China

The author applies a systems-oriented "holistic" approach to China's radical economic reforms during the past quarter of a century. He characterizes China's economic... Show More + reforms in terms of a multidimensional classification of economic systems. When looking at the economic consequences of China's change of economic system, he deals with both the impressive growth performance and its economic costs. The author also studies the consequences of the economic reforms for the previous social arrangements in the country, which were tied to individual work units-agriculture communes, collective firms, and state-owned enterprises. He continues with the social development during the reform period, reflecting a complex mix of social advances, mainly in terms of poverty reduction, and regresses for large population groups in terms of income security and human services, such as education and, in particular, health care. Next, the author discusses China's future policy options in the social field, whereby he draws heavily on relevant experiences in industrial countries over the years. The future options are classified into three broad categories: policies influencing the level and distribution of factor income, income transfers including social insurance, and the provision of human services. Show Less -

China's government economic stimulus package in 2008-09 appears to have worked well. It seems to have been about the right size, included a number of appropriate components,... Show More + and was well timed. Its subnational component was designed to maximize the impact of the stimulus package on the economy and minimize the potential procyclical elements that are usually built into subnational fiscal mechanisms in federal countries. Moreover, China's massive fiscal stimulus played an important role in the overall recovery of the global economy. Using a simple analytical framework, this paper focuses on two key factors behind the success of the stimulus: investments in bottleneck-easing infrastructure projects and countercyclical nature of subnational spending based on the assumption that well-chosen infrastructure projects could improve business climate and thereby crowd in the private investment. The paper concludes that the expansionary subnational government spending played a key role in strengthening the overall impact of the stimulus and sustaining growth. It also highlights the importance of public investment quality and cautions about the sustainability of local government financing through the domestic banking system and increases in local governments off balance sheet or contingent liabilities. These lessons may be of particular relevance today for China, as well as other countries, in formulating policy response to another global economic slowdown or crisis, possibly as a result of the Eurozone turmoil. For China, investing in urban infrastructure and green economy, as well as in higher quality and better targeted social services, will be crucial for improving income inequality and inducing a more inclusive growth path. Show Less -

Over the last three decades, China's product, labor, and capital markets have become gradually more integrated within its borders, although integration has been significantly... Show More + slower for capital markets. There remains a significant urban-rural divide, and Chinese cities tend to be under-sized by international standards. China has also integrated globally, initially through the Special Economic Zones on the coast as launching grounds to connect with world markets, and subsequently through the accession to the World Trade Organization. For future policy considerations, this paper argues that its economic production needs to be spatially concentrated, and its social services need to be spread out to the interior to ensure harmonious development and domestic integration (through inclusive rural-urban transformations and effective territorial development). Show Less -

Decomposing China's real export growth, of over 500 percent since 1992, reveals a number of interesting findings. First, China's export structure changed dramatically,... Show More + with growing export shares in electronics and machinery and a decline in agriculture and apparel. Second, despite the shift into these more sophisticated products, the skill content of China's manufacturing exports remained unchanged, once processing trade is excluded. Third, export growth was accompanied by increasing specialization and was mainly accounted for by high export growth of existing products (the intensive margin) rather than in new varieties (the extensive margin). Fourth, consistent with an increased world supply of existing varieties, China's export prices to the United States fell by an average of 1.5 percent per year between 1997 and 2005, while export prices of these products from the rest of the world to the United States increased by 0.4 percent annually over the same period. Show Less -

China is increasing its outlay on research and development and seeking to build an innovation system that will deliver quick results not just in absorbing technology... Show More + but also in pushing the technological envelope. China's spending on R&D rose from 1.1 percent of GDP in 2000 to 1.3 percent of GDP in 2005. On a purchasing power parity basis, China's research outlay was among the world's highest, far greater than that of Brazil, India, or Mexico. Chinese firms are active in the fields of biotechnology, pharmaceuticals, alternative energy sources, and nanotechnology. This surge in spending has been parallel by a sharp increase in patent applications in China, with the bulk of the patents registered in the areas of electronics, information technology, and telecoms. However, of the almost 50,000 patents granted in China, nearly two-thirds were to nonresidents. This paper considers two questions that are especially important for China. First, how might China go about accelerating technology development? Second, what measures could most cost-effectively deliver the desired outcomes? It concludes that although the level of financing for R&D is certainly important, technological advance is closely keyed to absorptive capacity which is a function of the volume and quality of talent and the depth as well as the heterogeneity of research experience. It is also a function of how companies maximize the commercial benefits of research and development, and the coordination of research with production and marketing. Show Less -

