Wednesday, January 29, 2014

Making Sense of China’s Growth Model

Making Sense of China’s Growth Model


Zhang Jun, Professor at Fudan University, Shanghai

January 27, 2014
 
Zhang JunAlthough China’s economy has expanded at a staggering pace over the last three decades, its growth model is now widely agreed to be exhausted. Even China’s top leadership acknowledges the need for change – a belief that culminated in the far-reaching reform agenda presented two months ago at the Third Plenum of the Chinese Communist Party’s 18th Central Committee.
While not everyone agrees on exactly what the new growth model should look like, proposals do not differ drastically, given the prevailing consensus that the current model rests on an unsustainable foundation. On the demand side, many economists endorse a shift from investment-led to consumption-driven growth. Even more popular is the supply-side recommendation of a shift from extensive to intensive growth – that is, from a model based on capital accumulation to one propelled by gains in efficiency, measured by total factor productivity (TFP).
These recommendations are presumably influenced by Paul Krugman’s criticism in 1994 of Soviet-style extensive growth in East Asian economies (especially Singapore). At the time, Jeffery Sachs disagreed, asserting that the East Asian model included far more efficient market-based investment allocation than the Soviet model did, and thus was unique; nonetheless, the criticism stuck.
It was not long before some Chinese economists began to categorize the growth pattern brought about three decades ago by Deng Xiaoping’s reforms as “extensive” – and thus problematic. A consensus has gradually emerged around this idea, with calls for a shift toward intensive, efficiency-driven growth intensifying since China’s GDP growth began to slow in 2011.
But empirical research reveals a fundamental problem with this argument: China’s TFP has grown at an average annual rate of nearly 4% since Deng’s reforms began. If the United States’ economy, with a TFP growth rate of only 1-2% annually, is considered efficiency-driven, why is China’s not? More important, if China’s TFP growth is expected to slow, as major drivers like the convergence effect wane, what does it mean to say that efficiency gains should propel China’s future growth?
Consider the facts. A conservative assessment by Louis Kuijs, working with the World Bank, shows that, from 1978 to 1994, China’s GDP grew by an average of 9.9% annually, labor productivity increased by 6.4%, TFP rose by 3%, and the capital-labor ratio increased by 2.9%. In the period from 1994 to 2009, annual GDP growth averaged 9.6%, labor productivity increased by 8.6%, TFP increased by 2.7%, and the capital-labor ratio rose by 5.5%.
Similarly, Dwight Perkins and Tom Rawski found that from 1978 to 2005, China’s GDP grew by 9.5%, while capital investment grew by 9.6%, contributing 44.7% to GDP. The share of tertiary graduates in the labor force rose to 2.7% by 2005, accounting for 16.2% of GDP growth. And TFP grew by 3.8%, adding 40.1% to GDP growth.
While capital has been the largest contributor to China’s GDP, the economy’s TFP performance has been impressive – something that cannot be explained by an extensive growth pattern. Indeed, Japan’s rate of TFP growth never reached such high levels, even at the country’s economic peak. Even Hong Kong – the East Asian economy with the best TFP performance – registered only 2.4% average annual TFP growth from 1960 to 1990.
But annual TFP growth is not the only relevant figure. China’s TFP has contributed 35-40% to GDP growth, compared to an estimated 20-30% in East Asia’s “four tigers” (Hong Kong, Singapore, South Korea, and Taiwan). As for the Soviet Union, even in its best years, TFP accounted for only about 10% of GDP growth.
Though China’s TFP contribution to GDP growth is much greater than in the other so-called “extensive” economies, it remains well below levels in the intensive US economy, where the figure exceeds 80% – a divergence that some might use to justify their refusal to define China’s economy as “efficiency-driven.” But this argument ignores the fact that China has been experiencing double-digit annual GDP growth, owing largely to capital expansion, while America’s annual GDP growth has averaged only 2-3%.
If transforming China’s growth pattern were simply a matter of increasing TFP’s contribution to GDP to US levels, China’s annual GDP growth would have to drop to below 5% – three percentage points lower than its potential growth rate. Given 8% GDP growth, TFP would have to grow 6.4% annually. This is almost certainly impossible, owing to the gradual diminution of the major drivers – including market-oriented economic reforms, the convergence effect on per capita income, and the adoption of foreign technologies – of China’s extraordinary TFP growth over the last 30 years.
All of this raises a simple question: Do extensive- or intensive-growth models really exist? Perhaps there is only fast versus slow, or extraordinary versus ordinary.
According to this view, if a developing economy can realize extraordinary growth, it must be because it offers greater opportunities for capital expansion than a developed economy. After all, investment opportunity is inversely proportional to per capita capital stock. On this point, Krugman is right: such investment-fueled growth is achieved largely through perspiration, rather than inspiration. But so what?
The fact that some of Asia’s most dynamic economies – including China, Japan, and the four tigers (Hong Kong, Singapore, South Korea, and Taiwan) – have experienced investment-propelled growth and improvements in TFP simultaneously can be explained by the fact that TFP gains increase investment returns, accelerating capital expansion further. Though further analysis is needed to elucidate the long-term relationship between capital expansion and TFP, it is clear that the long-accepted theory that they cannot co-exist is seriously flawed.
In short, when it comes to Asian economies, the dichotomy of extensive and intensive growth is a red herring. A far more meaningful consideration is what drove these TFP gains; understanding that would enable China’s leaders to design a more effective plan for strengthening the economy’s long-term growth prospects.
Zhang Jun is Professor of Economics and Director of the China Center for Economic Studies at Fudan University, Shanghai.

