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www.oecd.org/eco/surveys/economic-survey-china.htm
OECD OECD Economics
2015 OECD ECONOMIC SURVEY OF CHINA
Towards higher quality growth
in the New Normal
Beijing, 20 March 2015
China’s impressive economic performance has led to fast income convergence
2
0.00
0.05
0.10
0.15
0.20
0.25
0.30
0.35
0.40
0.45
1995 1998 2001 2004 2007 2010 2013 2016 2019
Ratio GDP per capita at purchasing power parity
As a share of the OECD average
Source: OECD Economic Outlook Database.
China is shifting to lower, but higher quality growth
3
Source: OECD Economic Outlook Database.
-5
0
5
10
15
20
-6
-4
-2
0
2
4
6
8
10
12
14
16
1991 1994 1997 2000 2003 2006 2009 2012 2015
% % A. Real GDP growth
China OECD
Main findings
• The Chinese economy has performed extremely well and is now transitioning to slower but healthier growth – the “new normal”
• Significant economic and financial risks exist, but they appear to be manageable
• Firms do not all compete on a level playing field, which has created imbalances and put pressure on environmental resources
• Future growth will increasingly rely on the quality of human capital, raising the importance of an effective education and training system
• Living standards in rural China remain far below those in urban areas and agricultural labour productivity is low
• Regulations on deposit interest rates have contributed to inefficient resource allocation and financial risks
• Sub-national government debt is high in some provinces, but the associated risks are manageable 4
Key recommendations
• Open up more sectors to private investment and phase out implicit government guarantees enjoyed by state-owned enterprises
• Enhance lifelong skill provision, research autonomy and intellectual property rights
• Improve rural living standards by:
o Increasing and enforcing the property rights of rural households
o Extending urban public service provision to all migrant workers
o Expanding the coverage of rural social welfare payments
• Enhance macroprudential supervision while continuing to gradually liberalize deposit interest rates and the exchange rate
• Increase fiscal transparency and sustainability
5
Risks are on the downside, but appear to be manageable
• A correction in the property market is underway, but stringent housing investment regulations offer protection against systemic risk
• A stronger US dollar may adversely impact export competitiveness as long as the renminbi remains closely linked to it
• The recent declines in oil and other commodity prices may propel growth by more than anticipated
6
Providing the right skills to all
7
More vacancies per vocational high school than per university graduate
8
College graduates struggle to find a job
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
1.3
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
1.3
2007 2008 2009 2010 2011 2012 2013 2014
Ratio of job vacancies to job seekers
Ratio of job vacancies to job seekers
Vocational secondary educationUndergraduate, junior college, postgraduate and aboveUndergraduate, postgraduate and above
Source: China City Labour Force Survey, Ministry of Human Resources and Social Welfare.
Skill mismatches remain
0
20
40
60
80Equipment maintenance
Management of personnelresources
Negotiation
Operation monitoring
Operations analysis
Persuasion
Programming
Repairing
Technology design
Troubleshooting
Programming as well as management and other soft skills are falling short Percentage of graduates in the top ten skill categories with the greatest gap, 2013
University Vocational college
Source: Authors’ analyses based on MyCOS survey data.
Service-related knowledge needs to be improved
10
Source: Authors’ analyses based on MyCOS survey data.
0
10
20
30
40
50
60
70Sales and marketing
Personnel and human resources
Customer and personal service
Mechanical
Production and processing
Therapy and counseling
Design
Economics and accounting
Engineering and technology
Law and government
University Vocational college
Moving from “made in China” to “created in China”
Establish a workplace-training-based vocational education system
Enhance skill provision from early childhood to adult learning
Evaluate universities and staff more on quality of academic work and: Promote research autonomy Merit-based promotion Stronger intellectual property rights, to attract and retain
world-class researchers.
Increase education spending, including boosting teachers’ salaries
11
Providing equal opportunities in education
12
Inequalities mainly stem from the urban-rural divide
• Nearly 10% of compulsory-age children are migrants
• But only 80% attend public schools and 3% publicly-funded private schools
• Many migrant children cannot sit for the college entrance exam where they reside
13
Equal education opportunities for all
Improve access to pre-school education including by providing vouchers for use at private facilities
Open up public schools to migrant children or where such schools are not available, provide vouchers to enable them to attend private schools
Allow resident migrant children to sit for the college entrance exam irrespective of their parents’ work or social security status
14
15
Bridging the gap for rural areas
16
China is under-urbanised
• 100 million additional migrants from rural areas are expected by 2020
• The share of agriculture in the economy will diminish
India
United States
Indonesia
Brazil
Russia
Japan
South Africa
Korea
Chile
0.5 2 5 10 20 30 40 50
China 2000 China 2014
China 2020 projection
0
10
20
30
40
50
60
70
80
90
100Ur
ban p
opula
tion (
% of
total
)
GDP per capita (thousands current USD PPP, log scale)
Source: World Bank World Development Indicators database; National Bureau of Statistics; OECD (2013).
17
Agricultural labour productivity is low
0
5 000
10 000
15 000
20 000
25 000
30 000
35 000
0
5 000
10 000
15 000
20 000
25 000
30 000
35 000
1 2 3 4 5
Gross agricultural output per unit of labour
Gross agricultural output per unit of labour
Cross-country GDP per capita groups
China
Poorer countries Richer countries
Source: US Department of Agriculture, authors’ calculations.
