Download Economic Transition and Development of Chinese Economics

Economic Transition and Development of Chinese Economics
PENG Yan
Faculty of management and economy,
Kunming University of science and technology, P.R.China, 650093
[email protected]
Abstract: This paper describes about the effect of Chinese economic growth with the commonly theory
of economic transition and Chinese economic development, and the economic growth is caused by
economic transition of Chinese true condition. Fist, we analyze the new changes in Chinese economics
after the economic transition. Second, we analyze the commonly effect of Chinese economics which
caused by economic transition, and then point out the economic transition has advanced economic
growth. Then, we get the quantitative analysis of effect of economic growth which caused by the
economical transition, and economical transition has advanced economic growth on regression analysis.
At last, some relevant policies will be given.
Key words: economic transition, economical growth, institution
1What happens?
First, Chinese enterprises have already known how to pursuit benefits in the market, the sense of risks
and the ability of taking risks are also differently trained, so Chinese enterprises have a certain
competitiveness. There are 3 reasons: (1) The coexistence of various ownership forms of economic
institution has formed. In industry, non-national economic takes 44% of industry in 1989, and it
increases from 48.5% to 78.3% in 1992~2001. In 1993~2001, increasing industrial value created by
foreign investor takes from 8.4% to 24.57% of the total industrial value, and increases 14.36% each year.
As China has entered WTO, there are much more open policies to let non-national economic enter
market, nearly no special limit and prescript. Equal competition of market provides important
precondition for economic good development in China, and the situation is largely resulted from
competition. (2) National economic running mechanism comparatively transforms. Innovation of
national enterprises, not only make the property right of national enterprises diversification but also
make the operation of national enterprises correspond with market and standardization. The government
greatly decreases the special support of national enterprises, and the capital investment used by
operating national enterprises mainly get through funds loans from bank debentures or finances. All
theses make national enterprises participate in market competition. (3) Just because of the open economy,
domestic enterprises face competitive challenges and pressure from foreign ones. Practice has proved
that Chinese enterprises have sensitivity of input and output, and look for how to maximize the profit
between input and output. These enterprises also put more attention on interest rates and exchange rates.
After the RMB exchange rate institution has reformed in July 21st, 2005, the RMB exchange rate
flexibility becomes strengthen, and enterprises generally enhance the awareness of hedge exchange rate,
but the pressure of export gradually increases. In order to curb domestic inflation interest rates become
higher and higher, and getting loans becomes more and more difficult.
Second, the actual relation between supply and demand becomes the main force to change the
economy, and prices are basically determined by the supply and demand in the market. There was once a
planned economic institution in China, the numbers of products was directly determined by the
government, the products and consumptions are all set by the planning departments to, the only thing
they need to do is to complete the plan. So the government controls not only the macroeconomic but
also each enterprise, then the freedom of the single person is extremely restricted. Although the planned
economic institution promotes many major strategic objectives of the country, in the supply and demand
of the necessities of life, as the asymmetry of information, market cannot form an effective adjustment
of demand and supply mechanisms. Now Chinese market economic institution has been basically
perfect, the price and quantity of goods are basically determined by the market.
、
454
、
Finally, individuals as an important economic part have played an unprecedented positive role.
Under the traditional institution, consumers are highly sensitive for goods, but most of the residents
restrict personal consumption and are actively for saving. Now the things have changed. One hand,
elasticity of residents’ consumption demand (whether elasticity of price or income) increase further. And
on the other hand, residents’ psychological adaptable ability to the increasing price is greatly improved.
Although the residents’ personal savings are still higher than the other countries’, residents have a new
understanding of investment and financial management, and they have a more positive attitude to
purchase stocks, funds and futures. In 2007, many investors get profits from the stock market.
2 Academic analysis of economic growth caused by economic transition
Chinese economic transition promotes economic growth. A regional economic growth is decided
by the basic factors of production in the region, and the basic factors are capital, labors, and technology.
The possible border of production is determined by these elements, and the economic institution will
determine whether the production could reach the border. A good institution can affect the number of
capital, exertion of the labor force and technological progress, and all these can accelerate the economic
growth.
Economic transition causes capital increase. The role of the capital promoting economic reflected
in the number and efficiency of capital, and the number of regional capital is decided by the institution.
For example, the policy of reform and opening-up protects the interests of foreign capital so foreign
capital increase, and the protection of private enterprises makes investment of private capital increase.
