U – Chinese Economy Strong
Unq - China Economy Strong
Chinese economy still on the rise – recent Brexit and increased demand for Chinese products.
Dollar, senior fellow with the Foreign Policy and Global Economy and Development programs at Brookings Institution, 2016 (David, “Brexit aftermath: The West’s decline and China’s rise,” Brookings Institution, June 27, 2016, http://www.brookings.edu/blogs/order-from-chaos/posts/2016/06/27-brexit-aftermath-chinas-rise-dollar, accessed July 13, 2016) DDI-BL
Brexit has little direct effect on the Chinese economy though it does increase the risk of financial volatility. In the long run it is hard to see it as anything but a plus for China as the West continues to decline and China continues to rise. In the immediate aftermath of the Brexit vote, stock markets all over the world tanked. The interesting exception was China: The Shanghai market fell 1 percent on Friday and then more than recovered it on Monday. In the short run, Brexit is a modest negative as Europe’s gross domestic product (GDP) and trade are likely to grow less rapidly, and the EU is China’s largest trading partner. But the Chinese economy is simply not that export-oriented anymore. In the aftermath of the global financial crisis, the contribution of net exports to China’s GDP growth has averaged around zero. China initially made up for lost external demand with a massive stimulus program aimed at investment. This has now led to excessive capacity in real estate, manufacturing, and infrastructure. As a result, investment growth is slowing (see figure below). But China’s GDP growth has held up well because consumption is now the main source of demand. It consistently delivers more than 4 percentage points of GDP growth and its contribution has been on an upward trend. China has developed a virtuous circle in which wages are rising at a healthy rate (more than 10 percent over the past year), consumption is growing, consumption is mostly services so the service sectors expand, and they are more labor-intensive than industry so sufficient jobs are created to keep the labor market tight. There are plenty of things that could go wrong, but maintaining consumption is the big challenge for China, not the external sector. Another feature of China’s new growth pattern is that there is a steady outflow of capital as investment opportunities at home diminish. The U.K. had been one of the favored destinations for China’s outward investment, seen as a welcoming location that could be used as a jumping off point for the rest of Europe. Chinese firms will now need to rethink that strategy but this should not be too difficult an adjustment. The United States has been the destination for the largest share of China’s overseas investment and it is likely that that trend will strengthen in the wake of Brexit.
Chinese economy stable now – projected to be World’s largest net creditor in few years.
Dollar, senior fellow with the Foreign Policy and Global Economy and Development programs at Brookings Institution, 2016 (David, “China as a Global Investor,” Brookings Institution, May 2016, ASIA WORKING GROUP PAPER 4, https://doc-00-4s-docs.googleusercontent.com/docs/securesc/ha0ro937gcuc7l7deffksulhg5h7mbp1/3ea45g1he2u9k6f6um2iifrobg787vij/1468418400000/04723066757645256078/*/0B6fTJDPmlpkObDg1c1dwTzlIeXM, accessed July 13, 2016) DDI-BL
China’s economic rise is one of the factors creating strains in the inter- national nancial order. China is already the largest trading nation and the second largest economy, and likely to emerge in the next few years as the world’s largest net creditor. Currently in second place, China had an estimated $2.4 trillion in net foreign assets by the end of 2015, compared to Japan’s $3.6 trillion. Increases in net foreign assets come through cur- rent account surpluses. In the four years ending in 2015, China’s cumu- lative current account surpluses amounted to about $1 trillion, far larger than Japan’s $200 billion. If those trends continue, it is simple arithmetic that China will become the largest net creditor around 2020. While China is already the second largest net creditor, the pattern of its external assets and liabilities is unusual. In mature creditors such as Ger- many and Japan, most of the foreign assets are held by private companies and households. In China, on the other hand, the most important foreign asset has been international reserves accumulated by the central bank, mostly invested in U.S. Treasury bonds and similar instruments. In the last couple of years, however, this pattern has started to change. China’s reserves peaked at about $4 trillion at the end of 2014. Since then, the People’s Bank of China has sold some reserves, but the country as a whole is still accumulating net foreign assets as evidenced by the large current account surplus. What is new is that the overseas asset purchases are coming from the private sector and state enterprises, not from the official sector. e Institute for International Finance estimat- ed that the net private capital outflow from China was $676 billion in 20151 (that estimate includes outward investments by China’s state enter- prises which strictly speaking are not “private”; the point is to distinguish between official holding of foreign assets at the central bank and more commercial transactions). As investment opportunities diminish in Chi- na, owing to excess capacity and declining pro tability, this commercial outflow of capital from China is likely to continue at a high level.
