China s Reform and Opening-up

China s Reform and Opening-up Yan ZHANG ( 张晏 ) China Center for Economic Studies School of Economics Fudan University Instructor s Information v Yan Zhang v Office: Room 704, School of Economics v Tel: 65643067; v Email: yanzhang_fd@fudan.edu.cn v Office Hours: Thursday, 10:30-11:30 or by appointment Part I. China s Miracle: The Economic, Political and Social Foundations Part I. China s Economic, Political and Social Foundations Introduction: China at a glance Introduction: China s basic development strategies Economic decentralization Political centralization Social structure Lecture 1. Introduction: Understanding China s Miracle Q: What Has Chinese Economy Impressed on You? v High growth rate? v Lower prices of food, books, VCDs? v Lower wage? v Higher prices of.? v Energy consumption v Corruption? The Bund of Shanghai Model: Shanghai Center 2008-2014 1

How to Understand Chinese Economy? v What are the most important reforms that have changed China? v What are the most important factors that characterize Chinese economy? v What are the top 5 challenges for China s sustainable growth? Economic decentralized incentives; Political bases; Social promotion China's newest economic figures (year on year growth rate, %) CPI PPI Industrial Retail Urban Grain Fixedasset added sales of residents' output value consumer per capita investment output goods income GDP Year 4.6 5.5 15.7 18.4 7.8 2.9 23.8 10.3 2010 5.4 6.0 13.9 17.1 8.4 4.5 16.1 9.2 2011 2.6 3.2 7.8 13.6 7 2.1 18.9 7.7 2013 2.0-1.9 8.3 10.9 8 0.9 15.1 7.4 2014 G7 GDP Growth Rate BRICK & Asia Economy GDP Growth Rate Country 2011 2012 2013 2014 USA 1.8 2.8 1.9 England 1.1 0.1 1.4 France 2.0 0.0 0.2 German 3.3 0.7 0.5 Japan -0.4 1.4 1.6 Italy 0.6-2.6-1.8 Canada 2.5 1.7 1.7! China overtook Japan as the world's second largest economy in 2010 Population Density Exceeded Germany GDP per capita: China: $4,300, Japan $34,000 USA: $47,123 On a On a per capita income basis, China ranked 87th by nominal GDP and 92nd by GDP (PPP) in 2012, according to the IMF. 2

Geography: Regional Differences 32.6% added oil is consumed by China in 2006. China's energy consumption per unit of GDP is 3 times that of Germany and 5 times that of Japan in 2010. China is the world's second-largest oil consumer behind the United States and became the largest global energy consumer in 2010. The country was a net oil exporter until the early 1990s and became the world's second-largest net importer of crude oil and petroleum products in 2009. The U.S EIA projects that China will surpass the U.S as the largest net oil importer by 2014. China's oil consumption growth accounted for 1/3 of the world's oil consumption growth in 2013 As a result of high coal consumption, China is also the world's leading energy-related CO 2 emitter, releasing 8,715 million metric tons of CO 2 in 2011. China's government plans to reduce carbon intensity (carbon emissions per unit of GDP) by 17% between 2010 and 2015 and energy intensity (energy use per unit of GDP) by 16% during the same period, according to the country's 12th Five-Year Plan. China also intends to reduce its overall CO 2 emissions by at least 40% between 2005 and 2020. China Image: from abroad v Four in particular top the current best-seller list (2006): The China Dream by Joe Studwell (2nd edition reissue), Mr. China by Tim Clissold China Inc. by Ted Fishman China Shakes the World by James Kynge. v A House Built on Sand? v A Huge Dragon? China Image from abroad: 2006 v All four are aimed at the mass market and are very entertaining, but they also have significant things to say about the broad economy: how it works, why it works and what s driving growth. J. Anderson, 2006, China s True Growth: No Myth or Miracle, Far Eastern Economics Review, vol. 169, no.7, September, 9-16. 3

