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China’s New Development Plan and Policy 2016-2020 Prof. Dr. Xingmin Yin Fudan University 1 2 Main Topic Introduction Growth and Its Targets Development Strategy Advantages for New Development Major Challenges 3 1. Introduction GDP obsession In January 2016, China declared that its GDP had grown by 6.9% in 2015, accounting for inflation----the slowest rate in a quarter of a century. It was neatly within the government’s target of “around 7%”. The economy is slowing. Why does China have a GDP target at all? 4 Could we make a good target for growth rates and believe government’s target? Historical records: for all but three of the years between 1992 and 2015, China’s growth was above target, often by a big margin. China would double its GDP attained in 2010 by the end of the decade. 5 2. Growth and Its Targets China is both a developing and a transition economy. Its GDP per capita in 2000 was only US$ 950 at official exchange rate, and rose to US% 7,700 in 2015, and expected to be US$10,000/12,000 in 2020. With a growing income per capita, China has experienced a big change in industry and economy. 6 A. Overview of Growth Economic growth, in the simplest meaning of the term, can be visualized as an increase in the total amount of goods and services available. This measured by the growth of GDP, which is the total of the value-added in an economy. In China, GDP per capita grew at around 8%-10% a year, compared to 1.5% in the OECD area between 2009 and 2014. 7 Rising Income Year RMB, per capita US$ per capita 1978 382 / 1980 420 / 1990 1654 330 2000 7902 950 2010 30675 4530 2014 46629 7500 2015 49890 7700 2020 80,000 12000 USA(2015) / 55000 Switzerland / 75000 8 Growth Rates of China’s GNP, Industry, Service and CPI (1978-2015) 25 140 120 20 100 15 80 10 60 40 5 20 0 0 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2015 GNP Industry Service CPI 9 Discussion The industry has made a great contribution to China’s economy progress between 1978 and 2014. But the role was downplayed in 2015. The price indicator of CPI has been relative stable since the late 1990s and show a well-managed macroeconomic policy. 10 B. Changes of Industrial Structure Development is typically associated with a decline in agriculture’s relative importance in the economy, the rise of industry initially and then expansion of the service sector. Since 2000, China’s structural change has aspects of this general pattern. Sectoral reallocation has most certainly been part of China’s growth and productivity story and so has trade. 11 Structure of Chinese GDP 1978-2014 Item 1978 1990 2000 2014 Primary 27.9 26.7 14.7 9.2 Industry 43.9 36.4 40.0 35.9 Construction 3.8 4.6 5.5 7.0 Service 24.5 32.4 39.8 48.1 GDP per capita In RMB term 382 1654 7902 46629 GDP per capita In Dollar term 150 340 955 7500 12 Agriculture’s share has fallen substantially since 1990, from 26.7% to 14.7% in 2000, and further to 9.2% in 20014. In comparison to both developed and developing economies, its service sector’s share has been much lower. The dominance role of manufacturing production remains distinct in China’s industrial structure. 13 Growth of GDP, Industry and Service, 2000-2015 GDP Industry Service 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 18 16 14 12 10 8 6 4 2 0 14 Further Discussion A distinctive feature of China’s economy in the past 35 years was its anomalously large industrial sector, even in 2013 China’s industrial share was larger than that in most middle-income and even high-income countries. Despite 35 years of structural change, these anomalies remained in 2014, and slightly changed in 2015. 15 Some Issues The rural labor force still account for 29.5% (250 million persons) of the national employment, and still further to reduce under a new development policy. There exists a huge gap between China’s capacity to produce goods and its ability to provide economic and social services. At present, the contribution of employment provided by service sector is very limited due to its support share in GDP, showing the absolute underdevelopment. 