China in the World Economy

Zhongmin Wu

• Publisher: Taylor & Francis
• Year: 2009
• Print ISBN: 9781138991262
• eBook ISBN: 9781135228002
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

China's economy continues to grow at a great rate, with important consequences for China's society and environment, as well as for the wider world economy. Reforms are being undertaken in many areas within China, both to encourage continued economic growth and also to mitigate the adverse effects of growth on society and the environment. This book, based on extensive original research by a wide range of leading experts, examines many key issues connected to China's economic growth and its impact. Subjects covered amongst many others include: growth and inequality; labour market reforms; technological innovations and their impact; employment, unemployment and training; and the search for economic development that is ecologically sustainable.

Introduction

China in the world economy: an overview

Zhongmin Wu

The phenomenal rise of the Chinese economy has generated both admiration and envy. The awakening of this sleeping dragon has created a huge amount of interest in the western press. Books on China and its impact on the world are flying off the shelves of major bookshops. These are generally written by authors with no academic background and authority to speak of. China in the World Economy will provide the interested reader with analysis and views from the most senior academics on this topic. It will dispel myths and fear mongering about the Chinese economy. The enormous success of the 18th annual CEA conference gave the editor a vast amount of high quality papers from the most respected academics to choose from in forming this book. As a result, unlike other reference books on China, China in the World Economy has a clear focus, with each theme having its own part. The papers are picked from the best and most up-to-date work from the leading scholars. This will give the interested reader who may not be familiar with the academic work on China an instant insight into the views of the most respected academics.

This book is intended to introduce researchers and practitioners who are interested in the development of the Chinese economy to the most resent research results and update the general public about the economic issues and problems faced by China. We have selected 15 papers from 145 submissions to the 18th CEA annual conference. The volume editor and two independent referees have reviewed each of the 15 papers selected here. We are grateful for the help of the following scholars who reviewed manuscripts for this book, including Alberto Bagnai, María Jesús Herrerías, Richard Schiere, Shanshan Wu, Aaron Mehrotra, Matthieu Llorca, John Kidd, Jing Zhang, Gopap Krishna Pal, Yu Song, Niels-Hugo Blunch, Ge Teng, Guangjie Ning, Kelly Labar, Ziping Wu, Genia Kostka, Jiannan Guo, Xiuqing Zou, Yundan Gong, Huan Zou and Maggie Maurer-Fazio. Thanks also go to Xiaming Liu, Shujie Yao, Terry Clague, Stephanie Rogers, Tom Bates, Peter Sowden and Dongxu Wu for their help.

Part I: Three decades of economic growth

In Chapter 1, Bagnai and Mongeau Ospina present a medium-size structural macroeconometric model of the Chinese economy, consisting of 59 equations estimated with annual data from 1978 to 2006. The estimation methodology accounts for structural breaks of unknown date in the long-run parameters, thus allowing them to include a large span of data, encompassing the different stages of the reform process, in the estimation sample. The resulting equations display good statistical properties and the parameter estimates are in line with their theoretical values. The structural breaks detected by the econometric procedure are related to known major turning points in the transition process. The simulation experiments confirm the crucial role that foreign direct investment plays in the economic growth and competitiveness of China and shed some light on the issue of reducing the Chinese external imbalance.

In Chapter 2, Mehrotra and Rautava evaluate the usefulness of business sentiment indicators for forecasting developments in the Chinese economy. They use data on diffusion indices collected by the People’s Bank of China for forecasting industrial production, retail sales and exports. Their bivariate vector autoregressive models, each composed of one diffusion index and one real sector variable, generally outperform univariate AR models in forecasting one to four quarters ahead. Similarly, principal components analysis, combining information from various diffusion indices, leads to enhanced forecasting performance. Their results indicate that Chinese business sentiment indicators convey useful information about current and future developments in the real economy. They also suggest that the official data provide a fairly accurate picture of the Chinese economy.

