Economic and social transformation in China: Challenges and opportunities

Hu, Angang Book Economic and social transformation in China: Challenges and opportunities Routledge Studies on the Chinese Economy, No. 23 Provided in Cooperation with: Taylor & Francis Group Suggested Citation: Hu, Angang (2007) : Economic and social transformation in China: Challenges and opportunities, Routledge Studies on the Chinese Economy, No. 23, ISBN 978-0-203-97009-6, Routledge, London, https://doi.org/10.4324/9780203970096 This Version is available at: https://hdl.handle.net/10419/251165 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by-nc-nd/4.0/ Economic and Social Transformation in China The Center for China Studies is among China’s most influential think-tanks, and its China Studies Reports are read at the highest levels of government. Now for the first time the most important of these reports is collected in book form in English, providing a fascinating insight into the challenges and opportunities for Chinese development and the government’s thinking on economic and social issues. Including comparative studies with developed and developing nations, analysis of past economic performance and future trends, and effects of demographic shifts such as population aging and urbanization, this book is an essential collection of research and includes notes made by central party leaders. Compiled by the founder of the Center for China Studies, one of the country’s leading economists, this book is key to understanding Chinese development and the likely future path of government policy. This book includes 48 figures and 84 tables. Angang Hu is Professor at the School of Public Policy and Management of Tsinghua University, head of the Center for China Studies of Tsinghua University and the China Academy of Sciences. He has published over 50 books on public policy and China Studies, including China: New Conception of Development (2004). Routledge Studies on the Chinese Economy Series Editor Peter Nolan, University of Cambridge Founding Series Editors Peter Nolan, University of Cambridge and Dong Fureng, Beijing University The aim of this series is to publish original, high-quality, research-level work by both new and established scholars in the West and the East, on all aspects of the Chinese economy, including studies of business and economic history. 1The Growth of Market Relations in Post-reform Rural China A Micro-Analysis of Peasants, Migrants and Peasant Entrepreneurs Hiroshi Sato 2The Chinese Coal Industry: An Economic History Elspeth Thomson 3Sustaining China’s Economic Growth in the Twenty-First Century Edited by Shujie Yao and Xiaming Liu 4China’s Poor Regions: Ruralurban migration, poverty, economic reform and urbanisation Mei Zhang 5China’s Large Enterprises and the Challenge of Late Industrialization Dylan Sutherland 6China’s Economic Growth Yanrui Wu 7The Employment Impact of China’s World Trade Organisation Accession A.S. Bhalla and S. Qiu 8Catch-Up and Competitiveness in China The Case of Large Firms in the Oil Industry Jin Zhang 9Corporate Governance in China Jian Chen 10 The Theory of the Firm and Chinese Enterprise Reform The Case of China International Trust and Investment Corporation Qin Xiao 11 Globalisation, Transition and Development in China The Case of the Coal Industry Huaichuan Rui 12 China Along the Yellow River Reflections on Rural Society Cao Jinqing, translated by Nicky Harman and Huang Ruhua 13 Economic Growth, Income Distribution and Poverty Reduction in Contemporary China Shujie Yao 14 China’s Economic Relations with the West and Japan, 1949–79 Grain, Trade and Diplomacy Chad J. Mitcham 15 China’s Industrial Policy and the Global Business Revolution The Case of the Domestic Appliance Industry Ling Liu 16 Managers and Mandarins in Contemporary China The Building of an International Business Alliance Jie Tang 17 The Chinese Model of Modern Development Edited by Tian Yu Cao 18 Chinese Citizenship Views from the Margins Edited by Vanessa L. Fong and Rachel Murphy 19 Unemployment, Inequality and Poverty in Urban China Edited by Shi Li and Hiroshi Sato 20 Globalisation, Competition and Growth in China Edited by Jian Chen and Shujie Yao 21 The Chinese Communist Party in Reform Edited by Kjeld Erik Brodsgaard and Zheng Yongnian 22 Poverty and Inequality among Chinese Minorites A.S. Bhalla and Shufang Qiu 23 Economic and Social Transformation in China Challenges and Opportunities Hu Angang 24 Global Big Business and the Chinese Brewing Industry Yuantao Gua Economic and Social Transformation in China Challenges and opportunities Angang Hu Typeset in Times New Roman by Keystroke, 28 High Street, Tettenhall, Wolverhampton British Library Cataloguing in Publication Data Acatalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data Economic and social transformation in China : challenges and opportunities / Angang Hu, [editor]. p. cm. – (Routledge studies on the Chinese economy) Includes bibliographical references and index. ISBN 0–415–38067–7 (hardback : alk. paper) 1. China–Economic policy–21st century. 2. China–Social policy–21st century. I. Hu, Angang. II. Title. III. Series HC427.95.E34 2006 330.951–dc22 2005034794 ISBN13: 978–0–415–38067–6 (hbk) First published 2007 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN 711 Third Avenue, New York, NY 10017, USA Routledge is an imprint of the Taylor & Francis Group, an informa business Published 2017 by Routledge Copyright © 2007 Angang Hu The Open Access version of this book, available at www.tandfebooks.com, has been made available under a Creative Commons Attribution-Non Commercial-No Derivatives 4.0 license. Contents List of figures ix List of tables xi About the author xv Acknowledgments xvii Introduction 1 1 Why has China’s economy grown so fast? 9 2 Comprehensive national power (1980–2000): a comparative study of the US, Russia, Japan, India and China 33 3 Why has China’s TFP dropped in 1995–2001? 60 4 From unevenness to coordination for China’s regional development (1978–2004) 67 5 China’s economic growth and poverty reduction (1978–2002) 97 6 China’s macro-economy and health 133 7 Health insecurity: the biggest challenge to human security in China 152 8Developing human resources to cope with an aging society 167 9China’s urban unemployment and social security (1993–2000) 184 10 Genuine national savings and natural capital cost in China (1970–2001) 208 11 Corruption: an enormous black hole: public exposure of the economic costs of corruption 217 9.9 Change in the top five most important social problems concerning common people (1998–2000) 198 9.10 Calculation of employment elasticity (1986–2000) 200 9.11 Backgrounds and characteristics of the transformation of employment models in different periods 203 10.1 Genuine savings rate (1970–1993) 209 10.2 Natural capital and genuine domestic savings rate in China (1980–2001) 216 11.1 Economic costs of corruption (1999–2000) 222 12.1 Number of people’s deputies per one million persons in various areas (2000) 239 12.2 Composition of people’s deputies to all National People’s Congresses (1954–1998) 241 xiv List of tables About the author Dr. Hu Angang was born on April 27, 1953 in Anshan City, Liaoning Province. Dr. Hu received a Ph.D. in Engineering from the Chinese Academy of Sciences in 1988. He did post-doctoral study at the Department of Economics, Yale University from 1991 to 1992. Dr. Hu has been to many world-famous universities as a visiting scholar, researcher and professor over the years. Dr. Hu was awarded an Honorary Ph.D. by the Far-eastern Institute, Russian Academy of Sciences in 2004. In 1985, Dr. Hu joined the China Study Group of the Chinese Academy of Sciences as one of the leading researchers and began to conduct China Studies systematically. He is one of the pioneers of this new field. At the beginning of 2000, Dr. Hu directed the Center for China Study, one of the top think-tanks for national decision-making. He also worked as the chief editor for China Studies Report, a reference circulated for senior officials. In 1991, Dr. Hu was awarded “Doctor with Special Contribution to China” by the State Education Commission and Academic Degree Committee of the State Council. In 1995, Dr. Hu received sponsorship from the National Science Fund for Outstanding Young Scientists of the Natural Science Foundation of China and was awarded Financial Aid for Chinese Economic Research from the Ford Foundation. Dr. Hu and his projects have received many awards and prizes, such as twice winning the first prize of the Science and Technology Progress Awards by the Chinese Academy of Sciences. In 2000, Dr. Hu’s project was awarded first prize of the National Science Fund for Outstanding Young Men by the Natural Science Foundation of China. In 2001, Dr. Hu won the ninth Sun Yefang Economic Essay Award. Dr. Hu Angang is a well-known Chinese economist and a leading researcher on China Studies in both China and overseas. His research focuses on China’s macroeconomic development and development policies. Dr. Hu is a fruitful researcher: as of 2006, he had published a total of fifty-three books, among which are nine monographs, twenty collaborations as first coauthor, eight books published overseas with Chinese editions and six English edition books. Dr. Hu has published nearly 200 articles in the core periodicals and key academic magazines in China. His representative works include China’s Population and Development (1989); Tentative Exploration into China’s Industrialization (with Qing Guo, 1991); China: Toward the 21st Century (1991); China State Capacity Report (with Shaoguang Wang, 1993); China Economic Fluctuation Report (1994); China Regional Disparities Report (with Shaoguang Wang and Xiaoguang Kong, 1995); Employment and Development: China Unemployment Issue and Employment Strategies (1998); China Development Prospects (1999); China: Fighting Against Corruption (edited, 2000); Society and Development: Study on the Regional Disparities in Social Development in China (with Ping Zou, 2000); New Strategies of Western Region Development (2001); China Strategy Framework (2001); Influential China Study Reports for Making Decisions (edited, 2002); China’s Grand Strategies (edited, 2002); China’s Second Generation Reform Ideology: Focused on System Building (with Shaoguang Wang and Jianming Zhou, 2002); See Through SARS: Health and Development (edited, 2003); China: New Conception of Development (2004); Transformation and Stability (with Lianhe Hu, 2005); National Conditions and Development (with Yahua Wang, 2005); China’s History of Political Economy: 1949–1976 (2006); Roadmap of China Rising (2006). From 2000 to 2005, his books and articles were cited 1404 times in China Social Science Citation Index (CSSCI), ranking one of the top ten among all Chinese scholars of social sciences. xvi About the author Acknowledgments I am very grateful to a large number of my students and friends who have either coauthored some of the chapters or have helped me with the calculation of data and figures. I would like to thank Mr. Jianghai Zheng, and my students Honghua Men, Yizhi Xiong, Linlin Hu, Zhixiao Chang, Yuxin Yang and Chunbo Li for their input to the book. I would especially thank Shaoging Jin, Xianfeng Gao, and Yuning Gao who have dedicated extraordinary effort and time, among many other tasks that they have, to working with me for arranging the translation, editing the book, checking the references, and finally making this book a reality. My thanks go to all my colleagues and students at the Chinese Academy of Sciences and Tsinghua University. My heartfelt thanks also go to Mr. Shaoguang Wang and Mr. Jianming Zhou, who have contributed many lines of thoughts and achievements; to Tsinghua University and Oxfam Hong Kong, which have provided useful financial aid for our research on China studies. I would like to express my special thanks to my wife Yining Zhao, whose meticulous care has made it possible for me to complete all the manuscripts in high spirits and pleasure despite suffering from long-term diabetes. I write with great concentration of mind and I would like to present the book to all readers who are concerned with the destiny of China and to my family members and friends who have shown great concern for my health. Introduction How I conducted this China Study As early as forty years ago, Chinese leader Mao Zedong said in his work “Ren de zhenque sixiang shi cong nali laide?”