16 C. Growth Targets A new five-year economic plan (2016-2020) was issued on march 18, 2016. The growth targets have been downplayed to 6.5% annually compared to previous 5year-plans. The target provides numerical evidence for government’s efforts to make China rich. 17 Major Indicators Indicators 2015 2020 Annual Growth, % GDP, trillion yuan 67.67 90/100 6.5 GDP, per capita (USD) 7700 10,000 Registered population 39.9 45.00 Permanent population 56.1 60.00 Labor productivity, yuan 87,000 120,000 Service Value-added 50.5% 56% 76.3 78 Urbanization rate, % Life expectation 6.6 18 Continued Gross Enrollment Ratio in High School Gross Enrollment Ratio in Tertiary R&D/GDP ratio Patents/ Million population Mobile broadband penetration, % Total Population, billion 2015 87 2020 90 40 2.1 630 50 2.5 1200 57 1.375 85 1.4 19 Discussion A growth target is necessary for China to become a “moderately prosperous society” by 2020. GDP and other targets might not be allimportant, however, without such targets, one needs to find other indicators to assess the economic performance for national and local politicians. 20 Global Comparison The economy of the United States is the world’s largest national economy. Its national GDP was estimated to be over US$ 17 trillion in 2014, around 20 percent of nominal global GDP. The European Union has a larger collective economy, but is not a single nation. Its GDP at nominal term was also the largest in the world, around 22 percent of global GDP. China has risen to the third largest economy both in market price and PPP price in 2010. 21 Potential Growth for China A scenario for the next 15 years might be described as follows, China’s GDP expands at a rate 6.5 per cent per year, the US’s at 2.5 percent, the world grows at 3.5 percent. Thus, by 2030, the size of China’s GDP (US$ 25.5 trillion) will achieve parity with that of the US (US$ 25 trillion). How many years for China to increase its GDP per capita to as high as that of the United States and the European Union? 22 3. Development Strategy Unfinished industrialization Urbanization Based on Labor Mobility Overview of Regional Clusters Towards Modern Infrastructure Network 23 A. Unfinished industrialization Can we define the major features of China’s industrialization strategy? Industry has been the most important driver for China’s economic growth since the early 1980s. Big progress has been made in industrial restructuring under the entry of China’s WTO membership. 24 a. Industrial Value-added Product (IVP), 1978-2014 Year IVP RMB billion IVP, US$ billion Labor, Secondary Industry Million persons 1978 1990 2000 2008 2013 2014 160.29 684.06 3993.18 12992.91 21726.39 22812.29 / 143.01 482.36 1870.80 3508.10 3713.66 69.45 138.56 162.19 205.53 218.42 230.99 25 Industrial Size Industrial value-added output has increased five-fold, from RMB 3.99 trillion in 2000 to RMB 22.81 trillion in 2014. In US dollar terms, China’s industry valueadded increased 7.7 times, from US$ 481.88 billion to US$ 3.72 trillion, over this survey period. By 2014, industry value-added in China reached USD 3.72 trillion, accounting for 22.7% of global share. 26 Manufacturing Capacity Country 2010 Population Million M-Production Billion US$ M-Production GDP, US$ Per capita per capita Re. Korea 49 208.14 4248 19890 Switzerland 8 88.05 11007 71520 Singapore 5 33.50 6700 40070 Germany 82 567.90 6927 43070 Finland 5 37.56 7511 47570 Japan 128 970.20 7580 42000 US 310 1779.47 5740 48000 Euro Area 327 1754.91 5367 40000 China, 2014 1368 2720.27 1919 7500 27 It is showed that the higher growth rate of manufacturing industry, the higher of GDP growth rate emerges in China’s industrialization process. In terms of sheer size, China has the largest manufacturing sector both in the developed and developing countries, but this sector is nevertheless relatively small in relation to the nation’s enormous population. Will China’s manufacturing size be continued to expand in the coming two decades? 