China’s Growth:The Making of an

Economic Superpower

Linda Yuehwww.lindayueh.comTwitter @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

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Middle income country trap

Real Average GDP Growth and Institutional Reform

0

2

4

6

8

10

12

14

16

CRS

HRS

%

"Open door" policy

WTO membershipBRS

Stock markets established

Company Law passed

Private property recognised

5

China’s impressive growth

6

Growth drivers

7

8

9

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 state-owned sector

(4) Increase innovation, as imitation limits reached

(5) Continued opening, include firms “going global”12

13

(1) Re-balancing towards services

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

Shar

e o

f G

DP

(%

)

Primary Secondary Tertiary

Services

Industry

Agriculture

14

(2) Raise consumption as % GDP

30%

35%

40%

45%

50%

55%

15

(2) Address growth in savings

0%

10%

20%

30%

40%

50%

60%

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Government Households Firms

Sha

re o

f G

DP

(3) Reduce state sector?

16

State-owned enterprises

Private firms

(3) State-owned sector still important for jobs

17

(3) Notable productivity differences

0

20

40

60

80

100

120

140

160

180

200

2000 2001 2002 2003 2004 2005

1000 R

MB

SOEs Privatised SOEs Private firms Greater China JV Other JVs JVs with TT Greater China WOFE Other WOFE

JVs with TT

Greater China WOFE

Other WOFEOther JVs

Greater China JVs

SOEs

Privatised SOEs

Private firms

18

(3) Also in return on assets

19

0.000

0.200

0.400

0.600

0.800

1.000

1.200

2000 2001 2002 2003 2004 2005

SOEs Collectives Private sole proprietorships Private partnerships Private LLCs and incorporated firms

(4) Signs of innovationPatents & real GDP per capita (in 1990 RMB)

138

22588

45064

100156105345

114251

132399

182226190238

214003

853

1634

2647

3281

3534

3790

4101

4490

55135653

0

50000

100000

150000

200000

250000

1985 1990 1995 1999 2000 2001 2002 2003 2004 2005

Nu

mb

er

of

pat

ents

0

1000

2000

3000

4000

5000

6000

RM

B

Real GDP per capita

Patents granted

20

21

(5) China “going global”

Source: IMF.

Salter-Swan Model linking interest rate & exchange rate reforms

23

The next decades of reform

• 2020: Re-structuring the economy

• 2030: Productivity & innovation as growth drivers

• 2040: Stable & strong institutional foundations

China’s Growth:The Making of an

Economic Superpower

Linda Yuehwww.lindayueh.comTwitter @lindayueh