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What Makes China Grow? 中國成長的動力
Lawrence J. Lau 刘遵义 Ralph and Claire Landau Professor of Economics, The Chinese Univ. of Hong Kong
and Kwoh-Ting Li Professor in Economic Development, Emeritus, Stanford University
The Masters Forum The Chinese University of Hong Kong at Shenzhen
Shenzhen, 22nd January 2015
Tel: +852 3943 1611; Fax: +852 2603 5230 Email: [email protected]; WebPages: www.igef.cuhk.edu.hk/ljl
*All opinions expressed herein are the author’s own and do not necessarily reflect the views of any of the organisations with which the author is affiliated.
2
Outline Introduction The Chinese Economic Fundamentals The Inherent Economic Inefficiency of Central Planning The Benefits of an Open Economy The Transition from a Closed Centrally Planned to an Open Market
Economy Reform without Losers--The Chinese Strategy for Economic Reform The Monopsonistic Labour Market in China The Sources of Chinese Economic Growth The “Wild Geese Flying Pattern”--The Further Advantage of China’s
Size Towards a Surplus Economy The Importance of Expectations The Short- and Medium-Term Economic Outlook The Long-Term Economic Outlook Concluding Remarks
3
Introduction China has made tremendous progress in its economic development
since it began its economic reform and opened to the World in 1978. China is currently the fastest growing economy in the World—averaging 9.7% per annum over the past 37 years. It is historically unprecedented for an economy to grow at such a high rate over such a long period of time.
Between 1978 and 2014, Chinese real GDP grew more than 28 times, from US$372.1 billion to US$10.4 trillion (in 2014 prices), to become the second largest economy in the World, after the U.S. By comparison, the U.S. GDP of approximately US$17.3 trillion was 1.7 times Chinese GDP in 2014.
Some researchers have suggested, on the basis of “purchasing-power-parity (PPP)” calculations, that the Chinese economy is now larger than the U.S. economy. However, PPP comparisons between economies are not reliable because they are highly sensitive to the set of prices chosen to evaluate the goods and services produced in the different economies.
4
Chinese and U.S. Real GDPs and Their Rates of Growth (2014 US$) since 1949
-28 -26 -24 -22 -20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20 22 24
-28 -26 -24 -22 -20 -18 -16 -14 -12 -10
-8 -6 -4 -2 0 2 4 6 8
10 12 14 16 18 20 22 24
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
PercentUS
$ tril
lions
, 201
4 pric
es
Chinese and U.S. Real GDPs and Their Rates of Growth since 1949 (trillion 2014 US$)
Rates of Growth of U.S. Real GDP (right scale)
Rates of Growth of Chinese Real GDP (right scale)
U.S. Real GDP, in 2014 prices
Chinese Real GDP, in 2014 prices
5
Chinese and U.S. Real GDP per Capita and Their Rates of Growth (2014 US$) since 49
-28
-24
-20
-16
-12
-8
-4
0
4
8
12
16
20
-77
-66
-55
-44
-33
-22
-11
0
11
22
33
44
55
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
percentUS
D th
ousa
nd, 2
014 p
rices
Chinese and U.S. Real GDP per Capita and Their Rates of Growth since 1949(thousand, 2014 US$)
Rates of Growth of U.S. Real GDP per capita (right scale)
Rates of Growth of Chinese Real GDP per Capita (right scale)
U.S. Real GDP per Capita, in 2014 prices
Chinese Real GDP per capita, in 2014 prices
6
Chinese and U.S. International Trade and Their Rates of Growth (US$) since 1970
-20
-10
0
10
20
30
40
50
60
-2
-1
0
1
2
3
4
5
6
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
USD
trillio
ns
The Value of International Trade and Its Rate of Growth: A Comparison of China and the U.S.Rate of growth of total Chinese international trade, % (right scale)Rate of growth of total U.S. international trade, % (right scale)Total Chinese trade in goods and services (US$ trillions)Total U.S. trade in goods and services (US$ trillions)
Percnet
7
The Ranks of China as Trading Partner of Asia-Pacific Countries/Regions and Vice Versa, 2013 Country/Region Chinese Rank as Trading
Partner of Country/RegionRank of Country/Region as
Trading Partner of China
Australia 1 7Brunei 3 104Cambodia 1 78Hong Kong 1 2Indonesia 1 16Japan 1 3Korea 1 4Laos 2 90Macau 1 85Malaysia 1 8Myanmar 1 51New Zealand 1 43Philippines 2 27Singapore 1 11Taiwan 1 5Thailand 1 13United States 2 1Vietnam 1 18
The Chinese Economic Fundamentals
9
Chinese National Saving and Gross Domestic Investment as Percents of GDP
10
15
20
25
30
35
40
45
50
55
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Perc
ent
Chinese National Savings and Gross Domestic Investment as a Percent of GDP since 1952
Savings Rate Investment Rate
Saving Rates of Selected Economies, 1952-present
10 0
10
20
30
40
50
60
1952
19
53
1954
19
55
1956
19
57
1958
19
59
1960
19
61
1962
19
63
1964
19
65
1966
19
67
1968
19
69
1970
19
71
1972
19
73
1974
19
75
1976
19
77
1978
19
79
1980
19
81
1982
19
83
1984
19
85
1986
19
87
1988
19
89
1990
19
91
1992
19
93
1994
19
95
1996
19
97
1998
19
99
2000
20
01
2002
20
03
2004
20
05
2006
20
07
2008
20
09
2010
20
11
2012
20
13
Perc
ent
Savings Rates of Selected East Asian Economies
China, Mainland Hong KongIndia IndonesiaJapan KoreaMalaysia PhilippinesSingapore TaiwanThailand U.S.
