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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