BEFORE:
- SOEs dominated eco
- Monopoly control over particular assets/mkts – inefficiently run
- Resources poorly allocated + governance arrangements weak (orgs susceptible to corruption)
AFTER:
- Restructuring + privatisation
- New legal frameworks + corporate governance practices that improved operation
- Efficiency gain achieved through corporatisation whereby incentives aligned to profits earned
Shares of SOEs in total eco: 78% GDP 1978 → 30% 2011
DRIVERS:
- Trade liberalisation to take advantage of comparative advantage in low-cost manufacturing + very large labour force
- Comply with mkt access + adherence to intellectual property rights
-
Lower tariffs on commodity from 25.3% avg. 1983 → 9.8%
- Bilateral agreements, ASEAN
- Previous deficits offset by large trade surpluses with USA + Europe
- World’s largest exporter 2010 – accounts for 10% global X
- X constitute 39.7% GDP in 2010
- Exporting partners: EU, US, Japan, Hong Kong, South Korea
- MNCs accounts for 54% China’s total X
- Reflects role China plays in processing of her intermediate goods + adding value to them
e.g. info + communications tech. (ICT) equipment
- TNCs minimal regulatory oversight
- Greenfield I (raise productive capacity of eco)
- US FDI mostly generated by takeovers of existing enterprises
- Expensive capital controls to encourage FDI rather than portfolio I
- First 9 months of 2010, China outbound I totalled $US 30.27 b
- 10.4% increase last year
- 19209 foreign invested enterprises approved to establish during 9 months of 2010 (17.5% increase from the last yr)
- Revaluation 2% (still undervalues 20-25%)
PROBLEMS:
- X driven growth model
- Creating structural imbalances, large CAS + implications of distribution of Y + wealth , inflation + environmental sustainability
- Restricts capital mobility
- Created barriers preventing migrant rural workers from seeking urban work
- Easier for rural workers to obtain work permits
- System significant impediment for some Chinese workers
Together, cost distortions ~7%. These are effectively a subsidy to Chinese producers + limits the effectiveness of mkts in allocating resources
Rapid Rates eco growth → Industrialisation → resource depletion → environmental degradation
-
2nd largest emitter of CO2, 6200 m tonnes in 2006
- 17% world GHG emissions
- 21 m tonnes sulphur each r
- Coal use rising 10%
- 20 m cases of respiratory illnesses 2007
- Air pollution, acid rain, water shortages, water pollution (untreated waste), desertification, soil erosion
- Provincial govt, exposed to incentives that favour rapid development
- Due to corruption at local level, it’s unclear how effective central govt. policies targets are in improving environmental outcomes
- 2009 – invested more than any other country on clean energy
- $US 34.6 B to develop renewable sources of energy
- Kyoto Protocol
- Significant fluctuations in consumer prices as a result of reforms of more open mkt eo
- Unprecedented expansion of household Y produced demand pressures contributing to inflationary pressures
- 1994 inflation peaked 27.7%
- 1994-2010 inflation avg. 4.25%
- Sustain CAS since WTO accession 2001 (5% GDP)
- Trade surplus – driven by X + capital controls to restrict capital outflows
-
Pegged e.r → purchase large amounts of foreign currency to achieve price stability
- Undervalues, manipulated currency to benefit Chinese exporters
IMPROVEMENTS
- Quality of life
- Citizens in poverty falling by avg 9.24 m/yr
- Work bank est. today <3% live below poverty line
- Gini Coefficient b/w 0.41 -0.47
- Driven by urban/rural divide
- Hukou household registration historically disadvantaged opp available to rural pop
- Those previously promised life time welfare support from gov. now left to support themselves – often with few skills/access to meaningful employment opp
-
Under president Hu Jintao govt. ‘Harmonious Society’ development vision – incorporates provision of social welfare e.g. healthcare, affordable housing in pursuit of humanistic society
- Minimising public dissatisfaction
30% pop: 87% Y, Urban: 3x more per capita Y
ECO DEVELOPMENT:
5 year plans devised to allow govt. to strategically plan + allocate resources across eco. Nowadays, used to present policy vision for short-medium term.
MARCH 2011 – ‘higher quality growth’
- Achieving annal GDP growth rate ~7%
- Inflation at 4%
- Increasing min. wages
- Increase retail sales of consumer goods by 16% Reduce Carbon intensity of GDP by 3.5%
INVESTMENT & TNCs
- New I expenditure to increase the productive capacity of eco e.g. building new factories + development of manufacturing industries
- Most of China’s FDI consist of the above, where it has a comparative adv. (US FDI – generated more by takeovers of existing enterprises)
- Strong growth in FDI inflow driven by TNC’s GI to take advantage of relatively cheap costs of production, tax benefits + minimal regulatory oversight
- Govt. has extensive capital controls to encourage FDI rather than portfolio I
- Early 1990s, FDI first came from Taiwan , then increasingly from other industrialised nations e.g. US, EU + other Asian countries
- Leading destination for FDI among developing nations
-
2nd largest recipient of FDI (behind US)
- 19209 foreign invested enterprises approved for establishment during first 9 months of 2010 – increase of 17.5% from last yr
- Upward trend in eco development from FDI:
- Increased employment opp
- Higher wages
- Lower prices from increased domestic comp
- First 9 months of 2010, China’s outbound ( excl. financial sector) totalled US$36.27b
- Represents 10.4% increase from last yr
- From this, 30.9% were acquisition for companies for Chinese ownership
- Demonstrates China’s progression from an FDI destination for low-cost production to an eco superpower with significant influence on world stage
FINANCIAL FLOWS
- Capital controls on stock mkt gradually removed
- Foreigners able to invest more freely in chinese companies
- Financial flows growing
- Undervalued Yuan (managed floating exchange rate system)
- Increases china’s X competitiveness (X relatively cheaper)
- China has largest foreign reserves in the world
- US$2.4 trillion 2009
TECHNOLOGY AND INTERNATIONAL DIVISION OF LABOUR
Taiwan as well as other Asian NIES experiences falling export competitiveness due to a rise in labour costs and the rapid development of China. Rising labour costrs have driven the reallocation of production from Taiwan to China. After the economics reform of China in 1978, Taiwan has been playing an important role in the Chinese eco. Taiwan started investing in China in the 1980s and accelerated the pace between the late 80s and the 90s.
