Yale School of Management
Rise of the State in China:
a financial perspective
Zhiwu Chen
Yale School of Management
May 1, 2012
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Today’s Agenda
The re-rising of the state --- recent trends
Implications for economic growth model and
legal development
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Government size in comparison
In 1766, the Qing government revenue was
about 49 million taels of silver, equal to
annual income of 2.05 million Beijing
residents.
In 2010, U.S. Federal & local government
revenue = $3.9 trillion, equal to 104 million
Americans’ disposable income.
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Government revenue, urban vs rural per-capita
disposable income
1100
Cumulative growth of
gvnmt revenue
1000
900
800
Cumulative growth of urban
resident’s disp. income
700
600
500
400
300
200
Rural per-capita income growth
100
0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
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Government revenue as multiples of urban residents’
per-capita disposable income
100 millions
5
4
3
2
4.3
3.94.0
3.7
3.3
3.3
3.0
2.8
2.7
2.4
2.42.52.6
2.1
2.0
1.91.91.9
1.8
1.71.7
1.7
1.51.51.5
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1978
1980
1985
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
0
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Government revenue as multiples of rural residents’
per-capita disposable income
100亿人
millions
14.0
13.3
12.9
12.3
14
12
10
11.0
8.5
8
6.9
6.1
6
4
2
0
5.0
4.6
4.4 4.3 4.4 4.4 4.7 4.3
4.0 3.8 4.1
5.2
5.9
7.6
8.3
9.0
9.7
Fiscal expansion means more
state power
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25
20
Gvmt administrative
expenditure as % of fiscal
budget
15
10
5
0
7
Data source: 杨宇立、钟志文《国内国际行政支出实证比较》, 2010. Table 1-35.
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Comparison with Other Countries: Administrative
Expenditure as % of Fiscal Budget
25
22.5
20.6
18.7
20
15
10
9.25
9.92
10.02
10.47
Canada
France
11.19
12.16
5
0
Norway
Japan
USA
Australia Romania
Russia
China
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Data source: 杨宇立、钟志文《国内国际行政支出实证比较》, 2010. Table 1-35.
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Government expenditure structure
In 2007,expenditure on public health, social
security and unemployment benefits = RMB
600 billion, =15% of total budget，= 2.4%
of GDP，= RMB 461 per capita（3% of
urban residents’ disposable income）
In the U.S.，Federal expenditure on same
items = $1.5 trillion，=61% of Federal
Budget，=11.5% of GDP, =$5000 per
capita (18% per-capita disposable income 9
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Consequences of government as
investor/consumer
Economic growth driven more by
investments, and less by consumption
Hence, more by exports and less by
domestic demand
More by resources-intensive and energyintensive industries, and less by the service
sector
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Fixed investment as % of GDP
80%
70%
70%
66%
60%
55%
51%
52%
2006
2007
48%
50%
44%
41%
40%
35%
33%
32%
32%
1995
1996
1997
34%
33%
33%
34%
1998
1999
2000
2001
36%
30%
20%
10%
0%
1994
2002
2003
2004
Investment as % of GDP
2005
2008
2009
2010
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Fixed investment divided by
disposable annual per-capita income
(in billions)
1.4
1.2
1
0.8
0.6
0.4
0.2
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
0
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Household consumption elasticity in GDP ：how
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does it relate to SOE share?
70 countries from 1980 --2003
1
b
Cg = a + b * GDPg + e
0.95
0.9
0.85
0.8
0.75
3.0
6.2
9.8
13.5
29.9
Quintiles based on SOE share in GDP as of 1980
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State owning and spending too much:
detrimental to rule of law
Rule of law ratings in 1995, for three groups
each with 21 countries.
5
4.18
3.77
4
2.79
3
2
10.3%
15.8%
30.0%
SOE investment as % of GDP in 1980
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China’s long tradition: state as grabbing
hand, via state-owned lenders and traders
Years
Government Loans
Private Loans
Legal Limit
Legal Limit
600-650
84%
72%
650-728
84%
72%
728-960
60%
48%
960-1260
60%
48-60%
1260-1368
Data: Yang (1952), Homer and Stylla (1996)
36%
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Other Remarks
Crowding out private firms in industries
where SOEs are present
Privatizing state-owned assets and limiting
taxation power as the way to go
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