11
The Distribution of Chinese GDP by Originating Sector since 1952
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1952
19
53
1954
19
55
1956
19
57
1958
19
59
1960
19
61
1962
19
63
1964
19
65
1966
19
67
1968
19
69
1970
19
71
1972
19
73
1974
19
75
1976
19
77
1978
19
79
1980
19
81
1982
19
83
1984
19
85
1986
19
87
1988
19
89
1990
19
91
1992
19
93
1994
19
95
1996
19
97
1998
19
99
2000
20
01
2002
20
03
2004
20
05
2006
20
07
2008
20
09
2010
20
11
2012
20
13
2014
The Distribution of GDP by Sector
Primary Sector Secondary Sector Tertiary Sector
The Distribution of Chinese Employment by Sector since 1952
12
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
The Distribution of Employment by Sector since 1952
Primary Sector Secondary Sector Tertiary Sector
Exports of Goods and Services as a Percent of GDP: Selected Economies
13
0
50
100
150
200
250
Brun
ei Da
russa
lam
Cam
bodi
a
Chin
a
Hong
Kon
g SA
R, C
hina
Indo
nesia
Japa
n
Kor
ea, R
ep.
Lao P
DR
Mac
ao SA
R,
Chin
a
Mala
ysia
Mya
nmar
Philip
pine
s
Sing
apor
e
Thail
and
Vietn
am
Taiw
an
Russi
an
Fede
ratio
n
Unite
d Sta
tes
Perc
enta
ge
Exports as a share of GDP of East Asian Economies
1980 1990 2013
Imports of Goods and Services as a Percent of GDP: Selected Economies
14
0
50
100
150
200
250
Brun
ei Da
russa
lam
Cam
bodi
a
Chin
a
Hong
Kon
g SA
R, C
hina
Indo
nesia
Japa
n
Kor
ea, R
ep.
Lao P
DR
Mac
ao SA
R,
Chin
a
Mala
ysia
Mya
nmar
Philip
pine
s
Sing
apor
e
Thail
and
Vietn
am
Taiw
an
Russi
an
Fede
ratio
n
Unite
d Sta
tes
Perc
enta
ge
Imports as a share of GDP of East Asian Economies
1980 1990 2013
15 15
Quarterly Rates of Growth of Exports of Goods: Selected Asian Economies
-60
-50
-40
-30
-20
-10
0
10
20
30
40
50
60
Q1 19
97Q2
1997
Q3 19
97Q4
1997
Q1 19
98Q2
1998
Q3 19
98Q4
1998
Q1 19
99Q2
1999
Q3 19
99Q4
1999
Q1 20
00Q2
2000
Q3 20
00Q4
2000
Q1 20
01Q2
2001
Q3 20
01Q4
2001
Q1 20
02Q2
2002
Q3 20
02Q4
2002
Q1 20
03Q2
2003
Q3 20
03Q4
2003
Q1 20
04Q2
2004
Q3 20
04Q4
2004
Q1 20
05Q2
2005
Q3 20
05Q4
2005
Q1 20
06Q2
2006
Q3 20
06Q4
2006
Q1 20
07Q2
2007
Q3 20
07Q4
2007
Q1 20
08Q2
2008
Q3 20
08Q4
2008
Q1 20
09Q2
2009
Q3 20
09Q4
2009
Q1 20
10Q2
2010
Q3 20
10Q4
2010
Q1 20
11Q2
2011
Q3 20
11Q4
2011
Q1 20
12Q2
2012
Q3 20
12Q4
2012
Q1 20
13Q2
2013
Q3 20
13Q4
2013
Q1 20
14
Q2 20
14Q3
2014
Q4 20
14
Annu
alize
d Per
cent
per a
nnum
Quarterly Rates of Growth of Exports of Goods: Selected East Asian Economies
China,P.R.:Hong Kong IndiaIndonesia KoreaMalaysia PhilippinesSingapore ThailandChina,P.R.: Mainland JapanTaiwan Prov.of China
16 16
Quarterly Rates of Growth of Imports of Goods: Selected Asian Economies
-60
-50
-40
-30
-20
-10
0
10
20
30
40
50
60
70
80
Q1 19
97Q2
1997
Q3 19
97Q4
1997
Q1 19
98Q2
1998
Q3 19
98Q4
1998
Q1 19
99Q2
1999
Q3 19
99Q4
1999
Q1 20
00Q2
2000
Q3 20
00Q4
2000
Q1 20
01Q2
2001
Q3 20
01Q4
2001
Q1 20
02Q2
2002
Q3 20
02Q4
2002
Q1 20
03Q2
2003
Q3 20
03Q4
2003
Q1 20
04Q2
2004
Q3 20
04Q4
2004
Q1 20
05Q2
2005
Q3 20
05Q4
2005
Q1 20
06Q2
2006
Q3 20
06Q4
2006
Q1 20
07Q2
2007
Q3 20
07Q4
2007
Q1 20
08Q2
2008
Q3 20
08Q4
2008
Q1 20
09Q2
2009
Q3 20
09Q4
2009
Q1 20
10Q2
2010
Q3 20
10Q4
2010
Q1 20
11Q2
2011
Q3 20
11Q4
2011
Q1 20
12Q2
2012
Q3 20
12Q4
2012
Q1 20
13Q2
2013
Q3 20
13Q4
2013
Q1 20
14
Q2 20
14Q3
2014
Q4 20
14
Annu
alize
d Per
cent
per a
nnum
Quarterly Rates of Growth of Imports of Goods : Selected East Asian Economies
China,P.R.:Hong Kong IndiaIndonesia KoreaMalaysia PhilippinesSingapore ThailandChina,P.R.: Mainland JapanTaiwan Prov.of China
17 17
Quarterly Rates of Growth of Real GDP, Y-o-Y: Selected Asian Economies
-18
-15
-12
-9
-6
-3
0
3
6
9
12
15
18
21
Q1 19
94Q2
1994
Q3 19
94Q4
1994
Q1 19
95Q2
1995
Q3 19
95Q4
1995
Q1 19
96Q2
1996
Q3 19
96Q4
1996
Q1 19
97Q2
1997
Q3 19
97Q4
1997
Q1 19
98Q2
1998
Q3 19
98Q4
1998
Q1 19
99Q2
1999
Q3 19
99Q4
1999
Q1 20
00Q2
2000
Q3 20
00Q4
2000
Q1 20
01Q2
2001
Q3 20
01Q4
2001
Q1 20
02Q2
2002
Q3 20
02Q4
2002
Q1 20
03Q2
2003
Q3 20
03Q4
2003
Q1 20
04Q2
2004
Q3 20
04Q4
2004
Q1 20
05Q2
2005
Q3 20
05Q4
2005
Q1 20
06Q2
2006
Q3 20
06Q4
2006
Q1 20
07Q2
2007
Q3 20
07Q4
2007
Q1 20
08Q2
2008
Q3 20
08Q4
2008
Q1 20
09Q2
2009
Q3 20
09Q4
2009
Q1 20
10Q2
2010
Q3 20
10Q4
2010
Q1 20
11Q2
2011