(“Where do correct ideas come from?”): “Where do correct ideas come from? Do they drop from the sky? No. Are they innate in the mind? No. They come from social practices and from them alone. They come from three kinds of social practices, the struggle for production, the class struggle and scientific experiments. It is man’s social being that determines his thinking.” He also said: “Correct knowledge can be arrived at only after many repetitions of the process leading from matter to consciousness and then back to matter, that is, leading from practice to knowledge and then back to practice. Such is the Marxist theory of knowledge, the dialectical materialist theory of knowledge.”1 Our correct understanding of China’s national conditions and their development needs a repeated process of practice, understanding and reflection. The practice of the Chinese people is the greatest social practice in human history. More than one billion Chinese people are engaging in the greatest reform and opening-up practice in an area of 9.6 million square kilometers of land and three million square kilometers of territorial waters with a dozen countries as its neighbors. The study of Chinese national conditions (or China Studies as it is called outside China) takes this great practice as the subject of study. Such study needs a repeated processing of knowledge, from perceptual to theoretical and from theoretical back to practice, to see which theories or policies can achieve the anticipated results, thus providing the correct guidance to China’s practice of reform and opening up, and stimulating China’s development. Over the past half-century, three generations of Chinese leaders, Mao Zedong, Deng Xiaoping and Jiang Zemin, and Chinese intellectuals and scholars, have been ceaselessly probing into such problems as: Is socialist modernization necessary to a developing country with a long history, large population and vast territory with great regional disparities? What kind of socialist modernization should be realized? Can China realize modernization? How should China realize socialist modernization with distinct Chinese features? China’s socialist modernization is a unique process based on China’s basic national conditions. The more we know about the basic characteristics of China and its peculiarities (especially factors restricting development), the fewer policy errors we shall make and the fewer will be the economic and political prices to be paid. The more thoroughly we master the law governing China’s economic development and the more comprehensively we sum up our development experience and lessons, the more capable we shall be in knowing and directing future development. But it not easy to attain a true understanding of China, as China has not only a time-honored history, but also a rich cultural tradition, and is in the process of unrivaled social transformations and rapid economic development. I regard studying China and understanding China and its development not only as my life-long career and research direction but also as my biggest pursuit and enjoyment in life. China is the most populous country in the world and its reform and development constitute the greatest social practice in human history. The study of its national conditions has the most extensive social bases and social demands, and it can bring extensive social impacts. I have found the path of my life in my academic career. Its real implications are to grow with China’s development, to keep company with China’s opening up, to advance with China’s reform and to live with the prosperity of the country. For this purpose, I founded the Center for China Studies of the Chinese Academy of Sciences (CAS) in 1999. In the same year, CAS-Tsinghua Center for China Studies was established with Tsinghua University. The center aimed to become one of the most influential public policy study centers and thinktanks for high-level policy and decision-making. In February 1998, I published the first China Studies Report entitled “Wei renmin chuangzao gongzuo: zhongguo de shiye wenti yu jiuye zhanlue”, which discussed China’s unemployment and employment strategies. It caught the attention of then Premier Zhu Rongji and Vice-Premier Wu Bangguo, who attached important commentaries on my report. I was greatly encouraged and was determined to make the China Studies Reports an information platform for collecting and sorting out major information about China’s national conditions and establishing a national conditions policy-making databank to promote national conditions studies and education and to train senior researchers in public policies. By June 2005, we had published over 750 issues of China Studies Reports, which served as background material for central and local leaders in their reform and management, and introduced the views and recommendations of foreign experts on China’s economic development. The country’s central leadership has paid close attention to the China Studies Reports and some recommendations were adopted in their decision-making. As a result, the influence of the China Studies Reports has increased and greater social benefits have been achieved. According to related statistics, fifty-seven issues of China Studies Reports and decision-making information have been submitted to the Party Central Committee and State Council and senior leadership have made sixty-two commentaries, among which fifty commentaries were made by Premiers of the State Council. China Studies Reports have played a very important role in influencing policy decision-making, reflecting the national economy and people’s livelihood, disseminating policy-making knowledge. 2Economic and social transformation in China Great changes have taken place in China’s political policy decision mechanism concerning the economic and social transformation of the country. In the Mao Zedong era, most of the major policy decisions were made by himself, such as the launching of the Great Cultural Revolution, establishing of the third defense line, and the restoration of Sino–US relations. That was a period of personal decision-making. In the Deng Xiaoping era, apart from displaying the core role of Deng Xiaoping, the Party’s collective leadership became increasingly important. That may be regarded as a collective policy decision-making era. Since the 1990s, the policy decision-makers are listening more and more to the experts. This has provided us with a good opportunity for becoming involved in policy and decision-making. China is very special in its economy and society. In the process of modernization, China has met such great difficulties, so many contradictions and such complicated problems that they are not easy to understand or resolve. At present, China is presented with many development opportunities, but also unavoidable challenges. In a word, the uncertainty of risks and the incompleteness of knowledge about the development of China and the world have added to the difficulties and complexity of policy decisions. On June 24, 2002, at an economic experts conference on Chinese economic polices chaired by Premier Zhu Rongji, I made a policy recommendation of “liberating the peasants for the third time”, namely, to liberate the peasants, invest in peasants, transfer peasants, reduce the number of peasants and make peasants rich. Looking back at past events we would find that the leaders who had a profound understanding of agriculture, peasants and rural issues usually made better, more suitable policies as they were most closely based on the national conditions. They have therefore given a big push to China’s development, because only the reforms that benefit the overwhelming majority of the population can be regarded as true reforms. Likewise, only those scholars who have made a profound study of agriculture, peasants and rural issues have achieved real academic attainment, because their knowledge has benefited the people, especially peasants. After studying China’s population, resources, environment, grain and economic development as a whole for a long time, I have arrived at two major understandings. First, the difficulties and crises China has met in its long-term development are more serious and complicated than we have imagined, and that has deepened our knowledge and understanding of the socio-economic reasons and underlying contexts for China’s reform and development. Secondly, solutions for overcoming the difficulties and crises are more difficult and more arduous than we have imagined. It is hard to find a panacea. It is, therefore, necessary to mobilize to the maximum and utilize more rationally all kinds of resources and forces of society to push forward the reform and modernization process fruitfully, firmly and forcefully; there is no going backwards. Meanwhile, it is necessary to tell the people what is really happening, helping the people of the entire country, especially the intellectual stratum, to understand how the sense of backwardness and the sense of crisis concomitant Introduction 3 to the process of opening up to the outside world will clash with the nationalistic consciousness of self-confidence and the sense of self-improvement. This will give rise to a common understanding of the long-term nature, arduousness and painfulness of reform and development. It is necessary to prepare the people for a long, hard struggle to get out of crises and difficulties so as to revitalize the Chinese nation in the twenty-first century. My basic understanding of China’s national conditions is that we should be neither blindly optimistic nor pessimistic about the prospects of China’s future development. Instead, we should take a cautiously upbeat attitude. In the future, we should follow neither radical revolutionary means nor conservative reformist ways. Rather, we should opt for incremental development. We should imitate neither the ways of Western developed countries, nor the traditional modernization models of the former Soviet Union and other socialist countries, nor should we continue along the original models already traversed by China. Rather, we should opt for a unique model of socialist modernization and development best suited to China’s national conditions. People ask me why my recommendations were adopted by the central authorities not long after they were put forward. Policy decision-making by the central authorities is never economic policy decision-making pure and simple, but economic and political policy decision-making. China’s economic problems cannot be studied simply from economic perspectives. Instead, we must study them from the social angle and – especially – from the political angle. I have always held that the regional gap is not only an economic issue, but is or has been a political issue. That is why I approach the issue not merely from the economic perspective as a simple geographical issue, but deal with the issue both from economic and political perspectives. An economist is an “engineer” who brings benefits to mankind. As an intellectual, his biggest contribution to mankind is knowledge. Compared with other scientists and intellectuals, an economist has more opportunities and better conditions for making such contributions. Economics itself is a way of “governing and benefiting the people” by exploring ways of creating wealth. Economic growth theories study why some countries grow faster than others. An economist does not study how to create wealth for individuals, but how to do so for the people and the country. What he provides is a kind of “public