Download Figure 1. GDP per capita in China and East Asian neighbors

China’s economic growth model
and progress under Gaige Kaifang
David Dollar
Senior Fellow
Brookings Institution
March 2014
Outline
• Key features of China’s reform
• Some comparison with growth records of
Japan, South Korea, Taiwan
• Economic and social outcomes
• China’s reform 2.0
GDP per capita in China and East Asian
neighbors (Penn version 8)
11
L 10.5
o
g
10
G
D
P
p
e
r
9.5
9
China
8.5
8
Japan
Korea
Taiwan
c
a
p
i
t
a
7.5
7
6.5
6
China’s economic reform
• Household responsibility system
• Open up to foreign trade and investment
(join WTO in 2001)
• Legalize the private sector
• Ease up on migration restrictions
Followed the export-led model of Japan, Korea,
and Taiwan – but with some differences
• Slower movement of labor out of
agriculture
• Even higher investment rate
• Large trade surplus at an earlier stage
• Very low household income and
consumption
China’s agricultural share of the labor
force is high for its per capita GDP
70
60
50
y = -12.49x + 133.5
R² = 0.6012
40
30
20
10
0
5
6
7
8
9
GDP per capita (log scale)
10
11
12
China’s investment rate has risen to
unprecedented levels
0.6
0.5
0.4
I
/ 0.3
Y
0.2
0.1
0
6
6.5
7
7.5
8
8.5
Log GDP per capita
9
9.5
10
10.5
11
China developed trade surpluses at an
earlier stage of development
0.08
0.06
0.04
0.02
(
X
M
0
6
6.5
7
7.5
8
8.5
9
-0.02
)
/
Y
-0.04
-0.06
-0.08
-0.1
Log GDP per capita
9.5
10
10.5
11
China’s household consumption is very
low
0.9
0.8
0.7
0.6
C 0.5
/
Y 0.4
0.3
0.2
0.1
0
6
6.5
7
7.5
8
8.5
Log GDP per capita
9
9.5
10
10.5
11
Followed the export-led model of Japan, Korea,
and Taiwan – but with some differences
• Slower movement of labor out of
agriculture
• Even higher investment rate
• Large trade surplus at an earlier stage
• Very low household income and
consumption
China’s unusual institutional
features
• Household registration (hukou)
• Repressed financial system with
undervalued exchange rate
• Open, competitive manufacturing but
closed, uncompetitive services (SOEs)
• One-party rule
China’s exchange rate pegged to the
dollar until 2005
Nominal Effective Exchange Rate Indexes (2010 = 100)
140
130
120
110
China
100
U.S.
90
80
70
60
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Good economic outcomes, but…
• Extraordinary growth and poverty
reduction
• But rising inequality
• Terrible air and water pollution
• Increasing corruption
• Old model economically and
environmentally unsustainable
Poverty has declined dramatically
Poverty Headcount Rate in China
(World Bank $1.25 per day poverty line)
54%
36%
28%
16%
12%
1995
1996
2002
2005
2009
Inequality has risen
China: Growth Rate of Household Income, 1990-2005
6.5%
4.4%
3.3%
2.0%
Average household
Bottom 40%
Bottom 20%
Bottom 10%
“Growth still is good for the poor” in a sample
of 118 countries
• Correlation between average income growth and income growth in the
Bottom 40% is robust over time
– Slope ~1 in both time periods (1967-2000 and 2000-2011)
Growth still is good for the poor
• No worldwide trend in bottom 40% share – in either
direction
• Change in inequality uncorrelated with growth
• Growth explains 77% of the variation in income of
the bottom 40%
• No institutional or policy variables are robustly
correlated with change in quintile share
3
China’s corruption is high for its level
of income (World Bank Control of
Corruption Index, 2011)
2.5
2
1.5
1
0.5
0
5
6
7
8
9
-0.5
-1
-1.5
-2
GDP per capita (log scale)
10
11
12
China: structural reforms to improve
efficiency of investment, spur innovation
and encourage consumption
•
•
•
•
•
Hukou reform
SOE privatization or commercialization
Financial liberalization
Opening up of services more generally
Incentives for local government
Premier Li Keqiang’s speech to the National
People’s Congress, March 5, 2014
• 100 million urban registrations for
migrants
• Financial liberalization
• Opening up services to foreign investment
• Broaden incentives for local government
Useful sources of data and
information
•
•
•
•
Brookings.edu (Thornton China Center)
Penn world tables version 8
World Development Indicators
World Governance Indicators