Asia since 2001
The Chinese economy
Socialism
● Naughton (2017) - China’s government has the resources to shape the
economy
○ Has indirect or direct control of 38% of GDP (2915)
○ Net government assets are 141% of GDP (34% in the USA)
○ Controls 85% of banking sector assets, all telecommunications,
transport and public media
● Chinese government steers the economy
○ Bureaucratic incentives rewarding growth targets
● Does not intervene to help the less well off
○ Widening inequality especially between urban and rural areas
■ Also rising within urban and rural areas
○ Education budget - 3.6% of GDP and health 1.6% (low)
● Autocratic and elitist
○ Elites are recruited into the CCP
○ 3x as many managers as normal workers as members of the CCP
○ Socialism is about giving power to the people
Human capital and Chinese economic success
● Li et al (2017) - the Chinese TFR = 6 births per woman (1960s), 1.4 (2010)
○ 1.4 is below the replacement rate of 2.1
○ 75% of the population was of working age in 2010
● Cultural Revolution closed colleges / high schools
○ Restored education after it ended in 1976
○ Mean years of schooling increased from 4.3-9.6 (1980-9.6)
○ Low rural education - 11.3% of adult workers in rural areas have at
least high school education (2014)
● Primary and middle schools are normally free but high school costs >$160 pa
■ 27% of rural income per capita - barrier to education
● Expansion of college enrollment (24% in 2009)
○ Declining wage premium (21% to 15% 2000-9) - increase in the relative
supply of college workers
● Evidence of not much learning in uni
○ 0 or negative growth in cognitive skills after 2 years of college
Hukou
, ● Li et al (2017) - Hukou system (1950s) managed labour and population
movement
○ Included location of residency and sector of economy
○ Tried to stop rural residents from living in urban areas
● Relaxation in the 1990s - allowed to move/live/work in non-Hukou localities
● Admin activities (housing/ID/land distribution/school and medical enrollment)
based on the Hukou
○ Government-run schools are better - rural children may not be allowed
to go
○ Migrant children not found in higher quality public schools
● Reform is difficult
○ Urban Hukou members benefit from the system - entrenched interests
● Causes a dual labour market - urban (36%) and rural
○ 31% with rural Hukou migrated to cities for work (2014) but are only
just gaining access to social services and social security
Foreign reserves
● Storesletten and Zilibotti (2014) - Chinese foreign reserves rose from 5-40%
of GDP (1992-2013)
○ Do not think this is currency manipulation
■ Artificially low ER would cause domestic inflation
○ Savings > investment - private firms borrow less than other SOEs
● Savings are so high (>35% since the 1980s) due to:
○ High burden of health and education expenditure
○ End of the iron rice bowl
■ Iron rice bowl - occupations with guaranteed job security and a
steady income
○ Privatisation of residential houses
○ 1 child oolicy
Chinese economic involvement in Africa
Aid with Chinese characteristics
● 3 institutions at the centre of Chinese aid
○ Ministry of Commerce
○ Ministry of Foreign Affairs
○ China Eximbank
■ Expected to break even
■ Largest export credit agency in the world by 2007
■ Concessional loans are the only part of their activities that meet
the standard definition of aid
The Chinese economy
Socialism
● Naughton (2017) - China’s government has the resources to shape the
economy
○ Has indirect or direct control of 38% of GDP (2915)
○ Net government assets are 141% of GDP (34% in the USA)
○ Controls 85% of banking sector assets, all telecommunications,
transport and public media
● Chinese government steers the economy
○ Bureaucratic incentives rewarding growth targets
● Does not intervene to help the less well off
○ Widening inequality especially between urban and rural areas
■ Also rising within urban and rural areas
○ Education budget - 3.6% of GDP and health 1.6% (low)
● Autocratic and elitist
○ Elites are recruited into the CCP
○ 3x as many managers as normal workers as members of the CCP
○ Socialism is about giving power to the people
Human capital and Chinese economic success
● Li et al (2017) - the Chinese TFR = 6 births per woman (1960s), 1.4 (2010)
○ 1.4 is below the replacement rate of 2.1
○ 75% of the population was of working age in 2010
● Cultural Revolution closed colleges / high schools
○ Restored education after it ended in 1976
○ Mean years of schooling increased from 4.3-9.6 (1980-9.6)
○ Low rural education - 11.3% of adult workers in rural areas have at
least high school education (2014)
● Primary and middle schools are normally free but high school costs >$160 pa
■ 27% of rural income per capita - barrier to education
● Expansion of college enrollment (24% in 2009)
○ Declining wage premium (21% to 15% 2000-9) - increase in the relative
supply of college workers
● Evidence of not much learning in uni
○ 0 or negative growth in cognitive skills after 2 years of college
Hukou
, ● Li et al (2017) - Hukou system (1950s) managed labour and population
movement
○ Included location of residency and sector of economy
○ Tried to stop rural residents from living in urban areas
● Relaxation in the 1990s - allowed to move/live/work in non-Hukou localities
● Admin activities (housing/ID/land distribution/school and medical enrollment)
based on the Hukou
○ Government-run schools are better - rural children may not be allowed
to go
○ Migrant children not found in higher quality public schools
● Reform is difficult
○ Urban Hukou members benefit from the system - entrenched interests
● Causes a dual labour market - urban (36%) and rural
○ 31% with rural Hukou migrated to cities for work (2014) but are only
just gaining access to social services and social security
Foreign reserves
● Storesletten and Zilibotti (2014) - Chinese foreign reserves rose from 5-40%
of GDP (1992-2013)
○ Do not think this is currency manipulation
■ Artificially low ER would cause domestic inflation
○ Savings > investment - private firms borrow less than other SOEs
● Savings are so high (>35% since the 1980s) due to:
○ High burden of health and education expenditure
○ End of the iron rice bowl
■ Iron rice bowl - occupations with guaranteed job security and a
steady income
○ Privatisation of residential houses
○ 1 child oolicy
Chinese economic involvement in Africa
Aid with Chinese characteristics
● 3 institutions at the centre of Chinese aid
○ Ministry of Commerce
○ Ministry of Foreign Affairs
○ China Eximbank
■ Expected to break even
■ Largest export credit agency in the world by 2007
■ Concessional loans are the only part of their activities that meet
the standard definition of aid