good”, namely “knowledge,” which has a strong externality and benefits others and the society. Many issues in China cannot be resolved without approaching them politically. Only when an issue provokes a response from big shots in the policy decision-making process and is turned into public policies, is it possible to finally arrive at a common understanding and resolution of problems. Over the years, the central policy decision-makers have become more and more attentive to the views of experts and common people alike. This is known as making policy decision-making more scientific and more democratic. To make the Chinese nation prosper and the motherland strong is both the goal of my lifelong struggle and the purpose of my academic studies. What I am concerned about are the problems concerning the common people, such as layoff problems, 4Economic and social transformation in China social security problems, peasant income problems, poverty in areas inhabited by minority people, and inflation. Most scholars follow the principle of division of labor. When one studies economic issues, he would never touch upon politics. When one studies macroeconomic problems, he would never touch upon microeconomic issues; when one studies the economy of the United States, he would not care about the economy of Japan. However, my stories are closely associated with China’s reform and opening up because I study China’s national conditions and therefore I must start from the hot issues, the difficult and disputable issues that are in need of urgent solution for economic and social development. What I focus on are the most important issues concerning the development and progress of the entire society instead of limiting myself to any particular discipline or theoretical problems. I hold that an outstanding scholar must lead the social tide instead of just flowing with it. Both scholars and leaders can lead the social tide and promote social development. The difference lies in the fact that scholars lead society by relying on correct ideas and correct views. When the public agrees and accepts our ways, correct thinking and views will play their leading role. Leaders, however, standardize the behavior of the people by taking advantage of state authority, which may be persuasive and coercive. But how to lead the tide? I think this depends on whether or not we can obtain new knowledge. This requires international exchange. It also depends on knowing, absorbing, understanding and accumulating the best knowledge already known to mankind. Here, the personal knowledge-holding capacity plays a crucial role. Thirdly, it depends on the localization of international knowledge. I often quote the latest research achievements in the world. After the World Bank published its World Development Report: Knowledge for Development in 1998, I came out with China’s knowledge development strategy for the twenty-first century, which is regarded as the third generation of the catchingup strategy. Mao Zedong’s heavy industrialization can be regarded as the first generation of the catching-up strategy, which was not very successful. Deng Xiaoping’s reform and opening up may be regarded as the second generation of the catching-up strategy, which was relatively successful. The knowledge development strategy should become a new catching-up strategy to answer the challenges of economic globalization and the development of information technology. I have not only put forward the general strategy for China, but also analyzed the regional gaps in knowledge development, thus evolving the new catching-up strategy for various regions, that is, the knowledge development strategy. The study of national conditions often touches upon the most sensitive issues and those at the forefront of political and economic reform, and the recommendations raised are often forceful and forward-looking. The sharp mastery of the political and economic situation has made my study strikingly synchronized with policy adjustments. It is exactly these acute innovations that have influenced the policy decision-making process and the society as a whole, thus Introduction 5 and US $1260 in 1820. But in China, the per capita GDP was only US $439 in 1950, much lower than the level of the United States when it started industrialization in 1820. At the beginning of the 1950s, the per capita income level of China was much lower than that of industrialized countries in Europe and North America, showing a tremendous development gap. In 1950, the per capita GDP in Western Europe was 10.5 times that of China; the per capita GDP of the United States was 21.8 times that of China; and the per capita GDP of Russia was 6.5 times that of China. Even the per capita GDP of Japan was 4.4 times that of China (see Table 1.2). China’s per capita GDP was also lower than that of India (US $619). China was one of the poorest countries in the world. Over the past half century, China’s economy has experienced rapid growth and began to take wing in 1978. The gap between China and the developed countries in terms of average per capita GDP has been greatly narrowed. In 1998, China’s per capita GDP was US $3117. The gap with Western European countries narrowed to 5.8 times, the gap with the United States narrowed to 8.8 times, the gap with Japan narrowed to 6.6 times, and the gap with the world average narrowed to 1.83 times (see Table 1.2). China demonstrates a catchup model in narrowing the gap with developed countries in modernization (see Figure 1.1). China is one of the countries with the most ancient civilization. Its development history is unique. It has enjoyed long-term prosperity. For a considerably long period of time, China was one of the biggest and the most economically advanced countries in the world. Its position dropped drastically in 1820 and reached its nadir by 1950, but it rose again from 1978. According to the calculation by Maddison, China’s GDP was one-third (32.9 percent) of the world total in 1820 when it reached its peak.7It was an 12 Economic and social transformation in China Table 1.2 Per capita GDP comparisons among selected economies (1820–1998) 1820 1870 1913 1950 1973 1978 1998 Per capita GDP (1990 Geary-Khamis Dollar, PPP) China 600 530 552 439 839 979 3117 Japan 669 737 1387 1926 11439 12581 20413 US 1257 2445 5301 9561 16689 18373 27331 Western Europe 1232 1974 3473 4594 11,534 12674 17921 World 667 867 1510 2114 4104 4382 5709 Per capita GDP comparison (China is 1.0) China 1.0 1.0 1.0 1.0 1.0 1.0 1.0 Japan 1.12 1.39 2.51 4.38 13.63 12.58 6.55 US 2.10 4.61 9.60 21.8 19.89 18.77 8.77 Western Europe 2.05 3.72 6.29 10.46 13.74 12.95 5.75 World 1.11 1.64 2.74 4.82 4.89 4.48 1.83 Sources: A. Maddison, Monitoring the World Economy, 1995; A. Maddison, The World Economy: A Millennial Perspective, OECD: Paris, 2001, Table B–21. Notes: Calculation based on 1990 Geary-Khamis Dollars. economically strong power in the world, followed by India, whose GDP accounted for 16 percent of the world total. France was ranked third, Britain fourth, Germany fifth. But in 1950, the United States ranked first, with its GDP accounting for 27.3 percent, followed by the Soviet Union, Britain, and Germany. China was pushed back to fifth, with its share of GDP in the world total dropping to 4.5 percent. In 1973, the United States and the Soviet Union remained the first two, with Japan ranking third and Germany fourth. China remained fifth. In 1998, the United States stayed in first place while China rose to second, with the share of its GDP in the world total rising to 11.5 percent. Japan was in third place, India fourth, and Germany fifth (see Table 1.3). China was ready for an economic takeoff period at the beginning of the 1980s. From 1978 to 2003, its GDP grew at an average annual rate of 9.3 percent, far higher than the world average. China was one of the fastest growing economies in the world during this period (see Table 1.4). In the 1980s, the world GDP aggregate increased at an average annual rate of 3.3 percent. From 1990 to 2002, it was 2.7 percent. In the same period, China recorded the fastest growth among the world’s major five economies (see Table 1.5). If calculated by PPP, China’s GDP in 2002 was 12 percent of the world total, placing it second, just behind the United States (see Table 1.6). China’s industrialization process has accelerated to the extent that it has become the biggest country in the world in terms of the output of manufactured goods and added values. The growth of economic aggregate in China is, to a large extent, the result of the rapid growth of industry, particularly the manufacturing industry. From 1978 to 2003, the industrial added value grew at an average annual rate of 11.5 percent, much higher than the world average Why has China’s economy grown so fast? 13 6.0 7.0 8.0 9.0 10.0 11.0 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 UK Germany Japan U.S. ROK Thai China Figure 1.1 Per capita GDP comparisons of major countries (1870–1998) Source: A. Maddison, Monitoring the World Economy; A. Maddison, The World Economy: A Millennial Perspective, Paris: OECD, 2001, Table B–21. growth. The world average industrial growth was 3.1 percent in the 1980s and 2.1 percent in 1990–2002. China recorded the fastest industrial growth among the five major powers in terms of production size and added value. Calculated by PPP, China’s industrial added value made up only 3.4 percent of the world total in 1975, but doubled (to 6.8 percent) in 1990 and doubled again in 1995 (to 13.6 percent). By 2002, it already exceeded 20 percent (21.5 percent precisely), when it overtook the United States and ranked first in the world (see Table 1.7). In a word, the past twenty-five years was a period of tremendous changes in China. It witnessed the fastest economic growth, the accelerated speed of 14 Economic and social transformation in China Table 1.3 Percentage of GDP of major countries in the world total (1820–1998) (%) Countries 1820 1870 1913 1950 1973 1998 Western Europe 23.6 33.6 33.5 26.3 25.7 20.6 Britain 5.2 9.1 8.3 6.5 4.2 3.3 France 5.5 6.5 5.3 4.1 4.3 3.4 Germany 3.8 6.5 8.8 5.0 5.9 4.3 US 1.8 8.9 19.1 27.3 22.0 21.9 Former Soviet Union 5.4 7.6 8.6 9.6 9.4 3.4 Japan 3.0 2.3 2.6 3.0 7.7 7.7 China 32.9 17.2 8.9 4.5 4.6 11.5 India 16.0 12.2 7.6 4.2 3.1 5.0 Asia 56.2 36.0 21.9 15.5 16.4 29.5 Latin America 2.0 2.5 4.5 7.9 8.7 8.8 Africa 4.5 3.6 2.7 3.6 3.3 3.1 World 100.0 100.0 100.0 100.0 100.0 100.0 Source: Maddison, The World Economy: A Millennial Perspective, Table B–20. Notes: 1. Data for Asia do not include Japan. 