Unq - China Economy Strong – AT: Stock Market
Despite recent stock market collapse China’s growth is still strong
Kroeber, Nonresident Senior Fellow of Foreign Policy at Brookings-Tsinghua Center, 2016 (Arthur R., “Should we worry about China’s economy?,” The Brookings Institution, February 09, 2016, http://www.brookings.edu/research/opinions/2016/02/09-worry-about-chinese-economy-kroeber, accessed July 15, 2016) DDI-BL
Just how much economic trouble is China in? To judge by global markets, a lot. In the first few weeks of the year, stock markets around the world plummeted, largely thanks to fears about China. The panic was triggered by an 11 percent plunge on the Shanghai stock exchange and by a small devaluation in the renminbi. Global investors—already skittish following the collapse of a Chinese equity-market bubble and a surprise currency devaluation last summer—took these latest moves as confirmation that the world’s second-biggest economy was far weaker than its relatively rosy headline growth numbers suggested. In one sense, markets overreacted. China’s economy grew by 6.9 percent in 2015; financial media headlines bewailed this as “the lowest growth rate in a quarter century,” but neglected to mention that this is still by a good margin the fastest growth of any major economy except for India. Even at its new, slower pace, China continues to grow more than twice as fast as developed economies. Some doubt the reliability of China’s economic statistics, of course, but most credible alternative estimates (based on hard-to-fake indicators of physical output) still suggest that China is growing at around 6 percent, and that if anything there was a slight pickup in activity in late 2015.
Unq. – China Soft Landing
Chinese government will intervene to create a soft landing
Reuters ’16 (Reuters, March 13 2016, China Central Bank Adopts Flexible Monetary Policy, Fortune.com, http://fortune.com/2016/03/13/china-central-bank-monetary-policy/)//EM
The goal is to counter possible economic shocks while maintaining growth. China will keep its monetary policy flexible to help counter possible economic shocks but will not resort to excessive stimulus steps to bolster growth, central bank govern Zhou Xiaochuan said on Saturday. The central bank is trying to keep liquidity flush to support the economy and cushion it from impact of structural reforms, but officials have cautioned against excessive loosening that could increase downward pressure on the currency. “If there are big changes in domestic and global environment, we will keep the flexibility in monetary policy to counter shocks,” Zhou told a news conference on the sidelines of China’s annual parliament session in Beijing. Yi Gang, a vice central bank governor, told the same briefing that he expected China to achieve its annual economic growth target this year. The government has set a growth target of 6.5% to 7% for in 2016 with a spate of soft data pointing to further weakness at the start of the year as authorities struggle to counter the impact of the slowdown. The world’s second-largest economy expanded an annual 6.9% in 2015, its slowest pace in 25 years. “It’s not necessary to take excessive stimulus to achieve the (growth) target,” Zhou said. Under the banner of “prudent” monetary policy, the central bank has cut interest rates six times since November 2014 and has also cut the amount of cash banks must hold as reserves. Analysts anticipate further monetary policy easing in the coming months, although the government may lean more on increased fiscal spending and tax cuts to support growth. Zhou also said that China’s housing market is facing big destocking pressures and it should let local governments play a bigger role in stabilizing the market. China’s housing market, which accounts for around 15% of the economy, began to stabilize in big cities last year, helped by a slew of government measures. Still, the recovery remains uneven across the country as small cities still face huge inventories of unsold homes, while authorities in some big cities have already announced measures to cool the market. To boost the housing market, China cut down payments last month for first- and second-time home buyers and lowered transaction taxes for some home buyers.
China growth sustainable – soft-landing now.