Over the past three decades, China has made commendable strides in improving the health status of its population. Between 1965 and 1995, its infant mortality rate declined... Show More + from 90 per 1,000 live births to 36. During the same period, life expectancy at birth rose from 55 to 69 years and the maternal mortality rate fell from 26 to 15 per 100,000 deliveries. This performance compares favorably with that in similar Asian economies. China's infant mortality rate, for example, was less that half the rate predicted for its income level, Similarly, life expectancy at birth was higher than that in many comparable Asian countries. These favorable results conceal more recent trends, however. Since the early 1990s, mortality rates have increased in many provinces, particularly among infants and children under age five. And health status and health-related process indicators have improved more slowly than in the mid -1980s. What accounts for relatively stagnant, even deteriorating health indicators, and what strategies should be designed to address them as China enters the 21st century? Overall, the author argues, the recent erosion in health gains stems from three factors: a) changes in government financing of the health sector have increased inequity, inefficiency, and costs for medical treatment; b) the main contributors to the burden of disease have shifted from maternal conditions and infectious disease toward noncommunicable diseases and injuries, the prevention of which has not been a tradition part of China's public health programs; and c) the shift to a more market-oriented economy has changed environmental and behavioral risk factors, thus diversifying the types of disease across regions. The author suggests strategies for mitigating China's current and emerging health problems. Show Less -

The choice of the "right" fiscal relationship between central, provincial, and local governments depends on how a government weighs the benefits of decentralized economic... Show More + development policies against the costs of having less effective central fiscal management. Three strong forces justify more fiscal centralization in China's highly decentralized fiscal system. First, Bouts of inflation and recurrent fiscal deficits can be seen as calling for more central control over the budget. Second, Reform of an economic system relies heavily on the use of tax policy as an allocative instrument to influence economic decisions. Local control of the implementation of the tax system can and probably has compromised some objectives of the central government's tax policy. Gaining tighter control over the revenue system will probably require reducing if not eliminating local government discretion in providing special tax concessions. Third, if the center wants to move ahead with price reform and to encourage enterprise reform, it needs a more centrally controlled revenue sharing or assignment system that reduces the dislocating effects of such reforms. Bahl and Wallich conclude that a reformed system of intergovernmental finance must meet the center's needs for stabilization and the provinces' needs for revenue and equalized spending capacity, supplemented by an improved system of financing local capital expenditures through borrowing, a system of benefit charges and improved planning. Show Less -

Although it had a a lower income level than India in 1980, China's 2006 per capita gross domestic product stands more than twice that of India's. This paper investigates... Show More + the role of the business environment in explaining China's productivity advantage using recent firm-level survey data. The analysis finds that China has better infrastructure, more skilled workers, and more labor-hiring flexibility than India, but a worse access to finance and higher regulatory burden. Infrastructure appears to be a key constraint for India: it lags significantly behind China, yet it has important indirect effects for the effectiveness of labor flexibility. Labor flexibility is also likely a major constraint for India, as evident in the predominance of small firms, the importance of firm size in accounting for India's disadvantage in productivity, and the complementarity of proxies of labor flexibility with infrastructure and access to finance. Interestingly, regulatory uncertainty has adverse effects in India but not in China. The empirical analysis suggests that it is important to consider country-specific growth bottlenecks and the indirect effects of policy reforms. Show Less -

China has seen a huge reduction in the incidence of extreme poverty since the economic reforms that started in the late 1970s. Yet, the growth process has been highly... Show More + uneven across sectors and regions. The paper tests whether the pattern of China´s growth mattered to poverty reduction using a new provincial panel data set constructed for this purpose. The econometric tests support the view that the primary sector (mainly agriculture) has been the main driving force in poverty reduction over the period since 1980. It was the sectoral unevenness in the growth process, rather than its geographic unevenness, that handicapped poverty reduction. Yes, China has had great success in reducing poverty through economic growth, but this happened despite the unevenness in its sectoral pattern of growth. The idea of a trade-off between these sectors in terms of overall progress against poverty in China turns out to be a moot point, given how little evidence there is of any poverty impact of non-primary sector growth, controlling for primary-sector growth. While the non-primary sectors were key drivers of aggregate growth, it was the primary sector that did the heavy lifting against poverty. Show Less -

The rapid pace of economic growth in China has been unprecedented since the start of economic reforms in late 1970s. It has delivered higher incomes and made the largest... Show More + single contribution to global poverty reduction. Measured by international poverty lines, from 1978-2004, the absolute poor population in rural areas has dropped from 250 million to 26.1 million. Such gains are impressive and have been driven largely by a set of market-oriented institutional reforms, strong investment, and effective adoption and application of various knowledge and technologies, especially foreign ones through trade and foreign direct investment. While enjoying tremendous success, China also faces many challenges that need to be addressed to sustain its long-term development. These include weak institutions, low overall educational attainment, weak indigenous innovation capacity, poor links between research and development and industries, and so on. This paper provides an analysis of some strengths, weaknesses, opportunities, and challenges to China's knowledge economy in the areas of economic incentives and institutional regime, human capital, innovation system, and information infrastructure. Show Less -