2. Calculation based on 1990 Geary-Khamis Dollar. Table 1.4 Four fastest developing economies during different periods of time in the world Period Country 1870s (a) Germany, Belgium, the Netherlands, and Austria 1880s (a) Germany, Finland, Austria, and Denmark 1970s (a) Botswana, Malta, Singapore, and ROK 1980s (a) ROK, China, Botswana, and Thailand 1990s (b) China (10.3), Vietnam (7.9), Singapore (7.8), and Ireland (7.8) Sources: (a) Data for the nineteenth century are based on the estimates by Maddison, Monitoring the World Economy 1820–1992; data for the twentieth century are based on the estimates by the World Bank; see M. Olson, “Big Bills Left on the Sidewalk: Why Some Nations Are Rich, and Others Poor,” Bijiao (Comparative Studies), 2003, Issue No. 7, pp. 21–38. (b) World Bank, World Development Report 2002: Building Institutions for Markets, New York: Oxford University Press, 2002, pp. 236–237. industrialization and urbanization, and the acceleration of world economic globalization. Unprecedented changes also took place in methods of production, ways of living and ways of thinking, a situation that has never been seen for thousands of years. Sources of China’s economic growth China entered the economic takeoff stage around 1980 and maintained highspeed growth for a generation. What are the sources of China’s economic growth? What determines and affects China’s economic growth? What are the changes in its growth pattern? Domestic and foreign studies show that since reform and opening up to the outside world, the key to higher economic growth compared to economic growth Why has China’s economy grown so fast? 15 Table 1.5 Economic growth comparisons of five major countries (1980–2002) (%) Country GDP (annual) Agriculture value Industry value Service value Added (annual) Added (annual) Added (annual) 1980– 1990– 1980– 1990– 1980– 1990– 1980– 1990– 1990 2002 1990 2002 1990 2002 1990 2002 China 10.3 9.7 5.9 3.9 11.1 12.6 13.5 8.8 India 5.7 5.8 3.1 2.7 6.9 6.0 6.9 7.9 Japan 4.1 1.3 1.3 –2.9 4.2 0.0 4.2 2.2 Russia –2.7 –1.9 –4.5 –0.6 US 3.5 3.3 3.3 3.8 3.0 3.4 3.3 3.7 World 3.3 2.7 2.6 1.8 3.1 2.1 3.5 3.1 Source: World Bank, World Development Indicators 2004 CD-ROM. Notes: Calculated using current international dollars, PPP. Table 1.6 Comparisons of economic indicators of five major countries (2002) Country Per capita GDP PPP % of GDP % of Industry % in GDPPPP (Current in world industry added world’s (Current interGDP in GDP value total international (US $ industry national $) $ billion) billion) value added China 4580 5860.9 12 51.1 2954 21.5 India 2670 2799.6 5.7 26.6 722 5.34 Japan 26940 3425 7.2 30.6 1114 7.51 Russia 8230 1185.6 2.4 33.8 431 2.87 US 35750 10308 21.5 23.1 2604 17.1 World 7867.9 48771 100 28.6 14539 100 Source: Ibid. Notes: Calculated in current international dollars, PPP. prior to reform lies in the surge of total factor productivity (TFP).8An analysis by the author shows that there were four major sources of economic growth from 1978 to 1995: (1) high-speed growth of labor (2.6 percent); (2) high-speed growth of capital stock (9.3 percent, though a bit lower than the growth rate of 11.5 percent from 1952 to 1978); (3) human capital calculated by the average years of education for employment populations above the age of 15 grew at an average annual rate of 2.2 percent; and (4) TFP rose from –1.9 percent before reform (1952–1978) to 3.3–4.5 percent (calculated by different weights of capital or labor), with contribution to economic growth being 33–47 percent. The results of these calculations are fairly close to the major conclusions of international studies, such as that by the World Bank9and Maddison.10 This demonstrates that the high-speed economic growth during reform was not the aftermath of capital growth but because the growth of TFP rose from negative to positive, rising by 5.2–6.5 percent compared with that before reform. In analyzing the sources of economic growth, we have used another method to construct a growth model. This is a comprehensive growth framework covering capital, labor, institutional change, and knowledge. The per capita GDP is used as the variant of output. Capital is the indicator of per capita capital stock, labor is the employment participation indicator to reflect the impact of population change on labor supply, institution is the institutional accumulation indictors (ten indicators), and knowledge is the knowledge accumulation indicators (ten indicators). For the calculation results, please refer to Table 1.8. First, about half of the per capita output growth came from per capita capital growth. The per capita growth was 8.5 percent during this period, assuming a fairly high capital deepening process. This reflects the fact that China’s economic growth was capital driven. 16 Economic and social transformation in China Table 1.7 Percentage of industry value added, export trade of five major countries in the world total (1975–2002) (%) 1975 1980 1985 1990 1995 2000 2002 Industry value added China 3.39 4.05 5.47 6.76 13.6 18.5 21.5 India 2.11 2.19 2.83 3.54 4.44 4.93 5.34 Japan 8.59 8.61 9.00 9.97 8.94 7.97 7.51 Russia 6.54 3.00 3.02 2.87 US 19.5 19.2 18.9 17.6 17.9 17.8 17.1 Export trade China 0.66 0.62 1.34 1.44 2.63 3.54 4.56 India 0.56 0.50 0.54 0.52 0.61 0.80 0.97 Japan 6.22 6.31 8.53 7.34 7.52 6.50 5.56 Russia 2.17 1.81 1.45 1.50 US 13.50 12.20 13.35 12.91 12.80 13.95 12.68 Source: World Bank, World Development Indicators 2004 CD-ROM. Notes: Calculated in current international dollars, PPP. Secondly, one-third of the per capita output growth came from institutional changes. This reflects the fact that reform has been the engine or driving force of economic growth. The growth of the institutional accumulation indicator during this period was 5.2 percent. This indicates a fairly high speed of institutional changes. Thirdly, one-fifth of the per capita output growth came from knowledge development. This shows that knowledge development has become a major source of economic growth, though it may not be the major driving force behind China’s economic growth. The knowledge accumulation indicator growth was 3.7 percent during this period. This was a fairly high speed of knowledge innovation, import, absorption, dissemination, and application. It evidently demonstrates the big country effect. This method of calculation better interprets the sources for China’s economic growth. It implies that institutional changes can be stimulated through reforms, and knowledge development can be promoted through opening up and technical innovation. Thus, policies can be made accordingly to achieve sustainable growth in the future. This means that China should make technology and knowledge, rather than capital and natural resources, the driving forces for economic growth. However, such high and rapid economic growth and growth of TFP did not last. In 1995–2001, the economic growth rate (8.2 percent) was lower than the long-term potential growth rate (9.3–9.5 percent). And since 1995, the sources for China’s economic growth changed substantially. First, employment growth dropped significantly (only 1.2 percent). This indicates that the ability of the economy to absorb labor has weakened, leaving China in the state of high economic growth but low employment growth. Secondly, the capital stock growth rate was 2.5 percentage points higher than that in 1978–1995 and also higher than the growth of 11.5 percent in 1952–1978. Why has China’s economy grown so fast? 17 Table 1.8 Sources of China per capita output growth (1978–1998) Regression Contribution to % of parameter growth (%) contribution Per capita capital stock 0.5 4.136 50.5 Institutional changes 0.578 2.765 33.8 Knowledge development indicators 0.375 1.469 18.0 Total – 8.370 102.3 Source: Xiong, Yi zhishi wei jichu de fazhan zhanlue yanjiu. Notes: Knowledge development index (KDI) consists of three categories of index, capacity for acquiring knowledge, capacity for absorbing knowledge, and capacity for communicating knowledge. Capacity for acquiring knowledge consists of science and technology papers (per million population), patent application by residents (per million population), percentage of net FDI in GDP. Capacity for absorbing knowledge consists of years of education per capita (years), primary education enrollment rate (%), secondary education enrollment rate (%), and higher education enrollment rate (%).Capacity for communicating knowledge consists of popularization rate of television (‰), popularization rate of telephone (including mobile telephone) (‰), and popularization rate of the internet (‰). Capital productivity (economic growth minus capital growth) turned from positive (0.5 percent) to negative (–3.6 percent). In terms of capital deepening, the per labor capital growth was as high as 10.6 percent, which is the fastest in the world and also the fastest capital deepening process, nearly 4 percentage points higher than in 1978–1995. Thirdly, the human capital growth rate was as high as 2.8 percent. During this period, more students were enrolled in senior middle schools and institutions of higher learning in China. China has become the country with the largest number of tertiary school students. Fourthly, TFP dropped significantly to 0.3–2.3 percent (calculated by different weights assigned to capital and labor), dropping by 2–3 percentage points. This shows that the main source for economic growth in 1995–2001 was high capital input, low labor input, and low productivity. What merits attention is the economic situation in 2003, when GDP growth was 9.1 percent, which is close to the long-term potential growth rate. The investment growth rate was 26.7 percent, much higher than the average growth (10.9 percent) in 1979–2001. Investment was apparently heating up. According to the author’s estimates, the capital stock growth in 2003 was 15.8 percent (after accounting for depreciation) and its contribution to economic growth was about 6.3–9.5 percent (calculated by the weights assigned to capital and labor). TFP dropped to 1.1 to –1.1 percent. It was estimated that the contribution of TFP to economic growth in 2003 was likely to be negative, similar to the time when the planned economy prevailed. This shows that although economic growth in 2003 reached the potential growth rate, overheated investment appeared. The investment growth rate was far higher than the economic growth rate. This probably will have a positive investment effect, but more importantly it lowers capital productivity, probably to –6.7 percent. Economic growth was far lower than capital stock growth, thus greatly reducing the growth of TFP. I am concerned about a possible reverse in the process of the transition of economic growth model – reversing to the growth pattern from high-quality, high-efficiency, low-energy consumption and low-pollution emission to lowquality, low-efficiency, high-energy consumption and high-pollution emission. Five major effects that drive China’s rapid economic growth Factors determining economic growth have two different effects. The first is what we call the “horizontal effect,” which refers to a short-term growth effect of capital input under conditions in which technological progress and industrial structures remain unchanged. As long as capital input is increasing, the economic growth level will rise. The second is the “speed effect,” which means that technological progress, industrial restructuring, and changes in economic organizations will generate long-term growth. The horizontal effect has a role to play only in the short term. The speed effect, however, plays a role in long-term growth. The speed effect plays the fundamental role in the economic growth of a country. Since reform, China’s economy has grown in a sustained manner, 18 Economic and social transformation in China exhibiting the speed effect. In fact, five major effects which are interrelated and interact have contributed to the high-speed economic growth for the past quarter of a century. The first effect is the speed effect, i.e., in a given period of time, the industrialization latecomers achieve a higher economic growth than the forerunners. China has been experiencing the fifth catching-up in modern history at a higher growth rate than the prior four catching-ups (see Table 1.1). If we say that the “four little dragons” in East Asia experienced thirty years of high-speed growth after World War II, the highest and the longest lasting growth among lessadvanced countries since industrial revolution, and achieved the “East Asian miracle,” China, once again, broke the record. More significantly, this time the “the miracle” has happened in a country that has one-fifth of the world total population.11 Mankul Orsen discovered from the economic growth data of the nineteenth and twentieth centuries that a poor country may achieve the highest economic growth and the growth rate would increase with the passing of time. In the 1980s and 1990s, China’s economic growth ranked the second and the first among 174 economies in the world. If we compare the 1870s and 1880s with the 1970s, 1980s and 1990s, the four fastest growing economies in the earlier period often showed faster growth than the four fastest growing economies during the late period (see Table 1.4). The structure effect shows that, in a given period of time, the structural indicator of latecomers changes faster than advanced countries. For example, it