China has seen exceptional growth in many of its sectors over the last few decades – and this growth is forecasted to continue. However a barrier to progress exists, namely, the lack of mobility of resources from their place of origin to where they are needed in China. To support its huge logistic needs, China has embarked upon extensive development of its ports, rail system and roads. But it is expected that it will fall short of its needs. In Chapter 3, Kidd and Stumm suggest that installing the Maglev transportation systems will go a long way to filling the logistics gap. Maglev systems are cheaper to install and operate than high-speed passenger trains such as the TGV and can carry freight as well as passengers on the same tracks at very high speeds. Therefore, we propose that Maglev be installed on the Eurasian Landbridge route (the New Silk Road) and all other major national rail links, even reaching the newly proposed Russia/Alaska link across the Bering Straits. In addition, we propose that China consults with its neighbours in Russia, Central Asia and the South East Asian states to install Maglev as one coherent fast transportation system. This infrastructure development will act as the bedrock for regional growth and harmony into the future. And it will guarantee that China remains in the forefront of global manufacturing for decades.

In Chapter 4, Ru Zhang uses the empirical analysis of the economic growth disparity in China from 1978 to 2005 to test the hypothesis of convergence in economic growth theory in the regional growth of China. Multiple statistical techniques are applied to analyse some of the stylized facts about regional growth disparity in China over the last 27 years. Then the chapter introduces a model within a framework of human capital and technology development. Panel data of 31 regions of China during the 27 years is applied to verify the conditional convergence in regional economic growth, and some characteristic factors that determine the growth disparity are specified and empirically tested. In conclusion, absolute convergence does not exist in regional growth in China during the time period. Nevertheless, after controlling the investment rate, investment efficiency, human capital and the level of technology, economies that have a higher level of initial output per labour may undergo a lower growth rate, that is, the rate of conditional convergence is approximately 1.4 per cent per year. This rate is a little slower than that in the western industrial countries.

In Chapter 5, Pal attempts to examine how far pre- and post-reform China was successful in achieving the goals of income equality and removal of poverty while gaining economic growth. Eradicating inequality traps and opportunity gaps are the main objectives of economic development of many developing countries at present. In reality, it is hard to find any definite relation between growth and inequality, growth and poverty, and inequality and poverty. For rapid economic development, some countries emphasized growth, while others tried to achieve development by emphasizing socio-economic equality and removal of poverty. China adopted two types of development strategy post-1949. Before reform, it tried to achieve economic equality and social sector development by ‘pro-poor’ development strategies. During the reform period, a ‘growth-orientated’ strategy was adopted. The problems with China’s development policies are that, before reform, growth was hampered, while, during the reform period, economic inequality increased. China has at present high inequality but low poverty, while India has more poverty and low inequality. The reasons for such opposite features are examined and possible measures to address them are also suggested in this study.

Part II: Labour market reform

Using the manufacturing industry’s data from 1998 to 2004 in transitional China, in Chapter 6 Ning empirically analyses the impact of technology adoption on employment quantity and employment skill structure at the industry level. The econometric results indicate that, basically, technology adoption has a positive impact on employment quantity, and demands the improvement of the employees’ skill structure. However, different types of technology create different impacts; contrary to the prediction of traditional theory, the impacts of process innovation on both the employment quantity and the employment skill structure are positive, whereas the impacts of product innovation are virtually negative or insignificant. The performance of technology in different ownership enterprises also varies. The coefficient of technology’s impact on employment quantity in state-owned enterprises is the lowest or is insignificant. Regarding the coefficient of technology’s impact on employment skill structure, that of foreign enterprises is the lowest or insignificant.

Recent years have seen a surge in the evidence on the impacts of active labour market programmes for numerous countries. However, little evidence has been presented on the effectiveness of such programmes in China. Recent economic reforms associated with massive lay-offs, and accompanying public retraining programmes make China fertile ground for rigorous impact evaluations. In Chapter 7, Bidani, Blunch, Goh and O’Leary evaluate retraining programmes for laid-off workers in the cities of Shenyang and Wuhan, using a comparison group design. The evidence suggests that retraining helped workers find jobs in Wuhan, but had little effect in Shenyang. The study raises questions about the overall effectiveness of retraining expenditures, and it offers some directions for policy-makers about future interventions to help laid-off workers.

In Chapter 8, Ge adds flows in and out of the labour market to the benchmark searching and matching model of Mortensen and Pissarides, and shows that the extended model meets most of the stylized facts of the labour market. Further, it provides determinants of the equilibrium rate of partic...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• List of figures
• List of tables
• List of contributors
• Introduction
• PART I Three decades of economic growth
• PART II Labour market reform
• PART III Sustainable development and policy