetary resources available at different levels of
government.
Note
: fiscal reform as
an essential
prerequisite for many of the other reformsSlide43
6. Becoming
a Global Player
Seek
mutually beneficial relations with the
world,
Use
multilateral institutions and frameworks and open
regionalism,
Intensify
trade, investment, and financial links with the global
economy,
Seize
the benefit from further specialization, and
diversification,
Integrate
into the global financial system, which will involve opening
the
capital
account,
Take
steps toward internationalizing the RMB as a global reserve
currency,
Help
shape the global governance agenda such
as:
climate change,
global
financial stability,
effective
international aid
structure,
development in poor nations.Slide44
Substantial hurdles
ahead:
The
risk of a hard landing in the short term,
Challenges posed by an ageing and shrinking workforce,
Rising inequality,
Environmental stresses, and
External imbalances and shocks.