Download Table 1.7 China`s Exports and Imports, 1980 - 2005

China’s Economic Prospects:
2006 – 2020
Sandra Polaski
Carnegie Endowment for International Peace
April 17, 2007
Overview of presentation
• The Evolution of the Chinese Economy from
1980 – 2005
• The Impact of China’s Accession to the
World Trade Organization
• China’s Growth Prospects for 2006 – 2020
• Conclusions and Key Challenges
The Evolution of the Chinese Economy
from 1980 – 2005
• Over the past 25 years, annual GDP growth has
averaged over 9%
GDP (billion dollars)
GDP (billion dollars)
2,500
2,000
1,500
1,000
500
0
1980
1990
2000
Year
2005
The Evolution of the Chinese Economy
from 1980 – 2005
• Capital accumulation has been the most important
source of growth
The Evolution of the Chinese Economy
from 1980 – 2005
• Trade’s role in China’s economy has increased
Table 1.7 China's Exports and Imports, 1980 - 2005
Measure
1990
2000
2005
Average annual export growth rate (percent)
13.2
14.8
25.1
Average annual import growth rate (percent)
10.4
15.4
24.1
0.30
0.40
0.64
Trade dependence ratio
1980
0.13
• However processing trade represents a significant
share; value added in China is less than implied
The Evolution of the Chinese Economy
from 1980 – 2005
• Growth has lifted incomes
– Percentage of population living on $1/day
has fallen from 80 percent in 1980 to
20% today
– Yet 70% of population still lives on
$2/day
(Source: World Bank)
The Evolution of the Chinese Economy
from 1980 – 2005
• Urban/rural disparities remain pronounced
– 2005 Rural average net income: $397
– 2005 Urban average net income: $1281
• Sustained growth will require generating
higher-productivity and higher-income
employment opportunities for the 45% of
the population still engaged in lowproductivity agriculture
Looking Ahead: Two Models
• Two existing models built by the DRC:
• One used to model the impact on China of
accession to the World Trade Organization—
projections to 2010
– Simulations updated to include imposition of export
restraints by US and EU on Chinese textile and apparel
exports
– Two different labor market assumptions were employed:
full employment and surplus labor
• The second model is the basic national
macroeconomic model used by the DRC
The Impact of China’s Accession to
the World Trade Organization
• Why use a model to study what has already
happened?
– Model projects impacts to 2010
– Investigate impact of textile and apparel
restraints, imposed after last modeling exercise
– Isolate causal relationships
– Explore impact of different labor market
assumptions
The Impact of China’s Accession to the
World Trade Organization
Surplus labor assumption versus full
employment assumption:
– In China unemployment in urban areas
and underemployment in rural areas is a
reality
– Surplus labor puts downward pressure
on wages and enhances competitiveness
of Chinese production
The Impact of China’s Accession to the
World Trade Organization
Results with surplus labor compared to fullemployment assumption:
– Overall gains are higher
– Gains from manufacturing liberalization are
closer to level of gains from agricultural
liberalization
– Investment growth is much stronger
The Impact of China’s Accession to the
World Trade Organization
• Distribution of gains
from accession by
household income type
– Gains are fairly evenly
distributed between rich
and poor households
within urban and rural
household groups (S7
and surplus labor
assumption)
– % gains ranges from 2.8
-3.2 urban, 1.5-2.1 rural
Urban
Low est
Low
Medium Low
Medium
Medium High
High
Highest
Rural
Low est
Low
Medium Low
Medium
Medium High
High
Highest
The Impact of China’s Accession to the
World Trade Organization
Percent change relative to baseline
• However, urban households as a group gain significantly more
than rural households as a group (S7 and surplus labor),
primarily because urban households unambiguously benefit from
agricultural liberalization, while increased agricultural imports
hurt many rural agriculture-producing households
25
Highest
20
High
Medium High
15
Medium
10
Medium Low
Low
5
Lowest
0
Urban
Rural
The Impact of China’s Accession to the
World Trade Organization
• Employment Changes (surplus labor assumption)
– Agriculture
• Net job creation: 800,000 jobs
• Gains: 2.4 million jobs in livestock production
• Losses: 1.8 million jobs in rice
– Manufacturing
•
•
•
•
Net job creation: 4 million jobs
Gains: 965,000 in apparel
Gains: 865,000 in textiles
Losses: 217,000 jobs in automobiles
– Services