China Image from abroad: 2008 v Hosting The Olympic Games v The 4 trillion(rmb) package v G2? China Image from abroad: 2012 v On Feb. 27 th, the World Bank issued a joint research report by a team from the World Bank and the Development Research Center of China s State Council v China 2030: Building a Modern, Harmonious, and Creative High-Income Society China has an opportunity to avoid the middle -income trap, promote inclusive growth, without further intruding on the environment, and continue its progress towards becoming a responsible stakeholder in the international economy China: from Chinese Point of View v Increasing economic and political status in the world; Increasing difficulties and challenges; A long way to catch up v China s leaders have recognized that the country s growth model, which has been so successful for the past 30 years, will need to be changed to accommodate new challenges, said World Bank Group President Robert B. Zoellick. China at a Glance v China s Economic Success Growth rate GDP FDI Infrastructure Growth and Inflation Contributions of components to nominal GDP growth (expenditure based). Source: Parasad(2009) Source: Parasad(2009) 4

Source: Parasad(2009) The sectoral composition of GDP growth GDP growth Sectoral shares in GDP Year Total Primary Secondary Tertiary Primary Secondary Tertiary 1991 9.2 2.4 13.9 8.9 17.5 52.6 29.9 1992 14.2 4.7 21.1 12.4 15.8 55.1 29.1 1993 13.9 4.7 19.9 12.2 14.4 57.3 28.3 1994 13.1 4 18.4 11.1 13.1 59.4 27.6 1995 10.9 5 13.9 9.8 12.3 60.6 27.1 1996 10 5.1 12.1 9.4 11.7 61.5 26.9 1997 9.3 3.5 10.5 10.7 11 61.9 27.1 1998 7.8 3.5 8.9 8.4 10.6 62.3 27.1 1999 7.6 2.8 8.1 9.3 10.1 62.4 27.5 2000 8.4 2.4 9.4 9.7 9.5 62.8 27.7 2001 8.3 2.8 8.4 10.3 9 62.8 28.2 2002 9.1 2.9 9.8 10.4 8.4 63.1 28.5 2003 10 2.5 12.7 9.5 7.8 64.1 28.1 2004 10.1 6.3 11.1 10.1 7.5 64.5 28 2005 10.4 5.2 11.7 9.8 7.1 65.1 27.8 2006 10.7 5 12.5 11.1 6.7 65.6 27.7 2007 11.9 3.7 13.8 14.4 6.2 65.9 27.9 Influx of FDI to China China s Economic Success Deng Xiaoping s Tour of Southern China in 1992 If you are interested in Deng s tour and speech in 1992, please go to: http:// english.peopledaily.com.cn/200201/18/eng20020118_88932.shtml China s Economic Success China at a glance: 2007 5

China at a glance: 2009 China at a glance: 2009 China at a glance: 2009 China at a glance: 2009 China at a glance: 2009 China s Economic Success From: Bert Hofman and Susana Cordeiro Guerra, Fiscal Disparities in East Asia: How Large and Do They Matter? World Bank 6

1978 Industrial Agglomeration 2001 Industrial Agglomeration Disparities in China Disparities in China From: Bert Hofman and Susana Cordeiro Guerra, Fiscal Disparities in East Asia: How Large and Do They Matter? World Bank From: Bert Hofman and Susana Cordeiro Guerra, Fiscal Disparities in East Asia: How Large and Do They Matter? World Bank Disparities in China Disparities in China From: Bert Hofman and Susana Cordeiro Guerra, Fiscal Disparities in East Asia: How Large and Do They Matter? World Bank From: Bert Hofman and Susana Cordeiro Guerra, Fiscal Disparities in East Asia: How Large and Do They Matter? World Bank 7