took Japan eighty years to reduce the percentage of its agricultural labor in the total employment from 70 percent to 50 percent. It took the United States fifty years (in 1820–1870), the former Soviet Union/Russia thirty-three years (from 1917 to 1950) and China only seventeen years (from 1978 to 1995) to achieve the same. The period of 1978–2003 witnessed major changes in the structures of population, employment, production, demand, consumption and trade, with eleven of the sixteen indicators exceeding the changes in 1952–1978 (see Table 1.9). Accelerated growth may stimulate labor to move to the high-level production sectors, and structural changes constitute an important source of economic growth, as the movement of labor from low productivity sectors to the high productivity sectors is always accompanied by the growth of material capital stock, the improvement in the skills of workers, the development of education, organizational improvements, and more openness in international trade. The opening up effect, that is, the participation of industrially less developed economies in globalization, is faster than in advanced countries. According to calculations by Maddison, exports made up only 1 percent of the world total output in 1820 and rose to 8.7 percent by 1913 and further up to 13.5 percent by 1992. The economic takeoff of a country is inevitably accompanied with the rapid rise in total and unit international trade. The share of exports in total GDP of all countries that have achieved economic catch-up rose significantly. This has been proven by Japan, the ROK, Thailand and Taiwan. China began to open up toward the end of the 1970s, transiting from an isolated model that Why has China’s economy grown so fast? 19 was completely cut off from the world economically to a social development model that partially opened up to the rest of the world. The total import and export value in 1978 was US $20.6 billion, accounting for 13 percent of GDP. But by 2003, it topped US $850 billion, 41 times that of 1978, accounting for 60.3 percent of GDP.12 It was only 0.66 percent in 1975, but it quadrupled to 1.44 percent and reached 4.56 percent by 2002 and was likely to top 5 percent by 2003. China has become the fourth largest exporter in the world. This marks the transition from a partially open society to a fully open society. China has caught up with the level of the world great powers from being a country of autarchy. But about half of China’s exports are goods processed with imported materials. If such processing trade is deducted, the opening up of a country like China is still far lower than the global level.13 Since reform, not 20 Economic and social transformation in China Table 1.9 China’s economic structural changes (1952–2003) (%) Indicator 1952 1978 2003 Average Average annual annual change change 1952–1978 1978–2003 Population structure (total) Urban population 12.5 17.9 40.5 0.21 0.90 Rural population 87.5 82.1 59.5 –0.21 –0.90 Employment structure (total employed population) Primary industry 83.5 70.5 49.1 –0.5 –0.86 Secondary industry 7.4 17.3 21.6 0.38 0.17 Tertiary industry 9.1 12.2 29.3 0.12 0.68 Production structure (GDP by production approach) Primary industry 50.5 28.1 14.6 –0.86 –0.54 Secondary industry 20.9 48.2 52.3 1.05 0.16 Tertiary industry 28.6 23.7 33.1 –0.19 0.38 Domestic demand structure (GDP by expenditure approach) Household consumption 65.4 48.8 43.2 –0.64 –0.22 Government consumption 13.5 13.3 12.2 –0.008 –0.04 Capital formation 22.2 38.2 42.9 0.62 0.19 Net export –1.1 –0.3 1.8 0.03 0.08 Household consumption structure (Engel coefficient) Cities and towns 57.5 37.1 –0.82 Rural areas 67.7 45.6 –0.88 Trade ratio (% of GDP) Export 4.0 4.6 31.1 0.02 1.06 Import 5.5 5.2 29.3 –0.01 0.96 Sources: Guojia tongjiju (National Statistical Bureau of China), Xinzhongguo wushinian tongji ziliao huibian (Collection of Statistical Data of the 50 years of New China), Beijing: Zhongguo tongji chubanshe (China Statistics Press), 1999, pp. 1–3, p.60; Guojia tongjiju (National Statistical Bureau of China), Zhongguo tongji zhaiyao 2004 (China Statistical Abstract 2004), Beijing: Zhongguo tongji chubanshe (China Statistics Press), 2004, pp. 16, 37, 41, 98, 158. only have China’s exports grown rapidly, but the export product mix has also undergone tremendous changes. In 1980, China’s primary product exports made up 50.2 percent of the total exports, but by 1985, the percentage dropped to 35.0 percent and further went down to 14.6 percent by 1990. By 2000, it plummeted to 4.7 percent. In the meantime, exports of manufactured goods rose, reaching 87.1 percent of total exports by 2000. The proportion of high-technology exports of total exports rose from 2.6 percent to 22.4 percent. The export volume of all products in world total exports also rose steadily. The proportion of low technological products rose from 4.5 percent in 1985 to 18.7 percent by 2000. The proportion of high-technology products rose from 0.4 percent to 6.0 percent by 2000. This shows that China has exploited its advantages in both laborintensive products export and in the export of high-technology products (see Table 1.10). The institutional effect, that is, the degree of liberalization, has improved significantly and the economic operation has been based on the market mechanism. Where is China in terms of orienting its national economy toward a market economy after twenty-four years of efforts, from 1978 to 2002? How far has China gone in its market-oriented reform during that same period? The experience of China’s reform and opening up shows that the reform is a process in which market mechanisms have played an increasingly large role in the allocation of resources, and the dependency on market mechanisms has been deepened and enhanced. This includes the establishment and improvement of the market infrastructure, the establishment and implementation of institutional market rules and the standardization of the behaviors of market players. Based Why has China’s economy grown so fast? 21 Table 1.10 Export competitiveness of China in world trade (1985–2000) (%) Item 1985 1990 1995 2000 Share of world market 1.6 1.8 4.8 6.1 Primary products 2.4 2.6 2.5 2.3 Resources products 1.1 1.3 2.1 2.7 Non-resources manufactured products 1.5 3.4 6.1 7.8 Low technology 4.5 9.1 15.5 18.7 Middle grade technology 0.4 1.4 2.6 3.6 High technology 0.4 1.4 3.6 6.0 Other 0.7 0.7 1.4 1.8 % in total exports 100.0 100.0 100.0 100.0 Primary products 35.0 14.6 7.0 4.7 Resources products 13.6 8.2 7.4 6.9 Non-resources manufactured goods 50.0 76.2 84.6 87.1 Low technology 39.7 53.6 53.5 47.6 Middle grade technology 7.7 15.4 16.9 17.3 High technology 2.6 7.3 14.2 22.4 Other 1.4 0.8 1.0 1.1 Source: UNCTAD, World Investment Report 2002: Transnational Corporations and Export Competitiveness, New York: United Nations, 2002. The imbalance between resources and environment on the one hand and development on the other The basic characteristics of the national condition of resources in China can be described as large in territory and abundant in resources in aggregate, but on a per capita basis, the amount of resources is very small, and the space for subsistence is very narrow. In terms of resource supplies relative to development demand, there are shortages in many resources and the situation is getting worse. The environmental and ecological problems include worsening soil erosion and water loss. The desertification of land is growing. China is one of the countries with the worst desertification problem. The desertification areas have reached 2.62 million square kilometers, which is 27 percent of the total land area, and the land becomes desertified by an average of 2460 square kilometers every year. The standing stock of forests has dropped drastically. China is one of the countries that have the least forests, with a total forest area accounting for 3.9 percent of the world total and the standing stock of forests accounting for 2.5 percent of the world total. The forest coverage is only 14 percent as opposed to 55.4 percent in Russia. The per capita standing stock of forests is less than 19 cubic meters, accounting for 13 percent of the world’s per capita average. China’s ecological deficit is mainly manifested in the forest deficit. Most of the state-owned forest enterprises have no mature forests to log. Grassland degeneration, desertification and salination have been increasing year by year. Air pollution is very serious and acid rain is affecting increasingly large areas. China is both a large energy consumer and a large polluter. If the energy consumption trend continues, China will become one of the countries with the biggest greenhouse gas emissions in the first half of the twenty-first century.18 Water pollution is becoming more and more serious, thus worsening an already serious shortage of water resources. The deterioration of the ecological environment has exacerbated natural disasters, which have shot up, with more and more areas becoming prone to natural disasters. The economic costs caused by natural disasters in the 1990s accounted for 3 to 5 percent of the GDP. Air and water pollution have also caused losses in human capital and economy. Further, some costs of ecological damage are hard to calculate, such as forest logging, grassland degeneration, water loss and soil erosion, desertification, river runoff reduction, shrinkage of lake surfaces, damages to all kinds of mineral sources and sharp reduction in cultivated land – all of these can cause big losses and overwrite the GDP increment. Imbalance between economic growth and employment growth China is the most populous country in the world. Its population makes up 21.3 percent of the world total population. China also has the largest working population. In 1999, the population aged 15–64 was 844 million, 22.4 percent of the world total. The working population (referring to the employed population and active servicemen) was 751 million, 25.9 percent of the world total.19 China 28 Economic and social transformation in China is, therefore, a country with abundant labor, but also a country with the biggest employment pressures. In the 1990s, China’s economic growth pattern began to transit from high employment growth to low employment growth, with the per capita capital output assuming a downward trend. The new generation of Chinese leaders is well aware of these challenges and their negative effects. In February 2004, Premier Wen Jiabao pointed out that China has achieved rapid economic development but also accumulated a few problems, which mainly include the urban/rural gap, regional disparity and income gaps among residents. These gaps are continuing to enlarge; the pressure of employment and social security is mounting; education, public health, culture and other social undertakings are lagging behind; the conflict between population growth and economic development on the one hand and the ecological environment and natural resources on the other has been exacerbating; the economic growth pattern is backwards; and the quality of the economy as a whole is not high and lacks competitiveness. These problems demand our full attention. They must be resolved step by step and under no circumstances should they be allowed to run their own course. So Wen Jiabao put forth a development approach of “putting people first” that advocates sustainable development.20 Take up all major challenges and foster a new approach to development Since the founding of the People’s Republic of China, we have implemented two generations of economic development strategies. The first generation was the traditional economic development strategy during the period of planned economy. In the mid-1950s, Mao Zedong put forward the strategic conception of “catch-up with Britain and the United States.” In the mid-1960s, he put forward the strategic conception of “Four Modernizations” by the end of the century, introducing “high accumulation, low consumption” policies, giving