The World bank, 2012 (Development Research Center of the State Council, the People’s Republic of China , “China 2030: Building a Modern, Harmonious, and Creative Society,” The World Bank, February 27, 2012, http://www.worldbank.org/content/dam/Worldbank/document/China-2030-complete.pdf, accessed Jul 13, 2016) DDI-BL
Prominent projections of China’s future potential growth bracket this range of growth rates, suggesting that high-income status by 2030 is achievable. For example, Lin (2011) argues that China could still grow at around 8 percent a year over the next 20 years, based on a comparison with the performance of Japan, Republic of Korea, and Taiwan, China, over periods when their per capita GDP rela- tive to that of the United States was similar to that of China today. In a recent multicountry review of growth performance, Eichengreen, Park, and Shin (2011) project China to grow by 6.1 to 7.0 percent a year in the 2011–20 decade and by 5.0 to 6.2 percent a year over 2021–30. Finally, Lee and Hong (2010) fore- cast average growth over the period 2011–30 of 5.5 percent under a “baseline” scenario and 6.6 percent under a “reform” scenario. Our own projections (given later) imply aver- age growth of 6.6 percent over the next 20 years under a reform scenario, also suggesting that such a target is within reach.
Chinese Economic Dominance Inevitable
China is the dominant global economy.
Stiglitz 14 (Joseph E., 12/31/14, American economist and professor at Columbia University, “China has Overtaken the U.S. as the World’s Largest Economy,” Vanity Fair, http://www.vanityfair.com/news/2015/01/china-worlds-largest-economy, accessed 7/15/16 – DDI SP)
When the history of 2014 is written, it will take note of a large fact that has received little attention: 2014 was the last year in which the United States could claim to be the world's largest economic power. China enters 2015 in the top position, where it will likely remain for a very long time, if not forever. In doing so, it returns to the position it held through most of human history. Comparing the gross domestic product of different economies is very difficult. Technical committees come up with estimates, based on the best judgments possible, of what are called "purchasing-power parities," which enable the comparison of incomes in various countries. These shouldn't be taken as precise numbers, but they do provide a good basis for assessing the relative size of different economies. Early in 2014, the body that conducts these international assessments—the World Bank's International Comparison Program—came out with new numbers. (The complexity of the task is such that there have been only three reports in 20 years.) The latest assessment, released last spring, was more contentious and, in some ways, more momentous than those in previous years. It was more contentious precisely because it was more momentous: the new numbers showed that China would become the world's largest economy far sooner than anyone had expected—it was on track to do so before the end of 2014. The source of contention would surprise many Americans, and it says a lot about the differences between China and the U.S.—and about the dangers of projecting onto the Chinese some of our own attitudes. Americans want very much to be No. 1—we enjoy having that status. In contrast, China is not so eager. According to some reports, the Chinese participants even threatened to walk out of the technical discussions. For one thing, China did not want to stick its head above the parapet—being No. 1 comes with a cost. It means paying more to support international bodies such as the United Nations. It could bring pressure to take an enlightened leadership role on issues such as climate change. It might very well prompt ordinary Chinese to wonder if more of the country's wealth should be spent on them. (The news about China's change in status was in fact blacked out at home.) There was one more concern, and it was a big one: China understands full well America's psychological preoccupation with being No. 1—and was deeply worried about what our reaction would be when we no longer were.
China is now to become largest economy by 2030 – impressive GDP growth and largest exporter of the world.
The World bank, 2012 (Development Research Center of the State Council, the People’s Republic of China , “China 2030: Building a Modern, Harmonious, and Creative Society,” The World Bank, February 27, 2012, http://www.worldbank.org/content/dam/Worldbank/document/China-2030-complete.pdf, accessed Jul 13, 2016) DDI-BL
By any standard, China’s economic per- formance over the last three decades has been impressive. GDP growth aver-aged 10 percent a year, and over 500 million people were lifted out of poverty. China is now the world’s largest exporter and manu- facturer, and its second largest economy. Even if growth moderates, China is likely to become a high-income economy and the world’s largest economy before 2030, not- withstanding the fact that its per capita income would still be a fraction of the aver- age in advanced economies.
China’s economic power and legitimacy are growing.
