China by hedongchenchen


									                             China’s Economic Growth

                               <From Past to Future>

                             Binggie, Moon Young, Euna

1. Introduction
       a. Prospects about China’s economic growth in the future
       b. Extrapolation of China’s GDP growth rates
               i. Well identified by standard development+ theories
              ii. Decomposing China’s GDP growth allows inferences about future GDP
       c. Pessimism about China’s future
               i. Economic problems, indebted state-owned enterprises, nonperforming
                  loans, decline in government revenue
              ii. “illusory nature of the market”
       d. Success
               i. adoption of a “comparative-advantage following strategy”
              ii. aggregate production function

2. Extrapolation of Past Growth into the Future

   a. China and U.S. compared in terms of purchasing powers
      - PWT real growth rates and PWT GDP values (price adjustments and exchange

   b. Predicted time period of aggregate nationwide GDP to overtake that of U.S.

   c. Unstable system of calculations by holding variables constant (ignoring the
      interrelations between variables)
   d. Not a reliable research tool
   - Factors that promoted economic growth in the past being absent in the future
   - Factors the constrained economic growth before being newly relevant in the future

3. Development Theories and Asian Precedents
      a. Structural change
              i. Labor shift: agriculture -> industry/ services
             ii. Expectation similar to Japan, Korea, and Tawian
            iii. Growth rate declines
      b. Catching up
                  i. Production techniques and technologies
                 ii. PWT data undertake adjustments to official data
           c. Factor price equalization
                  i. Factor price equalization theorem (Heckscher-Ohlin_Samuelson theorem)
                 ii. U-shaped pattern( analyze 4 countries in fig. 7/8)

   4. Growth Accounting

       a. Decomposition of GDP growth into factor inputs

       (1)Traditional growth accounting equation:

 Decomposes economic growth into growth of the factor inputs labor, capital and growth in total
factor productivity.

Estimated growth accounting equation for China for the period 1978 through 2002

(2) Augmented by human capital:

Compared with the growth accounting equation in (1), we can find that when taking education
into account, capital will have a higher impact on the growth rate of production. Education has
negative impact on the economic growth.

b. composition of GDP growth by income categories

    Net tax: value-added tax, less production subsidies, subsidies for policy losses, price
subsidies for the grain system, etc.

    Depreciation: depends on the value of not yet fully depreciated fixed assets
Product of the depreciation share and depreciation rate growth in the income is fairly small.

The impact of wage growth on China's economic growth

   5. Human Capital
      a. Rapid growth in human capital in reform period
      - Narrowed gap of education level in China and U.S. between 1990 and 2000
      - Education level at different age cohorts in China changing rapidly (smooth transition
         from the less educated older generation to the ever better educated younger age
      - Expanding enrollment data compared to U.S.

      b. Rise in price of education
      - Reflects demand for senior high school and tertiary level education

      c. The upgrading education level of Chinese laborers not being able to be felt until years

      d. Private returns to education currently being below the marginal product value
      - Further reforms needed

   6. Conclusions and Implications
      a. Optimistic characterizations
      - Increase in purchasing power
      - Innovation depending on the agglomeration of talent
      - Size of the domestic market
      - Improving system of exports and imports
      b. Concerns and problems
      - Stable financing infrastructure to be developed necessarily (banking system, public
      - Negative influence to externalities
      - Political structure

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