Q3 20
11Q4
2011
Q1 20
12Q2
2012
Q3 20
12Q4
2012
Q1 20
13Q2
2013
Q3 20
13Q4
2013
Q1 20
14Q2
2014
Q3 20
14Q4
2014
Annu
alize
d Rate
s in
Perc
ent
Quarterly Rates of Growth of Real GDP, Year-over-Year: Selected East Asian Economies
China,P.R.:Hong Kong IndiaIndonesia KoreaMalaysia PhilippinesSingapore ThailandChina,P.R.: Mainland JapanTaiwan Prov.of China
18
The Inherent Economic Inefficiency of Central Planning Incomplete information Failure to optimise Lack of incentives (the ratchet effect)
19
Movement of the Production Possibilities Frontier versus Movement to the Frontier
0
1
2
3
4
5
6
7
8
0 5 10 15 20
X2
X1
Production Possibility Frontier
Old production point
Movement to the frontier
Movement of the frontier
20
The Benefits of an Open Economy Comparative Advantage Imported Resources Augment Domestic Resources (Foreign
Direct Investment, Foreign Portfolio Investment, Foreign Loans and Foreign Aid)
Technology Transfer
21
Opening the Economy Enhances Domestic Economic Welfare
22
Nominal Exchange Rate of the Renminbi, Yuan/US$, 1978-Present
1
2
3
4
5
6
7
8
9
Jan-
78Ju
l-78
Jan-
79Ju
l -79
Jan-
80Ju
l-80
Jan-
81Ju
l-81
Jan-
82Ju
l-82
Jan-
83Ju
l-83
Jan-
84Ju
l-84
Jan-
85Ju
l-85
Jan-
86Ju
l-86
Jan-
87Ju
l-87
Jan-
88Ju
l-88
Jan-
89Ju
l-89
Jan-
90Ju
l-90
Jan-
91Ju
l-91
Jan-
92Ju
l-92
Jan-
93Ju
l-93
Jan-
94Ju
l-94
Jan-
95Ju
l-95
Jan-
96Ju
l-96
Jan-
97Ju
l-97
Jan-
98Ju
l-98
Jan-
99Ju
l-99
Jan-
00Ju
l-00
Jan-
01Ju
l-01
Jan-
02Ju
l-02
Jan-
03Ju
l-03
Jan-
04Ju
l-04
Jan-
05Ju
l-05
Jan-
06Ju
l-06
Jan-
07Ju
l-07
Jan-
08Ju
l-08
Jan-
09Ju
l-09
Jan-
10Ju
l-10
Jan-
11Ju
l-11
Jan-
12Ju
l-12
Jan-
13Ju
l-13
Jan-
14Ju
l-14
Nominal Exchange Rate of the Renminbi, Yuan/US$, 1978-present
The Transition from a Closed Centrally Planned
to an Open Market Economy
24
Rates of Growth of Real GDP of Former Soviet Union and East European Countries
-50
-40
-30
-20
-10
0
10
20
30
40
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Perc
ent
Rates of Growth of Real GDP of Former Soviet Union and East European Countries
Albania ArmeniaAzerbaijan BelarusCroatia Czech RepublicEstonia GeorgiaKazakhstan Kyrgyz RepublicLithuania Macedonia, FYRMoldova PolandRomania Russian FederationSlovak Republic SloveniaTajikistan TurkmenistanUkraine Uzbekistan
25
The Rates of Inflation of Former Soviet Union and East European Countries
-2,000
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Perc
ent
The Changes of GDP Deflator of Former Soviet Union and East European Countreis
Albania ArmeniaAzerbaijan BelarusCroatia Czech RepublicEstonia GeorgiaKazakhstan Kyrgyz RepublicLithuania Macedonia, FYRMoldova PolandRomania Russian FederationSlovak Republic SloveniaTajikistan TurkmenistanUkraine Uzbekistan
26
GDP per Capita of Former Soviet Union and East European Countries (2005 US$)
0
3,000
6,000
9,000
12,000
15,000
18,000
21,000
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
USD
GDP per capita of Former Soviet Union and East European Countries, in constant 2005 US dollars
Albania ArmeniaAzerbaijan BelarusCroatia Czech RepublicEstonia GeorgiaKazakhstan Kyrgyz RepublicLithuania Macedonia, FYRMoldova PolandRomania Russian FederationSlovak Republic SloveniaTajikistan TurkmenistanUkraine Uzbekistan
27
Chinese Real GDP and Its Rate of Growth (2014 US$) since 1978
0
4
8
12
16
0
2
4
6
8
10
12
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
PercentUS
$ tril
lions
, in
2014
pric
es
The Real GDP and Its Annual Rates of Growth of China (trillion 2014 US$)
Rates of Growth of Chinese Real GDP (right scale)
Chinese Real GDP, in 2014 prices
28
Chinese Real GDP per Capita and Its Rate of Growth (2014 US$) since 1978
0
2
4
6
8
10
12
14
0
1
2
3
4
5
6
7
8
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
percentUS
D th
ousa
nd, in
2014
price
s
Real GDP per Capita and Its Annual Rates of Growth of China (thousand, 2014 US$)
Rates of Growth of Chinese Real GDP per Capita (right scale)Chinese Real GDP per capita, in 2013 prices
29
Reform without Losers— The Chinese Strategy for Economic Reform The “Dual-Track” strategy The “Processing and Assembly” operations “New People, New Way; Old People, Old Way” 新人新办法；旧人旧办法
30