Stiglitz 14 (Joseph E., 12/31/14, American economist and professor at Columbia University, “China has Overtaken the U.S. as the World’s Largest Economy,” Vanity Fair, http://www.vanityfair.com/news/2015/01/china-worlds-largest-economy, accessed 7/15/16 – DDI SP)
On another level, the emergence of China into the top spot matters a great deal, and we need to be aware of the implications. First, as noted, America’s real strength lies in its soft power—the example it provides to others and the influence of its ideas, including ideas about economic and political life. The rise of China to No. 1 brings new prominence to that country’s political and economic model—and to its own forms of soft power. The rise of China also shines a harsh spotlight on the American model. That model has not been delivering for large portions of its own population. The typical American family is worse off than it was a quarter-century ago, adjusted for inflation; the proportion of people in poverty has increased. China, too, is marked by high levels of inequality, but its economy has been doing some good for most of its citizens. China moved some 500 million people out of poverty during the same period that saw America’s middle class enter a period of stagnation. An economic model that doesn’t serve a majority of its citizens is not going to provide a role model for others to emulate. America should see the rise of China as a wake-up call to put our own house in order.
Shift to Chinese economic and currency dominance imminent
Subramanian 11 [Arvind Subramanian, September 2011, senior fellow jointly at the Peterson Institute for International Economics and the Center for Global Development, was assistant director in Research Department of IMF, also wrote many other books, “Eclipse: Living in the Shadow of China’s Economic Dominance” Peterson Institute for International Economics, P.99-101,104]
Having described and quantified the determinants of economic and currency dominance in chapters 2 and 3, respectively, and having projected the future evolution of these underlying determinants over the next 20 years in chapter 4, this chapter projects the course of future economic and currency dominance. In particular, the chapter examines the basis for the view that economic power might be shifting, as it did in the early 1900s. Back then, the United Kingdom was losing its imperial sway to the economic powerhouse of the United States. The question is whether a similar and imminent transition is under way from the United States toward China both in terms of economic dominance and reserve currency status. The main conclusion is not just that there is indeed such a shift but that the shift away from the United States toward China is more imminent, more broad-based, and greater in magnitude than is currently anticipated or contemplated. Indeed, reasonable projections suggest that the relative economic dominance of China by 2030 could resemble that of the United Kingdom around 1870 or the United States in the aftermath of World War II. A similar conclusion emerges in relation to currency dominance: The renminbi could rival or even overtake the dollar as the primary reserve currency as soon as the early years of the next decade. Whether this happens will depend to a large extent on whether China maintains a reasonable amount of growth momentum. Chapter 3 suggested that the index of economic dominance presented here appears to pass the smell test in terms of its ability to track the history of such dominance since 1870. Even Germany, Russia, and Japan make their brief appearance and quick retreats at the relevant points in time. The important next question is: What does the index reveal for the future leading to 2030? Recall that chapter 4 generated projections under a "convergence" scenario for economic size and trade for 2030, so I have most of the numbers to project the index. How, though, does one project countries' future creditor/ debtor positions, or more specifically, their future current account balances? There is no theoretically satisfactory or empirically well-established basis for projecting this variable. In fact, as noted in Prasad, Rajan, and Subramanian (2008), actual net flows of capital in the last decade have been perverse in defying the theoretical prediction that they should flow from rich to poor countries. Instead of theory, I rely on the IMF's latest projections for current account positions for the period from 2010 to 2015. It is assumed that these numbers will persist through 2020. For the period beyond, I make an assumption that has the effect of understating China's possible economic dominance in the future. It is assumed that for the period 2020-30, China will on average post a current account surplus that will be considerably reduced from today's levels. Specifically, in the second decade of the projection, it is assumed that China will get close to following Polonius's advice to "neither a borrower or lender be" to the rest of the world, and post an average surplus of 2 percent of GDP. This is based on one reading of Chinese policy intentions described in detail in chapter 4, namely that China will move toward internationalization of the renminbi. If this is correct, it would necessarily imply opening up China's capital account, reversing the