Economic Growth, Transition and Globalization in China
Yanrui Wu (ed.) (Cheltenham, UK; Northampton, MA, USA: Edward Elgar, 2006)
In recent years, academic interest in the Chinese economy has surged. This volume contains
selected papers presented at an international conference held at Perth, Australia in July 2005
attended by economists from China, Hong Kong (China), Japan, and Australia. Neoclassical
economics is the general intellectual perspective that unites all contributors. Most of the papers
are econometric studies that test the relationship between certain variables in the Chinese
context. The ten selected papers are only very loosely connected. Part 1 includes four papers on
economic growth and outlook. Part 2 covers urban economy, migration, and labour market. Part
3 covers banking exchange rates, and globalisation.
Chapter 1 (Introduction) goes over some stylised facts of the Chinese economy. Chapter
2 measures China’s total factor productivity growth using the “dual” approach.
From the
neoclassical perspective, total factor productivity represents technological progress and accounts
for the part of economic growth that cannot be explained by the growth of labour and capital
inputs. The “dual” approach interprets the total factor productivity as the weighted average of
the real wage and real rental price of capital.
The authors find that China’s total factor
productivity growth remains high though there was some slowing in the 1990s. The authors
caution that there remain many weaknesses in the data. In Chapter 3, the authors use a fourvariable model (with three variables representing the coastal, central, and western regions and
the fourth variable representing the national output) to test the output spill over effects between
regions. The issue of spill over effects has some significance for the formulation of policies
designed to achieve greater economic convergence between regions. The model so constructed
is relatively insensitive to variable ordering (and thus technically superior to previous models)
but the overall results are similar to those reported in earlier studies. The authors find that there
are mild spill over effects from the coastal and central regions but not from the western regions.
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But the authors cannot identify the channels of influence which are required for policy
formulation.
Chapter 4 finds that during the period of reform, volatility of economic growth and the
growth rate are positively related.
Investment share is found to be positively related and
government spending negatively related to volatility.
Chapter 5 evaluates the prospect of
China’s economic growth from 2005 to 2020 using alternative assumptions of the growth of
labour force, capital stock, and total factor productivity.
In the baseline and coordinated
development scenarios, the Chinese economy is expected to continue rapid growth. In the risk
scenario, the growth rate is expected to slow down to 5-6 percent a year in the period 2010-2020,
which is regarded as “a fairly pessimistic scenario” (pp. 103-104).
Chapter 5 estimates the stochastic production frontiers (representing the maximum
possible output to be compared with the actual output) for the prefecture-level cities and countylevel cities. The authors find that county-levels cities have higher technical efficiency, lending
some support to the argument that the prefecture-level cities may be abolished. Chapter 6 uses
survey results to examine the determinants of the perception of public safety in urban China.
The authors find that the individual’s attitude to migrants affects his or her perception of public
safety. Chapter 7 uses stochastic frontier analysis to evaluate the job-matching efficiency (the
rate of job formation as the unemployed workers are “matched” with job vacancies) in urban
China. The author finds that privatisation and human capital accumulation tend to increase
matching efficiency.
Chapter 9 argues that the Chinese financial system is “repressed” with artificially low
interest rates and an excessively large and inefficient banking sector. The fragile financial
system has been protected by capital controls. China needs to allow for a more market based
financial sector and open up the capital account to a much greater degree. The author recognises
that China needs to ensure the domestic financial system is healthy and competitive enough to
cope with the desired changes and the timing and sequencing of reforms need to be carefully
considered. Chapter 10 argues that there is little evidence that China’s currency is undervalued
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and the benefits of exchange rate stability outweigh the costs. Though the authors concede that
in the longer term a flexible exchange rate regime may be desirable. Chapter 11 reviews the
progress and the impact of globalization in China. The author argues that globalisation provides
China with unprecedented opportunity for achieving economic prosperity but may have
contributed to rising inequality.
There are several places where the data cited are apparently misinterpreted or do not
make sense. P. 4 includes a graph which shows that 56 percent of China’s investment is
financed by “self-raised funds.” This is taken as evidence that private capital is the main source
of investment funding. The author apparently mistakes “self-raised funds” for private capital,
which in fact refer to investment funds (including retained earnings) raised by enterprises
themselves that include non-state owned as well as state owned enterprises. P. 217 reports that
between 1950 and 1978, “real per capita income of the Chinese people merely doubled” [italics
added]. This is under the sub-title “Decline in standard of living under the communist regime.”
The same paragraph says that “the average wage of industrial workers was 84 percent lower” in
1978 than in 1957. “84 percent lower” means the wage in 1978 was only 16 percent of that in
1957. Does this make sense at all? After celebrating China’s rapid progress in globalisation and
reporting that China has lower import duties than South Korea, Taiwan, Brazil, and India,
Chapter 11 concludes by saying that China has a very low globalisation status, citing a
Globalisation Index which ranks China 160 out of 185 countries. Something must not be right
with this Index.
Overall, the authors of the volume share a broad consensus.
Further privatisation,
marketisation, and financial liberalisation are seen as the future directions of the Chinese reform.
Debate is limited to the timing and sequencing of the desired reforms. There is little concern for
the social and environmental contradictions of China’s economic growth. Where some social
issues are touched upon (as in Chapter 6), they are approached from a narrow technical
perspective.
The book may be useful for junior graduate students in economics who are
interested in applying various technical models to empirical studies and want to learn how to
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collect and process statistical data. But, otherwise, among many writings on China today, the
book does not significantly enhance the readers’ knowledge of the Chinese economy.
Minqi Li, 2007
Department of Economics, University of Utah
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