Economic transition has impact on labor. There are 3 ways of the labor force to promote economic
growth: the quantity, quality, and exertion of labor. First, the quantity of the labor force depends on the
natural growth rate of population if there was no policy. We can see that the number of labor force is
affected by the institution from the policy of Chinese family planning. Secondly, the quality of labor has
an inseparable relation between the quality of the regional labor and the education institution. Third,
weather the arrangements of institution are reasonable has directly impact the exertion of labor force. If
the incentive of human was not enough, the capacity of human can not be full used, and can not play a
due role. The most typical example is the household contract responsibility institution. Economic
development is shackled in the previous institution, and the reform mobilizes the enthusiasm of farmers,
then production increase, agricultural technology has also been greatly improved.
Economic transition has impact on technology. In the history, the process of developing new things
and new technology is difficult, but they are very easily imitated. So an effective institution can protect
the interests of developers and reduce the motivation of imitation. Only the interests of innovation are
safeguarded, the enthusiasm of innovation can be mobilized, everyone is encouraged to innovate, and is
also propitious to the introduction of foreign advanced technology.
3 Econometric analysis of economic growth caused by economic transition
3.1 Theories
Economic growth is the core of macroeconomic studies. In the new classical analysis, the core
elements of economic growth are capital, labor and technology. But institutional economics
fundamentally change this argument, and they consider that accumulation of capital, labor, technological
progress and other factors are economic growth itself; the fundamental factors of economic growth are
the institution changes, an effective property rights institution which could provide appropriate
individuals to stimulate is the decisive factor to promote economic growth (North,1994). They believe
that the fundamental reason of the economic growth is the reduction of transaction costs, and economic
transition is the key to reducing transaction costs. There are many scholars in China study the
relationship between institution and economic growth, and give some suggestions to reform. Some
calculate the rate of economic growth and total factor productivity (Li Jingwen, 1996); some quantify
institution, and calculate the contribution of economic growth caused by institution (Jin Yuguo, 2001;
Wang Wenbo Chen Changbing Xu Haiyan, 2002; Fu Xiaoxia Wu Xue , 2003). Wang Wenbo (2002)
、
、
、
455
uses changing the institution of property rights, market-oriented, distribution institution, opening-up
level of economy to measure the growth of economics. Most scholars take non-nationalization rate,
market-oriented, opening-up level and non-farm level as indicators. How well they can interpret the
economic growth, there is no authoritative conclusion.
Under Chinese actual conditions, this paper selects the changes of property rights, market-oriented,
the distribution of benefits and the extent of opening-up level four indexes to study the economic
conditions in the process of Chinese economic transformation, and the use the method of regression
analysis to study Chinese economic development after economic transition.
3.2Index selection
From macro-institution, economic transition is mainly manifested in the following 4 aspects:
1 Diversification of property rights institution (FGYH). This includes diversification of structure of
ownership and governance of the enterprises, the discussion in this paper is the former. In the transition
period, the diversification of property rights institution is non-nationalization of economic elements on
macroeconomics, and use the rate of non-nationalization to reflect. As non-nationalization of economic
components is mainly in the industrial sector, the rate of the non-nationalization can be described as the
value of non-nationalized industrial output in the total industrial output. The formula: FGYH = value of
non-nationalized industrial output / value of the total industrial output.
2 The degree of market-oriented (SCH). The market-oriented is a process of transition from
planned economy to market economy, and the level of market-oriented economics has impact on the
development of regional economics. We use the non-nationalized economic investment accounted for
social investment in fixed assets investment to express it. The formula: SCH = non-nationalized
economic investment / social investment in fixed assets.
3 The evolution of the distribution of benefits (FCZ). In the highly centralized planned economy,
the share of economic benefits is based the country. With the transition of the planned economic to the
market economic, economic interests of enterprises and individuals will be more and more. Therefore,
we can use non-national financial revenue in the proportion of GDP to reflect the evolution of economic
interests. The formula: FCZ = non-national financial revenue / GDP
4 The opening-up degree (DWKF). Opening-up to the outside world is one of the key indicators to
measure the economic transition. With the changes of the opening-up degree, we can see the degree of
export-oriented economy. In this paper, we use the percentage which is the total amount of import and
export in GDP. The formula: DWKF = total imports and exports / GDP.
According to the above formula, we use the corresponding index in the China Statistical Yearbook
can calculate the index of economic growth rate and the various indicators of institution from 1978 to
2006. Then we use the analysis of the principal components with SPSS software to calculate the
indicator of institution which enhances Chinese economy.
、
、
、
、
3.3 Analysis of the principal components
Using the analysis of the principal component, we can make linear combination of the four
indicators which impact Chinese economic development, and can establish a 29 × 4 of the original
matrix by using of four parameters of China in 1978 to 2006. By using the KMO partial correlation test,
we know that the indicators have a certain partial correlation, as shown in table 1.