The Monopsonistic Labour Market in China Before the economic reform of 1978, the Chinese Government is the sole
employer in China and could set the wage rates for all workers in the urban areas. The Chinese central government pursued a low-wage policy, resulting in a low share of labour.
Even after the economic reform of 1978, the Chinese central government, together with all the local governments, its affiliated units, and the state-owned enterprises, remains the largest employer in China and exercises its monopsonistic power to keep the wage rates low.
This low-wage policy has had two effects: first, it has kept both the labour share (and the household share) of GDP low; and secondly, it has created large profits for state-owned and other enterprises. This has resulted in a higher national saving rate in China than in most other economies as enterprises declare little cash dividends and their saving rates are close to 100 percent.
It has been recently reported that the wages and salaries of civil servants will be raised by almost 60%. This is great news. It will also lead to a general increase in wages and salaries across the board.
31
The Sources of Chinese Economic Growth The initial slack resulting from central planning The growth of tangible capital and labour inputs The effects of economies of scale
32
Movement of the Production Possibilities Frontier versus Movement to the Frontier
0
1
2
3
4
5
6
7
8
0 5 10 15 20
X2
X1
Production Possibility Frontier
Old production point
Movement to the frontier
Movement of the frontier
33
The Sources of Chinese Economic Growth: The Effects of Economies of Scale An economy with economies of scale will grow faster than an
economy with constant returns to scale given the same rates of growth of the capital and labour inputs.
The degree of returns to scale at the economy-wide level is not known. Edward F. Denison assumed that the degree of returns to scale is 1.1, that is, if all inputs are doubled, output will be increased by 1.1 times.
The “Wild Geese Flying Pattern”--The Further Advantage of China’s
Size
35
Towards a Surplus Economy China has evolved into a surplus capital economy because of its
high national saving rate. The high national saving rate has enabled a high domestic investment rate, resulting in massively excess manufacturing capacities. The average capacity utilisation rate of many manufacturing industries is around 70%.
Given the excess manufacturing capacities, Chinese Real GDP is actually not supply-constrained but aggregate demand-determined. If there is aggregate demand, there will be sufficient supply forthcoming to meet the demand.
The growth of exports and fixed investment in manufacturing and residential housing can no longer be the principal drivers of the growth of Chinese aggregate demand.
36
Towards a Surplus Economy How did the surplus economy in China come about? It came
about because of massively excess fixed investment in manufacturing. Fixed investment in manufacturing was undertaken by both state-owned and private enterprises without regard to its potential rate of return, often supported by local government officials.
37
Towards a Surplus Economy: The Chronically Excess Demand for Credit However, even with a national saving rate in excess of 40%, there
does not seem to be sufficient credit available in China. There seems to be a chronically excess demand for credit.
One piece of evidence for the chronically excess demand for credit in China is the very high Renminbi rate of interest relative to the U.S.$ rate of interest, even though the Renminbi has been appreciating in both nominal and real terms with respect to the U.S.$ since 2005.
This clearly contradicts the interest rate parity theory, which specifies that the rate of interest of the relatively appreciating currency should be lower than the rate of interest of the other currency by the percentage amount of the expected appreciation. (Granted that there exist capital control in China, but the control is at best leaky.) The Renminbi rate of interest has been much higher than the U.S.$ rate of interest (see the following charts).
