China's New Place in a World in Crisis

China's New Place in a World in Crisis: Economic, Geopolitical and Environmental Dimensions

Ross Garnaut
Ligang Song
Wing Thye Woo
Volume: 2009
Copyright Date: 2009
Published by: ANU Press
https://www.jstor.org/stable/j.ctt24hcrw
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  • Book Info
    China's New Place in a World in Crisis
    Book Description:

    The world and China's place in it have been transformed over the past year. The pressures for change have come from the most severe global financial crisis ever. The crisis has accelerated China's emergence as a great power. But China and its global partners have yet to think or work through the consequences of its new position for the governance of world affairs. China's New Place in a World in Crisis discusses and provides in-depth analysis of the following questions. How have China's growth prospects been affected by the global crisis? How will the crisis and China's response to it impact China's major domestic issues, such as industrialisation, urbanisation and the reform of the state-owned sector of the economy? How will the crisis and the international community's response to it affect the rapidly emerging new international order? What will be China's, and other major developing countries', new role? Can China and the world find a way of breaking the nexus between economic growth and environmental sustainability — especially on the issue of climate change?

    eISBN: 978-1-921536-97-7
    Subjects: Economics

Table of Contents

  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-vi)
  3. Tables
    (pp. vii-x)
  4. Figures
    (pp. xi-xiv)
  5. Abbreviations
    (pp. xv-xviii)
  6. Contributors
    (pp. xix-xxii)
  7. Acknowledgments
    (pp. xxiii-xxiv)
  8. Part I Chinaʹs New Place in World Economy and Politics
    • 1 Chinaʹs place in a world in crisis
      (pp. 1-14)
      Ross Garnaut

      The world and Chinaʹs place in it have been transformed over the past year. The pressures for change have come from the most severe global financial crisis ever, and from what so far is the largest decline in output in a comparably short period in the history of the world economy.

      China and its economic prospects have also changed, but not so much as Chinaʹs place in a changing world. After a challenging year, China is confirmed on a course of continuing strong growth. There are still questions about longer-term sustainability, but there is now considerable cause for confidence that...

    • 2 China and international financial reform
      (pp. 15-32)
      Wing Thye Woo

      The founding principle of economics is that the division of labour increases output. The growth experience of China in the past three decades confirms the validity of this basic insight by Adam Smith on the productivity effects of task specialisation. Thanks to Chinaʹs rapidly increasing labour-intensive manufactured exports to the rest of the world, China has industrialised at a record pace and hence has also reduced rural poverty at a record pace through the reduction of surplus agricultural labour. China is now the worldʹs largest exporter of textiles, shoes and toys, and also the worldʹs largest recipient of foreign direct...

    • 3 From an efficient to a viable international financial market
      (pp. 33-58)
      Chen Ping

      This ongoing grand crisis originated in the United States, then transmogrified into an international crisis. It represents a natural experiment. The positive side of this crisis is its fundamental lesson. It is not a theoretical debate confined to ivory towers, but a historical event that has destroyed social confidence in the mainstream equilibrium theory of the so-called efficient market. This has accelerated the rise of the non-linear evolutionary theory of the viable market. Four observations reveal where the equilibrium theory of asset pricing and business cycles went wrong: 1) exchange rate resonance driven by US business cycles; 2) the meso-foundation...

    • 4 Chinaʹs increasing external wealth
      (pp. 59-88)
      Guonan Ma and Haiwen Zhou

      While balance of payments (BoP) statistics reflect cross-border flows over time, the international investment position (IIP) data record an economyʹs international financial assets and liabilities or its international balance sheet at a given point in time. Similar to BoP statistics, external assets and liabilities are classified by instrument into positions of direct investment, portfolio investment and other investment. There is an additional category of foreign reserves on the asset side. In a matter of less than 10 years, Chinaʹs net foreign asset (NFA) position—the difference between international assets and liabilities—has swung from being a net debtor of about...

    • 5 The geo-strategic implications of Chinaʹs growth
      (pp. 89-102)
      Hugh White

      In the 20 years since the Berlin Wall fell, the common working assumption among policymakers and analysts of international affairs alike has been that the end of the Cold War marked not just the end of a particular geo-strategic episode, but the end of an era in which geo-strategy as traditionally conceived—focusing on strategic competition between states and especially between major powers—played a significant role in shaping the international system.

      Many compelling arguments supported this idea. In an era without the sharp ideological divisions of the twentieth century, it was argued, there would be little to disagree about...

