Fault Lines in China's Economic Terrain

Fault Lines in China's Economic Terrain

Charles Wolf
K.C. Yeh
Benjamin Zycher
Nicholas Eberstadt
Sung-Ho Lee
Copyright Date: 2003
Edition: 1
Published by: RAND Corporation
Pages: 234
https://www.jstor.org/stable/10.7249/mr1686na-srf
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  • Book Info
    Fault Lines in China's Economic Terrain
    Book Description:

    The authors consider how and by how much China's stellar economic performance might be impaired by eight potential adversities that China may face in the next decade: unemployment, poverty, and social unrest; corruption; HIV/AIDS and epidemic diseases; water resource problems and pollution; energy consumption and prices; the fragile financial system and state-owned enterprises; curtailed foreign direct investment; and serious military conflicts.

    eISBN: 978-0-8330-3604-9
    Subjects: Political Science

Table of Contents

  1. Front Matter
    (pp. i-iv)
  2. PREFACE
    (pp. v-vi)
  3. Table of Contents
    (pp. vii-x)
  4. FIGURES
    (pp. xi-xii)
  5. TABLES
    (pp. xiii-xiv)
  6. SUMMARY
    (pp. xv-xxii)
  7. ACKNOWLEDGMENTS
    (pp. xxiii-xxiv)
  8. ACRONYMS AND ABBREVIATIONS
    (pp. xxv-xxviii)
  9. Chapter One POTENTIAL ADVERSITIES CONFRONTING CHINA’S CONTINUED ECONOMIC GROWTH
    (pp. 1-8)

    Widely divergent views about China’s future are prevalent among policymakers, politicians, pundits, business people, analysts, and academics. Prominent among the questions on which their views diverge are the following:

    1. At what rates and for how long will China continue its rapid economic growth of the past two decades?¹

    2. What are the major challenges, fault lines, and potential adversities (the terms are used synonymously in this study) that China’s economic development will encounter in the next decade, and how much of an impact on its economic performance will these have if they occur separately or in clusters?

    3. How will the rate...

  10. Part I CHINA’S INSTITUTIONAL AND STRUCTURAL FAULT LINES

    • Chapter Two MASSIVE UNEMPLOYMENT AND RURAL POVERTY
      (pp. 11-26)

      This chapter reviews the current status and recent trends in unemployment and rural poverty in China and discusses how they might affect economic growth should conditions deteriorate in the next decade.

      We define unemployment to include both open and disguised unemployment. Open unemployment refers to persons who are 16 years of age or over, are capable of working, and are actively seeking employment, but who have not been able to find employment. Disguised unemployment is loosely defined to include those whose removal from the workforce would have virtually no effect on output, assuming no change in production techniques or in...

    • Chapter Three ECONOMIC EFFECTS OF CORRUPTION
      (pp. 27-36)

      “Corruption” is difficult to define in a way that facilitates measurement, but it can be viewed as private payments, whether pecuniary or in-kind, undermining either efficient or inefficient rules or substituting for the absence of such rules. Obvious examples are bribes for needed permits and the like; the range of potential forms that corruption might take is limited only by the human imagination. It may be the case that certain institutions—democratic choice of public officials, a free press, an independent judiciary itself somehow constrained by a rule of law, thus presenting a certain chicken-and-egg problem—reduce the potential opportunities...

  11. Part II SECTORAL FAULT LINES

    • Chapter Four EPIDEMIC DISEASE: A WILD CARD IN CHINA’S ECONOMIC FUTURE?
      (pp. 39-74)

      Is communicable disease a factor that might seriously impede China’s economic ascent over the next decade or two? Could the outbreak and unchecked spread of epidemic illness—in particular, HIV/AIDS—in the years immediately ahead prove so devastating in and of itself as to alter China’s expected development trajectory?

      These are questions that demand highly speculative responses—and such responses are intrinsically problematic. Conjectures about momentous but as yet entirely hypothetical future contingencies can be unsatisfying and unconvincing, precisely to the degree that they lack rigor and empirical support. These sorts of contingencies are therefore perhaps best explored through what...

    • Chapter Five WATER RESOURCES AND POLLUTION
      (pp. 75-104)

      Our analysis of China’s complex water and pollution problems begins with estimates of the sharply differing water supply and demand conditions within China. The discussion then considers the economic effects of floods, water shortages, and pollution, concluding with an evaluation of alternative means and scenarios for addressing these problems and their respective costs and consequences.

