Table Of ContentCHINA’S SURGING ECONOMY
Adjusting for More Balanced Development
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Series on Contemporary China – Vol. 11
CHINA’S SURGING ECONOMY
Adjusting for More Balanced Development
Editors
John WONG
East Asian Institute, Singapore
Wei LIU
Peking University, China
World Scientific
NEW JERSEY • LONDON • SINGAPORE • BEIJING • SHANGHAI • HONG KONG • TAIPEI • CHENNAI
Published by
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Library of Congress Cataloging-in-Publication Data
China’s surging economy : adjusting for more balanced development / edited by John Wong
& Wei Liu.
p. cm. -- (Series on contemporary China ; Vol. 11)
Includes bibliographical references and index.
ISBN 978-981-270-627-0 (alk. paper)
1. China--Economic conditions--2000- 2. China--Economic policy--2000-
I. Wong, John, 1939- II. Liu, Wei, 1957-
HC427.95.C4567 2007
330.951--dc22
2007008710
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library.
Copyright © 2007 by World Scientific Publishing Co. Pte. Ltd.
All rights reserved. This book, or parts thereof, may not be reproduced in any form or by any means,
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Printed in Singapore.
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Chapte
Contents
Introduction 1
1 China’s Changing Economic Growth Modes in 9
Historical Perspective
Liu Wei and Cai Zhizhou
2 China’s Economic Growth in East Asian Context 31
John Wong
3 China’s 11th Five-Year Plan: A Critical Perspective 55
Tan Kong Yam
4 China in Search of New Sources of Growth 133
Wu Yanrui
5 Limited Catch-up and China’s Economic Growth 155
Yang Rudai and Yang Yao
6 Manufacturing Fragmentation and the Emergence 183
of China as a Trading Nation
Sarah Y. Tong
v
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vi Contents
7 China’s Central–Local Fiscal Disparity 203
Lin Shuanglin
8 China’s Banking System Reform: A Critical Survey 231
He Liping
9 China’s Capital Market Reform: Problem and Prospects 253
Lu Ding and Li Ning
10 Chinese Government Spending on Primary Education: 305
Inequality and Trend
Zhao Litao and Tan Soon Heng
11 China’s Demographic Dividend and Economic Growth 333
Wang Dashu
12 Problems and Prospects of China’s Health Reforms 349
Åke Blomqvist
Index 377
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Chapter
1
Introduction
I
On account of its successful economic reform and open-door pol-
icy, the Chinese economy has achieved spectacular performance
since 1979, growing at an average rate of 9.6 percent for over two
decades. China’s total GDP in 2006 reached US$2.3 trillion to be
ranked as the world’s fourth largest economy after USA, Japan, and
Germany. In PPP (purchasing power parity) terms, China’s total GDP
has rendered China’s economy as the world’s second largest after
the USA. Thanks to its dynamic export growth (China as the world’s
third largest exporting country after USA and Germany) and the
large influx of foreign capital (China as the world’s most attractive
destination for foreign direct investment), China’s economy has also
been rapidly integrated with the global economy. In fact, China has
become the world’s foremost manufacturing center.
A few years ago, China’s economic growth had only impacted its
neighboring economies in East Asia. Today, China’s economic growth
1 The authors would like to thank Miss Zheng Yi, Research Officer at EAI, for her
assistance in preparing the summary of the book chapters. They also appreciate the
efforts of Dr Yang Mu, Senior Visiting Research Fellow at EAI, in organizing the
EAI-BEIDA conference and managing the production of this book.
1
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2 Introduction
has, beyond doubt, produced significant global implications. By its
sheer size, China’s high levels of production, consumption, and imports
and exports carry world-wide ramifications. Thanks to its persistent
twin surpluses (on both current and capital accounts), China has
accumulated massive foreign reserves (at US$1 trillion by the end of
2006), which is another telling evidence of China’s growing financial
clout. Every important financial market in the world has started to
watch the movement of the Chinese Renminbi (yuan). In a larger
sense, China’s economic rise can be a new source of global eco-
nomic growth as well as a new force of global economic integration.
At the same time, it can also aggravate the existing global economic
and financial imbalances.
An immediate question can be posed: Is China’s dynamic
growth sustainable? It is, of course, not possible for any economy to
repeat such phenomenally high growth rates year after year without
getting overheated or running into constraints. But considering the
historical process of East Asian growth and China’s own structure of
economic growth (from both supply and demand sides), one can be
easily optimistic about China’s prospects of continuing its high
growth in the near future.
However, the Chinese economy today is at a critical crossroads.
Long periods of breakneck growth have given rise to a lot of struc-
tural strains and stress as well as serious sectoral imbalances that
have to be rectified if the growth momentum is to be maintained.
China’s economic growth has been blatantly urban-biased, and its
growth engine is excessively dependent on fixed investment and
exports at the expense of domestic consumption. Hence the need to
re-balance its economic growth structure. Rapid economic growth
has also generated many serious socio-economic problems such as
rising income inequality and rural discontent, which, if left unre-
solved, could well undermine the social foundation of its future eco-
nomic growth.
Long-term growth is not just about rapid GDP increases. It is
also concerned with the crucial issue of “growth sustainability.”
Viewed from a different angle, this is about the pattern of future
growth, which has to be not just politically and socially acceptable,
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Introduction 3
but also physically feasible. The latter means that China’s future eco-
nomic growth needs to take into account the many negative exter-
nalities such as environmental degradation and air and water
pollution that the growth process has created as unintended conse-
quences. Because of the immense scale of China’s industrialization
(which is the largest in human history), such physical limits to its
economic growth cannot be ignored.
After more than two decades of rapid economic modernization
that was unleashed by Deng Xiaoping’s economic reform initiatives
in late 1978, China’s economy today with its per-capita GNP around
US$1,800 (soon to breach the US$2,000 level by the combined
forces of both economic growth and Renminbi appreciation) has
reached what the World Bank used to categorize as a lower-middle-
income economy. Rapid economic growth has made it possible for
China to realize the initial phases of Deng’s notion of Xiaokang
(moderate affluence), satisfying the basic needs of a large number of
the Chinese people, particularly those in the coastal provinces. At
the same time, it has created many problems that are indeed crying
out for attention. It is therefore high time for China to fix those
development problems before it embarks on the next lap of high
growth.
The current Chinese leadership under Hu Jintao and Wen Jiabao
is very much aware of the enormous challenges that China is facing
for sustaining its economic growth. At the 5th Party Plenum held in
October 2005, the 11th Five-Year Plan was adopted, calling for a
redirection of China’s past growth-dominated development strate-
gies to one that is more broad-based and more “balanced,” and
hence more “sustainable” in the long run. Needless to say, structural
adjustment for any economy is a long-term undertaking. It is also
not easy for any government to effectively deal with so many socio-
economic by-products of its past rapid economic growth as these
too requirelong-term solutions.
Rhetoric apart, what is happening now is that the Hu-Wen lead-
ership still counts on maintaining a high level of economic growth
as the best means of tackling those challenges, partly because rapid
economic growth facilitates faster structural adjustment and partly
