Showing papers in "China & World Economy in 2006"

What's So Special about China's Exports?

Abstract: Much more than comparative advantage and free markets have been at play in shaping China's export success. Government policies have helped nurture domestic capabilities in consumer electronics and other advanced areas that would most likely not have developed in their absence. As a result, China has ended up with an export basket that is significantly more sophisticated than what would be normally expected for a country at its income level. This has been an important determinant of China's rapid growth. What matters for China's future growth is not the volume of exports, but whether China will continue to latch on to higher-income products over time. (Edited by Xiaoming Feng)

China's Urban and Rural Old Age Security System: Challenges and Options

Abstract: This paper reviews the development of the urban and rural old age security system in China, and discusses the challenges in the process of constructing a sustained old age security system. Although funding gaps and empty individual accounts have imposed a heavy burden on the sustainability of China's urban pension system, there is a relatively high coverage rate of 35.3 percent for urban workers. However, China's pension system provides low coverage rate for rural farmers. The more rapidly aging population and lower incomes in rural areas pose challenges to the vulnerable rural household support system. The separation of the old age security system between rural and urban areas also puts great pressure as a result of urbanization on farmers who lose their farmland. Therefore, it is urgent for China to speed up the reform of its old age security system to provide an institutional support for its economic and social transition. (Edited by Zhinan Zhang)

China's Pattern of Growth: Moving to Sustainability and Reducing Inequality

Abstract: The authors study the sources and pattern of China's impressive economic growth over the past 25 years and show that key issues currently of concern to policymakers-widening inequality, rural poverty, and resource intensity-are to a large extent rooted in China's growth strategy, and resolving them requires a rebalancing of policies. Using both macroeconomic level and sector data and analyses, the authors extend the growth accounting framework to decompose the sources of labor productivity growth. They find that growth of industrial production, led by a massive investment effort that boosted the capital/labor ratio, has been the single most important factor driving GDP and overall labor productivity growth since the early 1990s. The shift of labor from low-productivity agriculture has been limited, and, hence, contributed only marginally to overall labor productivity growth. The productivity gap between agriculture and the rest of the economy has continued to widen, leading to increased rural-urban income inequality. Looking ahead, the authors calibrate two alternative scenarios. They show that continuing with the current growth pattern would further increase already high investment and saving needs to unsustainable levels, lower urban employment growth, and widen the rural-urban income gap. Instead, reducing subsidies to industry and investment, encouraging the development of the services industry, and reducing barriers to labor mobility would result in a more balanced growth with an investment-to-GDP ratio that is consistent with the medium-term saving trend, faster growth in urban employment, and a substantial reduction in the income gap between rural and urban residents.

Chinese Yuan after Chinese Exchange Rate System Reform

Abstract: In this paper, the actual exchange rate policy conducted by the Chinese government after the Chinese exchange rate system reform on 21 July 2005 is investigated. Also, the long-run effect is investigated, including the Balassa-Samuelson effect on the Chinese yuan. It was found that the Chinese government generated a statistically significant but small change in exchange rate policy during the sample period until 25 January 2006. It was not identified that the Chinese monetary authority is adopting the currency basket system because the change is too small in the economic sense. It is indicated that the Chinese government should take account of the productivity growth of countries composing the currency basket in order to operate a currency basket regime. (Edited by Xiaoming Feng)

Rebalancing growth in China : a three-handed approach

Abstract: The present paper is an attempt to define the contours of the right macroeconomic strategy for China. In a nutshell, we believe that the package includes a decrease in saving, with a focus on private saving, an increase in the supply of services, in particular health services, and an appreciation of the RMB. This is why we refer to this strategy as a “three-handed approach”: action on the fiscal and budgetary front, accompanied by currency revaluation. We start by asking how the Chinese economy got to where it is, what the strategy has been since the beginning of the reforms, and what the main characteristics of the economy are today. We then ask what is the desirable path for the future, and which are the main policy trade-offs implied by such a path. Finally, we put the various pieces together to describe what we believe is a consistent policy package. (Edited by Xiaoming Feng)

Sharing China's Bank Restructuring Bill

Abstract: This paper addresses the questions related to the cost of China’s bank restructuring and how it has been financed. We first propose a framework for recognizing losses. Then, we examine the recent major moves by the Chinese Government to repair the country’s bank balance sheets. Finally, we explore the implications of the Chinese Government’s methods of funding bank restructuring. We find that the Chinese Government has been decisive in confronting the costly task of bank restructuring. So far, Chinese taxpayers have paid most of the bill for bank restructuring.