repression of its financial sector, and hence an appreciation of the currency. With a currency that is forced co be flexible, it is likely that China's current account surplus will be considerably reduced over the 20-year horizon.1 Figures 5.1 and 5.2, which are based respectively on the IMF and reserve currency weighting schemes, suggest a dramatic possibilicy.2 They portray a picture by 2030 not of relative American decline leading to a multipolar world, but of a near-unipolar world with Chinese economic hegemony. The first reason is that in 2030 economic size will have shifted dramatically in favor of China which will account for nearly 20 percent of world GDP (average of PPP and rr:arket exchange rate shares) compared with 14.5 percent for the United States (table 5.1). Note that China's per capita GDP will be about half that of the United States by 2030 (in sharp contrast to the belief that China will remain extremely poor). The second reason is that China, according to the gravity projections presented here, will account for 15 percent of world trade-twice that of the United States (table 5.2). And, by assumption, the projections have understated China's dominance from net creditor status (table 5.3). Appendix SA shows that these results are robust to alternative weighting schemes. Three points are worth underscoring. First, if these projections are reasonably accurate and if the index is plausible, Chinese ascendancy is much more imminent that currently believed. Indeed, on one measure of dominance (figure 5.2), China has already surpassed the United States, with the gap between the two rising rapidly over time. Second, China's ascendancy will be much more broad-based than recognized. China will be larger than the United States and other countries in power. The weighting scheme will matter little because on all the underlying attributes, China will be ahead of the United States (appendix SA shows that the projection on dominance for 2030 is robust to different weighting schemes).3 Third, in terms of not only timing and scope but also magnitude, the gap between China and its closest competitor-the United States-could be far greater than currently supposed.4 Joseph Nye's (2010, 2) invocation of the National Intelligence Council, which he cites as projecting that in 2025, "the U.S. will remain the preeminent power, but that American dominance will be much diminished" seems an unduly optimistic assessment of US economic prospects. The estimates here suggest that the gap between China and the United States will be similar to that between the United States and its rivals in the heyday of American hegemony in the mid-1970s (approaching the magnitude of American dominance circa 1950), and greater than that between the United Kingdom and its rivals during the halcyon days of empire.
Unq - China Growth Sustainable
Even if Chinese domestic issues disturb Chinese growth, Chinese economy will still grow significantly for a long period of time.
Kroeber, Non-resident Fellow of Foreign Policy at Brookings Institution, 2012 (Arthur R., “Bear in a China Shop,” Brookings Institution, May 22, 2012, http://www.brookings.edu/research/opinions/2012/05/22-china-economy-kroeber, accessed July 13, 2016) DDI-BL
Time and again, China has defied the skeptics who claimed its unique mixed model—an ever-more market-driven economy dominated by an authoritarian Communist Party and behemoth state-owned enterprises—could not possibly endure. Today, those voices are louder than ever. Michael Pettis, a professor at Peking University's Guanghua School of Management and one of the most persistent and well-regarded skeptics, predicted in March that China's economic growth rate "will average not much more than 3% annually over the rest of the decade." Barry Eichengreen, an economist at the University of California, Berkeley, warned last year that China is nearing a wall hit by many high-speed economies when growth slows or stops altogether—the so-called "middle-income trap." No question, China has many problems. Years of one-sided investment-driven growth have created obvious excesses and overcapacity. A weaker global economy since the 2008 financial crisis and rapidly rising labor cost at home have slowed China's vaunted export machine. Meanwhile, a massive housing bubble is slowly deflating, and the latest economic data is discouraging. Real growth in GDP slowed to an annualized rate of less than 7 percent in the first quarter of 2012, and April saw a sharp slowdown in industrial output, electricity production, bank lending, and property transactions. Is China's legendary economy in serious trouble? Not just yet. The odds are that China will navigate these shoals and continue to grow at a fairly rapid pace of around 7 percent a year for the remainder of the decade, overtaking the United States to become the world's biggest economy around 2020. That's a lot slower than the historical average of 10 percent, but still solid. Considerably less certain, however, is whether China's secretive and corrupt Communist Party can make this growth equitable, inclusive, and fair. Rather than economic collapse, it's far more likely that a decade from now China will have a strong economy but a deeply flawed and unstable society.
Economic reforms ensure sustainable Chinese growth.