priorities to the development of heavy industries, including the military industry, adopting capital-intensive guidelines and highly protective import substitution policies. This resulted in a highly conflicted urban–rural dual system. The second generation of development strategies occurred during the transition period. In the 1980s, Deng Xiaoping put forth the idea of a three-step development. The goal of quadrupling the GDP was achieved ahead of schedule. The country made the best use of its comparative advantages in labor resources and pursued an opening-up policy. The policy stimulated export growth and realized a liberalization of trade and investment. The country also introduced market mechanisms and encouraged market competition. This strategy agreed with the national condition of China and accelerated the economic and social development and narrowed the gap with developed countries. But still, the strategy was material-centered, with the pursuit of high-speed economic growth as the primary goal. What Deng Xiaoping advocated was “high-speed development” and “uneven development,” allowing some areas and part of the population to get rich first. But high-speed economic growth was achieved at Why has China’s economy grown so fast? 29 the price of high capital input, high energy consumption and heavy pollution. Concomitant with development was an enlarged urban/rural income gap, a regional development gap and the biggest inequality (Gini coefficient) in the world in terms of the income distribution among residents. Now, Chairman Hu Jintao and Premier Wen Jiabao have put forth the third generation of development strategies, which features harmonious, sustainable development and common prosperity. In fact, the fifth plenary session of the Fourteenth National Party Congress in 1995 already put forth the principle of “coordinated regional development to narrow the regional gaps.” In June 1999, Jiang Zemin put forth the “Western China Development” strategy and began to officially implement the strategy in 2001. This also falls in line with coordinated regional development. The Party’s Sixteenth National Congress officially put forward the development goal of building a well-off society that will benefit the entire population and defined it as “greater economic development, sounder democracy, greater progress in science and education, more flourishing culture, greater social harmony and much improved life of the people.” At an expert forum on June 17, 2003, Wen Jiabao clearly put forward the approach of coordinated development in four aspects, namely, coordinated development of both urban and rural areas; coordinated development among different regions; coordinated social and economic development; and coordinated development between man and nature.21 What development strategies should China adopt to cope with the major development challenges? First of all, it is imperative to achieve urban/rural coordinated development to narrow the enlarging gaps. The first and foremost problem in development is always the problem of peasants. The first and foremost task of China’s development is to transfer peasants by removing institutional barriers and accelerating the pace of urbanization. China needs an institutional revolution of liberating the peasants so as to eliminate at its roots the unequal and unfair situation of isolation, opposition and separation of urban and rural areas. The aim is to free the peasants, invest in the peasants, serve the peasants, transfer the peasants, reduce the number of peasants and make the peasants rich. The state should set up a standard transfer payments system in the rural areas and provide the rural population with basic public services. The state should invest in the rural infrastructure, improve the production and living conditions of rural areas and create more employment opportunities for peasants.22 Secondly, it is imperative to launch western China’s development initiatives and to revitalize the old industrial bases in northeast China so as to narrow the gap between the east and the west and between the south and the north, that is, the development gap between southeast coastal areas and the northeast China area. It is essential to establish a unified and fair domestic market and to promote the free movement of all production factors, especially the movement of labor. It is also essential to accelerate the pace of urbanization to make the urban population exceed that of the rural areas. Only then will it be possible for China to narrow the urban/rural gap and the regional development gap. 30 Economic and social transformation in China Thirdly, it is necessary to promote a “two-wheel drive” in order to solve the imbalance in economic and social development. Economic development is the base for social progress while social progress is the aim of economic development. The two may be compared to “two wheels” that drive the development of human society. The two must be mutually coordinated, and go together. This includes both contemporary development and sustainable development of future generations. It includes both the idea of allowing part of the regions and part of the population to get rich first and the idea of the people in poor areas or at a low level of living standards to enjoy the fruits of social development. It includes both the narrowing of economic gaps and the social development gaps to realize the equalization of basic public services for the people of the whole country. Basic public services, such as education, health, family planning, environmental protection and infrastructure, must meet the minimum demands of all people. The goals of enabling most of the people to live a well-off life and lifting most of the poor population out of poverty are equally important. Only when there is equal service will it be possible to have the most efficient service. It is, therefore, essential to display the leading role of the government in social development. The government should increase its investment in “social software” and reduce investment in hardware so as to make the two kinds of investment well matched. It is essential to shift the emphasis of investment from large-scale public investment (infrastructure) to providing public services, and from materials to human resources. Fourthly, we should improve the ecological environment and attain “green development.” The environment is one of the three major assets for economic development. “Green development” is an inevitable path of development. This stresses unified and harmonized economic development and environmental protection, a path toward sustainable development that puts the people first. Large cities must become “green cities” instead of “black cities;” agriculture must become green agriculture instead of black agriculture; green GDP should be used. The fundamental way out for solving the problem of the deterioration of the ecological environment is to change the economic growth pattern, to follow a new path toward sustainable economic development, the never-ending utilization of resources, the steady improvement of the environment and a good ecological environment. The core lies in a shift in the pattern of development: from traditional industrialization to new industrialization; from traditional industrial cities to knowledge-intensive, technology-intensive and information-intensive cities; and from high consumption that copies from the West to an appropriate and fair consumption model. Fifthly, we must give priority to employment and opt for a growth model focused on employment. The number of laborers in China makes up more than one-quarter of the world total work force, equal to 1.6 times that of highincome developed countries, while the capital resources of China are less than 4 percent of the world total. This means that China should opt for an economic growth model that is centered on employment. Creating more jobs should become the first objective of the central and local governments. Employment Why has China’s economy grown so fast? 31 should be the top priority of economic and social policies. The key to changes in the employment growth model, from formal employment to informal, flexible and diversified employment and to build an open society lies in the promotion of the free movement of personnel, labor and the population. For China, the major challenges in the twenty-first century are not to accelerate growth, but to insure sustainable growth and equity, reduce poverty and promote human development. China should pay attention not only to economic growth, but also to the goal of such growth, namely to meet the increasing material and cultural demand of the over one billion population, including the basic demand for subsistence, especially the population still in poverty, such as food and clothing, employment, education, health and housing, so as to raise the level of human development and enjoy higher standards of living and public services. The idea of “putting people first” means to invest in the people, serve the people, develop the economy for the people. For human development, the goal is to enhance the development capabilities of the people and increase their development opportunities. The future development model for China should be to lift human development indicators and the standard of living to a fairly high level, and gradually realize common prosperity; to eliminate poverty and prevent polarization; to follow a sustainable development road; to build a resourcessaving national economic system and a living system with an appropriate consumption level. Only then will China’s modernization benefit all the people and lead the Chinese people onto the road to common prosperity. 32 Economic and social transformation in China 2 Comprehensive national power (1980–2000) A comparative study of the US, Russia, Japan, India and China1 The art of war is of vital importance to the State. It is a matter of life and death, a road either to safety or to ruin. Hence it is a subject of inquiry which can on no account be neglected. The art of war, then, is governed by five constant factors, to be taken into account in one’s deliberations, when seeking to determine the conditions obtained in the field. These are: (1) The Moral Law; (2) Heaven; (3) Earth; (4) The Commander; (5) Method and discipline. (Sun Tze, The Art of War) Entering into the twenty-first century, economic globalization has been accelerating not only the process of integration of the world economy, but also competition among/between countries, especially among the big powers. International competition manifests itself mainly in dynamic changes in the strategic resources of different countries and open competition between national powers (Zonghe Guoli). They often come into conflict with one another and are locked in contention while being complexly interdependent and interconnected. In the development process, which is quite out of balance, some countries have grown in national power while others are losing. These changes have brought about significant changes to the pattern of the world. The status (or position) of a country in the international community is in essence associated with the rise and fall of its national power, and the increase and decrease of its strategic resources. This has brought us to such issues as: what is the comprehensive national power (CNP) of a country? What strategic resources make up CNP? What kinds of strategic resources are more important in the twenty-first century? What are the advantages and disadvantages of China in strategic resources vis-à-vis other great powers? Where does China stand in the world with regard to CNP? Has it gained or lost in strength over the past twenty years? How is China’s CNP changing compared with the United States, Japan, India and Russia, which are closely associated with China’s national interests and geopolitical strategy? How should China raise its CNP, and how should it make full use of its advantageous strategic