Can China Smoothly and Successfully Shift to a

Sustainable Growth Model

Andong Zhu

Tsinghua University

Outline

Introduction The Growth Models in the past 30 yeas Opportunities and Challenges to New

and Sustainable Model Conclusion

Introduction: From Old China to New China

Semi-FeudalSemi-Colonial

Backward

IndependentEconomic & Social

Construction Balanced

Market-OrientedGDP Growth FastIncome Inequality

Social Development Environment

Sustainable (Economic,

Social, Environment) Development

1949 1978 2002 or 2009?

A Family in the “Old China”

1948: Hyper-inflation in China

 

The Achievements of New China before 1978

Preliminarily Industrialized the Economy Established a Independent and

Comprehensive Industrial system GDP Growth Rate Averaged at 6.68% per

year during 1953-1978 Life Expectancy increased from around 35

to about 67 years.

The Growth Models of New China 2.0

Achievements Evolvement of the Growth Models Problems

Fast GDP GrowthGDP Growth Rate of Chi na 1979-2008 (%)：

7. 67. 8

5. 3

9. 0

10. 9

15. 2

13. 5

8. 9

11. 611. 3

4. 13. 8

9. 2

14. 213. 913. 1

10. 910. 0

9. 3

7. 87. 68. 48. 3

9. 110. 010. 110. 4

11. 6

13. 0

9. 0

0

2

4

6

8

10

12

14

16

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Huge Amount of Foreign ReservesForei gn Reserves of Chi na ($Bn): 1978-2007

0 1 -1 3 7 9 8 3 2 3 3 6 11 22 19 21 52 74 105140145155166212286

403

610

819

1066

1528

1946

0

500

1000

1500

2000

2500

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Evolvement of the Growth Models

Planned EconomyWith

Market Mechanism

Balanced/Inward Looking Growth

Marketization;PrivatizationLiberalization

Over-dependentOn

International MarketAnd

Investment

Sustainable (Economic,

Social, Environment) Development

Relatively Balanced/Outward Looking Growth

Imbalanced/outward Looking New growth model?

1992 2001 20091978

Components of Domestic Expenditure as Shares of GDP

0%

10%

20%

30%

40%

50%

60%C/Y G/Y IF/Y

Exports and Imports as Shares of China's GDP:1978-2006

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Year

X/Y M/Y

The Over-dependency on Investment

中国的投资率(%): 1978-2007

38.2

36.1

34.8

32.531.9

32.8

34.2

38.137.5

36.337.0

36.6

34.934.8

36.6

42.6

40.540.3

38.8

36.736.236.2

35.3

36.5

37.9

41.0

43.242.742.6

42.1

30

32

34

36

38

40

42

44

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

The Consumption Ratio in ChinaThe Consumption Ratio in China

(%): 1978-2007中国的消费率

62.164.4

65.567.1 66.5 66.4 65.8 66.0 64.9

63.6 63.9 64.562.5 62.4 62.4

59.3 58.2 58.1 59.2 59.0 59.661.2

62.3 61.459.6

56.854.3

51.849.9 49.048.8 49.1

50.852.5 51.9 52.0

50.8 51.650.5 49.9

51.1 50.948.8

47.5 47.2

44.4 43.544.9 45.8 45.2 45.3 46.1 46.4

45.243.7

41.739.8

37.736.335.3

35

40

45

50

55

60

65

70最终消费支出 居民消费支出

Sweden 25, India 32.5, United States 40.8, China 44.7, Brazil 59.1

Income Gini Coefficient of China: 1978-2006

0.300.29

0.310.310.30

0.28

0.240.26

0.320.32

0.38

0.340.33

0.350.37

0.390.400.390.370.37

0.380.39

0.410.40

0.430.440.440.450.46

0.100.15

0.200.250.30

0.350.40

0.450.50

Widening Income Inequality

Househol d Fi nal Consumpti on Rati o and the the Rati o of top 20% popul ati on' si ncome agai nst the Bottom 20%, 2003

40

60

80

100

0 2 4 6 8 10 12 14 16 18 20Q1/ Q5

Hous

ehol

d Fi

nal

Cons

umpt

ion

rati

o (%

)

What are the Major Reasons of Inequality in China？

Monopoly? Corruption? Privatization?