HDI: 1980-2011 HDI: HDI-2012 1 2012 VS. 1980 0.8 0.6 0.4 0.2 SOURCES: http://hdr.undp.org/ en/data/trends/ DATA SOURCES: http://hdr.undp.org/ en/data 0 0 0.2 0.4 0.6 0.8 1 HDI-1980 HDI: 2012 VS. 1990 More than 40 countries of the South had greater gains on the HDI between 1990 and 2012 than would have been predicted from their previous performance on the HDI DATA SOURCES: 2013 Human Development Report, http://hdr.undp.org/ en/data HDI-2012 1 0.8 0.6 0.4 0.2 0 0 0.2 0.4 0.6 0.8 1 HDI-1990 China at a Glance: Conclusion v Despite what economists would predict as a poorly performing economy, a striking shift occurred in China's growth. China outperformed all other developing countries in terms of exports and output growth in real terms. The 1980 s and 1990 s both saw a rise in all areas of real income and living standards. v The puzzle is how China's economy performed so well despite the fact that economic institutions and policies were inadequate in relation to mainstream Western economic theory. China does have a long history of capitalistic tradition, and therefore was more apt to succeed even under such a restrictive government. v It is also true that a strong central government at this stage was necessary to preside over the changes that were taking place, because of how dynamic a country China is. From: Zhang Jun, Triggering the economic growth in post-reform China, Working paper, 2006. China at a Glance: Conclusion v China did not copy any model to trigger its economic growth. What it did was to give up the ideology that constrains its will to choose the right way to catch up. China set the growth target when it began the slow process of economic reform, and when China began economic reforms, its aim was not to replace the old system, but to make some change of it. The evolutionary process of China s economic reform helps induce rather than retard economic growth. v When economic growth is the main target of government, China finds a better governance to serve its goal of growth. And during the early phase of economic development, when the average income of population is much lower, the growth target is easier to be placed on the top of government agenda. China did so and what China did better than India is because it is much easier to make out an effective governance of growth under China s political system than under federalism India. From: Zhang Jun, Triggering the economic growth in post-reform China, Working paper, 2006. China at a Glance: Conclusion v What challenges China in the future is how Chinese system responds effectively to diversified interests of society and how Chinese government enforces its cohesion when growth target is no longer on consensus. For instance, China s rapid growth from below has increasingly enlarged the regional income disparity and social income gap in the past decade. These problems threat social and political stability in China. China needs to manage these social problems. Recent experience has indicated that China is on the crossroad between implementation of growth target and moving towards to more distributional policies. From: Zhang Jun, Triggering the economic growth in post-reform China, Working paper, 2006. 8

Course Information v This course tries to give some explanations to so-called China's Miracle, and more importantly, to discuss current top issues and directions of future opening-up and reform. What are the incentive effects on workers, firms, and local governments of China's opening-up and economic reforms since 1978? Will they work in the near future? What are the economic, social, and political foundations of China s reform? How will they influence China s next reforms? Course Information v This course tries to give some explanations to so-called China s Miracle, and more importantly, to discuss current top issues and directions of future opening-up and reform. Will China s growth stop? When and How? How will globalization influence China s reform? What are the most important reforms in the next 5 to 10 years? Course Content v The first part outlines the economic, political and social foundations for China's miracle. v The second part turn to special issues on Chinese economy, comparing them with developed economies, discussing their origins and difficulties, and reviewing top solutions. v To conclude, the last part discusses some feasible strategies for China at a crossroad. While evaluating China's future reform and opening-up strategies, it will also conclude the economic progresses as well as the big challenges to China's sustainable developments in a broader view. v Part 1. China s Miracle: The economic, political and social foundations Week 1. Introduction China s Economic Progress: 1978-present Economic Decentralization, Development Strategy and Structural Changes Political Centralization and Social Structure: Personnel and Individual Incentives Week 2. Political Centralization and Economic Development Week 2. Social Structure in China and Segmentation Policies v Part 2. Challenges for China's Economic Reform and Opening-up: Special Issues Week 3: C1--Local Debts, Land Finance, and Central-Local Relationship Q: Why local govt. has so large debts? Are they different from the State s local crisis? What influences will they have? How to figure out the crisis? v Part 2. Challenges to China's Economic Reform and Opening-up: Special Issues Week 4: C2 Urbanization, Industrialization, and Investment Driving Growth Q: What are different of urbanization in China from other developed countries? Will government driving and investment driving resolve everything? 9