resources while constantly improving its disadvantageous strategic resources? What are the objectives of China’s grand strategies, and how can they be achieved? CNP and national strategic resources The concept of CNP CNP generally means the sum total of the power or strengths of a country’s economy, military affairs, science and technology, education, resources and its influence.2More abstractly, it refers to the combination of all the powers possessed by a country for the subsistence and development of a sovereign state, including material and ideational ethos, and international influence as well.3Foreign scholars usually use national power in its specific sense, that is, the strategic capabilities by which a sovereign state uses its overall resources to influence others.4It is the most important indicator in measuring the basic national conditions and resources of a country, and a comprehensive indicator for the economic, political, military and technological powers of a country. Comparing the analysis of CNP by Chinese and foreign scholars, we can draw the following conclusion: CNP has a wider coverage, emphasizing comprehensiveness and all aspects, including material strength, ideational ethos and international influence. “National Strategic Resources” stresses material strength or command power, though it does not ignore completely the importance of ideational ethos or soft power. The Klein equation, for instance, puts the ideational factor in an important place in implementing the will to pursue national strategy. In sum, both CNP and national strategic resources focus on the study of grand strategy; the two concepts have no fundamental differences and may be interchangeable. But there is not yet a unified definition or method for calculating CNP or national power of a country. Ashley Tellis defines national power as a product of the interaction of two components, namely, the capability of a country to command its economic innovation cycle at a given time and to use such command power to form effective military capabilities and, in turn, to create a stable political environment, to intensify existing economic advantages and to provide basic conditions for maintaining its strategic advantages and seeking gains in the international system.5In a word, CNP may be simply defined as the comprehensive capabilities of a country to pursue its strategic objectives by taking actions internationally, and the core factors of the concept are strategic resources, strategic capabilities and strategic outcomes, with strategic resources as the material base. This chapter focuses on national strategic resources with an emphasis on tangible strategic resources or hard power. We will study intangible strategic resources or soft power in another chapter. We define national strategic resources as the real and potential key resources available for realizing the strategic outcomes of a country. They reflect a country’s abilities in utilizing all kinds of resources worldwide and also reflect the country’s CNP. Kenneth Waltz defines powers as the distribution of all kinds of capabilities. In fact, CNP is the distribution of the strategic resources of a country, to mobilize and utilize strategic resources to achieve the strategic objectives of a country. Generally speaking, CNP refers to the sum total of the 34 Economic and social transformation in China strategic resources of a country while the strategic resources of country refer to certain kinds of strategic resources. National strategic resources Michael Porter lists five major resources, namely, physical resources, human resources, infrastructure resources, knowledge resources and capital resources.6 Accordingly, we divide national strategic resources into eight categories, with twenty-three indictors. These indicators constitute CNP. 1) Economic resources We measure economic resources by gross national product (GNP) or gross domestic product (GDP). GNP, as usually used to measure the economic scale, is the value of final goods and services produced by domestically owned factors of production within a given period of time. It includes taxes excluded in total output value minus any subsidies, and major income of non-residents (employment compensation and asset income). GNP also includes GDP and nonresidents’ major incomes. Usually, there are two ways of measuring GDP. One is calculated by the official or nominal exchange rate. This method often underestimates the economic power of developing countries, but overestimates the economic power of developed countries. The other method is calculated by the purchasing power parity (PPP). Sometimes, the US dollar converted using PPP is called the international dollar. The international comparison project (ICP) of the World Bank and the IMF takes 1993 as the base and calculates the GNP of 118 countries and uses PPP to estimate per capita GNP and per capita GDP in terms of the international dollar. 2) Human capital resources Human capital, especially the opportunities and capabilities of acquiring education, is regarded as the determining factor in the process of economic growth. Generally, human capital is expressed in the number of years of education received by the population. The more the number of years of education received, the more skillful the workers and the higher the labor productivity. The rich human resources of developing countries make it easier for them to absorb and use new technologies imported and disseminated from the developed countries.7 The total human capital of a country is expressed in two categories of indicators: one is the number of people and the number of working-aged people, such as people aged 15–64; the other is human capital, which is expressed in the average number of years of education received by people over the age of 15.8These two categories of indicators constitute the total human capital of a country, which is defined as the number of working-aged people multiplied by the average number of years of education received, or defined as the multiplication of labor forces and the average number of years of education received by the population. Labor Comprehensive national power (1980–2000) 35 forces refer to people who are economically active as defined by the International Labor Organization. This includes people who provide labor service to producers and services at a given stage. They include both people with jobs and people without. The estimated figure for females does not have international comparability, because in many developing countries most of the female laborers help with farm work or engage in labor without pay in family businesses. In general, labor forces include soldiers, unemployed people and people who are searching for jobs for the fist time, but do not include family workers or other service workers without pay and people working in non-regular working units. 3) Natural resources Usually, natural resources refer to the abundance, quality, accessibility and costs of major natural resources. Natural resources are the necessary conditions for economic development, but they are limited, possibly becoming constraints on the upper limit of economic growth. Meanwhile, natural resources are regressive, having marginal gains with relatively high ecological costs and external costs to their excavation and utilization. Different resources play quite different roles during different stages of development, but generally assume a downward trend, whereas the roles of knowledge resources assume an upward trend. There are four major indicators for natural resources: (1) arable land, referring to temporary and permanent arable land and permanent farm and pasture defined by the FAO of the UN; (2) fresh water resources, including domestic river water at current volume, underground water accumulated from precipitation and river current volume from river flows in from other countries; (3) commercial energy usage, referring to energy consumption which is equal to domestic production plus imports and inventory changes, minus exports and fuel supplied to ships and aircraft engaged in international transport; and (4) electricity production, measured at the terminals of all alternator sets in a power station. In addition to hydropower, coal, oil, gas, and nuclear power generation, this also includes geothermal, solar, wind, and tide and wave energy, as well as that from combustible renewable material and waste. 4) Capital resources According to the definition given by Michael Porter, capital resources include three major indicators: (1) gross domestic investment, that is, the net changes to spending on fixed assets plus the inventory level in the economy of a country; (2) foreign direct investment (FDI), that is, the net inflows of investment to acquire a lasting management interest in an enterprise operating in an economy other than that of the investor; this is the sum of equity capital, reinvestment of earnings, other long-term capital, and short-term capital, as shown in the balance of payments; and (3) market capitalization (also known as market value), that is, the share price times the number of shares outstanding, which reflects the size of the financial market.9In this chapter, we have converted domestic 36 Economic and social transformation in China investment into international dollars, but the other two indicators are calculated in US dollars. 5) Knowledge and technology resources We deem knowledge and technology resources the most important strategic resources. In the twenty-first century, the world entered into a knowledge and information era. Knowledge and technology resources are becoming more and more important. Knowledge and technology resources include five major indicators: (1) number of scientific thesis, including number of thesis published in about 4,800 international academic publications, which reflect the knowledge innovation capability of a country; (2) patent applications by domestic residents, which reflect the technology innovation capability of the country; (3) number of personal computers (PCs), which shows the country’s capabilities of applying new technologies; (4) Internet hosts, i.e., computers with active Internet protocol (IP) addresses connected to the Internet, which reflect the capabilities of a country in information dissemination; and (5) government spending on R&D, that is, the potential knowledge and technology innovation capabilities of a country in the long run. These five indicators present a full picture of a country in promoting knowledge innovation and dissemination, technology innovation and proliferation in the information era. 6) Government resources Due to limitations by quantitative indicators, we use only one indicator here, that is, the fiscal spending of the central government, which includes both current and capital spending, both commercial and service spending and spending on both non-financial public undertakings and public organizations. This reflects the ability of a national government to mobilize and utilize resources. 