Yıl: 2015 Cilt: 20 Sayı: 1 Sayfa Aralığı: 133 - 157 Metin Dili: İngilizce

Rapid Economic Growth and Its Sustainability in China

Öz:
China has recorded remarkable growth rates for three and a half decades. Recently, the annual growth rate has slowed down and is projected to decline gradually to 5 % by 2030. This article examines how high economic growth was realized in the past and whether it can be sustained in the future. In doing this, the paper takes into consideration the projections about future growth rates. The article emphasizes that the main reason for the reduction in the future growth rates is the unsustainability of the currently high investment rates in the long run. In addition, the diversification of financial instruments for the already high savings is important. Necessary improvements in the financial sector are discussed in conjunction with the long term sustainability of economic growth rates.
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  • 1 China 2030: Building a Modern, Harmonious, and Creative Society, The World Bank and Development Research Centre of the State Council, the People’s Republic of China, 2013, p. xxi.
  • 2 “When Giants Slow Down”, The Economist, 27 July 2013.
  • 3 For more details see K. C. Fung, Hitomi Iizaka and Sarah Y. Tong, “Foreign Direct Investment in China: Policy, Recent Trend and Impact”, Global Economic Review, Vol. 33, No. 2 (2004), pp. 99-130; Yingqi Wei and Xu Liu, “Productivity Spillovers from R&D, Exports and FDI in China’s Manufacturing Sector”, Journal of International Business Studies, Vol. 37, No. 4 (July 2006), pp. 544-557; Zhongxiu Zhao and Kevin Honglin Zhang, “FDI and Industrial Productivity in China: Evidence from Panel Data in 2001-06”, Review of Development Economics, Vol. 14, No. 3 (August 2010), pp. 656–665.
  • 4 China 2030: Building a Modern, Harmonious, and Creative Society.
  • 5 “When Giants Slow Down”.
  • 6 This is evident from major science and technology indicators. According to the latest available OECD official statistics, gross domestic expenditures on research and development in China has reached 2.02 % of GDP in 2012. Comparative data from OECD and UNESCO for other BRICs are as follows: 1.12 % in Russia (2012), 1.21 % in Brazil (2011), and 0.81 % in Brazil (2011). In addition, according to the official statistics by UNESCO, research and development personnel per 1000 total employment is higher in China than in other BRICs as well, excluding Russia: 2.84 in Brazil (2010), 4.23 in China (2012), 0.98 in India (2010), and 11.4 in Russia (2012). According to the World Bank’s World Development Indicators Database, the share of hi-tech products in total exports in China at 27 % in 2013 was at par with Korea (27 %) and France (26 %) and significantly higher than in Japan (17 %), the US (18 %), the UK (16 %), and Germany (16 %).
  • 7 China economy: Quick View - Foreign investment surges, Economist Intelligence Unit, 19 April 2011, at http://country.eiu.com/article.aspx?articleid=1318016316&Country=China (last visited 24 June 2015).
  • 8 Homi Karras and Geoffrey Gertz, “The New Global Middle Class: A Crossover from East to West”, in Cheng Li (ed.), China’s Emerging Middle Class: Beyond Economic Transformation, Washington D.C., Brooking Institution, 2010, Chapter 2.
  • 9 Another way to ensure efficient allocation of productive resources in an economy is to direct resources (capital and labour) to flow to industries where the returns to these resources are higher. The standard economic theory suggests that the market should take on this responsibility. However, it is well known that in fast-growing East Asian economies including Japan, Korea, Singapore, and Taiwan, governments intervened in markets to ensure resource allocation in accordance with the governments’ industrialisation programs. Resource allocation in either way can be expected to yield an additional source of productivity growth, named “structural bonus”. Mainstream economists generally ignore this source of economic growth. For an application of this idea to East Asian economies see, K. Ali Akkemik, “Structural Change and Its Impact on Productivity in Japan, Korea, and Singapore (1970- 2000)”, Forum of International Development Studies, Vol. 28 (March 2005), pp. 35-53.