38
Nominal Exchange Rate of the Renminbi, Yuan/US$, 1978-present
38 1
2
3
4
5
6
7
8
9
Jan-
78Ju
l-78
Jan-
79Ju
l -79
Jan-
80Ju
l-80
Jan-
81Ju
l-81
Jan-
82Ju
l-82
Jan-
83Ju
l-83
Jan-
84Ju
l-84
Jan-
85Ju
l-85
Jan-
86Ju
l-86
Jan-
87Ju
l-87
Jan-
88Ju
l-88
Jan-
89Ju
l-89
Jan-
90Ju
l-90
Jan-
91Ju
l-91
Jan-
92Ju
l-92
Jan-
93Ju
l-93
Jan-
94Ju
l-94
Jan-
95Ju
l-95
Jan-
96Ju
l-96
Jan-
97Ju
l-97
Jan-
98Ju
l-98
Jan-
99Ju
l-99
Jan-
00Ju
l-00
Jan-
01Ju
l-01
Jan-
02Ju
l-02
Jan-
03Ju
l-03
Jan-
04Ju
l-04
Jan-
05Ju
l-05
Jan-
06Ju
l-06
Jan-
07Ju
l-07
Jan-
08Ju
l-08
Jan-
09Ju
l-09
Jan-
10Ju
l-10
Jan-
11Ju
l-11
Jan-
12Ju
l-12
Jan-
13Ju
l-13
Jan-
14Ju
l-14
Nominal Exchange Rate of the Renminbi, Yuan/US$, 1978-present
39
The Nominal and Real Yuan/US$ Exchange Rates since 1994
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
8.0
8.5
9.0
Jan-
94Ju
l-94
Jan-
95Ju
l-95
Jan-
96Ju
l-96
Jan-
97Ju
l-97
Jan-
98Ju
l-98
Jan-
99Ju
l-99
Jan-
00Ju
l-00
Jan-
01Ju
l-01
Jan-
02Ju
l-02
Jan-
03Ju
l-03
Jan-
04Ju
l-04
Jan-
05Ju
l-05
Jan-
06Ju
l-06
Jan-
07Ju
l-07
Jan-
08Ju
l-08
Jan-
09Ju
l-09
Jan-
10Ju
l-10
Jan-
11Ju
l-11
Jan-
12Ju
l-12
Jan-
13Ju
l-13
Jan-
14Ju
l-14
Yuan
per U
.S. D
ollar
The Nominal and Real Yuan/US$ Exchange Rates (1994 prices)
The Nominal Exchange Rate, Yuan/US$
The Real Exchange Rate, Yuan/US$
40
The Chronically Excess Demand for Credit: China-U.S. Lending Interest Rate Differential
3
4
5
6
7
8
9
10
2000
Jan
2000
Apr
2000
Jul
2000
Oct
2001
Jan
2001
Apr
2001
Jul
2001
Oct
2002
Jan
2002
Apr
2002
Jul
2002
Oct
2003
Jan
2003
Apr
2003
Jul
2003
Oct
2004
Jan
2004
Apr
2004
Jul
2004
Oct
2005
Jan
2005
Apr
2005
Jul
2005
Oct
2006
Jan
2006
Apr
2006
Jul
2006
Oct
2007
Jan
2007
Apr
2007
Jul
2007
Oct
2008
Jan
2008
Apr
2008
Jul
2008
Oct
2009
Jan
2009
Apr
2009
Jul
2009
Oct
2010
Jan
2010
Apr
2010
Jul
2010
Oct
2011
Jan
2011
Apr
2011
Jul
2011
Oct
2012
Jan
2012
Apr
2012
Jul
2012
Oct
2013
Jan
2013
Apr
2013
Jul
2013
Oct
2014
Jan
2014
Apr
2014
Jul
2014
Oct
Perc
ent
Chinese 1-Year Working Capital Lending Rate and U.S. Short-Term Lending Rate
Chinese Lending Rate
U.S. Lending Rate
41
The Chronically Excess Demand for Credit: China-U.S. Deposit Interest Rate Differential
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
5.5
6
6.5
Jan,
2000
Apr,
2000
Jul, 2
000
Oct,
2000
Jan,
2001
Apr,
2001
Jul, 2
001
Oct,
2001
Jan,
2002
Apr,
2002
Jul, 2
002
Oct,
2002
Jan,
2003
Apr,
2003
Jul, 2
003
Oct,
2003
Jan,
2004
Apr,
2004
Jul, 2
004
Oct,
2004
Jan,
2005
Apr,
2005
Jul, 2
005
Oct,
2005
Jan,
2006
Apr,
2006
Jul, 2
006
Oct,
2006
Jan,
2007
Apr,
2007
Jul, 2
007
Oct,
2007
Jan,
2008
Apr,
2008
Jul, 2
008
Oct,
2008
Jan,
2009
Apr,
2009
Jul, 2
009
Oct,
2009
Jan,
2010
Apr,
2010
Jul, 2
010
Oct,
2010
Jan,
2011
Apr,
2011
Jul, 2
011
Oct,
2011
Jan,
2012
Apr,
2012
Jul, 2
012
Oct,
2012
Jan,
2013
Apr,
2013
Jul, 2
013
Oct,
2013
Jan,
2014
Apr,
2014
Jul, 2
014
Oct,
2014
Perc
ent
Chinese 1-Year Time Deposit Rate and Market Yield on U.S. Treasury Securities at 1-Year Constant Maturity
Chinese 1-year Time Deposit Rate
Market Yield on U.S. Treasury Securities at 1-year Constant Maturity
42
The Chronically Excess Demand for Credit: Inconsistency with Interest Rate Parity Theory
-10-9.5
-9-8.5
-8-7.5
-7-6.5
-6-5.5
-5-4.5
-4-3.5
-3-2.5
-2-1.5
-1-0.5
00.5
11.5
22.5
33.5
44.5
55.5
66.5
Jan,
2000
Jun,
2000
Nov,
2000
Apr,
2001
Sep,
2001
Feb,
2002
Jul, 2
002
Dec,
2002
May
, 200
3Oc
t, 20
03M
ar, 2
004
Aug,
2004
Jan,
2005
Jun,
2005
Nov,
2005
Apr,
2006
Sep,
2006
Feb,
2007
Jul, 2
007
Dec,
2007
May
, 200
8Oc
t, 20
08M
ar, 2
009
Aug,
2009
Jan,
2010
Jun,
2010
Nov,
2010
Apr,
2011
Sep,
2011
Feb,
2012
Jul, 2
012
Dec,
2012
May
, 201
3Oc
t, 20
13M
ar, 2
014
Aug,
2014
Perc
ent
Chinese 1-Year Time Deposit Rate, Market Yield on U.S. Treasury Securities at 1-year Constant Maturity and Changes of RMB Exchange Rate (YoY)
Chinese 1-year Time Deposit Rate
Market Yield on U.S. Treasury Securities at 1-year Constant Maturity
Devaluation (Appreciation) of the RMB Exchange Rate (YoY)
43
The Chronically Excess Demand for Credit: The High Rate of Interest (SHIBOR)
1.8
2.1
2.4
2.7
3.0
3.3
3.6
3.9
4.2
4.5
4.8
5.1
5.4
2008
