China’s Growth:
The Making of an
Economic Superpower
Linda Yueh
www.lindayueh.com
Twitter @lindayueh
China’s Growth:
The Making of an Economic Superpower
• What has driven growth since 1979?
• Re-balancing challenges
Goal for next 30 years: Overcoming the “middle
income country trap”
2
China vs G7
3
Average income near “trap” level
Real Average GDP Growth and Institutional Reform
16
"Open door" policy
CRS
14
Private property recognised
12
10
Company Law passed
%
8
BRS
WTO membership
Stock markets established
HRS
6
4
2
05
06
20
20
03
04
20
20
02
20
01
20
00
20
98
99
19
19
96
97
19
19
95
19
93
94
19
19
91
92
19
19
90
19
89
19
88
19
86
87
19
19
84
85
19
19
83
19
82
19
81
19
80
19
19
79
0
5
China’s impressive growth
%
14
12
10
8
6
4
2
0
6
Growth drivers
60-70% from
capital/labour
9.6%
average
GDP
growth
30-40% TFP
productivity
7
50%
adding
capital
60-70%
Factor
accumulation
10-20%
adding
workers
8
11-15%
Human
capital
8-15% Reallocative
efficiency
30-40%
TFP
16-17%
Innovation
9
Up to 2/3rd
Imitation
16-17%
Innovation
6-13%
Technology
10
Contributions to growth
 Factor accumulation: 60-70%
• Capital accumulation: 50%
• Labour accumulation: 10-20%
 Total Factor Productivity (TFP): 30-40%
• Human capital: 11-15%
• Factor re-allocation: 8-15%
• Innovation: 16-17% minus “imitation” = 6-13%
11
Re-balancing challenges
(1) Increase reliance on own market, less on exports
(2) Raise consumption, reduce inefficient savings
(3) Grow private sector, reduce distortions from stateowned sector
(4) Increase innovation, as imitation limits reached
(5) Continued opening, include firms “going global”
12
(1) Re-balancing towards services
100%
Services
90%
80%
70%
Industry
Share of GDP (%)
60%
50%
40%
30%
20%
Agriculture
10%
0%
1978
1980
1982
1984
1986
1988
Primary
1990
1992
Secondary
1994
1996
1998
2000
2002
2004
2006
Tertiary
13
20
20
20
20
20
20
20
20
20
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
08
07
06
05
04
03
02
01
00
99
98
97
96
95
94
93
92
91
90
89
88
87
86
85
84
83
82
81
80
79
78
(2) Raise consumption as % GDP
55%
50%
45%
40%
35%
30%
14
(2) Address growth in savings
60%
50%
Share of GDP
40%
30%
20%
10%
0%
1992
1993
1994
1995
1996
1997
1998
Government
1999
2000
Households
2001
2002
2003
2004
2005
2006
2007
Firms
15
(3) Reduce state sector?
100%
90%
Private firms
Share of Industrial Output (%)
80%
70%
60%
50%
40%
30%
20%
State-owned enterprises
10%
0%
1978197919801981198219831984198519861987198819891990199119921993199419951996199719981999200020012002200320042005
Other
Getihu
Collectives
SOE
16
(3) State-owned sector still important for
jobs
100%
90%
Share of Urban Employment (%)
80%
70%
60%
50%
40%
30%
20%
10%
0%
1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Urban SOEs
Urban Collectives
Urban Private/Other
17
(3) Notable productivity differences
200
180
160
140
JVs with TT
1000 RMB
120
Greater China WOFE
100
Other WOFE
80
Other JVs
Greater China JVs
60
SOEs
40
Private firms
Privatised SOEs
20
0
2000
SOEs
Privatised SOEs
2001
Private firms
Greater China JV
2004
2003
2002
Other JVs
JVs with TT
Greater China WOFE
2005
Other WOFE
18
(3) Also in return on assets
1.200
1.000
0.800
0.600
0.400
0.200
0.000
2000
2001
SOEs
Collectives
2002
Private sole proprietorships
2003
Private partnerships
2004
2005
Private LLCs and incorporated firms
19
(4) Signs of innovation
Patents & real GDP per capita (in 1990 RMB)
250000
6000
5513
5653
214003
5000
200000
190238
4490
182226
Real GDP per capita
4000
3790
150000
3534
3281
132399
3000
Patents granted
114251
2647
100156
100000
RMB
Number of patents
4101
105345
2000
1634
50000
45064
1000
853
22588
0
138
1985
0
1990
1995
1999
2000
2001
2002
2003
2004
2005
20
(5) China “going global”
70
60
50
US$bn
40
30
20
10
0
1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
-10
Source: IMF.
21
Salter-Swan Model linking interest rate &
exchange rate reforms
The next decades of reform
• 2020: Re-structuring the economy
• 2030: Productivity & innovation as growth drivers
• 2040: Stable & strong institutional foundations
23
China’s Growth:
The Making of an
Economic Superpower
Linda Yueh
www.lindayueh.com
Twitter @lindayueh