Brief Remarks on the China Model of Economic Development Heiwai Tang - Johns Hopkins SAIS GW Conference on China s Economic Development and US-China Econ relations Oct 6, 2017
How China Grew? Full of second-best policies. Trade liberalization (e.g., WTO), but keep two different regimes processing versus ordinary trade. Advantage of having surplus labor, despite restrictions on labor mobility through the hukou. FDI liberalization, but with a negative list. Privatization, but with imperfect contracting institutions. Top-down industrial policies, but with local experimentation, learning and competition.
Beijing denounced the world watched had turned their allegedly plotted with the general secretary Washington or Beijing Consensus? t protesters massed lence that General steadfast reformer, ing to topple the eaking havoc with oordination with d abroad, accused hao was dismissed retary and placed e he would remain the door to a strange, incongruous tale, because the American economist who had of the Chinese Communist Party was none other than Milton Friedman. omist in the world. He had appeared on the cover of Timein 1969, in an issue that focused on the new values that would define the 1970s. With his diminutive stature, forceful Continued on page 6 s dismissal, on June read out his report d sought to over- China and replace system, the mayor ning evidence of is supposed plot: is that last year on Zhao Ziyang met of Unlikely Partners: mists, and the Making of ty Press, 2017), from MILTON FRIEDMAN (left) meets with general secretary of the Chinese Communist Party ZHAO ZIYANG in China in 1988. Friedman and Zhao spoke for nearly two hours, as Friedman argued that China should decontrol prices in one bold stroke. Friedman had come to China for Cato s conference in Shanghai and was then personally invited by Zhao to offer advice on China s economy. Source: Gewirtz (2017)
China has recently defied the global trend Figure A7: DVAR of Aggregate Exports (Single-industry Firms DVAR.6.65.7.75 2000 2001 2002 2003 2004 2005 2006 2007 Year mdvar_agg 95 c.i. (lower bound) 95 c.i. (upper bound) Based on Kee and Tang (2016) Also documented by Koopman, Wang and Wei (2012).
What caused China to defy the global trend? Several possible answers to this question with conflicting implications. Changing composition of Chinese exports (towards the industries with high domestic content). Increasing domestic production costs, which would imply that the country has become less competitive. Gradual substitution of domestic for imported materials by its exporters.
Chinese Manufacturing Plants (2005) Indian Manufacturing Plants (2005) Aggregate TFP Losses due to Distortions (China) Based on Krishna and Tang (2017) China.6.8 1 1.2 1.4 2000 2001 2002 2003 2004 2005 2006 2007 year TFP Gain (remove all distortions) TFP Gain (HK; remove all distortions) TFP Gain (remove all but K distortions) TFP Gain (HK; remove all but K distortions) Source: Authors calculation and China s NBS Data (2000-2007).
2000 2002 2004 2006 2008 year TFP Gain (remove all distortions) Aggregate Losses due to Distortions (India) TFP Gain (HK; remove all distortions) TFP Gain (revove all but K distortions) TFP Gain (HK; remove all but K distortions) With imports adjusted.2.4.6.8 1 1.2 2000 2002 2004 2006 2008 year TFP Gain (remove all distortions) TFP Gain (HK; remove all distortions) TFP Gain (remove all but K distortions) TFP Gain (HK; remove all but K distortions) Source: Authors calculation and India s ASI Data (2000-2008).
Decomposition - China J J ln TFP t = δ jt ln TFP jt + δ jt ln TFP jt, j=1 } {{ } j=1 } {{ } within between -.15 -.1 -.05 0.05 2000 2001 2002 2003 2004 2005 2006 2007 year Within Sectors (Cumulative) Between Sectors (Cumulative) Source: Authors calculation and China s NBS (2000-2007)
Decomposition - India J J ln TFP t = δ jt ln TFP jt + δ jt ln TFP jt, j=1 } {{ } j=1 } {{ } within between -.1 0.1.2.3 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 year Within Sectors (Cumulative) Between Sectors (Cumulative) Source: Authors calculation and India s ASI (1999-2008)
Source: Zhu (JEP 2013)
Source: Zhu (JEP 2013)
China s development approach Since economic reforms in 1978, China s reform approach has been pragmatic, gradual, and experimental. No matter if it is a white cat or a black cat; as long as it can catch mice, it is a good cat Deng Xiaoping China then should not have considered any one size fits all multilateral agreement.
Reform Score from Textual Analysis of Policy Documents 10/6/2017 Maps of Reform Figures below show an evolution of reform scores over time, broken down by province. Based on Khandelwal, Naidu, Tang, and Zhang (2018)
Reform Score from Textual Analysis of Policy Documents 10/6/2017 Maps of Reform Based on Khandelwal, Naidu, Tang, and Zhang (2018)