  • 10 In the case of Korea, high enrolment rates and rapid accumulation of human capital and their contribution to rapid growth can be traced in the World Bank’s report titled The East Asian Miracle: Economic Growth and Public Policy, New York, Oxford University Press, pp. 43-46, and 192-203. In the case of China, Whalley and Zhao found that expansion in education and human capital accumulation account for about 38 % of rapid growth in China over the period 1978-2008. See John Whalley and Xiliang Zhao, “The Contribution of Human Capital to China’s Economic Growth”, China Economic Policy Review, Vol. 2, No. 1 (2013), 1350001.
  • 11 See, Joseph Casey and Katherine Koleski, Backgrounder: China’s 12th Five-Year Plan, USChina Economic and Security Review Commission, 2011.
  • 12 Xinhua News Agency, “China holds meeting on 13th Five-Year Plan”, 5 September 2014, at http://news.xinhuanet.com/english/china/2014-09/05/c_133621684.htm (last visited 24 June 2015).
  • 13 Juro Osawa and Paul Mozur, “The Rise of China’s Innovation Machine”, Wall Street Journal,
  • 16 January 2014; see also, George Yip and Bruce McKern, “The ‘Three Phases’ Of Chinese Innovation”, Forbes, 23 March 2015; Regina M. Abrami, William C. Kirby and F. Warren McFarlan, “Why China Can’t Innovate”, Harvard Business Review, Vol. 92, No. 3 (March 2014), pp. 107-111.
  • 14 Suqin Ge and Dennis Tao Yang, “Changes in China’s Wage Structure”, Institute for the Study of Labor (IZA), Discussion Paper No. 6492 (2012); Dennis Tao Yang, “Aggregate Savings and External Imbalances in China”, Journal of Economic Perspectives, Vol. 26, No. 4, (Fall 2012), pp. 125-146.
  • 15 James R. Barth, Michael Lea and Tong Li, “China’s Housing Market: Is a Bubble About to Burst?”, Milken Institute, October 2012.
  • 16 See, Xinhua, “China lowers down payment requirement for second homes”, at http://news. xinhuanet.com/english/china/2014-09/30/c_133685855.htm (last visited 24 June 2015).
  • 17 For details, see Kazuo Sato, “Saving and Investment”, in Kozo Yamamura and Yasukichi Yasuba (eds.), The Political Economy of Japan, Vol. 1: The Domestic Transformation, Stanford University Press, 1987.
  • 18 Ibid; The equation is as follows: Here, refers to investment in physical capital, refers to output (GDP), refers to net capital stock, and refers to the rate of capital consumption (depreciation rate). is a mathematical operator showing change. This equation implies that investment to GDP ratio of the left hand side of the equation is made up of two components on the right hand side. The first component is the change in the capital-output ratio. That is to say, if capital stock, K, is expanding faster than GDP (Y) this means that investments are also expanding faster than output, hence the investment-GDP ratio gets larger in value. The second component is the capital-output ratio multiplied by the sum of the depreciation rate and the efficiency of capital. Part of the investment is made to compensate for the wearing off of the existing capital stock. The term implies the efficiency of capital because it is defined as the increase in GDP divided by the capital stock.
  • 19 Further calculations yield that the first term averaged minus 5.2 % for 1986-1995, but turned positive afterwards, averaging 4.3 % for 1996-2005 and 4.9 % for 2006-2011. On the other hand, the major source of the increase in ratio was the second component, thanks to the rising ratio, which averaged 33.3, 29.4, and 40.3 % for the periods, 1986-1995, 1996- 2005, and 2006-2011, respectively.
  • 20 A contrary view was expressed by Xiaodong Zhu who offers a critical perspective in this regard. See Xiaodong Zhu, “Understanding China’s Growth: Past, Present, and Future”, Journal of Economic Perspectives, Vol. 26, No. 4 (Fall 2012), pp. 103-124. According to Zhu, productivity growth rate has increased in China and investments follow economic growth. Therefore, as opposed to the argument that economy grows because of large investments, the causal relationship may work the other way around.
