China & the World Economy Week 5: 1 & 2 - China's growth, past, present and future

Question 1

Describe & explain China’s GDP annual growth rate history from 1990

Answer 1

The Chinese government made a commitment in the 80s to growth. Hence, a large growth rate spike to 15-16% by 1992. Growth rate is remarkable even in developing countries. Then a slow, fluctuating drop to ~7% by 2000. There there was then another surge in growth rates by 2001. This is because China joined the World Trade Organisation (WTO), and was a major focus on how China became critical in the global economy. Huge drop to 8% due to financial crisis in 2008. Followed by a spike, where global demand rose.

Question 2

Describe China’s GDP % Share by primary, secondary and tertiary sector

Answer 2

The “primary” sector is agriculture & raw materials and played a smaller role in the economy - they weren’t declining, they were growing but not as fast as the rest of the economy. The secondary sector is manufacturing, the red line, it has been growing because its sectoral share grew. The tertiary sector has only increased in growth and importance.

Question 3

Describe China’s GDP % Share by private vs non-private sector

Answer 3

What’s significant is that the public sector still plays a big part in China. But there’s also great growth in self-employment and private sector. Also, the state-owned sector did shrink significantly during the WTO event because it was the private sector that mainly benefitted from this

Question 4

State & briefly describe the supply-side reforms which have promoted China’s growth

Answer 4

Supply-side reforms which have promoted growth:
- Labour markets
1. Migration (to Special Economic Zones and to large Cities and switching from agriculture to
manufacturing)
2. Technical development, skills and human capital (funding for Universities, supporting research
and development, encouraging better Schooling)
- Goods and services
1. Enhancing competitiveness (privatisation, management)
2. Market structures (removing price controls, WTO, SOE reform, FDI (foreign direct investment))
3. Innovation (Patents, New products)
- Financial and Capital markets
1. Some structural changes

Question 5

Describe & explain which model is used to explain China’s growth

Answer 5

Question 6

Describe & explain, using the appropriate model, the basic idea behind China’s growth as well as China’s inward FDI

Answer 6

• Looking at first graph, the aspects of Chinese growth that matters in the 90s is that China was highly underdeveloped but then grew to high capital stock and output per worker.
  
  • Higher savings at point B compared to point A because income per worker has been increasing quite significantly
  • The growth rate at the transition is much higher than the growth rate in the steady state because at the steady state, the transition has already occurred
  • The 90s was all about China transitioning from A to B
  • Looking at second graph, China joins WTO which brings in large scale FDI because China has cheap production so countries collaborate with China instead of more expensive countries. So savings in China increases (increase in red line). So, steady state is at B* instead of B. Increase in blue line because of increase in tech and management; so g* instead of g. So, WTO brought in more capital to China but also increased the growth rate of efficiency of workers.
• Higher efficiency in workers could be because people moved from agriculture to manufacturing so more value added so higher efficiency

Question 7

Describe & explain, using the appropriate model, China’s growth due to Migration and Human Capital Accumulation

Answer 7

Question 8

Describe how Growth Accounting can be used to explain China’s growth experience

Answer 8

Question 9

Describe, using relevant papers, the results of undertaking growth accounting for China

Answer 9