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The Turning Point in China's Economic Development

The Turning Point in China's Economic Development

Ross Garnaut
Ligang Song
Copyright Date: 2006
Published by: ANU Press
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  • Book Info
    The Turning Point in China's Economic Development
    Book Description:

    The profound economic transformation in China is not a linear process. It is subject to fundamental shifts in its underlying structure. One of those structural transformations will be a shift from unlimited to limited supplies of labour in China's economic development. Is China approaching this turning point? What are the dynamic forces in driving China moving towards this turning point? What are the economic and policy implications of this turning point in China's economic transformation and development? The book discusses these important issues by focusing on China's long-term pattern of growth and employment, demographic shifts and rural-urban migration, its agricultural trade and local elections, China's banking sector reform and its fiscal sustainability, China's interaction with the international economy and global imbalances, its industrialisation and its resource and energy demand, was well as its environmental concerns. Contributions to this volume are made by leading analysts from China, the United States and Australia.

    eISBN: 978-1-920942-76-2
    Subjects: Political Science

Table of Contents

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  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-vi)
  3. Tables
    (pp. vi-ix)
  4. Figures
    (pp. ix-xii)
  5. Symbols
    (pp. xii-xii)
  6. Abbreviations
    (pp. xiii-xv)
  7. Acknowledgments
    (pp. xvi-xvi)
  8. Contributors
    (pp. xvi-xvii)
  9. 1 The turning point in China’s economic development
    (pp. 1-11)
    Ross Garnaut

    ‘All roads lead to Rome’, they said, two thousand years ago on the Western peninsular of the Eurasian continent. Or, at the Eastern end, ‘All roads lead to Changan’.

    This year in China, all roads lead to the turning point in economic development.

    There is now a persistent tendency for growth to exceed the 7.2 per cent per annum that would realise the authorities’ ambitions to quadruple turn of the century output by 2020; for labour to become scarce and more expensive in rural and urban areas; and for surpluses in external payments to argue for exchange rate appreciation. There...

  10. 2 Continued rapid growth and the turning point in China’s development
    (pp. 12-34)
    Ross Garnaut and Yiping Huang

    China’s rapid economic growth continued strongly over the past year. Earlier concerns about overheating and inflationary pressures have eased, despite some acceleration of growth. The debate about whether China’s unprecedented investment share of GDP is consistent with sustained rapid growth has subsided somewhat, although policymakers are still concerned about risks of overcapacity in certain industries as the investment share is a bit higher this year than last. There is increasing recognition that current or moderately higher investment shares could be sustained for long periods, and also that, sooner or later, consumption must grow much more strongly than over the past...

  11. 3 Growth accounting after statistical revisions
    (pp. 35-52)
    Xiaolu Wang

    This chapter examines the size, per capita level, structural characteristics and growth rate of the Chinese economy after the new statistical revisions recently released, as a result of the countrywide economic census at the end of 2004 and other surveys in 2005 and 2006. New growth accounting analyses are carried out to assess the contribution of factors and productivity to China’s economic growth. The greater size of the economy indicated by the new statistics has new implications for the driving forces of growth.

    The first section of the chapter reviews the revisions of GDP statistics and looks at the economic...

  12. 4 Quadrupling the Chinese economy again: constraints and policy options
    (pp. 53-74)
    Justin Yifu Lin

    Since reforms started at the end of 1978, China has become the most dynamic economy in the world. Between 1978 and 2004, China’s GDP growth rate averaged 9.4 per cent per annum and the international trade growth rate 24.6 per cent (National Bureau of Statistics of China 2005). In 2004, China’s per capita GDP reached 10,561 yuan and is targeted to quadruple between 2000 and 2020 (National Bureau of Statistics of China 2005). To reach this target, the annual average GDP growth rate needs to be kept at more than 7.2 per cent for 20 years.

    From an engineer’s point...

