China book notes

High in all 3 of the main sectors:
*Households (save btwn 15% & 20%)
*Enterprises
*Government

*high savings and investment
*rapid growth of modern labor force
*Declining birth rates
*Declining dependence rates
*Economic benefits from successful transition to market economy
*Revival of traditional econ relationships (HK, Taiwan, SEA)

*controlling inflation
*industry rehab
*rapidly increasing investment
*rehab of ag (irrigation improvement)
*Dist land reform (1952)
*mobilized for war in Korea

Used during command economy
*way to coordinate activity in the present moment
*replaced market with a set of quantitative demands

They are formed early on, but not until 1955 does Mao force farmers into cooperatives

1957
Period of absolute free speech

Follows the Hundred Flowers, imprisons intellectuals

1958-1960
Increased investment
Huge targets
people moved out of ag into industry
communes created
industry "walking on two legs"
material incentives abolished
spike in morality
30 million excess deaths
worst famine

1966-1976
Students and radicals overthrow capitalists and take over society
mobilization of young people

1978
crucial meeting that initiates the reform era

1978-1988
power held by the elders
experimentation with incentives
more autonomy to state-owned enterprises
special econ zones

1992-1999
very dynamic, bold, successful
a lot of state industry broken down

post 2003

*Begins in 1949, when PRC is founded
*high and rising investment, mostly in heavy industry
*focused on industries in upper and middle stages of production

There is a reservoir of underemployed labor that moves from rural to urban seeking higher wages, until that reservoir is USED UP, and then wages at the bottom rise.
~2006? ag laborers finally making better wage

From the 1950s to now, the state has owned the land
But 80% of urban dwellers have purchased their homes from their workunit --> increase market for consumer durables and home improvements and increase in urban property markets

Collective, but finally the collective has started leasing the land in 50 year leases to individual households. Rural households have always had access to land, even through the collective
*collective farming ended in 1978 and land was divided fairly equally, but still technically owned by collective --> land cannot be used as collateral for borrowing!! and families that migrate away sometimes permanently surrender their land to the collective

Disputes over land deals- the village head can negotiate deals to sell land to be converted for industrial, commercial use

120 boys per 100 girls
sex selective abortion (though illegal)
female infanticide
propensity to have a 2nd child is lower and lower though one child policy is less strict now

pre 1978 growth = 6%
1978-2005 growth = 9.6%
went from 4.1% pre 1978 to 8.5% post 1978 because of slow population growth

not dependent on foreign capital inflows
financed through chinese domestic savings

*decreased labor in ag causes increase productivity in ag
*increased labor in mining, manu, construction, causes increased share of gdp in these sectors, and then levels off
*service sector doesnt grow much

1st pd: 1978-1990
ag decreases slowly, service increases rapidly, industry increases slowly
2nd pd: after 1991
rapid industrial growth
service leveled off at 40% of GDP
age decreases rapidly from 29% to 13% of GDP

*the supply of young people willing to leave the farm for urban employment, and the supply of young people entering the labor market
*willingness to migrate decreases a lot after age 30
*so supply of migrants depends on the supply of young people, which is decreasing

*must boost the labor income share of GDP (i.e. wages cannot grow slower than GDP)
*Labor income share of GDP declined because of structural shift from ag (where labor income share is about 90%) to industry (where labor income share is <50%)
*can increase labor income share by developing service industries, deregulating service and industry, and increasing trade and foreign investments

*China needs faster wage and consumption growth, but it will lead to inflation
*must learn to live with this if china wants to rebalance economy toward consumption
*can try to control inflation through more flexible exchange rate policy

There was no labor market, each worker was a lifetime member in either rural or urban public employment

*70% of population is of working age
*labor force participation is high
*5% of labor force works for gov, *80% works in private sector
*large informal sector
*more flexible, diverse system, but lacks the guarantees of the old system

*Things stayed mostly the same until 1990s
*Then SOEs began massive layoffs (~30% of entire labor force)
*increased labor mobility
*increase unemployment

*peaked between 8% and 10% in 1997
*but the 2002 econ boom brought down unemployment
*we expect a serious unemployment problem until at least 2015

dominate areas such as construction and textile mills

Government and local service traing

retail, restaurants, petty trade (but this competition has not lead to equalized incomes, because urban residents still get subsidies that make their total incomes higher

*socialist system did a good job giving basic edu to everyone, but did not reward people who got higher edu. During socialism, edu not a predictor of income, and returns to edu = 0
Returns to edu began to climb in 1990s, reaching 7.5% in 2002 (changed because in 1990s less educated were more likely to be laid-off)