Thursday, January 09, 2014

Getting Old

In Shanghai, people come and go.
It's been some time since the old gang (Heather, Yunhua, Willie, Liwei) left and I guess a new gang is forming.

Was having coffee with the boys in the new gang last weekend and somehow ended up talking about getting old, about the fear girls have of getting old and remaining single and unmarried (which seems very likely for me right now zzz). Especially since I was watching that Taiwanese drama which had all these 初老症状.

It's time to do a stock take:
01、枕头旁边,电脑键盘旁边,出现一堆万金油、白花油、绿油精等提神药方

02、只要坐下来,小腹就有一滩肉

03、莫名其妙就会一大早醒过来 [2]

04、躺在沙发看八点档连续剧30分钟就会开始熟睡

05、对於没有结论的冗长会议充满厌恶

06、觉得自己快要被一堆密码淹没了!

07、对於年轻朋友不让座这件事情会非常介意

08、对於磁场不对的人,可以毫无牵挂的跟他说再见、再见、再见……

09、KTV热门点播排行榜的歌曲完全不会唱

10、以前可以唱KTV到天亮,现在只要熬夜一天,就会累一个礼拜

11、急於想加入facebook之类的网路活动,以免被年轻遗弃

12、如果不喃喃自语,脑子就会打结。

13、越近的事情越容易忘记,越久以前的事情反而越是记得

14、觉得五分埔与路边摊的T恤都是给纸片人穿的

15、以前烦恼青春痘,现在烦恼小细纹

16、除非参加清早晨运的甩手功或庙会朝山活动,否则很难找到比自己年龄大的聚会

17、对於陌生网友的「我们可以交朋友吗?」说法,觉得无比愚蠢而没有耐心

18、认识新朋友的速度与机率逐渐钝化

19、越来越觉得专家说法都是唬烂

20、如果一天没有吃绿色蔬菜就会觉得身体怪怪的

21、逐渐没有耐心替烂朋友收烂摊了

22、越来越不喜欢改变「已经习惯的习惯」

23、很讨厌在外面过夜,因为要带好多东西

24、不知不觉,随身携带温水壶和牙线棒

25、懒的交新朋友的原因,是因为懒的从头交代自己的人生

26、终於认清「老天爷真的很忙」!

27、每次看到某某歌手某某影星过世的消息,就要感叹一次,我们的时代过去了

28、总是把「重要的东西」放在「重要的地方」,然后把那个「重要的地方」彻底忘记

29、说你看过「东京爱情故事」,知道完治与莉香,周遭一片哗然

30、朋友们离婚的(数量/年度)开始超越结婚的(数量/年度)

31、对於星座、运势、紫微斗数、塔罗牌、两性专家与励志书,已经不感兴趣

32、参加告别式的机率比婚礼多,包白包的机会比包红包的机会多

33、再也不觉得年轻辣妹或帅哥是一种天上掉下来的幸福

34、以前糟蹋身体,现在被身体糟蹋

35、开始注意医药新闻,譬如银杏是不是可以预防老年痴呆

36、对於手机铃声开始感觉不耐烦

37、开始关心商品成分、制造商以及赏味期限。

38、最近有件事要告诉你,可是一看见你就全忘了

39、对路边的问卷部队非常有意见

40、对诈骗集团开始产生周旋的战斗力

41、逐渐喜欢到传统市场买菜

42、最讨厌听到「如果你不怎样,就不能怎样」这种威胁

43、在床上睡不著,起床看电视却立刻在沙发上打呼了起来。

44、不想起那个忘掉的名字绝不善罢干休

45、对於RAP一点好感都没有

46、一堆人喊你XX姊、XX哥,而你很想叫他们――闭嘴!

47、讨厌过生日这件事

48、在「不好意思」和「多争取就会赚到」两者间,渐渐倒向了后者

49、对超商的集点活动完全没兴趣

50、对完美起疑,对不完美深信不疑![3
 
30 more to hit the checklist.. am I really getting old?
My eyesight is deteriorating. My fats are accumulating. And the wrinkles are multiplying.
 
Time to hit the gym and the beauty salon..

Tuesday, January 07, 2014

I started last year, I remember, full of optimism, thinking for once I had a good idea how my future will pan out.

This year, I'm back to square one, starting the new year full of confusion and uncertainties, and not too sure how I'm going to walk on...