  9. Part II Macroeconomic Adjustments Amid Global Recession
    • 6 Chinaʹs exchange rate policy, its current account surplus, and the global imbalances
      (pp. 103-120)
      W. Max Corden

      This chapter is stimulated by current views prevalent in the United States about Chinese exchange rate policy. The Chinese currency, the renminbi (RMB), was fixed to the US dollar from 1997 to 2005. In July 2005, a new regime was instituted, and from then on there was some appreciation of the RMB–dollar rate. It appreciated cumulatively about 9 per cent by the end of 2007. In general, US critics have not considered this appreciation as being sufficient. The common argument was that, if the RMB were allowed to float, it would appreciate substantially more and this would reduce Chinaʹs...

    • 7 Macroeconomic performance amid global crisis
      (pp. 121-136)
      Yiping Huang, Ken Peng and Minggao Shen

      The Chinese economy took another drastic turn at the beginning of 2009. According to a survey by the China Center for Economic Research, the average forecast of gross domestic product (GDP) growth for the second quarter of 2009 by 20 international and domestic institutions went up to 7 per cent from the real performance of 6.1 per cent during the first quarter. This confirms broad confidence in the belief that the Chinese economy has probably already bottomed out.

      This improvement in sentiment is attributable mainly to better-than-expected economic data in early 2009—especially stabilisation of industrial production and a rebound...

    • 8 Economic crisis, Keynesianism and structural imbalance in China
      (pp. 137-154)
      Xiaolu Wang and Fan Gang

      About 140 years ago, Karl Marx raised a famous explanation for economic crisis in On Capital (1867). He regarded the economic crises occurring periodically in the capitalist world as the result of the incompatibility between rapidly expanding production capacity and the mode of income distribution inherently associated with the capitalist system. Such incompatibility restricts the consumption capability of the majority of the people, and thus leads to overproduction. Cyclical economic crises that destroy the surplus production capacity are regarded as the only way to resume general equilibrium between aggregate supply and demand. This way of dealing with economic crises will,...

    • 9 State-owned enterprises in China: Reform dynamics and impacts
      (pp. 155-178)
      Xiao Geng, Xiuke Yang and Anna Janus

      Large-scale SOE reform in China has been going on since 1978. In spite of the Chinese Governmentʹs efforts towards privatisation and its commitment to market-oriented development, SOEs remain a dominant part of the Chinese economy, especially among certain strategically important sectors, such as infrastructure construction, telecommunications, financial services, energy and raw materials. The question of how this apparent paradox can be resolved—and what the explanation might imply for our understanding of China—is the main focus for this chapter. Many questions arise in this context: should the Chinese Government continue its trend of privatising SOEs or should it continue...

    • 10 Economic transition and labour market integration in China
      (pp. 179-208)
      Prema-chandra Athukorala, Kyoji Fukao and Tangjun Yuan

      Chinaʹs rise as a major economic power in the past three decades has been underpinned by large transfers of labour from the rural to the urban economy and a significant reallocation between state-owned and non-state sectors within the latter. Since the early 1980s, more than 100 million people have left their native villages to work in the cities—the largest peacetime movement of people in history.¹ In addition, public enterprise reforms have added more than 40 million workers to the private sector labour supply. In recent years, there have been growing concerns in China policy circles about whether this easy...

    • 11 Flying geese within borders: How does China sustain its labour-intensive industries?
      (pp. 209-232)
      Cai Fang, Dewen Wang and Qu Yue

      In explaining how the current financial crisis happened, most studies are looking for the root causes in the prevailing financial institutions and credit system. And, since the crisis broke out in the United States and was channelled to other countriesʹ financial systems and the real economy through financial, industrial and trade links, most countries have chosen to claim this crisis as an external shock imposed on their economies. Viewing the current crisis through the lens of economic history, however, we can see that the impacts of economic crises differ among countries, among regions and sectors within a country and even...

    • 12 Impact of economic slowdown on migrant workers
      (pp. 233-260)
      Sherry Tao Kong, Xin Meng and Dandan Zhang

      The recent global economic downturn has had a significant impact on employment in many countries and the full effect is yet to be felt, with the Organisation for Economic Cooperation and Development (OECD) expecting unemployment rates of about 10 per cent next year. It is noticeable that the economic downturn in China has been relatively mild in so far as economic growth is expected to be in the order of 6 or more per cent. Labour productivity growth, however, has been so significant in China in the past few decades that even a high output growth rate of this level...