-01-
0220
08-0
2-18
2008
-03-
3120
08-0
5-14
2008
-06-
2620
08-0
8-07
2008
-09-
1920
08-11
-05
2008
-12-
1720
09-0
2-03
2009
-03-
1720
09-0
4-29
2009
-06-
1220
09-0
7-24
2009
-09-
0420
09-1
0-22
2009
-12-
0320
10-0
1-15
2010
-03-
0320
10-0
4-15
2010
-05-
2820
10-0
7-12
2010
-08-
2320
10-1
0-09
2010
-11-1
920
10-1
2-31
2011
-02-
1720
11-0
3-31
2011
-05-
1620
11-0
6-28
2011
-08-
0920
11-0
9-21
2011
-11-0
720
11-1
2-19
2012
-02-
0320
12-0
3-16
2012
-04-
2820
12-0
6-12
2012
-07-
2520
12-0
9-05
2012
-10-
2320
12-1
2-04
2013
-01-
1620
13-0
3-04
2013
-04-
1620
13-0
5-29
2013
-07-
1120
13-0
8-22
2013
-10-
1020
13-11
-20
2014
-01-
0220
14-0
2-18
2014
-04-
0120
14-0
5-15
2014
-06-
2720
14-0
8-08
2014
-09-
2220
14-11
-06
2014
-12-
18
Perc
ent
Shanghai Interbank Offered Rate, 1-year
44
Towards a Surplus Economy: The Chronically Excess Demand for Credit The chronically excess demand for credit in China is caused by
the fact that many borrowers or potential borrowers, including local governments, state-owned enterprises (SOEs) and private enterprises, do not plan to repay their loans if things do not work out as hoped. If borrowers do not plan to repay their loans when things turn sour, the level of the rate of interest does not matter very much to them. The result is a chronically excess demand for credit which results in a chronically high rate of interest in China.
45
Towards a Surplus Economy: Huge Excess Capacities in Manufacturing Sectors The fact that loans do not have to be repaid by the borrowers if things
turn out badly leads to blind expansion of manufacturing capacities, resulting in huge excesses in industries such as steel, cement, glass, aluminum, ship-building, solar panels, residential housing, etc.
It also means that a high interest rate alone is not an effective deterrent to borrowing and to investment—this explains why the Chinese central bank has had to resort to credit rationing.
The chronically excess demand for credit is also in part responsible for the growth of “shadow banking” in Mainland China. Shadow banking has resulted in higher “effective” borrowing rates for those enterprises and individuals who are able to obtain credit because of the shift to making “shadow loans” rather than regular bank loans on the part of banks.
46
Towards a Surplus Economy: From Where Can Growth of Aggregate Demand Come? The growth of Chinese aggregate demand will come principally
from domestic demand. Public infrastructural investment such as high-speed railroads,
urban mass-transit systems (China and the World cannot afford “a car in every garage”), facilities for the support of universal free or low-cost internet access in urban areas, and affordable housing through urban slum clearance and renewal;
Public goods consumption (including necessary related investments) such as education, health care, care for the elderly, and environment control, preservation and restoration--securing cleaner air, water and soil; and
Household consumption, especially from the expanding and rising middle class.
47
Towards a Surplus Economy: The Potential Sources of Aggregate Demand However, both public infrastructural investment and public goods
consumption require the leadership and support of the central and local governments.
While expenditures on public goods consumption, including the necessary related investments, will count as GDP, some of the benefits of these expenditures may not be pecuniary, for example, cleaner air, water and soil, better education, better national health, etc., and may not be fully reflected in the conventional measurement of GDP. However, the increase in general welfare as a result of these expenditures is definitely real.
Moreover, increasing public goods consumption is an effective method of redistribution in kind. For example, since everyone breathes the same air, if the air is cleaner, both the wealthy and the poor benefit equally; and better access to health care may benefit the lower-income households more. Expansion of public goods consumption can thus reduce the real income disparity.