28 Industrial output increased 4 times over the period 2001-2010 and only 39.22% between 2010 and 2014. By 2014, industry value-added output reached more than RMB22.8 trillion. A permanent shift to an industrialized economy. 29 Industrial Value-added Growth, 2000-2014, RMB Trillion Industrial Value-added Product 25 20 15 10 5 0 Industrial Value-added Product 30 Questions Do you have any comments on China’s industrial development in the past 15 years? How do you understand the role of industrialization to developing countries? Will Chinese economy be recovery through traditional industrialization during the global downturn caused by the US financial crisis? 31 c. Labor Productivity China’s industries have achieved unprecedent development since the beginning of the 21st century. The emergence of mechanisms for extending industrial capacity, to a growing array of products and sectors. Labor productivity growth is defined as the rate of growth in real value-added per hour worked. 32 Labor Force Growth in Secondary Industry Labor Growth Rate 8 6 4 2 -4 Labor Growth Rate 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 -2 2000 0 33 Industrial Labor Productivity Growth at Current Price, % 30 25 20 15 10 5 0 LP RMB Term LP US$ Term 34 Discussion Productivity growth rates differ widely across industries. High growth rates are found particularly in the manufacturing sector but also in some business-sector services. The contribution of manufacturing was generally due to increasing productivity. 35 d. Industrial Restructuring It is major task for Chinese economies to expand its manufacturing capacity, especially in technological industry. How to assess the technological levels for Chinese economies? Which direction for China’s industrial restructuring has been taken? 36 Per capita output of Industrial Products Yarn (kg) Cloth (kg) Crude Steel (kg) Electricity (kwh) 1978 2.49 11.54 33.24 268.36 1990 4.08 16.63 58.45 547.22 2000 5.20 21.94 101.77 1073.62 2008 15.52 54.58 379.76 2617.20 2009 17.02 56.59 429.81 2790.33 2010 19.23 59.80 476.36 3145.06 2014 24.77 65.51 602.74 4141.10 37 Changes of Manufacturing Structure (%), 1992-2014 Sector 1992 2000 2011 2014 Textile 11.83 6.97 6.29 3.91 Apparel 2.78 3.10 / 2.15 Oil Refinery 3.67 5.99 5.03 4.20 Chemicals 7.80 7.78 8.29 8.50 / / 2.04 2.39 Steel 8.49 6.40 8.73 7.60 Machinery 10.90 7.09 9.14 8.37 Transportation 6.30 7.26 8.62 1.86 Pharmaceuticals automobile 6.93 Electric machinery 5.04 6.54 7.01 6.85 ICT 3.79 10.21 8.69 8.74 Instruments 0.74 1.17 / 0.85 38 A Progress All labor-intensive industries decreased their share in manufacturing output, such as textile and apparel sectors, while basic metal industries has clearly made a big step in the total share between 2002 and 2010. Capital intensive industries such as automobile and machinery have significantly expanded their stance in the manufacturing industry. 39 B. Urbanization Based on Labor Mobility The spatial arrangement of population and economic activities is an important and complex dimension of Chinese economic development. The spatial configurations of Chinese economy are shaped by the institutional landscape, policies and infrastructure. 40 a. Spatial Configuration 41 b. Incentives for labor Mobility Economic development and technological change induced by human capital accumulation and technology transfer from abroad lead to urbanization, a shift from labor-and –land –intensive agricultural production into urban industrial production, which caused different level of regional development. China’s urban-rural fault line offers another perspective on spatial fragmentation. 42 Household Disposable Income per capita, RMB Yuan 1978 1990 Urban 343 1510 Rural 134 686 Rural/Urban,% 39.07 45.43 2000 2010 2011 2012 6280 19109 21810 24565 2253 5919 6977 7917 35.88 30.98 31.99 32.23 2013 2014 26955 29381 8896 9892 33.00 33.67 43 c. Urbanization and Growth High rates of urban growth caused by ruralurban migration. More jobs in urban come from a great wave of industrialization and labor mobility. The Hukou system treats migrants who may have lived and worked in cities for years as outsiders who are excluded from the annual official population tabulations, thereby under counting the city population. 