Table 1 KMO and Bartlett's Test
Kaiser-Meyer-Olkin Measure of Sampling Adequacy.
Bartlett's Test of Sphericity
Approx. Chi-Square
Df
Sig.
.804
84.554
6
.000
KMO statistics is 0.804, and the process can be continuing. After the analysis of the principal
components, the result is in table 2.
456
Table 2 Component Score Coefficient Matrix
Component
1
FGYH
.268
SCH
.254
FCZ
.276
DWKF
.266
Here, we introduce a new variable X, which is standing for Chinese economic impact of
institutional factors. According to the factor score coefficient matrix, we get the result from the principal
components. Through the coefficient matrix, we can make all the principal component variables become
linear combination, and the formula of the institutional variables X:
X=0.268 FGYH+0.254 SCH+0.276 FCZ+0.266 DWKF
Through the analysis of the principal components, we make institution which impacts Chinese
economic development as a variable factor, and provide convenience to do regression analysis for us, so
that we can see the impact of economic development under economic transition more clearly.
×
×
×
×
3.4 Regression analysis
According to the above formula, we can calculate the data of the factor X which is instead of
institution. Using SPSS software to do regression analysis with X and GDP which reflects the level of
Chinese economic development, we get the result:
Table 3 Coefficients
Unstandardized Coefficients
Standardized Coefficients
Model
1
(Constant)
X
Std. Error
-643.144
73.708
18.637
1.386
t
Sig.
-8.726
.000
13.451
.000
Beta
.954
Table 4 ANOVA
Sum of Squares
df
Model
1
B
Mean Square
Regression
596065.921
1
596065.921
Residual
59303.356
18
3294.631
Total
655369.277
19
F
Sig.
180.920
.000(a)
Table 5 Model Summary
Model
1
R
.954(a)
R Square
.910
Adjusted R
Square
.904
Std. Error of
the Estimate
57.39888
Durbin-Watson
.356
So we get the model: Y=-643.144+18.637X
The model has passed the t-test and F-test which significant level is 0.05, and it fit very well, R
square is 0.91; the economic meaning of 18.637 is that in the 30 years of reform and opening-up, there is
1% increasing in reforming, and there will be 18.637% increasing in GDP. Through the regression
analysis, we can see that there is a strong linear relationship between institutional factors and GDP. The
economic transition has greatly promoted the increasing of GDP, and this is just like the fact that
Chinese economic growth rapidly since economic reformation and opening-up.
457
3.5Conclusion
Through the analysis of principal components and regression on the institutional factors and the
factors of economic development, we can get the following conclusion: In China, the pace and the
stability of economic growth largely depend on institution. Economic transition in China is a major
force for economic growth, and the role of the state (or government) is in the leading position.
4 Conclusion and advices
This paper analyses institution factors for Chinese economic development after the policy of
reform and opening-up from the qualitative and quantitative points of view. The result is that national
enterprises reforming, market-oriented economy, the distribution of benefits and opening-up have played
a catalytic role of Chinese economic growth. But many problems are still here: economic structure is not
reasonable, the distribution has yet to straighten out, the obvious contradiction about employment,
increasing pressure on resources and the environment, domestic enterprises cannot do well in the
economic competition, and so on. All these mainly because we did not have a perfect economic
institution, and there are still many institutional constraints that force the economic development. The
economic transition has not yet been completed, and there is still room for the larger institutional
innovation. Make the results of the reform stable, and grasp the orientation of reform. Continuing the
reformation, so as to keep the speed of the economic development is still an important development idea
for a long time. At the same time, we know the role of any institutional reformation are multifaceted,
some negative effects of changes should not be overlooked. So only make the relation between reform
and development well, economic transition can enhance the economic growth.
References
[1]Guo Shuqing. Economic transition and macro-management (2nd ed) [M]. Chinese People University
Press, 2007:102~133
[2]Ren Baoping, An Liren. The theory and method of modern economics [M]. Chinese Economy Press,
2006:32~65
[3]Fu Xiaoxia, Wu Lixue. The empirical analysis of the contribution of Chinese economic growth
caused by the change of institution [J]. Journal of Inner Mongolia Financial Services Institute, 2003 (1)
[4]Wang Wenbo, Chen Changbing, Xu Haiyan. The empirical analysis of Chinese economic growth
concluding the factor of institution [J]. Contemporary Economic Science, 2002 (24)
[5] National Bureau of Statistics. China Statistical Yearbook (2007) [M]. China Statistics Press, 2007
458