Understanding China's Economy: The Turning Point and Transformational Path of a Big Country

271 Pages·2021·4.451 MB·English

by  Fang Cai

Fang Cai
Understanding
China’s Economy
The Turning Point and Transformational
Path of a Big Country
Understanding China’s Economy
Fang Cai
Understanding China’s
Economy
The Turning Point and Transformational Path
of a Big Country
FangCai
ChineseAcademyofSocialSciences
Beijing,China
ISBN978-981-33-6321-2 ISBN978-981-33-6322-9 (eBook)
https://doi.org/10.1007/978-981-33-6322-9
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Contents
PartI China’sMiracle
1 UnderstandingtheStagesofEconomicDevelopment ............. 3
DemarcatingStagesofEconomicDevelopment ..................... 3
The Malthusian Poverty Trap: The Long Dark Night Before
the“GrandDivergence” ......................................... 7
DrivenbytheDemographicDividend:TheLewisModel ............. 11
TheLewisTurningPointandtheMiddleIncomeTrap ............... 16
Solow’sNeo-classicalGrowth:InnovationChangestheWorld ........ 24
2 HowFastHastheChineseEconomyGrown? .................... 27
Sustained,RapidGrowth:China’sEconomicMiracle ................ 27
TheAchievementsofChina’sEconomicGrowth .................... 27
China’sEconomicGrowthisUndeniable .......................... 28
HowtoInterprettheJudgmentThatChinaIs‘No.1’forGDP ........ 32
OnCalculationsofChina’sPotentialGrowthRate .................. 34
DecliningActualandPotentialGrowthRates ....................... 34
StimulatoryPoliciesShouldNotBeUsedto‘PreserveGrowth’ ....... 35
RaisingthePotentialGrowthRateThroughReforms ................ 37
TheChineseEconomicMiracleandtheLogicofItsContinuation ..... 38
3 UnderstandingChina’sDevelopment ............................ 45
The Riddle of China’s Development: A Noble Prize Grade
Question ...................................................... 45
ResearchingtheChineseEconomywithaCriticalMindset ........... 51
AvoidingBiasedMindsets ....................................... 53
Counterfactuals ................................................ 54
ConventionalWisdom .......................................... 55
ForWantofaNail .............................................. 57
StylisedFactsAboutEconomicGrowth ........................... 58
Kuznet’sFactsonModernEconomicGrowth ...................... 59
Palant-PrescottDevelopmentFacts ............................... 60
TheKaldorFacts ............................................... 60
v
vi Contents
TheNewKaldorModel ......................................... 61
Decoding the Mystery of the ‘Deceleration’ of the Chinese
Economy ..................................................... 61
WhyisThereaMiddleIncomeTrap .............................. 62
OldComparativeAdvantageGone,NewComparativeAdvantage
MIA ......................................................... 63
ChangestoSourcesofGrowth ................................... 63
4 EscapingMisunderstandingsAbouttheRelationshipBetween
PopulationandtheEconomy ................................... 67
ALargePopulationisNoBarriertoEconomicGrowth .............. 67
TheAgeingofthePopulationisInevitable ......................... 69
TheInevitableDisappearanceoftheDemographicDividend .......... 72
LabourSupplyisaFiniteResource ............................... 74
LabourShortagesareNotanExcusetoIgnoreEmployment .......... 78
PartII TheDevelopmentTurningPoint
5 TheLewisTurningPointforLargeCountries .................... 83
HowtoUnderstandtheLewisTurningPoint ....................... 83
TheCriticalPoint:FromtheTurningPointtoTurningInterval ........ 85
ControversyOvertheLewisTurningPoint ...................... 89
Howa‘LargeCountryEconomy’Differs .......................... 90
DefiningLarge(andSmall)CountriesandTheirCharacteristics ....... 91
China’sLargeCountryEconomy ................................. 93
TheFlyingGeeseParadigmCanRestructuretheNationalLayout ..... 93
TheEvolutionandKeyAspectsoftheFlyingGeeseParadigm ........ 94
WhyThereNeedstoBeaChineseNationalFlyingGeeseParadigm ... 95
Digression .................................................... 96
6 TheDemographicTransitionandLabourSupply ................ 99
China’sSemographicTransition .................................. 99
The Demographic Transition and the Development Stages
oftheDualEconomy ........................................... 100