18
Reforms to improve agricultural productivity
Land reform to improve allocation of land resources
Improve access to finance for farmers
Upgrade technical skills and training
Improve the sustainability of land use
19
Rural citizens typically move towards higher wages
The Hukou system constrains labour reallocation to the most productive centres
Universally introduce resident permits for migrant workers that allow access to public services
Shanghai Beijing
Tibet Autonomous Region
Zhejiang
Tianjin
Guangdong
Jiangsu
Qinghai
Liaoning
Ningxia Hui Autonomous Region
Fujian
Chongqing
Shandong
Yunnan
Inner Mongolia Autonomous Region
Sichuan
Hunan Shanxi
Xinjiang Uygur Autonomous Region
Guangxi Zhuang Autonomous Region Anhui
Gansu
Shaanxi Hebei
Heilongjiang
Hubei
Hainan Jilin
Guizhou Henan
Jiangxi
0
5
10
15
20
25
30
35
0 5 10 15 20 25 30 35
Inwar
d migr
ation
2005
-201
0 - S
ample
rank
(lo
west=
1)
Average wage 2005 - Sample rank (lowest=1)
Source: China Statistical Yearbook 2006, 2010 Census of China, authors’ calculations.
20
Rural income and health support need to be improved
• Incomes are almost three times higher in urban than in rural areas • Healthcare services in rural China are low compared with urban areas
0 1 2 3 4 5 6 7 8 9 10 11
0 1 2 3 4 5 6 7 8 9
10 11
Chon
gqing
Shan
ghai
Tianji
nZh
ejian
gSh
ando
ngBe
ijing
Liaon
ingHu
bei
Jiang
suSh
aanx
iSi
chua
nGa
nsu
Guan
gxi Z
huan
g…Xi
njian
g Uyg
ur…
Anhu
iHe
ilong
jiang
Haina
nFu
jian
Guizh
ouJia
ngxi
Huna
nInn
er M
ongo
lia…
Ning
xia H
ui Au
tonom
ous…
Shan
xiYu
nnan
Hena
nHe
bei
Jilin
Guan
gdon
gQi
ngha
iTib
et Au
tonom
ous R
egion
Ratio Ratio Healthcare services
Ratio of medical staff per capita in urban to rural areas, 2013
Medical Technical Personnel Doctors Nurses
Source: China Statistical Yearbook 2014.
21
Boosting public support to rural areas
Expand rural social welfare coverage
Improve health services in rural areas
Allow portability of rural health insurance and pensions
22
Enhancing the role of the market
23
Structural reforms are needed to boost productivity
• Growth has been mainly driven by investment and to a lesser extent by productivity improvements in recent years
• Local SOEs and collective firms are less productive
0
2
4
6
8
10
12
14
0
2
4
6
8
10
12
14
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
% % Contributions to growth
Labour Capital Total factor productivity
Source: Authors’ calculations based on the Asian Productivity Organisation’s Productivity Database.
Market forces need to be given a greater role
Phase out implicit guarantees enjoyed by state-owned enterprises, so that all firms compete on a level playing field
Reduce state ownership in commercially-oriented service industries such as retailing, hotels, restaurants and construction
Open up more sectors to private investment
24
25
Enhancing the strength of the financial sector
Strict regulations on deposit interest rates and bank loan-to-deposit ratios remain
26
• Regulations have prompted private lending in the informal market at very high interest rates and non-SOE firms find it hard to access finance
• The allocation of capital could be further improved
0 2 4 6 8 10 12 14 16 18
0 2 4 6 8
10 12 14 16 18
Jan-2012 May-2012 Sep-2012 Jan-2013 May-2013 Sep-2013 Jan-2014 May-2014 Sep-2014 Jan-2015
% % Annual interest rates
Deposit rate Bank lending rate Private lending Wealth management product rate
Source: CEIC database.
27
Non-bank financing has grown recently
0
5
10
15
20
25
30
35
40
45
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
% of GDP Social financing flows
Bank credits Entrusted loans Trust loans Corporate bonds
Source: CEIC and China Trustee Association.
28
The market could play a bigger role in the financial sector
Continue to gradually liberalize deposit interest rates
Improve macroprudential supervision: Fully implement a deposit insurance scheme
Design an exit mechanism for failing financial institutions
Enhance financial stability through mandating provisions for actual bad loan exposures, including off-balance sheet loans
Full interest rate liberalisation should be preceded by greater exchange rate flexibility to help the economy absorb shocks
29
Improving fiscal sustainability and transparency
30
Sub-national debt is high in some provinces and lacks transparency
Sub-national debt is only reported by the National Audit Office and in an irregular manner
0 20 40 60 80 100Shandong
GuangdongHenan
ZhejiangFujian
HeilongjiangJiangsu
HebeiInner Mongolia Autonomous Region
JiangxiAnhui
LiaoningGuangxi Zhuang Autonomous Region
Ningxia Hui Autonomous RegionHubei
HunanJilin
Xinjiang Uygur Autonomous RegionShanxiTianjin
SichuanShaanxi
BeijingShanghai
HainanGansu
QinghaiYunnan
ChongqingGuizhou
Sub-national debt in % of sub-national GDP (mid-2013)
Full repayment responsibility Guaranteed debt Contingent liabilities
Source: Sub-national Audit Office and Finance Bureau websites.
Improving fiscal sustainability and transparency
Publish sub-national debt figures on a regular basis
Permanently prohibit local government investment vehicles from taking on new debt
Increase budget transparency
31
More information…
www.oecd.org/eco/surveys/economic-survey-china.htm
OECD OECD Economics
Disclaimers: The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law. This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.
32