Guanxi Networks in China: Its Importance and Future Trends

Abstract: China’s market potential is unparalleled, although many foreign business practitioners have commented that operating profitably in China is difficult, and more complex and time consuming than should be necessary. Given these facts, a lot of research on doing business in China gives recognition to the concept of Guanxi, a social and business relationship network, as the key to conducting successful business. By analyzing current research and collecting primary data from both the Chinese Mainland and Taiwan Province, this study aims to clarify the importance of Guanxi, and to study the future trend of Guanxi. By doing so, this paper intends to help business practitioners in China, especially those from the Western countries, to gain a deeper and more practical insight into the Chinese social network, and to help them make effective cross-cultural adaptation and business decisions in the unfamiliar cultural environment of China.

Rural Electrification in China: History and Institution

Abstract: China has been highly successful in electrifying rural areas in the past half century. Institutional structure and its reform are important for investment and, therefore, development of rural electrification. Over time, there have been three major institutional changes initiated by the central government;When the People’s Republic was founded in 1949, it was short of capital, technology and management professionals to promote rural electrification, so rural electricity had a separate administrative system from the urban areas. From 1949 to 1977, China established a comprehensive vertical system of rural electricity administration under strict central planning. At the end of the 1970s, with the adoption of economic reform policy, the central government handed over the management of the local electricity system to local government. County level has proved the most effective implementation unit for both planning and project implementation of the rural electricity system. From 1998 to 2002, the central government has been separating local electricity supply from local governments to facilitate the commercial operation of the utility market. After 2002, the rural electricity system was merged with the urban system, forming an integrated national electricity administrative system in China.

China's New Rural Income Support Policy: Impacts on Grain Production and Rural Income Inequality

Abstract: This paper analyses the impact of agricultural tax abolition and direct income payments to grain farmers on grain production and rural inequality in China. To separate the impact of the income support measures from recent price trends for grains and inputs, and to account for differences in household responses, we use a village-level general equilibrium model that we calibrate for two villages with different degrees of market access in Jiangxi province. The results show that the income support policy does not reach its goal of promoting grain production. The increased incomes allow farm households to buy more inputs for livestock production and involve other activities that are more profitable than grain farming. Selling of rice outside the villages declines more than rice production, because households in the villages consume more rice when incomes rise. We further find that the income support measures tend to reduce income within a village, but that tax abolition tends to widen income inequality between villages

Challenge Facing China's Economic Growth in Its Aging but not Affluent Era

Abstract: Demographic transition has occurred more rapidly in China than in most developed countries. As the population ages, the growth rate of the working age population has started to decline and the absolute quantity of the working age population will begin to shrink after 2015, which will inevitably result in structural labor shortage. Under the circumstance where comparative advantage is still embodied in its labor-intensive commodities, timely and sufficient supply of a skilled labor force is vital for China to sustain fast economic growth. (Edited by Zhinan Zhang)

Sustaining Economic Growth in China under Energy and Climate Security Constraints

Abstract: After over a quarter of a century of high economic growth, there is no sign that China will slow its pace of economic development. In the meantime, domestic energy security and international climate security have become of increasing concern given China's growth patterns. In this paper, the authors look at the future prospects of growth of the economy, energy demand and greenhouse gas emissions. For China as a developing country, energy security constitutes a more immediate and challenging constraint for China in meeting its development target than the problem of emission reduction. Energy efficiency and diversification have been actively pursued for addressing energy security issue but with positive co-benefit of climate security. International cooperation can promote both securities for a health growth of the economy. (Edited by Xinyu Fan)

China's Current Real Estate Cycle and Potential Financial Risks

Abstract: The real estate cycle and financial stability are closely correlated. In light of global real estate bubbles, China's real estate cycle has attracted wide attention since 1998. The present paper analyzes three driving factors in the context of the current real estate cycle; namely, economic growth, macroeconomic environment and institutional establishment. Supported by econometric analysis using quarterly data from 1992–2004, the present paper indicates that real estate will develop steadily and that housing prices will consistently rise in the relative long run. Based on quantitative analysis, it is concluded that the implications of the current real estate cycle for financial stability include risks of real estate credit exposure, government guarantees and maturity mismatch. Some corresponding policy implications are discussed, such as advancing banking reform, encouraging the rational behavior of local governments and strengthening the regulation of foreign capital flows in and out of China's real estate industry. (Edited by Xinyu Fan)