1990s

*Decision to migrate made by households, not individuals
often return home to maintain land ownership or carry out life goals
*depends on how many family members there are, edu, age

1. 1978-1985
rural = 15% per year
urban = 7% per year
2. 1985-1991
rural = 2.8% per year
urban = 4.8% per year
3. 1991 - 2004
rural = 4.9% per year
urban = 7.7% per year

--> urban-rural gap has been widening for 20 years

*increased TOT for ag
*increased ag prices
*increased supply of modern inputs
*dissolution of collectives
*egalitarian dist of land

these factors were exhausted by mid-1980s, so poverty reduction has been slower

*reduction slowed
*growth concentrated in urban coastal areas
*dense pop running up against limits of environmental sustainability
*farm prices decrease in wake of market liberalization
*fiscal system does not serve poor regions well
*continued restrictions on migration

about 8%

widening rural-urban gap

70.9 years

30/1000 in 2003
= middle-income country average

a lot of variation, reflecting rural-urban gap

early 1980s

*emphasis on compulsory procurement of grain from peasantry at low prices
(this is an implicit tax on peasants to pay for industrialization!)
*emphasis on QUANTITY of output, even if producing more didn't increase income
*stress on grain self-sufficiency throughout China, even if areas not well-suited for it

*made rural land property rights more clear
*facilitated development of land markets

1970s
*improved seeds, fertilizer, irrigation, increased production
*improvement in yields per unit of land
*could not be applied to what region until substantial infrastructure construction and tech adaptation took place
*produced HYVs
*in 1970s gov made commitment to develop nitrogen fertilizer industry
*introduction of hybrid and dwarf seeds

*technical change is derived from demands of cost-minimizing agents to save on relatively scarce resources and to use relatively plentiful resources

Imperative of dietary improvement and demand pressures

*imports land intensive stuff like corn, cotton, soy
*exports rice, veggies, flowers, fruits, canned foods

1978-1996
privitized in 1995 (and then were less able to absorb rural labor)

*Township and village enterprises
*sprung up in rural areas (which were much less controlled than the cities)
*provided competition to SOEs in urban areas
*increased rural incomes and employment, decreased urban-rural gap
*"Five small industries" = iron &steel, cement, chemical fertilizer, hydo power, farm implements (capital intensive, used few workers)
*revenues channeled into rural community govs --> rural collectives being allowed to share in some of the income-earning potential created by the states monopoly over industry

*TVEs faced factor-price ratios that reflected China's true factor endowments, had to buy capital at market rate, so specialized in sectors with low capital-labor ratios
*able to share in monopoly rents created for state firms--> lots of profit
*institutional framework surrounding TVEs was favorable to development (enjoyed benefits of gov price policy but didnt have to pay same taxes, access to capital from banks because local govs acted as guarantors)

*southern jiangsu model: collective remained in control even after collective system was gone elsewhere, TVEs bigger, more capital-intensive, tech sophisticated
*Wenshou model:collectives disappeared early, focused on labor-intensie activities, production chains linked by markets
*Pearl River Delta Model: TVEs developed rapidly under foreign investment, export-oriented factories, open domestically and internationally, often partly HK owened

1990s : reforms caused increased comp for TVEs --> end of TVE rapid growth
*increased income --> demand for goods of higher quality than those that TVEs produced

Industrial clusters
*large number of firms that contribute to a single, specialized product
*small firms that compete with each other but cooperate to form a relatively complete industrial chain
*mediated by efficient markets

Has grown at real rate of ~15% since 1980

entry of new firms (TVEs) --> increase in competition --> decrease in markups and surplus earnings of SOEs

(industrial transition was less about privatization and more about entrance of competitors)

*1978-1996
*TVEs enter with less obligations and burdens than SOEs, decreasing SOEs share of total industrial output

1996-present
*Company Law, 1994
gave framework for "corporations SOEs and created legal framework in which any ownership for could operate

1994
*gave framework for "corporatizing" SOEs
*created legal framework in which any ownership form could operate
*specifies board of directors as supreme authority in the corporation
*managers now accountable to board instead of many gov agencies
*increased focus on profitability

*subsidized lending to households and businesses (large micro-credit operations)
*food for work program (once a project is approved, gov provides building materials & food for the worker
*budgetary grants- local govs given earmark funds to finance public investment projects

URBAN:
*almost all go to HS
*of those that go to HS, 70% go on to some kind of tertiary edu
RURAL:
*about 8% go to HS
*of those that go to HS, about 2% go to college