v Part 2. Challenges for China's Economic Reform and Opening-up: Special Issues Week 5: C3 Private Enterprises, Financial Constraints, and Marketization (Privatization) Q: How is privatization and SOE development in China? What are the constraints of private capital? How will they influence China s marketization and sustainable growth? v Part 2. Challenges to China's Economic Reform and Opening-up: Special Issues Week 6: C4--Regional Partition, Urban-rural Partition, and Inequality in China (Response paper due on May 10th) Q: What are the main factors of China s inter-regional and urban-rural disparity? Is there any possibility to equalization? Are policies like west-exploring or education equalization successful? How will inequality influence China s future growth? v Part 3. Feasible Systems and Feasible Strategies for China's Sustainable Developments: Economic Reform and Opening-up in the Next Decade Week 7: Reconstruct the Central-local Relationship: Economic and Political Bases Q: How to encourage and governance local governments? Will there be large movements of democracy in China? What are the next fiscal and tax reforms? v Part 3. Feasible Systems and Feasible Strategies for China's Sustainable Developments: Economic Reform and Opening-up in the Next Decade Week 8: Market, Government, and Public Services Provision in China Q: How to decrease the power of different levels of governments and bureaucrats in China? Will China be Market-orientated or government-dependent? Will public service reform lead on other political and economic reforms? v Part 3. Feasible Systems and Feasible Strategies for China's Sustainable Developments: Economic Reform and Opening-up in the Next Decade Week 9 (04/24): China and the World: Openingdoor Policies and Globalization Q: How will globalization influence China s reforms? Will China catch up in 2025? If yes, what will be the necessary conditions? Administration v The lecture notes, reading materials and power point lecture presentation materials will be sent to public maibox. v Students enrolled in this course should take part in the class, discuss problems with group members and teachers, finish one presentation, one response paper, and one final paper. Week 10: Labor s Day Week 11 (05/08): Final Paper due on this Week 10

Course Grades v Your grade will be mainly based on the performance of discussions, one presentation, one response paper, and one course paper. Your grade will be calculated using the method listed below: Discussion: 15% Presentation: 20% Response Paper: 15% Course Paper: 50% v The maximum total points you can earn are 100. The grade distribution is according to Fudan s grade standard. References v No textbook. Recommended References: Lu, Ming, Zhao Chen, Yongqin Wang, Yan Zhang, Yuan Zhang, and Changyuan Luo, China s Economic Development: Institutions, Growth and Imbalances. Edward Elgar Publishing Limited, 2013. v Some reading materials published in journals and some working papers TA s Information v Yanmin YANG Email: 11210680093@fudan.edu.cn Mobile: 13601908735 v Public Mailbox: ID: chineseeconomyfd2014@gmail.com Password:chineseeconomy Instructor s Information v Yan Zhang v Office: Room 704, School of Economics v Tel: 65643067; 13818719958 v Email: yanzhang_fd@fudan.edu.cn v Office Hours: Thursday, 10:30-11:30 or by appointment References v Prasad, Eswar S., 2009, Is the Chinese growth miracle built to last? China Economic Review, 103-123. v Wang, Yongqin, Yan Zhang, Yuan Zhang, Zhao Chen, and Ming Lu, 2007, On China s Development Model: Costs and Benefits of China s Decentralization Approach to Transition, Economic Research Journal (Jingji Yanjiu), Vol. 42, 4-16. v Zhang Jun, 2006, Triggering the economic growth in postreform China, Working paper. v Anderson, J., 2006, China s True Growth: No Myth or Miracle, Far Eastern Economics Review, vol.169, no.7, September, 9-16. v Hofman, Bert and Susana Cordeiro Guerra, Fiscal Disparities in East Asia: How Large and Do They Matter? World Bank. 11