TheCurseofBeing‘OldBeforeRich’ ............................ 103
TheGrandReversal:LabourSupplyandDemand ................... 106
LabourShortagesandEmploymentDifficulties ..................... 108
Reducingthe‘OldBeforeRich’Gap .............................. 110
7 TheChallengesAftertheLewisTurningPoint ................... 113
TwoDifficulties:ShouldWagesRise? ............................. 113
DelayingtheMomentumofRisingLabourCosts ................... 116
TheDifficultiesofThreeGroups:TheLatentFragilityofLabour ...... 118
TheStateoftheAgriculturalWorkforce ........................... 123
ChangestotheAgriculturalWorkforce ............................ 123
TheDemographicCharacteristicsoftheAgriculturalWorkforce ...... 124
PostTurningPointRuralLabourTransitions ....................... 127
References .................................................... 131
Contents vii
8 China’sSecondDemographicDividend ......................... 133
IstheChineseTurningPointSpecial? ............................. 133
TheSecondDemographicDividend ............................... 136
EnormousPotential:SavingsRateandthePensionSystem ........... 140
RaisingSkillSetsandMaintainingComparativeAdvantages ......... 142
References .................................................... 146
PartIII SidesteppingtheTrap
9 China’sInevitableSpeedBump ................................. 149
DoNotBeAfraidoftheWolf .................................... 149
HowtoSetRationalGrowthSpeedTargets ........................ 153
TwoLShapeTrajectories ....................................... 155
TheVShapedRevivalisOutdated ............................. 155
ShortandMediumTermLShapeGrowthTrajectories ............... 160
ALongerTermLShapeTrajectory ............................... 162
Reference ..................................................... 165
10 UnderstandingtheMiddleIncomeTrap ......................... 167
WhatistheMiddle-IncomeTrap ................................. 167
TheLowIncomeStage ......................................... 168
TheMiddleIncomeStage ....................................... 168
TheHighIncomeStage ......................................... 168
TheTetralogyoftheMiddleIncomeTrap .......................... 170
HowtoAvoidtheMiddleIncomeTrap ............................ 172
AccuratelyAssessingtheEconomicGrowthStage .................. 172
UnearthinganInstitutionalDividendThroughReform ............... 173
DevelopingEducationandTraining ............................... 175
11 EmploymentIssues:FromtheAggregatetotheStructural ........ 181
UnderstandingtheLabourMarket ................................ 181
TheFunctionsoftheNaturalUnemploymentRate .................. 185
StrongWageGrowthasBadasWeakWageGrowth ................. 186
EmploymentStructureandQuality ............................... 191
12 TheIncomeDistributionKuznetsTurningPoint ................. 195
WeNeedtoReacquaintOurselveswithEqualityandEfficiency ....... 195
TheIncomeDistributionTurningPoint:TheKuznetsTurningPoint ... 197
WhatIstheCauseforandOriginofDispute ....................... 201
IncomeDistributionPolicyErrors ................................ 203
PartIV CreatingaNewMiracle
13 CanChinaCreateAnotherEconomicMiracle? .................. 209
CantheChineseEconomyContinuetoGrow? ...................... 209
NewConceptsGuideNewGrowth ................................ 210
TheFundamentalsofanImprovingEconomy ...................... 213
viii Contents
StimulatingMicroeconomicVitality .............................. 215
EvaluatingtheNewPatternofGrowth ............................. 217
HowtoDestroythe‘XilingEffect’ ............................... 218
OpeningtheRightPolicyToolbox ................................ 220
WhyEmphasisethe‘ThreeIncreases’ ............................. 221
ProductivityGuidedIndustrialRestructuring ....................... 224
TheKeyAspectsofIndustrialUpgrading .......................... 224
TheWorrisome‘ReverseKuznetsEffect’ .......................... 226
ChangingApproachestotheUpgradingofIndustrialStructure ........ 229
14 FromtheDemographicDividendtotheReformDividend ......... 233
PeopleCentredNewModelUrbanisation .......................... 233
PathwayOutcomes ............................................. 234
TheNewPeopleCentredFocus .................................. 235
HowtoReallyImplementPeopleCentredUrbanisation .............. 237