  • 21 See, Zhang Monan, “Financial System Reform”, China Daily, at http://www.chinadaily.com. cn/business/2013-11/04/content_17079140.htm (last visited 24 June 2015).
  • 22 Ibid.
  • 23 The official document for the 12th Five Year Plan is available online at http://www.npc.gov. cn/npc/dbdhhy/11_4/2011-03/16/content_1647644.htm (last visited 24 June 2015).
  • 24 This is because economic growth in the previous analysis will be equal to the term.
  • 25 According to the IMF’s official statistics, industrial capacity utilization rate in China has decreased from about 80 % in 2007 to about 60 % in 2011, and still below 70 % in 2014. See Lingling Wei and Bob Davis, “In China, Beijing Fights Losing Battle to Rein In Factory Production”, Wall Street Journal, 16 July 2014.
  • 26 Mark Deweaver’s article titled “China’s Excess-Capacity Nightmare”, at http://www.projectsyndicate.org/commentary/china-s-excess-capacity-nightmare (last visited 24 June 2015).
  • 27 See for instance, “China’s Stockmarkets: Imperfect Markets”, The Economist, 5 October 2006; Kam C. Chan, Hung-gay Fung and Qingfeng ‘Wilson’ Liu (eds.), China’s Capital Markets: Challenges from WTO Membership, Cheltenham, UK: Edward Elgar (2007); Salih N. Neftci and Michelle Yuan Menager-Xu, China’s Financial Markets: An Insider’s Guide to How the Markets Work, Elsevier (2007).
  • 28 China 2030.
  • 29 World Bank, Financial Sector Assessment Program (FSAP), China – Financial Sector Assessment, Report No. SecM2011-0492, November 2011.
  • 30 These shares are calculated using the reported data in People’s Bank of China, China Monetary Policy Report, Quarter Three, 6 November 2014.
  • 31 This is evident from banks’ share in total private sector lending. While this ratio was between
  • 30-40 % in the other BRICs, it was more than 60 % in China during the period 2000- 2011. See Leonardo Gambacorta, Jing Yang, and Kostas Tsatsaronis, “Financial Structure and Growth”, BIS Quarterly Review, (March 2014), pp. 21-35.
  • 32 K. Ali Akkemik, “Japonya (1991) ve ABD (2007-2009) Finans Krizlerinin Politik İktisat Perspektifinden Bir Değerlendirmesi”, Doğuş Journal, Vol. 12, No. 2 (July 2011), pp. 171- 186.
  • 33 Ibid.
  • 34 China 2030; For a critical analysis of financial sector in China, see also Jia Li, “China’s Financial Market Fragmentation, 1978-2004”, Forum of International Development Studies, Vol. 32 (December 2006), pp. 115-135.
  • 35 See, Yasheng Huang, “How Did China Take Off?”, Journal of Economic Perspectives, Vol.
  • 26, No. 4 (Fall 2012), pp. 147-170; Dennis Tao Yang, “Aggregate Savings and External Imbalances in China”, Journal of Economic Perspectives, Vol. 26, No. 4 (Fall 2012), pp. 125- 146.
  • 36 See Xinhua news report for the 18th National Congress, available online: http://www. xinhuanet.com/english/special/18cpcnc/index.htm (last visited 24 June 2015).
  • 37 China 2030.
  • 38 Ibid.
  • 39 K. Ali Akkemik, “Çin’de Hızlı Büyüme ve Balon Etkisi”, Hazar Raporu, Vol. 4 (June 2013), p. 72.