      Global water resources amount to 42,655 billion m³, and global water resources per capita in 2000 were 7,045 m³ (World Resource Institute [WRI] et al., 2000). China’s water resources are huge, 2,812 billion m³, which is 6.6 percent of the world total and the fourth...

    • Chapter Six GDP EFFECTS OF AN ENERGY PRICE SHOCK
      (pp. 105-116)

      This chapter attempts to derive rough estimates of the adverse effects on Chinese GDP growth attendant upon an energy price “shock,” defined as a substantial increase in oil prices, with ensuing empirical effects on such oil substitutes as coal and natural gas as outlined below. We begin with the case of a “severe” production cut and price increase and, for sensitivity purposes, also consider proportionately smaller “large” and “moderate” cases as well. As an ancillary effect in the context of China, such increases in the price of oil can be envisioned to produce an additional adverse impact on public health...

  12. Part III FINANCIAL FAULT LINES

    • Chapter Seven CHINA’S FRAGILE FINANCIAL SYSTEM AND THE STATE-OWNED ENTERPRISES
      (pp. 119-140)

      This chapter seeks to identify the major problems in China’s financial system that could escalate to a financial crisis and stifle economic growth in the next decade.¹ As will be shown below, the ailing state-owned enterprises (SOEs) lie at the center of China’s financial problems. China’s major banks themselves are SOEs. For these reasons, we discuss briefly the economic consequences of the lack of progress in enterprise reform, particularly its impact on the financial system.

      China’s financial system has undergone dramatic changes in the past two decades. Of particular interest are the changes in its organizational structure. By the year...

    • Chapter Eight POSSIBLE SHRINKAGE OF FOREIGN CAPITAL INFLOWS
      (pp. 141-156)

      China is currently the world’s second largest recipient of foreign direct investment (FDI); the largest is the United States. Private capital flows into China currently represent about 40 percent of all foreign capital flows in emerging market economies.

      From 1985 to 2000, FDI in China increased from an annual rate of $2 billion in the mid-1980s to over $40 billion in 2001. Three observations should be added:

      1. The increase in FDI from 1986 to 1997 was monotonic, although the rate of increase declined in the latter part of that period.

      2. Since 1998, FDI in China has slightly declined in real...

  13. Part IV SECURITY FAULT LINES

    • Chapter Nine TAIWAN AND OTHER POTENTIAL CONFLICTS
      (pp. 159-168)

      The current and recent status of relations between the People’s Republic of China (PRC) and Taiwan can be characterized as movement without progress. Both China and Taiwan have been admitted to WTO membership. Trade and investment relations between them—mainly conducted indirectly through Hong Kong—continue to flourish, and the tone of occasional rhetorical exchanges between them though rarely warm is not bellicose. These exchanges have been periodically propitiated by official PRC endorsement of bilateral conversations between business groups in Taiwan and mainland China on the subject of direct economic linkages between the two.

      The status quo entails benefits for...

    • Chapter Ten CONCLUSIONS: FAULT LINES IN CHINA’S ECONOMIC TERRAIN
      (pp. 169-178)

      As indicated in Chapter One, the focus of this research has been on the potential adversities or fault lines facing China’s economy and affecting its prospects for sustaining high growth through the coming decade. Thus, we have deliberately concentrated on what might go seriously awry in the economy and, in the process, slow or even reverse China’s double-digit growth rates in the 1980s and high singledigit growth in the 1990s and the early part of the 21st century.

      We have not devoted equivalent attention to the other side of this coin—the policies and resource reallocations China might devise to...

  14. EPILOGUE
    (pp. 179-180)

    As noted in Chapter One there are many important questions about China’s future. In this study, we have considered only one of them. What are the major challenges, fault lines, and potential adversities that confront China in its efforts to sustain a high rate of economic growth in the coming decades? Our analysis of these fault lines underscores their scale and complexity, and it also suggests that their ramifications will extend into all levels of China’s society, government, and party structure.

    An important but debatable proposition can be inferred from this analysis: To mitigate the stresses engendered by these fault...

  15. BIBLIOGRAPHY
    (pp. 181-194)
  16. ABOUT THE AUTHORS
    (pp. 195-196)
  17. INDEX
    (pp. 197-208)