44 Population and Composition By Residence, million Urban % Rural % 1978 172.45 17.92 790.14 82.08 1990 301.95 26.41 841.38 73.59 2000 459.06 36.22 808.37 63.78 2010 669.78 49.95 671.13 50.05 2014 749.15 54.77 618.66 45.23 2020 60 40 2035 70 30 2050 80 20 45 Since 1999, another round of Hukou reforms and relaxation of the migration restrictions seem to have promoted an upswing in urban growth. The annual urban growth rates were at a high level in the past 15 years. China continues to be the country with the largest urban population in the world. 46 d. Job and Housing Demand Between 2008 and 2014, China increased 25.46 million jobs in secondary industry and 62.77 million jobs in service sector. In China, employment in non-agricultural sector continued to rise well into 2015 and 2016. Job creation has a very strong influence on the housing demand. 47 Housing Demand Labor mobility to urban area; Income rising and unequal income distribution; Huge investment in real estate industry; Housing price inflation: Bubble or not? 48 Labor Mobility Trends 80 70 60 50 40 30 20 10 0 Urban Rural 49 Investment in Real Estate Sector 2003 2008 2009 2010 2013 2014 2015 Total Fixed –Asset Investment, RMB Trillion Real Estate RE/Total % 4.58 14.87 19.39 24.14 43.58 51.20 55.20 1.11 3.59 4.31 5.76 11.14 13.14 13.27 24.24 24.15 22.24 23.87 25.56 25.66 24.04 50 Investment in Real Estate, RMB Trillion Investment in Real Estate 14 12 10 8 6 4 2 0 Investment in Real Estate 51 Floor Space of Residential Building Completed, trillion sq.m Floor Space of Residential Building Completed 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 1.2 1 0.8 0.6 0.4 0.2 0 Floor Space of Residential Building Completed 52 House Price Inflation Faced with a property market price increases and complaints from middle to low-income urban residents, the government has intensified its macro-economic adjustment program since 2005. Clearly, these policies relied essentially on political, administrative and land use planning measures, and their effects were limited and finally failed. 53 Average Selling Price, Yuan/sq.m How much of the real appreciation in house prices can be explained by market fundamentals? What are the most important factors in determining housing prices in each province and large cities? 54 Average Selling Price, Yuan/sq.m 20000 15000 10000 5000 Residential buildings High-grade Apt. 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 0 55 Bubble or Not? New issues on China’s house quality and its implication for the demand of higher-end houses. What is “structural problems” of the real estate market? Many policies have been issued, these rules were seen as tough, but did not stop house price inflation, Why? 56 e. Suzhou Case The urban-based industrialization strategy left its imprint on China’s economic structure at the dawn of the reform era. One result was relatively low urbanization level compared to China’s industrialization level. Furthermore, without migration as a force to equalize income, urban-rural disparities remained large. 57 Major Indicators for Suzhou 1999 2014 5.76 6.61 / 10.60 2. Land area, sq.km 8488 8657 3. Total employment, million 3.11 6.93 Primary 0.69 (22.01%) 0.25 (3.53%) Secondary industry 1.52 (48.74%) 4.20 (60.54) Tertiary industry 0.91 (29.26%) 2.49 (35.92) 4. GDP, in RMB billion 135.84 1376.09 in US$ billion 16.41 224.12 Industrial value-added 69.15 (50.91%) 636.01 (46.22) 1. Registered Population, Million Permanent Population 58 Continued 1999 2014 5. GDP per capita, RMB 23592 129926 US$ 2849 21000 136.61 95.44 / 139.0 300.63 3031.22 84.49 1918.00 28.10% 63.25% 12.55 311.31 6.93 181.18 2.86 8.12 6. Industry/Services ratio, % 7. Trade/GDP ratio, % 8. Gross output value of industry, RMB billion GOVI from FDI GOVI share of FDI, % 9. Trade, US$ billion Exports 10. Foreign direct investment, US$ billion 59 International Comparison in GDP Suzhou, 2014 Egypt, 2009 GDP, US$ billion 224.12 172.1 South Africa, 2009 Nigeria, 2009 Malaysia, 2009 Singapore, 2009 284.3 184.7 201.8 185.7 Thailand, 2009 254.7 60 C. Overview of Regional Clusters The spatial arrangement of population and economic activities is an important and complex dimension of Chinese economic development. Agglomeration economics. Technological ladder for regional industrialization. 