Huang et al 13 [Yiping Huang, China Center for Economic Research, Peking University, Cai Fang, Institute of Population and Labor Economics, Peng Xu, China Center for Economic Research, Peking University, Gou Qin, China Center for Economic Research, Peking University, “China: A New Model for Growth and Development,”Ch. 3 The New Normal of Chinese Development, P. 36]
This chapter argues that important changes to the Chinese growth model are already underway. Evidence shows that the Chinese economy is transitioning toward the ‘new normal’, involving slower but more sustainable economic growth, although this process is still at an early stage (Huang 2012). Growth potential probably lowered from ten per cent during the first decade of the twenty-first century, to six–eight per cent during the second decade. In the meantime, current account surplus narrowed significantly; the consumption share of GDP started to rebound; and even income distribution began to improve steadily.1 Second, we suggest that the primary drivers of the transition of the growth model are changes in factor markets, especially labour market changes. China’s economic reform approach is sometimes described as ‘asymmetric liberalisation’, which freed up the product markets but continued with distortions in the factor markets (Huang 2010). Such cost distortions included such examples as subsidies to the corporates, but taxes on households, which contributes to the imbalance, and inequality and inefficiency problems, as well as strong economic growth (Huang and Tao 2010; Huang and Wang 2010). Emerging labour shortages and associated rapid wage increases in recent years are largely responsible for the current transition to the ‘new normal’, with slower growth but more balanced structure. And, third, we make some policy recommendations for the Chinese economy to complete transformation of the growth model and to avoid the ‘middleincome trap’. The next-step reforms should focus on redefining the relationship between the government and the market. The first is to complete the transition to a market economy by liberalising the factor markets. The second is to establish macroeconomic policy frameworks that are compatible with emerging market economies. And the third is to change the government’s role from directly supporting production and investment to facilitating innovation and upgrading. The Chinese economy has shown significant transformation in recent years, including the steady downward shift of trend growth and rebalancing of economic structure. Some structural changes, such as narrowing of the current account surplus, are well documented in official statistics. Some improvements, such as rising share of consumption in GDP, are not captured by the official data.
China will transition from an expansion economy to a sustainable modern economy
Garnaut, Fang and Song 13 [Ross Garnaut, University of Melbourne, Cai Fang, Institute of Poplation and Labour Economics, and Ligang Song, Crawford School of Public Policy, 2013, “China’s New Strategy for Long-term Growth and Development: Imperatives and Implications” China: A New Model for Growth and Development P.1-]
The Chinese economy is undergoing profound change in policy and structure. The change is necessary to increase the value of growth to the Chinese community, and to sustain growth into the future. The change is being driven partly by economic pressures that are emerging naturally from successful economic development, as labour scarcity and rapid increases in real wages change patterns of resource allocation, income distribution, environmental impact, and rates of economic growth, savings, investment and international capital flows. These changes that have emerged from the success of old patterns of growth are being reinforced by changes in national policy to secure more equitable income distribution, and less damaging impact on the domestic and international environment. The changes are so comprehensive and profound that they add up to a new model of Chinese economic growth. This book describes the replacement of an old, uninhibited investment expansion model of growth, by transition to modern economic growth. The book presents the results of recent research on various aspects of the transition to modern economic growth. The chapters that follow provide insights into recent changes and where they are likely to lead. They bring out some of the implications of change for China’s interaction with the international economy. Once an economy has stepped onto the escalator of modern economic growth it never stays still. China has been undergoing restless change at a dazzling pace since Communist Party decisions in 1978 committed the country to a path into market-oriented reform and integration into the international economy. Change has been continuous and rapid. Every year of the reform period has thrown up new barriers to economic progress, new policy challenges, new solutions to some old problems and new patterns of economic activity. But while change has been continuous, if we stand back and look at the reform period as a whole, we can identify three broad periods, each requiring policy and structural transitions before it could give a new shape to development. The first is the era of strong growth in agricultural and rural incomes, roughly from 1978 to 1984. The second is uninhibited investment expansion from 1985 to 2011. The third is the transition to a modern economy, which commenced in 2012. Two innovations in economic institutions underpinned the era of strong growth in agricultural and rural incomes: the replacement of the rural People’s Communes by the Household Responsibility System; and the rise of township and village enterprises out of the redundant structures of the People’s Communes. Institutional changes were supported by adjustments to agricultural pricing arrangements that improved farmers’ terms of trade. The increases in incomes and their equitable distribution throughout