The Efficiency of the Chinese Commodity Futures Markets: Development and Empirical Evidence

Abstract: This study investigates the efficiency of the Chinese metal futures (i. e. copper and aluminum) traded on China's Shanghai Futures Exchange. First, we thoroughly analyze the development of China's commodity futures markets, which provides a fundamental background. Then we examine the random walk and unbiasedness hypotheses for two metal futures during 1999–2004. Based on the empirical evidence, we argue that China's copper and aluminum futures markets are efficient, and that they aid the process of price discovery because futures prices can be considered as unbiased predictors of future spot prices. We attribute this efficiency to the regulatory changes made in 1999 and the increased financial skills and acumen of the participants in the market. Edited by Xiaoming Feng

China, Asia, and the World Economy: The Implications of an Emerging Asian Core and Periphery

Abstract: A growing body of evidence suggests that China's emergence is having differential effects on Asia's advanced and developing countries. The region's advanced countries are benefiting from the existence of a large and rapidly growing Chinese market for their capital goods, components and technology, whereas its developing countries compete head to head with China in third markets. These facts create additional challenges for late-industrializing Asian countries seeking to catch up with the region's industrial leaders. In turn, the emergence of an Asian core and periphery will not encourage the development of a cohesive Asian economic and political bloc. Asian regionalism will be open regionalism in order to prevent regional initiatives from giving rise to costly trade diversion. Efforts to promote Asian financial development and integration are unlikely to come at the expense of the region's financial links with the rest of the world. An early move toward a common exchange rate regime with the associated common monetary stance will be problematic. And, in the absence of these common policies, pressure for the development of powerful regional institutions to formulate the common monetary stance will be at best modest. (Edited by Xiaoming Feng)

Modalities of Microfinance Delivery in Asia and Latin America: Lessons for China

Abstract: Microfinance, the provision of small size loans and other financial services to low income households, is often seen as the key innovation of the last 25 years in terms of means of reaching out to the poor and vulnerable. There is extensive experience in microfinance provision in both Asia and Latin America, but as yet relatively little use of the approach in China. This paper assesses different approaches to microfinance delivery using a threefold distinction, the credit union approach, the non-government organization approach and the banking approach, to generalize across recent Asian and Latin American experience and discuss the role of microfinance in poverty reduction in a theoretical framework. Considering the current state of microfinance in China and international experience, we suggest the banking approach as the way to best increase outreach of micro-financial services in China. (Edited by Xiaoming Feng)

Perspective on Local Governance Reform in China

Abstract: This paper is an attempt to present an analysis of China’s decentralization and local governance practices, the dilemmas rooted in the current institution. We argue that the misbehavior of local government officials is endogenous to China’s central–local structure and that competition among localities has become distorted and constrained by various policy burdens and development mandates imposed from above. The information asymmetry for the enforcement cost of mandates that exists between central and local governments not only leads to difficulties and distortions in local performance evaluations, but also creates opportunities for local bureaucracy expansion and rent-seeking. Enhancing fiscal transfers, or strengthening political restraint, although necessary, would be far from enough to solve the local governance problems. The ultimate solution entails an in-depth deregulation reform on factor mobility and a furthest eradication of policy mandates for the local government.

Urban Infrastructure Financing and Delivery in India and China

Abstract: This comparison is not restricted to Mumbai and Shanghai but also to Bangalore and Hangzhou, Delhi and Beijing and so on. The Chinese and Indian economies are expected to be the growth engines of the global economy. In this process cities are expected to play an important role, through their transformation into “World Class” cities, a term now doing rounds in the policy circles in Mumbai, to be achieved through massive infrastructure investments made in them. In China, this has been possible because of the decentralized administrative and fiscal system in China. In contrast, in India, the system of urban infrastructure is currently evolving and making a transition from a centralized to a decentralized system. This paper: (i) compares the Chinese and Indian financial systems to explain differences in the quantum of funds available in cities in both countries; (ii) looks at urban responsibility allocations in terms of institutions; and (iii) compares capital investments made by one city each in the two countries, in Beijing (China) and in Mumbai (India). Edited by Xinyu Fan