  13. 5 China’s interaction with the global economy
    (pp. 75-86)
    Nicholas R. Lardy

    A key element of Deng Xiaoping’s economic reform strategy was to abandon the Maoist ideal of national self-sufficiency and start reaping the gains available from participating in global trade. The result has been an expansion of China’s trade that has outpaced the growth of its domestic economy and far exceeded the growth of global trade for almost three decades. Since reforms were launched, imports and exports as a share of China’s economy have expanded greatly and China’s share of global trade has grown tenfold. In 2004, China surpassed Japan to become the world’s third largest trading economy, a remarkable achievement...

  14. 6 Global imbalance, China and the international currency system
    (pp. 87-102)
    Fan Gang

    The US dollar has been volatile in recent decades and many observers believe it will lose a lot of its international value sooner or later. The central importance of the dollar is due to the fact that it is not just a currency for the United States—more than half of all dollar bills in circulation are held outside the borders of the United States, and almost half of United States Treasury bonds are held as reserves by foreign central banks. The US dollar is supposed to be the anchor that stabilises the global currency market. Instead, today, it is...

  15. 7 Who foots China’s bank restructuring bill?
    (pp. 103-127)
    Guonan Ma

    International experience suggests that bank restructuring, including resolution of non-performing loans (NPLs) and the associated recapitalisation of banks, is often costly—but it is crucial for the stability and functioning of banking systems.¹ While effectively stemming the flow of new non-performing loans is necessary for a sustained improvement in the banking system, the importance of dealing with the legacy of such loans on the books of banks or within the system should not be understated: in no small measure, it reveals the political willingness of authorities to confront banking problems. Moreover, non-performing loan resolution is often linked with bank recapitalisation....

  16. 8 Keeping fiscal policy sustainable in China: challenges and solutions
    (pp. 128-142)
    Jinzhi Tong and Wing Thye Woo

    Among doomsayers of all stripes, a favourite mechanism for the forthcoming collapse of the economy is the inevitable fiscal crisis of the State. The Marxist economist James O’Connor (1973) predicted that the dynamics of capitalist America would precipitate a fiscal crisis that would completely destabilise the economy. In turn, the capitalist lawyer Gordon Chang (2001) predicted that a fiscal crisis could be the triggering event for the unavoidable disintegration of socialist China.

    This fixation by the doomsayers on a large negative fiscal shock as a destructive systemic shock is understandable because fiscal imbalance is the proximate cause in most crises....

  17. 9 Employment growth, labour scarcity and the nature of China’s trade expansion
    (pp. 143-171)
    Cai Fang and Dewen Wang

    Since the mid 1990s, China has deepened its reforms of state-owned enterprises, urban employment and social welfare systems in order to improve the efficiency of state-owned enterprises and enhance their survival capabilities in the face of fierce international competition. The reforms have released millions of rendundant urban workers and the issue of unemployment has become a top priority in Chinese social and economic policies.

    China finally joined the World Trade Organization (WTO) late in 2001. Some commentators predicted that accession to the WTO might worsen urban unemployment. Rapid trade expansion has, however, not only fuelled Chinese economic growth, it has...

  18. 10 The impact of the guest-worker system on poverty and the well-being of migrant workers in urban China
    (pp. 172-202)
    Yang Du, Robert Gregory and Xin Meng

    Many countries adopt a guest-worker system to help meet labour shortages. Guest workers normally have a temporary visa to work in the host country but have no political rights or access to social welfare and other government-provided benefits. Under such a system, guest workers normally spend some part of their working life in the host country and return home when their work or family circumstances change. Their usual objective is to make and save as much money as they can before they return home.

    China is, perhaps, the only country in the world that adopts a guest-worker system for its...