  • 40 It is helpful to compare with the bitter experience of Japan, where a bubble in asset prices grew in the second half of the 1980s and burst in 1991, leading the country to a “Lost Decade” in the 1990s. Whether there is a bubble economy in China is an interesting question but beyond the scope of this article. For a critical discussion in Turkish, see K. Ali Akkemik, “Çin’de Bir Finans Krizi Beklemeli Miyiz? – Japonya’dan Alınacak Dersler”, in K. Ali Akkemik, Sadık Ünay (eds.), Doğu Asya’nın Politik Ekonomisi: Japonya, Çin ve Güney Kore’de Kalkınma, Siyaset ve Jeostrateji, Istanbul: Boğaziçi University Press (2015), pp. 282-322.
  • 41 Paul Krugman, “Will China Break?” New York Times, 18 December 2011.
  • 42 See, for instance, Maurice Obstfeld and Kenneth Rogoff, “Global Imbalances and the Financial Crisis: Products of Common Causes”, CEPR Discussion Papers 7606 (2009); “Bernanke says Foreign Investors Fuelled Crisis”, Financial Times, 18 February 2011; James A. Dorn, “The Role of China in the U.S. Debt Crisis”, Cato Journal, Vol. 33, No. 1 (Winter 2013), pp. 77-89.
  • 43 Jörg Mayer draws attention to the similarities between Japan in the 1980s and China recently in their experiences with trade frictions with the US. In the 1980s the US was blaming Japan for undervaluing the yen and implementing neo-mercantilist policies. However, he argues further that there is a stark difference between the two countries. China is much poorer than Japan in the 1980s and there are more opportunities for long-term economic development. In other words, China’s backwardness may work for the benefit of the country when its economy ails as the Japanese economy stagnated after the 1990s when most of the opportunities for economic growth had been obsolete. See Jörg Mayer, “Global Rebalancing: Effects on Trade Flows and Employment”, UNCTAD, Discussion Paper No. 200, September 2010.
  • 44 Nicholas Lardy, Sustaining China’s Economic Growth after the Global Financial Crisis, Peterson Institute for International Economics, 2012.
  • 45 See Joseph Casey and Katherine Koleski, Backgrounder: China’s 12th Five-Year Plan, USChina Economic and Security Review Commission, 2011.
  • 46 Ibid.
  • 47 Jörg Mayer, “Global Rebalancing: Effects on Trade Flows and Employment”, UNCTAD, Discussion Paper No. 200, September 2010.
  • 48 Ibid.
  • 49 “Winners and losers in the great Chinese rebalancing”, The Economist, 26 July 2014.
  • 50 See, Michael Pettis, The Great Rebalancing: Trade, Conflict, and the Perilous Road Ahead for the World Economy, Princeton, Princeton University Press, 2013.
  • 51 Rafael Halpin, “China’s rebalancing challenge”, Financial Times, May 22, 2015.
  • 52 David Dollar, “Sino Shift”, Finance and Development, Vol. 51, No. 2 (June 2014), pp. 10-13.
APA AKKEMİK K (2015). Rapid Economic Growth and Its Sustainability in China. Perceptions: Journal of International Affairs, 20(1), 133 - 157.
Chicago AKKEMİK K. Ali Rapid Economic Growth and Its Sustainability in China. Perceptions: Journal of International Affairs 20, no.1 (2015): 133 - 157.
MLA AKKEMİK K. Ali Rapid Economic Growth and Its Sustainability in China. Perceptions: Journal of International Affairs, vol.20, no.1, 2015, ss.133 - 157.
AMA AKKEMİK K Rapid Economic Growth and Its Sustainability in China. Perceptions: Journal of International Affairs. 2015; 20(1): 133 - 157.
Vancouver AKKEMİK K Rapid Economic Growth and Its Sustainability in China. Perceptions: Journal of International Affairs. 2015; 20(1): 133 - 157.
IEEE AKKEMİK K "Rapid Economic Growth and Its Sustainability in China." Perceptions: Journal of International Affairs, 20, ss.133 - 157, 2015.
ISNAD AKKEMİK, K. Ali. "Rapid Economic Growth and Its Sustainability in China". Perceptions: Journal of International Affairs 20/1 (2015), 133-157.