China's Changing Economic Structure and Implications for Regional Patterns of Trade, Production and Integration

Abstract: Without intending to do so, China has in recent years played a major role in East Asia’s economic integration. It has done so mainly through the production and supply chain networks it has spun across the region. This paper argues that given the developmental trends in the Chinese economy, the Chinese government should pursue a more active strategy towards a broader and more balanced economic integration with the region. The emergence of a multi-track production structure, increased importance of domestic consumption and the services sector, together with faster integration of the domestic economy, will fundamentally change China’s trade and investment relationships with the rest of East Asia and necessitate a review of China’s economic integration strategy. The paper also argues that ASEAN can play a useful role in facilitating the region-wide integration process.

Assessment for Social Security Pilot in Jilin and Hei Longjiang of China

Abstract: The present paper reviews the social security pilot in Jilin and Hei Longjiang that was carried out between 2004 and 2005. The pilot in the two provinces has basically achieved its main objectives, but there are still some unsolved problems, the most severe being lack of effective investment of the funds accumulated by individual accounts. During periods of high economic growth and high growth in average wages, this problem might undermine the partially-funded security system. To this end, the paper makes some suggestions, one of which is to introduce the notional defined contribution system. (Edited by Zhinan Zhang)

Can Renminbi Appreciation Reduce the US Trade Deficit

Abstract: Using a computational general equilibrium model, we analyze the impacts of Chinese real exchange rate appreciation on the trade balance of China and the USA and on various industries of both countries. We use several scenarios with 2.1, 6 and 12 percent real exchange rate appreciations for our simulation analysis. The results indicate that China's exchange rate appreciation might not solve the enlarging US current account deficits. Chinese outputs in both primary and manufacture sectors will increase, whereas the outputs of energy and services sectors will be adversely affected. The price of value-added products declines in light of the renminbi appreciation. (Edited by Zhinan Zhang)

The Growth of China's Private Sector: A Case Study of Zhejiang Province

Abstract: Private capital is one of the main driving forces in China's initiatives towards stimulating the market economy. The development of private economy in China has always been based on integrating industrial and corporate structures with product composition and market structures. This paper explores the development of the private economy and how it integrates different industries with specific markets by analyzing the leading private sector in Zhejiang province. It also examines the trends of industrial cluster, the formation of the agglomerative economy and their effects on private economy development. Finally, the paper explains why Zhejiang people have profited much from the Wenzhou model, and discusses some existing problems and future possibilities for development of the Wenzhou model. (Edited by Zhinan Zhang)

China's Economy in 2005: At a New Turning Point and Need to Fix Its Development Problems

Abstract: Cina's economy in 2005 chalked up another year of 9.9 percent surging growth. In 2005 the government's attention was focused on the many negative consequences of China's past unbridled economic growth, from rural poverty to environmental degradation and wide income disparities, calling for more “sustainable growth” or “balanced development”. The new development paradigm fit nicely into President Hu Jintao's concept of “scientific development”, and was embraced by the 11th Five-Year Program (2006 - 2010). The year 2006 might go down in China's economic history as an important turning point, as the Hu-Wen leadership will start new development strategies to fix problems previously associated with strong economic growth. Strictly speaking, many of China's “growth problems”, from regional disparities to environmental degradation, are actually quite inevitable - as apart of the development process. But their gravity has often been aggravated by poor governance, blatantly pro-growth policies, and local corruption. Overall, the Chinese leadership has come to realize that its past development patterns are physically unsustainable, and politically and socially unacceptable. It has embraced the need to change. But all development changes will take a long time to yield concrete results. Edited by Xiaoming Feng

China's Energy Strategy in the Twenty-first Century

Abstract: China’s energy demand and energy imports have increased substantially in recent 5 years and will continue to grow in future. Increasing dependency on the world market and the tension between energy supply and demand clearly show that energy is becoming a major constraint for China’s future economic development. We introduce the background of China’s energy demand and supply in this paper and discuss China’s energy strategy in the twentyfirst century, focusing on growth, energy security and environmental sustainability.