61 Urban Clusters in 2015 62 Regional Clusters by 2020 63 Top Regions in Industrial Output, Percentage Province level 2000 2014 Shanghai 7.24 3.20 Jiangsu 12.20 12.82 Zhejiang 7.71 5.82 Anhui 1.94 3.33 Fujian 3.05 3.35 Jiangxi 1.09 2.81 Shandong 9.70 12.93 Sub-total 42.93 44.26 64 Continued Province-level 2000 2014 Hebei 4.00 4.26 Liaoning 4.96 4.41 Henan 4.08 6.15 Hubei 3.58 3.74 Hunan 1.90 3.03 Guangdong 14.57 10.43 Sichuan 2.42 3.44 Sub-total 35.51 35.46 Total 78.44 79.92 65 New Phenomenon A new wave of the transfer of high-tech capacity to China’s coastal regions; Labor-intensive industry has been greatly transferring to inland and western parts of China through local industry-driving force; FDI as a share of Chinese GDP has never been exceeded 6%, and slipped below 1.25% of GDP in 2013. 66 China’s export basket has be moving up market into higher value goods. Debating on two development strategies for regional transition: Free-Trade Experimental Zone based on service sector; and well-known global technology innovative center. 67 Regional Industrialization Urban productivity relationships, which show how output per worker varies with city size and which allow calculation of efficient sizes for Chinese cities as well as potential welfare losses from insufficient agglomeration. Technological change in regional production, as is going in China at high level, increase efficient industrial capability. 68 Some Key Issues In examining productivity of cities, there are two key aspects to a conceptual framework. At low levels of employment, there are the high scale of economies from clustering firms together because of information sharing and spillovers across firms and exploitation of pecuniary economies in reducing the cost of shipping intermediate inputs among firms and to consumers. 69 D. Towards Modern Infrastructure Network Urban industrial production is subject to localized external economies of scale such as information spillovers and labor market externalities. It is also subject to the new economic geography’s virtuous circle of agglomeration benefits---- pecuniary externalities from consumers and producers being able to buy locally produced goods in close spatial proximity with low or negligible shipping costs. 70 Expressway Networks in 2015 71 High-speed Railway by 2020 72 Improvement of Infrastructure The length of highway increased from 500 (km) in 1990 to 16300 (km) in 2000, and to 120, 000 (km) by 2015. The length of railway increased from 91,200 (km) in 2010, to 100,000 (km) by 2015. The network of high-speed railway will cover more than 80% of major cities by 2020. 73 Possession of Vehicles Civil Car Ownership - per 1000 people 120 100 80 60 40 20 0 Civil Car Ownership 74 Unit: 10,000 km 12 10 8 6 4 2 0 Railway Expressway Petrolem & Gas Pipelines 75 Demand for Infrastructure 2001 2013 2020 Expressway, 1000 km 19.4 104.4 150/300 Railways, 1000 km 70.1 103.1 150/200 Road Network, million km 1.70 4.36 10/12 14 100 200 China Possession of Vehicles, Vehicles/1000 persons USA Rail lines, 1000 km 228.5 Road network, million km 6.55 Vehicles/1000 persons 700 802 76 High-speed Railway and Civil Aviation High-speed Railway, km Passenger Traffic, million persons Civil Airports No. of Civil Aircrafts (transport) 1990 / 16.6 94 204 2000 / 67.2 139 527 2008 672 / / / 2010 5133 267.7 175 1597 2014 16456 392.0 200 2370 2015 19000 / / / 2020 30000 / 250 / 77 Airport Networks 78 Clearly, returns to infrastructure investment are higher for China. In sum, large unmet demand in a number of infrastructure areas will require continual strong investment. 