China during this period provided the political and economic foundations for general market-oriented reform as well as the springboard for far-reaching reform of urban economic institutions. Many other changes were occurring during the era of strong growth in agricultural and rural incomes that supported wider economic reform and transformation in later years. The reforms to foreign trade and investment, the financial system and enterprise governance that became important from the mid 1980s had long incubations. More fundamentally, the rehabilitation of the education and research systems after the Cultural Revolution and the farreaching changes of Communist Party and state personnel were preconditions of future economic change. That change took the form of transition from the mid 1980s into a long period of uninhibited investment expansion, which continued until about 2011. Urban and industrial investment were given priority and the investment share of output grew from high to higher levels to unprecedented rates at around 50 per cent of output late in the first decade of the new century. This period was associated with high and rising savings as a proportion of income; the commitment of a high proportion of those savings in domestic investment; rapid expansion of industrial production through absorption of large numbers of rural migrants at wages that increased less rapidly than labour productivity; increasing focus on industrial exports—at first technologically simple and labour-intensive but with more complex and capital-intensive elements becoming an increasingly important part of the mix over time; intensive use of metals and energy; and, increasingly damaging domestic and global economic impacts. Uninhibited investment expansion involved rapid catching up from a low starting point with the capital intensity and technology of the advanced countries. It was built around deep and deepening integration into global markets for goods, services, capital and knowledge. The several features of uninhibited investment expansion were mutually supporting. Rapid industrial expansion and a steady real wage rate increased profits, and the savings share of income in turn supported high and increasing levels of investment and rapid economic growth. Uninhibited investment expansion 1985–2011 had several subplots. A major focus of the early years (1985–1992) was the search for an ideological and political basis for internationally oriented growth. Collective enterprises—the township and village enterprises—were the locus of the most rapid industrial, output and employment growth in the early years. From 1992, that mantle passed to the private economy—some of which was formed through the privatisation of what had been collective enterprises. The rapid increase in the private share of economic activity through the 1990s was arrested by the re-emergence in central roles in economic growth of large-scale, state-owned enterprises (SOEs) in the first decade or so of the 21st century— underpinned by the huge Keynesian fiscal and monetary expansions that were crucial to China quickly restoring growth momentum when it was challenged by the Asian Financial Crisis (1998–1999) and then the Global Financial Crisis (2008–2009). Uninhibited investment expansion was extraordinarily productive. Output increased by an average of slightly more than 10 per cent per annum, with no weak periods from 1992 to 2011. This was the strongest sustained growth in history, exceeding the extraordinary postwar expansion of Japan to 1973 in average strength. Uninhibited investment expansion took Chinese average incomes (once they were measured correctly) from low levels into the ranks of middle-income countries. China came to have the world’s largest total savings and surplus savings for international investment and the world’s largest exports. It was (and remains) on a path to be the world’s largest economy within a few years (PPP) or by end of the decade (national accounts at ruling exchange rates). Despite, and because of, its achievements, uninhibited investment expansion was approaching economic, social and political limits through the first decade of the 21st century. Amongst the signs of approaching economic limits, average output and income per person were nearing the levels at which other north-east Asian economies had experienced change in patterns and rates of growth. Per capita income in real purchasing power at the end of the first decade in the new century was similar to that in Japan a few years before its step down from high to moderate growth in the mid 1970s. From about 2004, as China entered the turning period of economic development, the old growth model began to be challenged by increases in wages in excess of productivity. This development was reinforced when the work-age population began to decline in 2012. The international economic environment became less benign for the old growth model. While China’s huge current account surplus (over 10 per cent of GDP in 2007) had allowed other countries, especially the United States, to maintain growth while implementing other policies that would have brought it to an end, the great financial crisis of 2008 encouraged criticism of Chinese surpluses. Tepid growth in the old industrial countries after the financial crisis diminished opportunities for rapid expansion of exports, although continued growth in developing markets allowed some refocusing of China’s geographic focus in trade expansion. Uninhibited investment expansion was also approaching social and political limits towards the end of the first decade of the 21st century. The increase in income inequality between rural and urban residents and between workers and owners of capital and privileged positions in government and economy became the focus of increasing comment and tension. The mandatory purchase of peasants’ land for urban development, which was a feature of uninhibited investment expansion, was increasingly