Both Jpan and Taiwan, which developed high skill based industries, have invester their production into China and transferred their skill and technology to China. So have TNCs SEZs , bringing along transfer of western tech + receive management + marketing skills from MNCs.
Advanvements in modern tech. require high quality manufacturing and can be economically advantageous. The proper application of technology can yield significant cost savings with respect to both tooling and production costs.
WEALTH
Since 1978:
- Avg. Chinese Income had quadrupled
- 270 m Chinese lifted out of poverty
- 2.3 m people has assets >$84 000
INCOME
-
No. of people earning < $US1 a day feel from 260 m → few m in 2008
- Number of people below poverty line decreased to 42 m
- 700 m drink water contaminated with human + animal waste & below WHO standards
-
0.687 2011 HDI ← 0.404 1980 (101 in ranks)
-
Life expectancy : 63.2 yrs (1975) → 72.5 yrs (2005)
-
Adult literacy: 78.3 % (1975) → 90.9% (2005)
- Classified as upper income nation
INEQUALITY
URBAN vs rural, SOUTHERN vs Eastern + northern provinces
-
Gini index rose 0.30 1981 → 0.469 2008
- High Gini Index represent widening in Y inequality
- Creation of dualistic eco which creates inequality in distribution of Y + employment opp
- Largely concentrated in coastal regions – regional areas have been neglected
- Coastal areas have consistently experiences fastest growth
- Benefit from proximity to SEZ, where employment + Y opp are greatest
- Therefore, bulk to national Y is concentrated in metropolitan + coastal regions
- Urban households command 3x more per capita income than rural households although 60% china pop live in rural
- Rural areas have not share prosperity of urban areas
- Foreign I + trade attracted to only coastal destination
- Western + northern regions of China still exceptionally underdeveloped
Rapid rates of eco growth → industrialisation → resource depletion → environmental degradation
ENVIRONMENTAL PROBLEMS
- Loss of natural grassland + forests
- Expansion of agriculture + industry
- Increased competition from globalisation resulted in more intensive use + over utilisation of land for agricultural activity
- Loss of topsoil + subsequent desertification
-
Removal of vegetation → severe levels of erosion + loss of topsoil during sandstorms
- Inefficient irrigation systems
- Excess demand + low water supply
- China’s total lake area shrunk by 15% since the 50s
- Wetlands have shrunk by 26%
- Chinese authorities begum Three Gorges Project to overcome this problem + generate hydro electric power
- Inadequate disposal of household + industrial waste
- Sever levels of air pollution
- Use of coal rising by 10% over last 3 yrs
- Industrial boilers + furnaces are largest sources of air pollution
- World’s highest emissions of sulphur dioxide
- 21 m tonnes of sulphur emitted each year
-
C02 emissions were 6200 m tonnes in 2006 (2nd largest emitter of CO2)
- High incidence of respiratory diseases
- World’ highest rate of chronic respiratory disease
- 20 m cases of respiratory illness in 2007
- Outbreak of SARS + bird flu in 03-05 due to pollution, lack of health + hygiene standards
OECD found that up to 7% China’s annual GDP lost because of pollution could rise to 13% by 2020 if stronger environmental laws are not implemented + enforced
RESPONSE
- Banned logging domestic timber since 1999
- Passed environmental impact assessment in 2003
-
Increased spending on environmental protection from 0.8% GDP → 1.3 % GDP under the country’s 10th ‘5 yr plan’ running from 01-05
- Signed + ratified several int. environmental agreements:
- Antarctic-environmental Protocol
- Montreal Protocol (minimising ozone layer depletion)
- London Convention (preventing marine pollution by dumping)
- Kyoto Protocol (greenhouse gas emissions + climate change) (however, china has no bound targets)
- 2007- national climate change policy
- Increased proportion of electricity generation from renewable energy sources + nuclear power rather than solely relying on coal
- World Bank lent China $1.64 B for environmental projects
- Aim to effectively use infrastructure while conserving biodiversity + forests, reducing land pollution + improving sustainability of water supply
- China spent US$34.6 B to obtain renewable resources for its production facilities in 2009
- Invested more than any other country in clean tech.
LOBALISATION
-forefront in embracing globalisation
- emerged from recent financial crisis quickly + strongly
- Policy initiatives resulted in dramatically ↑ trade, I + financial flows boost in s.o.l.
- chinese eco still faces major challenges to sustain eco success
- Under close global scrutiny, Chinese govt. has taken steps to address major problems of environmental degradation + pollution, as well as, inequality b/w regions
- if govt. is successful in providing remedies for these growing problems, china will be on fast track to becoming world’s leading eco within next few decades