79 4. Comparative Advantages for New Development Endogenous growth model; Human resource rich economy; Potential innovative capacity; To turn huge savings into capital accumulation; Overall and deep capitalization for all economic and social activities. 80 A. Endogenous Growth Y=AK; Innovation based on physical and human capital, and also largely through the manufacturing industry. The skill challenges: there was a drop in lowerskilled jobs in both services and manufacturing. However, employment rose for professionals and technicians, i.e. higher-skilled occupations. 81 B. Human Resource-Rich Economy Average educational levels across the population in China are not comparable to advanced countries. This also needs huge investment in education. Investment in education can produce the most productive factor for economic growth. From physical investment to innovation through massive supply of human capital. 82 Gross Enrollment Ratio in Tertiary, % France Germany/Austria Japan UK US High-income 2010 55 China 55 India 59 59 95 70 Brazil Russia Mexico Middle-income 2010/15 26/40 16 36 76 27 24 83 C. Potential Innovative Capacity Today, the prevailing idea is that economic strength should be applied primarily toward achieving technological power. Technology factor will be the core of development and possible cooperation between China and major technology power. 84 Innovation Indicators 2005-2009/2014 Advanced R&D/GDP S&E/mil. Developing R&D/GDP S&E/mil. USA 2.79 4673 China 1.47/2.08 1199/2000 Japan 3.45 5189 Argentine 0.52 1046 Germany 2.82 3780 Brazil 1.08 696 France 2.23 3690 India 0.76 136 / / Indonesia 0.08 90 Italy 1.27 1690 Korea of Re. 3.36 4947 Euro Area 2.09 3119 Mexico 0.37 347 Canada 1.95 4335 Russia 1.25 3091 Australia 2.35 4259 Saudi Arabia 0.08 / South Africa 0.93 396 Turkey 0.85 804 UK World 2.15 1269 85 Business R&D in All Industry & Manufacturing, US$ Brillion 2008 2009 2012 2013 Germany 51.67 49.89 57.31 / Japan 108.82 96.12 102.59 107.64 / 259.77 277.01 / 98.97 123.08 198.31 225.71 Germany 45.73 42.66 49.37 / Japan 94.84 83.73 90.23 95.51 / 179.51 182.30 / 85.73 103.41 173.11 197.72 All Industry US China Manufacturing US China 86 Growth is Good News Like other types of investment activity, expenditures on R&D and innovation are pro-cyclical. R&D financed by the business sector is particularly affected by the business cycle and reflects changes in financing constraints and aggregate demand. In China, R&D expenditure has nearly doubled in real terms in the space of five years, principally boosted by the business sector. 87 D. To turn Huge Savings into Capital Accumulation How to explain the saving behavior in different countries? China’s household savings increased to RMB 56.4 trillion at the end of 2015, which equals to US$ 8.67 trillion. More savings, and more investment! 88 Gross Savings to GDP,% Country 1995 2010/15 Country 1995 2010 Australia 18 24 China 42 54/80 India 27 34 France 19 17 Argentine 16 22 Germany 20 23 Brazil 16 17 Japan 30 24 Mexico 19 24 Korea 36 32 Singapore 30 46 Middle-income 26 30 Switzerland 30 32 Netherlands 27 23 UK 15 12 Greece 18 5 US 16 11 89 E. Overall Capitalization How would capital formation be so important to Chinese economy? China’s investment growth will continue to have a high rate due to its lower level of development. How can we analyze the contribution of overall capitalization in economic and social activities to economic growth? 90 5. Major Challenges China will continue to experience the high growth rate and expand its industrial and technological capacities, which may be beyond today’s expectation. What major challenges for China’s entry into the gate of high-income economies in the coming 15 years? Capacity building for a knowledge-based capital structure. 91 Industrial and Technology; A high standard of urbanization; Human capital and innovation; A knowledge-based capital structure and sophisticated development system. 92 THANKS!