Ownership Income distribution Ownership Labor Relation Income distribution

State_owned

Cl ol l ecti vel y Owned

Domesti c Pri vate

Forei gn

0

10

20

30

40

50

60

70

80

90

100

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Share of Chi nese I ndustrial Output by Ownershi p（%）：1990－2004

The Laid-off/privatization Movement(Mn)

Urban employment

State-owned Units

Collective-owned Units

highest level 27331(2005) 11261(1995) 3628(1991)

lowest level 19040(1995) 6488(2005) 810(2005)

change 8291 -4773 -2818

Informalizing Labor Market

0

5000

10000

15000

20000

25000

30000

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

EMP- CI TY- SOEEMP- STF&WRKEMP-CI TY

What New Growth model Needed in the Chinese Economy?

Balanced/sustainable Economic development Less depend on international Market Less depend on InvestmentIncreasing Private Consumptionincreasing income of the poor & improving the Social Security Net(re-)nationalization of enterprises; more strictly

regulate the market

Opportunities and Challenges to New Model

Opportunities The Drain Up of the Rural Labor Reserves The Current Crisis (International Market; US

Model; Theory, etc)

Challenges

Low External Debt RiskRisk Indicators on External Debts of China (%): 1985-2007

0

2

4

6

8

10

12

14

16

18

1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

0

20

40

60

80

100

120

Debt Service Ratio Liability Ratio Foreign Debt Ratio (RHS)

Enough Room for Fiscal and Monetary PoliciesChina Still Has Room to Loose the Money Market: 2005.01~2008.11

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

2005

.01

2005

.03

2005

.05

2005

.07

2005

.09

2005

.11

2006

.01

2006

.03

2006

.05

2006

.07

2006

.09

2006

.11

2007

.01

2007

.03

2007

.05

2007

.07

2007

.09

2007

.11

2008

.01

2008

.03

2008

.05

2008

.07

2008

.09

2008

.11

7%

9%

11%

13%

15%

17%

19%

Interest rate of one year loans Required Reserve Ratio (RHS) Required Reserve Ratio of Small and Middle sized FI (RHS)

At the end of 2007， total public debt was RMB3.4 Tr.， as 13.8% of GDP and 67.0% of government revenue

The Composition of the 4 Tr. RMB Stimulus Plan

The Composition of the 4 Trillion RMB Stimulus Plan

Housing for the Poor, 400, 10%Rural Construction, 370, 9%

Saving Energy and Decreasing Emmission, 210, 5%

Infrastructure Investment, 1500, 38%

Socail Affairs, 150, 4%

Industrial Restructuring, 370, 9%

Re-construction after Dissaster, 1000, 25%

Shanghai Stock Market Comprehensive Index：1990.12.28~2009.3.12

0

1000

2000

3000

4000

5000

6000

7000

19

90

12

28

19

91

07

09

19

91

12

19

19

92

06

04

19

92

11

16

19

93

04

29

19

93

10

08

19

94

03

28

19

94

09

06

19

95

02

24

19

95

08

08

19

96

01

19

19

96

07

15

19

96

12

26

19

97

06

25

19

97

12

10

19

98

06

08

19

98

11

18

19

99

05

19

19

99

11

04

20

00

05

09

20

00

10

24

20

01

04

18

20

01

10

10

20

02

04

08

20

02

09

27

20

03

03

20

20

03

09

11

20

04

03

12

20

04

08

31

20

05

03

01

20

05

08

16

20

06

02

13

20

06

07

31

20

07

01

18

20

07

07

11

20

07

12

24

20

08

06

11

20

08

11

24

Conclusion

The growth pattern of China has to be changed even without this current Crisis

It will not be Easy to transform China to a really Sustainable Development Model Smoothly and Successfully

Comments and Questions Welcome!

Thank You!