  10. Part III Economic Integration
    • 13 Global implications of China as a manufacturing powerhouse
      (pp. 261-302)
      Huw McKay and Ligang Song

      This study examines the nature and consequences of Chinaʹs rise to the centre of world economic affairs through manufacturing-led development. The first half of the nineteenth century was characterised by the diffusion of Britainʹs new industrial strategy to Continental Europe; the second half featured the ascent of the United States to global prominence, before it then rose to pre-eminence in the first half of the twentieth century. The second half of the twentieth century saw first Japan and then the East Asian region rise to global relevance. In turn, the first half of the twenty-first century will be substantially shaped...

    • 14 Chinaʹs textile and clothing trade and global adjustment
      (pp. 303-324)
      Will Martin

      The year 2009 is proving to be a remarkable one in many respects. One of the most important of these from a trade perspective has received very little attention. This is the first year in half a century in which the world has not had a system of quotas to slow the growth of exports of textiles and clothing from developing countries in general, and particularly from China. That these quotas have been abolished seems remarkable given the intensity of the support for these quotas in earlier periods. Perhaps even more remarkable is the fact that they disappeared almost without...

    • 15 Inflow of foreign direct investment
      (pp. 325-348)
      Chunlai Chen

      The global financial and economic crisis that started in 2008, triggered by the US sub-prime crisis, which began in the summer of 2007, has had an enormous negative impact on the world economy. The growth rate of global real gross domestic product (GDP) dropped from 5.2 per cent in 2007 to 3.2 per cent in 2008. It is expected that the world economy will contract by 1.3 per cent in 2009 (IMF 2009). The current global financial and economic crisis (hereafter ʹthe current crisisʹ) has also generated a huge negative impact on flows of global foreign direct investment (FDI). World...

    • 16 Chinese foreign direct investment in the Australian resource sector
      (pp. 349-388)
      Peter Drysdale and Christopher Findlay

      The appetite for resources in the rapidly growing Chinese and Indian markets before the global financial crisis drove escalating interest in resource investment worldwide (Streifel 2006; ABARE 2008). These economies have now emerged themselves as major players in overseas resource investment and development. The global economic crisis has not dampened Chinaʹs appetite for investment in Australiaʹs resource sector and the shortage of international capital has further enhanced the attractiveness of investment alliances with Chinese partners.

      North American and European investment dominated the international resource industry in its early days, often through vertically integrated operations that incorporated the supply of metal...

  11. Part IV The Environment and Climate Change
    • 17 Greenhouse gas emissions reduction: A theoretical framework and global solution
      (pp. 389-408)
      Project Team of the Development Research Centre of the State CouncilPeopleʹs Republic of China

      The Kyoto Protocol, as ʹthe first game in townʹ, represents significant progress towards reducing global emissions. Its cap-and-trade mechanism and flexible market-based implementation have been valued highly. Meanwhile, there has also been wide criticism (for instance, Nordhaus 2006; EC 2008) of its flaws: 1) small coverage and a lack of effectiveness; 2) countries, especially developing countries, lack incentive to participate; 3) the additionality problem of the Clean Development Mechanism (CDM). To fight effectively against global warming, a more effective post-Kyoto architecture is needed.

      Although a variety of alternative proposals aiming to succeed the Kyoto Protocol have their own advantages (Aldy...

    • 18 Can China rescue the global climate change negotiations?
      (pp. 409-430)
      Stephen Howes

      Chinaʹs importance in global efforts to reduce greenhouse gas emissions is widely acknowledged. Greater efforts by China to reduce emissions will have large direct and indirect environmental benefits—direct because China is the worldʹs largest emitter and indirect because China is a superpower. Greater efforts by China would induce greater effort by many other countries, developing and industrialised.

      China already has policies in place to reduce emissions, including by improving energy efficiency and promoting renewable energy and afforestation (Sheehan and Sun 2008; Garnaut et al. 2008a; Information Office of the State Council 2008). Emissions have, however, grown rapidly in China...

    • 19 Moving towards low-carbon economic growth
      (pp. 431-454)
      Jinjun Xue

      Deng Xiaoping famously proclaimed that ʹit doesnʹt matter if a cat is black or white, so long as it catches miceʹ. This rejection of ideological purity and embrace of pragmatism became the basis of Chinaʹs new development model. The new approach led to 30 years of rapid economic growth, directing China toward a new place in the global economy. This development has, however, not been without cost. The environmental impact of Chinaʹs rapid industrialisation has been particularly severe. Deng may not have been concerned with the colour of the cat, but we might now be concerned if the mouse is...

  12. Index
    (pp. 455-462)