TheModernisationofAgriculturalProductionMethods .............. 239
ChallengesattheNewStageofAgriculture ........................ 240
OnTraditionalConceptsofEconomiesofScale .................... 241
ScaleConstraintstoAgriculturalModernisation .................... 243
LandRegulations:TheReformBridgehead ........................ 244
FromtheDemographicDividendtotheHumanCapitalDividend ..... 245
TheContributionandFormationofHumanCapital .................. 246
EducationandReforms ......................................... 247
TheCostBenefitReformFormula ................................ 250
15 FromtheDemographicDividendtotheOpenDividend ........... 253
TheReversalofGlobalisation .................................... 253
InternationalTradeandTransnationalInvestment ................... 254
TheDepthandBreadthofGlobalisation ........................... 256
ThePopulistGenesinWesternGovernments ....................... 259
VotingwithHands,andVotingwithFeet .......................... 260
PopularPopulism .............................................. 262
ChinaandGlobalisation ......................................... 262
WhyDoesChinanotOpposeGlobalisation ........................ 263
DeclarationsatDavos ........................................... 265
Notes ......................................................... 268
Addendum:CharacteristicsofEpidemicShockandResponse
Policy ............................................................ 271
Part I
China’s Miracle
China’sReformandOpeninghasnowbeenunderwayfornearlyfourdecades.The
economy has soared and people’s livelihoods have greatly improved, and so it is
knownasthe“ChineseMiracle”.Thechangeswroughtbythismiracleareunprece-
dented throughout the nation’s millennia of history, and are also vanishingly rare
globally. This book aims to dissect the underlying logic to the Chinese Miracle
via the perspectives of population and development theories, look at the Chinese
economyfromtheperspectiveoflong-termhistoricaltrendsandglobalcategoriza-
tionanddemonstratethecoursechartedbytheChineseoceanlinerindeepwatersvia
investigationandresearch.HowshouldtheChina’sexperienceofeconomicdevel-
opmentbedemarcated?Whatkindofuniquecharacteristicsdoesthedevelopmentof
theChineseeconomydisplay?HowshouldweunderstandChina’seconomicdevel-
opmentandwhattypesofmisunderstandingsarewelikelytohave?Eachchapterof
thisbookoffersdetailedanalysisandexplanationstothesequestions.
Chapter 1
Understanding the Stages of Economic
Development
Ihavewrittennumerousarticlesandgivenmanylecturesonthesubjectofthestages
ofChina’seconomicdevelopment.Ioftencomparemyownexperiencetothatofa
Russian doll. When I tell such stories, the audience listens, but with doubt etched
ontheirfaces,andwhenrespondingtosuchdoubt,Iamconstantlyengagedonnew
research.SuchresearchpertainstotheentireprocessofthehistoryoftheChineseand
globaleconomies,andincorporatestheprinciplesofeconomicgrowthfromarange
ofnationalexperiences.Iturntheseintoaunifiedwhole,andbringinresearchofmy
ownintoeachaspect,andtheendresulthasthelikenessofaRussiandoll.Thislarge
dollisinfactagrandframework.Thischapterwillconductageneraldemarcation
ofthestagesofeconomicgrowthandtellhowChinajoinedtherace,andhowitis
placed at each specified development stage, and then delineate the propositions of
thekeytheoriesateachdevelopmentstage,andthenanalysehowthesepropositions
applytotheChineseexperience.
DemarcatingStagesofEconomicDevelopment
ThestoryofChina’seconomicgrowthcannotbeavoidedwhendiscussingthestages
of economic development. The Chinese experience is not purely a Chinese expe-
rience, for it is the only one that also deepens our understanding of development
economicsandtheoriesofeconomicgrowth.Fromaglobaleconomicperspective,
thenationhasessentiallyskippedtheoverwhelmingmajorityofthemainstagesof
economicdevelopment,andisnowslowlyenteringthefinalstage.TheChineseexpe-
rienceisvastinscopeand,havingcomparativelyquicklyskippedmanyofthemajor
stages, brims with observations and data. Furthermore, and critically, the Chinese
experiencehasbeenaprocessofgrowthanddecline,followedbyrenewedgrowth
(seeFig.1.1).
A look at the longer term history of the Chinese economy shows that its GDP
formerlycomprisedamajorproportionoftheworldeconomy,peakingaround1820
©CITICPressCorporation2021 3
F.Cai,UnderstandingChina’sEconomy,
https://doi.org/10.1007/978-981-33-6322-9_1