  19. 11 China’s growth to 2030: demographic change and the labour supply constraint
    (pp. 203-226)
    Jane Golley and Rod Tyers

    The world’s most populous country has entered a period of rapid ageing, with the proportion of the population over the age of 60 projected to double in the next 25 years (United Nations 2005). This represents a significant turning point in China’s economic development and one that places China in the unique position of being a transitional developing economy facing what is primarily an industrial-country phenomenon. As is so often the case for China, the appropriate policy responses are therefore likely to be unique as well. In particular, while many industrial countries are seeking ways to deal with ageing, such...

  20. 12 Changing patterns in China’s agricultural trade after WTO accession
    (pp. 227-255)
    Chunlai Chen

    China’s economy has been growing rapidly since the country’s entry into the World Trade Organization (WTO) in 2001. The average annual growth rate of China’s GDP was more than 9.8 per cent in 2002–05.¹ China’s foreign trade has been expanding even more rapidly than its overall economic growth, with the total value of foreign trade increasing from US$457 billion in 2001 to US$1,263 billion in 2005, and an annual growth rate of 28.6 per cent compared with 9.4 per cent during the 1990s. Undoubtedly, China’s economy has benefited from entry into the WTO, especially from a more open and...

  21. 13 Village elections, accountability and income distribution in rural China
    (pp. 256-275)
    Yang Yao

    Village elections were first envisioned by the late chairman of the National People’s Congress (NPC) Peng Zhen as a means to enhance village governance after the commune system was dissolved in China in the early 1980s. In 1987, the NPC passed a tentative version of the Organic Law of the Village Committee (OLVC), and started a 10-year experiment with village elections. In 1998, the NPC formally passed the law and elections quickly spread to the whole country. Since the inception of this system in the mid 1980s, however, controversies regarding the impact of elections on village life have been constant....

  22. 14 China’s resources demand at the turning point
    (pp. 276-293)
    Ross Garnaut and Ligang Song

    China has contributed a majority of the increase in global demand for energy and metals over the early twenty-first century. In the first years of the century, with global economic growth subdued in the aftermath of the collapse of the technology boom, this moderated what would otherwise have been large falls in commodity prices. In more recent years, with recovery in the United States and Europe, and then the end of the long Japanese stagnation, it has been the driving force behind the lifting of energy and metals prices to levels that have only been seen before at high points...

  23. 15 Economic growth and environmental pollution: a panel data analysis
    (pp. 294-313)
    Bao Qun and Shuijun Peng

    The relationship between economic growth and environmental quality has been debated widely for a long period; controversy goes back to the debates about the limits to growth at the end of the 1960s. At one extreme, environmentalists and the economists of the Club of Rome (Meadows et al. 1972) argued that the finiteness of environmental resources would prevent economic growth from continuing forever and argued for a steady-state economy with a zero growth rate to avoid dramatic ecological scenarios in the future. At the other extreme, some economists claimed that technological progress and the substitutability of natural with man-made capital...

  24. 16 Harmonising the coal industry with the environment
    (pp. 314-334)
    Xunpeng Shi

    Coal contributes greatly to social and economic development. It triggered the industrial revolution and has driven industrialisation in the past several centuries. At present, many developing countries are still heavily dependent on energy-intensive industries, such as metals and manufacturing. While the World Coal Institute (WCI 2001) says that the coalmining industry employs seven million workers globally, five million of whom are in China, it has elsewhere been estimated that China alone has about six million coalminers (China Coal 2002). Due to the abundance of town and village-owned coalmines in China, particularly illegal mines not registered in any statistics, such figures...

  25. 17 Growth, energy use and greenhouse gas emissions in China
    (pp. 335-359)
    Warwick J. McKibbin

    Energy is a key issue for the Chinese economy, now and in future decades. The need for expanding sources of energy as an input into a rapidly growing economy and the environmental implications of rising energy use are well understood within China. Chinese energy use is also becoming an increasingly important issue for the global economy because of the scale of China’s energy requirements and because of the implications for global climate change of quickly rising greenhouse emissions from China.

    With roughly 20 per cent of the world’s population and economic growth in the range of 10 per cent per...

  26. References
    (pp. 360-390)