48
The Importance of Expectations Expectations of the future are important determinants of enterprise and
household behaviour, which in turn determines whether an economy grows or stagnates. The Chinese central government has the proven credibility to change expectations through its plans and actions.
In 1992, Mr. Deng Xiaoping undertook his famous southern tour, which changed expectations in the entire country overnight. Enterprises started investing and households started consuming. As a result, 1992, 1993 and 1994 were boom years.
In 1997, Premier ZHU Rongji held the Renminbi/US$ exchange rate steady amidst the chaos of the East Asian currency crisis, and thus managed to maintain the confidence of the investors and consumers about China’s economic future, keeping the economy growing.
In 2008, Premier WEN Jiabao launched the 4 trillion Yuan economic stimulus programme, barely six weeks after the collapse of Lehman Brothers, which once again helped to hold the confidence of Chinese enterprises and households in their economic future.
49
The Importance of Expectations In all of these cases, the Chinese government was able to turn around
the very negative expectations about the future of the Chinese economy into positive ones, and in so doing greatly reduced the uncertainty pertaining to the future and increased general business confidence. These changes in turn fueled investment booms that resulted in the subsequent economic growth.
Expectations often have the ability to be “self-fulfilling.” If everyone believes that the economy will do well and act accordingly, by investing and consuming, the economy will indeed turn out to do well, and vice versa.
Expectations will continue to play an important role in the Chinese economy. A strong central government with the power to mobilise aggregate demand can credibly change expectations in a positive direction to keep the economy growing.
The Short- and Medium-Term Economic Outlook
51 51
Quarterly Rates of Growth of Chinese Real GDP, Y-o-Y and Seasonally Adjusted
-5%
0%
5%
10%
15%
20%
25%
-5%
0%
5%
10%
15%
20%
25%
1983
q119
83q3
1984
q119
84q3
1985
q119
85q3
1986
q119
86q3
1987
q119
87q3
1988
q119
88q3
1989
q119
89q3
1990
q119
90q3
1991
q119
91q3
1992
q119
92q3
1993
q119
93q3
1994
q119
94q3
1995
q119
95q3
1996
q119
96q3
1997
q119
97q3
1998
q119
98q3
1999
q119
99q3
2000
q120
00q3
2001
q120
01q3
2002
q120
02q3
2003
q120
03q3
2004
q120
04q3
2005
q120
05q3
2006
q120
06q3
2007
q120
07q3
2008
q120
08q3
2009
q120
09q3
2010
q120
10q3
2011
q120
11q3
2012
q120
12q3
2013
q120
13q3
2014
q120
14q3
Perc
ent p
er a
nnum
Quarterly Rates of Growth of Chinese Real GDP, Y-o-Y and Seasonally Adjusted
GDPQ1GDPQ2GDPQ3GDPQ4GDP:seasonally adjusted
Monthly Rates of Growth of Real Value-Added of the Chinese Industry, Y-o-Y
52 0
5
10
15
20
25
Jan-
95Ap
r-95
Jul-9
5Oc
t-95
Jan-
96Ap
r-96
Jul-9
6Oc
t-96
Jan-
97Ap
r-97
Jul-9
7Oc
t-97
Jan-
98Ap
r-98
Jul-9
8Oc
t-98
Jan-
99Ap
r-99
Jul-9
9Oc
t-99
Jan-
00Ap
r-00
Jul-0
0Oc
t-00
Jan-
01Ap
r-01
Jul-0
1Oc
t-01
Jan-
02Ap
r-02
Jul-0
2Oc
t-02
Jan-
03Ap
r-03
Jul-0
3Oc
t-03
Jan-
04Ap
r-04
Jul-0
4Oc
t-04
Jan-
05Ap
r-05
Jul-0
5Oc
t-05
Jan-
06Ap
r -06
Jul-0
6Oc
t-06
Jan-
07Ap
r-07
Jul-0
7Oc
t-07
Jan-
08Ap
r-08
Jul-0
8Oc
t-08
Jan-
09Ap
r-09
Jul-0
9Oc
t-09
Jan-
10Ap
r-10
Jul-1
0Oc
t-10
Jan-
11Ap
r-11
Jul-1
1Oc
t-11
Jan-
12Ap
r-12
Jul-1
2Oc
t-12
Jan-
13Ap
r-13
Jul-1
3Oc
t -13
Jan-
14Ap
r- 14
Jul-1
4Oc
t-14
%
Monthly Rates of Growth of Real Value-Added of the Chinese Industry, Year-over-Year
53
Monthly Rates of Growth of Chinese Fixed Assets Investment, Y-o-Y
0
5
10
15
20
25
30
35
40
45
50
55
Jan-
00Ap
r-00
Jul-0
0Oc
t-00
Jan-
01Ap
r-01
Jul-0
1Oc
t-01
Jan-
02Ap
r-02
Jul-0
2Oc
t-02
Jan-
03Ap
r-03
Jul-0
3Oc
t-03
Jan-
04Ap
r-04
Jul-0
4Oc
t-04
Jan-
05Ap
r-05
Jul-0
5Oc
t-05
Jan-
06Ap
r-06
Jul-0
6Oc
t-06
Jan-
07Ap
r-07
Jul-0
7Oc
t-07
Jan-
08Ap
r-08
Jul-0
8Oc
t-08
Jan-
09Ap
r-09
Jul-0
9Oc
t-09
Jan-
10Ap
r-10
Jul-1
0Oc
t-10
Jan-
11Ap
r-11
Jul-1
1Oc
t-11
Jan-
12Ap
r-12
Jul-1
2Oc
t-12
Jan-
13Ap
r-13
Jul-1
3Oc
t-13
Jan-
14Ap
r-14
Jul-1
4Oc
t-14
Perc
ent