Village Elections, Accountability and Income Distribution in Rural China

Abstract: China has experimented with village elections for nearly 20 years. Using village and household survey data collected from 48 villages of 8 Chinese provinces for the period 1986–2002, this paper studies how the introduction of elections affects village governance and income distribution in Chinese villages. The econometric analysis finds the following outcomes. First, village elections have increased the share of public expenditure and reduced the share of administrative expenditure in the village budget, so the accountability of the elected village committee has been enhanced. Second, elections have not led to more income redistribution; instead, they have reduced the progressiveness of income redistribution. Third, elections have reduced income inequality measured by the Gini coefficient in villages. The reduction is equivalent to 5.7 percent of the sample average, or 32 percent of the growth of the Gini coefficient in the period of 1987-2002. Because village elections have not led to more income redistribution, this positive effect must have come from more public investment, which benefits the poor more than wealthier people. The general conclusion that we draw from our results is that, despite institutional constraints, village elections have improved village governance and the life of villagers. (Edited by Xinyu Fan)

China's Macroeconomic Development: Stages and Nonlinear Convergence

Abstract: The central theme of this paper is that China's macroeconomic development can be divided into three distinct stages with significant trend changes. Market-oriented reform and opening to the outside world provide main driving forces for the convergence. However, the gradual reform and some inappropriate policies have caused serious ups and downs in China's macroeconomic performance. (Edited by Zhinan Zhang)

Global Energy and Environmental Impacts of an Expanding China

Abstract: China accounts for 10 percent of global energy use and will continue to rely on coal for generating approximately 75 percent of its energy over coming decades. The environmental problems associated with coal burning are a concern for China as well as regionally and globally. The present paper summarizes China's energy structure and likely future energy requirements, while exploring the impact of energy use on air quality, black carbon emission, sulphur dioxide (SO2) emissions, and carbon dioxide emissions. Although China has begun to take action on local environmental problems from energy, there is still much to be done. In particular, the problem of black carbon and carbon dioxide emissions needs to be addressed. The present paper proposes addressing carbon dioxide emissions through a longer-term strategy that acknowledges the need for China to continue to grow without a short-term carbon constraint but with clear pricing of the short-term and long-term cost of carbon dioxide. (Edited by Xiaoming Feng)

Global Quota System and China's Textile and Clothing Industry

Abstract: By the middle of 2005, many Chinese textile and clothing enterprises were unable to continue business. Because of the safeguard actions invoked by WTO member countries, especially the USA, the EU and some developing countries, such as Turkey and Mexico, a stable and predictable overseas market no longer exists for export-oriented Chinese firms. It had actually been predicted that China would be the big winner after the elimination of the global quota system on 1 January 2005. What has happened to China's textile and clothing industries? What are the prospects for them over the next few years? Using a partial equilibrium analysis framework, this paper finds that China was the big loser under the quota system before 2005, and that China will be the big loser once again after the ending of that system. (Edited by Xinyu Fan)

Role of China in Global Carbon Market

Abstract: The use of market-based mechanisms is a cost-effective way to reduce carbon emissions. The present paper reviews the global carbon market, focusing mainly on its structure and price features, and analyzes the role of China in the global carbon market. China is playing a leading role in the pursuit of sustainable development, which can account for its lagging behind in the Clean Development Mechanism. The paper discusses the opportunities and challenges for China undertaking the Clean Development Mechanism project in the future. (Edited by Zhinan Zhang)

FDI Flows between China and ASEAN: Emerging Factors and Prospect

Abstract: Economic relations between China and ASEAN have further intensified since the 1990s. Foreign direct investment (FDI) flows between the two economic giants have reached a new high, attracting the attention of policy-makers and economists. The present paper investigates recent contextual changes and identifies some significant emerging factors that exert influence on the flows of FDI between China and ASEAN. This paper also analyzes the development trend of FDI between the two economies, and it is found that the FDI flows are at a historical turning point. (Edited by Xiaoming Feng)

China's Economic Prospects and Sino–US Economic Relations

Abstract: A better comprehension of the mixed sentiment in the rest of world towards the rapid rise of the Chinese economy will depend on the understanding of some key features of the Chinese economy, such as those associated with its size, structure and institution To further sustain its high growth, China is facing more challenges than it has encountered in the past 2 decades, including a gamut of material constraints Although polices and technological progress might alleviate many of these constraints, the ultimate solution will still lie in continued institutional reform China’s recent move towards a more flexible exchange rate regime is in line with its broad reform and in accordance with the progress of its development However, such a move will have limited immediate effects on the prodigious US trade deficit, which itself is a problem rooted in the flawed international reserve system, far beyond a Sino–US trade issue