controversial. International concern about China’s increasing contribution to the build-up of concentrations of greenhouse gases in the atmosphere broke out as diplomatic tension at the Copenhagen meeting of the United Nations Framework Convention on Climate Change in December 2009. Increasing community concern about health and amenity impacts of domestic pollution reached a crescendo in early 2013. Longstanding community concern over corruption within government was explicitly identified as a potential source of political instability by party and state leaders in 2012 and early 2013, and the old model of economic development was recognised as being conducive to corrupt use of public office. For all of these reasons, the need to move to a new model of economic development—to make the transition to an advanced modern economy—began to be discussed with increasing purposefulness amongst Chinese scholars and thoughtful officials from around the middle of the first decade of this century. It was not that uninhibited investment expansion was exhausted; it could continue to add to economic output at a rapid rate for a few more years. But there would have to be transition to a modern economy at some time in the near future, and leaving it too late would increase the strains and costs of change As several contributors to this book observe, economic forces and, especially, the turning period in the labour market have been driving structural change with increasing force since about 2004. Alongside this structural change, driven by rising real wages and real exchange rates, policy adjustments to reinforce change were discussed with increasing purpose within the Chinese policy community and, in due course, within high echelons of government. So, China entered the third major transition of the reform era, the transition to an advanced or modern economy. The transition to an advanced economy is characterised by the gradual fall in the share of GDP represented by industrial investment and urban infrastructure, heavy investment in education and upgrading of the quality of education, expansion of the consumption and the services shares of expenditure, reform and improvement of the legal and institutional bases for an advanced market economy, and rapid structural change to technologically sophisticated industry with a much larger proportionate place for services. All of the standard sources of growth are affected by these changes. The labour contribution to growth is markedly lower, and the contribution of capital intensification moderately lower. The contribution of total productivity increases to growth can rise if the increasingly sophisticated economy is supported by the necessary institutional improvements. The outcome is likely to be average growth in output two or perhaps three percentage points below the average of the period of uninhibited investment expansion. The necessary changes in economic institutions require restraint in the use of old-style fiscal and monetary expansion through public institutions to avoid downturns in economic growth. This implies acceptance of moderate cyclical slowdowns without large-scale Keynesian responses—although strong antirecessionary responses, at some cost to desirable structural change, could be expected in response to a major downturn. Much higher priority is assigned to domestic and international environmental amenity in the transition to an advanced economy: energy saving and reductions in the carbon intensity of production are major objectives of the 12th five-year plan (2011–2015). While the desirability of reduced inequality has been prominent in official statements of policy goals right through the reform period, reduced inequality is an objective that attracts strong policy action in the transition to a modern economy. Rising real wages have been making a strong contribution to reduction in inequality from about 2008. This book provides data on the increasing and now large central government payments to rural education, health, transport, communications and an income safety net over recent years. Quantitative measures of inequality have begun to fall. China’s adoption of a new model of economic growth is of immense importance to people in China and everywhere. This book is an early attempt to take a close look at many of the features of the new model.
Chinese economy stable now – laundry lists of reasons.
The World bank, 2012 (Development Research Center of the State Council, the People’s Republic of China , “China 2030: Building a Modern, Harmonious, and Creative Society,” The World Bank, February 27, 2012, http://www.worldbank.org/content/dam/Worldbank/document/China-2030-complete.pdf, accessed Jul 13, 2016) DDI-BL
Over the past three decades, China’s two his- toric transformations, from a rural, agricul- tural society to an urban, industrial one, and from a command economy to a market-based one, have combined to yield spectacular results. Not only did economic growth soar, but the poverty rate fell from more than 65 percent to less than 10 percent as some 500 million people were lifted out of poverty, and all the Millennium Development Goals have been reached or are within reach. Although growth rates differed across China, growth was rapid everywhere. Indeed, if mainland China’s 31 provinces were regarded as inde- pendent economies,1 they would be among the 32 fastest-growing economies in the world (figure O.1). Such rapid growth has been accompanied by many other achieve- ments: for example, 2 of the world’s top 10 banks are now Chinese;2 61 Chinese compa- nies are on the Global Fortune 500 list;3 and China is home to the world’s second-largest highway network, the world’s 3 longest sea bridges, and 6 of the world’s 10 largest con- tainer ports.4 The country has also made large strides in health, education, science, and technology, and is quickly closing the gap on all these fronts with global leaders.
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