Monthly Rates of Growth of Chinese Fixed Assets Investment, Year-over-Year
54
Monthly Rates of Growth of Chinese Real Retail Sales, Y-o-Y
0
5
10
15
20
25
30
35
Jan-
00Ap
r-00
Jul-0
0Oc
t-00
Jan-
01Ap
r-01
Jul-0
1Oc
t-01
Jan-
02Ap
r-02
Jul-0
2Oc
t-02
Jan-
03Ap
r-03
Jul-0
3Oc
t-03
Jan-
04Ap
r-04
Jul-0
4Oc
t-04
Jan-
05Ap
r-05
Jul-0
5Oc
t-05
Jan-
06Ap
r-06
Jul-0
6Oc
t-06
Jan-
07Ap
r-07
Jul -0
7Oc
t-07
Jan-
08Ap
r-08
Jul-0
8Oc
t-08
Jan-
09Ap
r-09
Jul-0
9Oc
t-09
Jan-
10Ap
r-10
Jul-1
0Oc
t-10
Jan-
11Ap
r-11
Jul-1
1Oc
t-11
Jan-
12Ap
r -12
Jul-1
2Oc
t-12
Jan-
13Ap
r-13
Jul-1
3Oc
t-13
Jan-
14Ap
r-14
Jul-1
4Oc
t-14
Perc
ent
Monthly Rates of Growth of Chinese Real Retail Sales since, Year-over-Year
55 55 55
Near-Term Forecasts of Annual Rates of Growth of Chinese Real GDP
Forecasting Organisation 2015 2016 2017Asian Development Bank 7.20% NAThe International Monetary Fund 6.80% 6.30%The Organisation for Economic Cooperation and Development 7.10% 6.90%The World Bank 7.10% 7.00% 6.90%The Conference Board (U.S.) 5.90% 5.90%Fitch Ratings 6.80% 6.50%
Forecasts of Annual Rates of Growth of Chinese Real GDP
The Long-Term Economic Outlook
57
Tangible Capital per Unit Labour, 1980US$, Selected Economies
0
10
20
30
40
50
60
70
80
90
100
110
120
130
140
150
160
948
949
950
951
952
953
954
955
956
957
958
959
960
961
962
963
964
965
966
967
968
969
970
971
972
973
974
975
976
977
978
979
980
981
982
983
984
985
986
987
988
989
990
991
992
993
994
995
996
997
998
999
000
001
002
003
004
005
006
007
008
009
010
USD
thou
sand
, in
1980
pric
es
Tangible Capital per Unit Labour for Selected Economies
U.S.JapanHong KongSouth KoreaSingaporeTaiwanChina
58
Tangible Capital per Unit Labour, 2013US$, China and the U.S.
0
30
60
90
120
150
180
210
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
USD
thou
sand
, in
2013
pric
es
Tangible Capital per unit Labor of China and the U.S., in 2013 prices
U.S. China
59
R&D Capital Stocks: A Comparison of China and the U.S., 2013 US$
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
USD
billi
ons,
in 20
13 p
rices
R&D Capital Stocks, U.S. vs. China
U.S. China
The Number of Internet Users in Selected Economies
60 0
50
100
150
200
250
300
350
400
450
500
550
600
650
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
milli
on p
erso
ns
The Number of Internet Users in Selected Economies, million persons
China
United States
Japan
India
Germany
Korea, Rep.
Taiwan
The Number of Internet Users as a Percent of the Population in Selected Economies
61 0
10
20
30
40
50
60
70
80
90
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Perc
ent
The Number of Internet Users as a Percent of the Population in Selected Economies
China
United States
Japan
India
Germany
Korea, Rep.
Taiwan
62
Average Number of Years of Schooling of Selected Economies (1945-present)
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Year
s
Average Number of Years of Schooling of Selected Economies (1945-present)
US JapanHong Kong KoreaSingapore TaiwanIndonesia MalaysiaPhilippines ThailandChina, Mainland
63
Actual and Projected Chinese and U.S. Real GDPs and Their Rates of Growth
-4
0
4
8
12
16
20
-7
-4
-1
2
5
8
11
14
17
20
23
26
29
32
35
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
PercentUS
D tri
llion
s, 20
14 p
rices
Actual and Projected Chinese and U.S. Real GDPs and Their Rates of Growth (trillion 2014 US$)
Rates of Growth of U.S. Real GDP (right scale)Rates of Growth of Chinese Real GDP (right scale)U.S. Real GDP, in 2014 pricesChinese Real GDP, in 2014 prices
64
Actual and Projected Chinese and U.S. Real GDP per Capita’s and Rates of Growth
-4
-2
0
2
4
6
8
10
12
14
16
18
-20
-10
0
10
20
30
40
50
60
70
80
90
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
percentUS
D th
ousa
nd, 2
014 p
rices
Actual and Projected Chinese and U.S. Real GDP per Capita and Their Rates of Growth (thousand, 2014 US$)
Rates of Growth of U.S. Real GDP per capita (right scale)Rates of Growth of Chinese Real GDP per Capita (right scale)U.S. Real GDP per Capita, in 2014 pricesChinese Real GDP per capita, in 2014 prices
Concluding Remarks