• Net job creation: 7.75 million jobs
• Gains: 670,000 in commerce (trade)
• Gains: 548,000 in construction
The Impact of China’s Accession to the
World Trade Organization
• Employment Changes (surplus labor)
– Net 13 million jobs created
– Current labor force numbers 918 million
– 300 million additional jobs needed to reach full
employment
• Policy conclusion
– Trade alone cannot solve employment challenges
– Domestic demand and government policy must be main
drivers of job creation
Growth Prospects for 2006 - 2020
• Areas of uncertainty
– International
•
•
•
•
Rise in protectionism
Dollar crash
Worsening terms of trade (cost of imports v. exports)
Financial liberalization leading to volatility
– Domestic
• Savings patterns of aging of population
• Persistent rural poverty
• Sluggish employment generation
Growth Prospects for 2006 - 2020
• Model explores three scenarios
– Baseline
– Optimistic
• Increased trade
• Improved resource allocation
– Pessimistic
• Less trade growth
• Less efficient allocation of resources
Growth Prospects for 2006 - 2020
• Trends in composition of output and employment
– In all scenarios the share of agriculture in employment
and output will fall
– Employment and output of secondary sector will grow
through 2010 but then decline as growth in service
industries begins to pull in larger numbers of workers
– Pace of this transformation will depend on level of
domestic investment in human capital and growth in the
technologically-advanced service industries that serve
manufacturing industries
Growth Prospects for 2006 - 2020
Growth Prospects for 2006 - 2020
• Sources of Growth: 2006-2020
Baseline Scenario
– In all scenarios, capital
accumulation continues to drive
growth
– Growth in TFP varies according to
gains in efficiency
– Contribution of labor does not grow
in any scenario (demographics)
Labor
Capital
Total Factor
Productivity
Risk Scenario
Optimistic Scenario
Labor
Labor
Capital
Capital
Total Factor
Productivity
Total Factor
Productivity
Growth Prospects for 2006 - 2020
• Returns to labor in 2020 relative to 2002
(percent change)
3000
Percent change
2500
2000
Professionals
1500
Production workers
Agricultural labor
1000
500
0
Baseline
Scenario
Optim istic
Scenario
Risk Scenario
• Agricultural workers stand to gain the most
but also face greatest losses relative to baseline
if risk scenario materializes
Growth Prospects for 2006 - 2020
3500
3000
2500
2000
1500
1000
500
0
Highest
High
Medium High
Medium
Medium Low
Low
Risk (Rural)
Risk (Urban)
Optimistic (Rural)
Optimistic (Urban)
Baseline (Rural)
Low est
Baseline (Urban)
Percent change
• Projected changes in household income in 2020 relative to
2002 (percent change)
• Rural households stand to gain the most but also face
greatest losses relative to baseline if risk scenario
materializes
Conclusions
• Capital accumulation will continue to be single
most important driver of economic growth
• Sustainability of growth will depend on
improvements in total factor productivity (TFP)
• Costs of adverse developments in international
environment and/or domestic policy missteps will
be borne disproportionately by the rural poor
Key Challenges
• Despite the importance of trade to
China’s economy, results from the WTO
model suggest that trade can play only a
limited role in creating employment
opportunities
• Broad-based domestic demand will be
required to sustain growth; additional
advantage that it relieves international
pressures and risks
Key Challenges
• Generating broad-based demand will
require adequate job creation at all skill
levels and particularly in rural areas
• Pace and quality of job creation should
be a key focus of policy makers
• Where can jobs be created?
Key Challenges
• Labor intensive service sector
industries, such as education and
health care, represent promising
sources of new jobs
– Demographic structure of China means demand
for health care by aging population will grow
– Moving up technology ladder means China will
need more and changing mix of skill—more
education services
Key Challenges
• This demand will require adequate
supply and adequate provision of
finance. Policies required:
– Boost domestic demand for services
• Stronger social safety nets (health, pensions)
• Supply social infrastructure (schools, hospitals)
• Support for education (tuition, fees)
– Provide appropriate education and training
opportunities
China’s Economic Prospects:
2006 – 2020
Sandra Polaski
Carnegie Endowment for International Peace
April 17, 2007