7) Military power Military power is an important component of CNP. It reflects the abilities of a country to maintain social stability and prevent separatism. It also reflects the external power of a nation in seeking the maximization of interests abroad. Military power is also a kind of “output” of national power.10 It is an extremely important strategic asset, because military power is not only an explicit function of CNP, but also an expressive function of the will of a state. Military resources have two categories of indicators: (1) military expenditures which cover military-related expenditures of the Ministry of Defense and other ministries (including recruiting, training, construction, and the purchase of military supplies and equipment), excluding civil expenditures of the Ministry of Defense; and (2) armed forces personnel which refers to military personnel on duty and quasi military personnel. However, the two indicators cannot reflect the quality of military resources of a country. Comprehensive national power (1980–2000) 37 inevitably make China its strategic rival. It is, therefore, necessary to adopt precautionary and containment strategies against China. Paul Kennedy, a Professor at Yale University, holds that China is perhaps the only country that will constitute real challenges to the dominance of the United States.15 Japan, however, has already seen China as a real strategic threat, so it has strengthened its strategic alliance with the United States against China. China has always been a major strategic threat to India, and India has long maintained its military spending at about 2.4–3.5 percent of its GDP. Russia, due to the rapid decline in its CNP, has found its gap with China enlarging. At present, Russia’s strategy is favorable to China, yet its future strategy is not clear. All the above shows that over the past two decades, China’s CNP has been rising rapidly, and with its strategic resources and environment improving, China is becoming more powerful in terms of CNP than its neighboring great powers (see Figure 2.1). But the latent strategic conflict between China and the United States is increasing. Dynamic evaluation of China’s strategic resources Our initial computation results show: First, computed by PPP, the percentage of China’s economic resources in the world’s aggregate has been rising swiftly, with the relative gap to the United States narrowing significantly. China has not only become the largest emerging economy and market, but also will become the world’s largest economic entity. 44 Economic and social transformation in China 0 25 20 1980 1985 1990 1995 2000 15 10 5 China India Japan Russia U.S. Figure 2.1 Percentage of comprehensive national power in world total (1980–2000) Source: World Bank, World Development Indicators 2002. According to the statistics of Guojia tongjiju (China’s State Statistical Bureau), China’s GDP in 2000 was 7.3 times that of 1978, averaging an annual growth of 9.5 percent.16 China’s GDP increased by nearly eight times (7.9 times) between 1978 and 2001. Calculated by the PPP international dollar (current price), China’s GDP accounted for 2.78 percent of the world total in 1975, lower than the Soviet Union (no. 2 in the world) and Japan (no. 3 in the world). By 1990, however, the percentage rose to 5.63 percent, outstripping Russia to rank after Japan. By 1995, the figure rose to 8.87 percent, replacing Japan as second in the world, outranked only by the United States. By 2000, the figure rose to 11.16 percent (see Table 2.3), 8.38 percentage points higher than in 1975 when China’s GDP was only 12.3 percent of the GDP aggregate of the United States. According to the 2000 Global Competitiveness Report by the World Economic Forum and the International Development Institute of Harvard University, the top ten countries in terms of GDP in the world for 1999 (calculated by PPP international dollars) were U.S.A. (100), China (51.2), Japan (34.7) Germany (21.4), India (20.8), France (15.0), UK (14.5), Italy (14.4), Brazil (12.3) and Russia (11.0).17 According to a study by Angus Maddison, based on 1990’s PPP international dollar, the study showed that in 1978, China’s GDP accounted for 4.9 percent Comprehensive national power (1980–2000) 45 Table 2.3 Economic resources of China, US, India, Japan and Russia (1975–2000) Country 1975 1980 1985 1990 1995 1998 2000 GNI (PPP, $ billions) China 212 414 821 1520 3080 3850 4966 India 266 441 683 1170 1740 2030 2432 Japan 598 1050 1490 2350 2910 2940 3354 Russia – – – 1460 1050 948 1168 US 1730 2880 3880 5620 7200 8000 9646 World total 7623 13115 17955 26967 34730 37595 44506 Percent of GNI in world total China 2.78 3.16 4.57 5.63 8.87 10.23 11.16 India 3.49 3.36 3.80 4.35 5.02 5.41 5.46 Japan 7.85 8.04 8.27 8.73 8.38 7.82 7.54 Russia – – – 5.43 3.02 2.52 2.62 US 22.71 21.96 21.60 20.85 20.73 21.29 21.64 Five in total – – – 44.99 46.02 47.27 48.42 Source: World Bank, World Development Indicators 2004 CD-ROM. Notes: Gross National Income (GNI) is the sum of value added by all resident producers plus any product taxes (less subsidies) not included in the valuation of output plus net receipts of primary income (compensation of employees and property income) from abroad. Data are in current US dollars converted using the World Bank Atlas method. PPP GNI is gross national income converted to international dollars using purchasing power parity rates. An international dollar has the same purchasing power over GNI as a US dollar has in the United States. See World Bank, World Development Indicators 2004, Washington DC: World Bank, 2004, p. 17. Data for 2000 are those of the Gross National Income (GNI). of the world total, 11.5 percent higher than in 1998.18 The GDP of the United States in the world total rose from 21.6 percent to 21.9 percent; that of Japan rose from 7.6 percent to 7.7 percent; that of Russia dropped from 9.0 percent to 3.4 percent; and that of India rose from 3.3 percent to 5.0 percent. The percentage of China’s GDP in the total of the United States rose from 22.7 percent to 52.5 percent.19 The above evaluations show that, calculated by the PPP international dollar, China’s current GDP is one-tenth of the world total, or one-half that of the United States. This is the basic estimation of China’s economic strength (or relative economic strength). China is the country with the greatest potential for development in the world. That is the basic reason why its CNP has been rising steadily. According to the 2000 Global Competitiveness Report, of the fifty-nine major countries surveyed from 1990 to 1999, China ranked first in per capita GDP growth, with 11.3 percent. India ranked the twelfth; U.S.A., the twenty-fourth; Japan, the forty-fourth; and Russia fifty-sixth, with –6.43 percent and per capita GDP dropping by 75.2 percent.20 According to World Bank statistics, China has a great potential in its longterm growth. Take for instance the period from 1965to 1999 (including the ten-year great cultural revolution). Given the world economic growth as the average (1.00), China’s GDP growth potential index was 2.45, and its per capita GDP growth potential was 4.00. The indices for India were 1.40 and 1.50; those for Japan were 1.24 and 2.13; and those for the U.S.A. were 0.91 and 1.25 (see Table 2.4). Based on the aforesaid growth potential, China will become the biggest economic entity in the world by 2020, with its GDP making up 22.2 percent of the world total, higher than that of the United States at 19.96 percent (see Table 2.5). According to estimates by Maddison, China’s GDP would exceed that of the United States by 2015. China’s GDP would make up 17.4 percent of the world total and that of the United States, 17.3 percent.21 The World Bank estimates show that China will outpace the United States in GDP by 2020. All the estimates show that if China maintains relative social stability and realizes a sustainable economic growth, it is possible for China to become the largest economic power in the world in twenty years. The steady rise in economic strategic resources is the most important basis for rising CNP. For more than twenty years, the rising percentage of China’s GDP in the world total has played the biggest role in boosting the newly added CNP index, with a contribution of 46.4 percent. Secondly, China has the richest human capital in the world, which is the strongest of all national strategic resources. According to the national population census, the percentage of the population aged 15–64 was 61.5 percent in 1982, but rose to 70.15 percent by 2000. The growth of the population aged 15–64 in the same period was 1.97 percent, higher than the natural growth of the population (1.23 percent). The number of years of education received by people at and above 15 years rose from 4.61 in 1982 to 7.11 in 2000, rising by 54 percent. The total human capital rose from 2.88 billion/year in 1982 to 46 Economic and social transformation in China 6.314 billion/year by 2000, more than doubling. Of this, the contribution by population change factor (growth of population aged 15–64) was 45.2 percent. The contribution by the rise in educational level (growth in the number of years of education received by the population) was 54.8 percent. China’s percentage of total human capital in the world total rose from 17.6 percent in 1980 to 24.0 percent in 2000 (see Table 2.6), doubling that of India and 2.8 times that of the United States. This shows that China has become a No. 1 big power in terms of population and total human capital. This is the biggest advantage in its national strategic resources. The contribution by human capital to rising CNP over the past twenty years ranked third or about one-fifth (21.0 percent). The full utilization of human capital will be an extremely important development strategy in the future. Thirdly, China is a big power in terms of natural resources, ranking second in the world in the actual utilization of major natural resources. China’s power consumption in the world total has risen significantly, rising from 3.15 percent in 1980 to 8.83 percent in 2000, ranking it second in the world. The percentage Comprehensive national power (1980–2000) 47 Table 2.4 Five countries economic growth trend Country GDP growth Per capita Growth potential index (1965–1999) GDP growth (1965–1999) GDP Per capita GDP China 8.1 6.4 2.45 4.00 India 4.6 2.4 1.40 1.50 Japan 4.1 3.4 1.24 2.13 Russia – – – – US 3.0 2.0 0.91 1.25 World total 3.3 1.6 1.00 1.00 Source: World Bank, World Development Indicators 2001, New York: Oxford University Press, 2001, Table 1.4. Notes: Growth potential index refers to the ratio of growth of all countries to the average growth in the world. Table 2.5 Predicted long-term economic growth trend of the five countries (1998–2020) Country GDP (billion US dollars, 1998) Percent in world total 1998 2010 2020 1998 2010 2020 China 3850 9803 17057 10.23 17.66 22.20 India 2030 3482 5460 5.41 6.27 7.11 Japan 2940 4762 7116 7.82 8.58 9.27 Russia 948 1202 1466 2.52 2.17 1.90 US 8000 11406 15329 21.29 20.55 19.96 World total 37595 55505 76796 100.0 100.0 100.0 Notes: Author’s estimation based on World Bank, World Development Indicators 2001 CD-ROM, 1965–1999 data. of commercial energy in the world total also rose, from 8.18 percent in 1980 to 11.56 percent in 2000, ranking it second in the world. But the percentage of sowing area of crops has been falling steadily, dropping from 17.01 percent in 1980 to 12.76 percent in 2000, also ranking it second in the world, lower than India. But its percentage of water sources remains unchanged. China’s natural resources in the world rose from 8.54 percent in 1975 to 9.74 percent in 2000, ranking it second in the world in terms of available natural resources, only after the United States (see Table 2.7). China’s percentage of natural 48 Economic and social transformation in China Table 2.6 Human capital of five countries (1975–2000) (% in world total) Country 1975 1980 1985 1990 1995 2000 Working age population (% of total) (a) China 22.2 22.6 23.3 23.6 23.2 22.4 India 14.9 15.2 15.4 15.7 15.9 16.2 Japan 3.27 3.03 2.83 2.67 2.48 2.30 Russia 3.93 3.65 3.35 3.09 2.81 2.69 US 5.99 5.80 5.44 5.10 4.88 4.76 Five-country total 50.3 50.3 50.3 50.1 49.2 48.4 Average years of school (b) China (c) 4.38 4.61 4.94 5.51 6.08 7.11 India 2.70 3.27 3.64 4.10 4.52 5.06 Japan 7.78 8.51 8.74 8.96 9.23 9.47 Russia 9.27 9.23 9.77 10.5 9.77 10.0 US 9.69 11.9 11.6 11.7 11.9 12.11 World average 5.54 5.92 6.17 6.43 6.44 6.66 Total human capital (billion/person/year) China 2.25 2.70 3.35 4.17 4.95 6.00 India 0.934 1.29 1.62 2.06 2.52 3.08 Japan 0.59 0.67 0.72 0.77 0.804 0.819 Russia 0.844 0.874 0.951 1.04 0.964 1.02 US 1.35 1.79 1.83 1.92 2.04 2.16 World total 12.8 15.4 17.9 20.7 22.6 25.0 Share of total human capital in worlds total China 17.5 17.6 18.7 20.2 21.9 24.0 India 7.27 8.40 9.06 9.98 11.1 12.3 Japan 4.60 4.36 4.01 3.73 3.55 3.27 Russia 6.57 5.69 5.30 5.05 4.26 4.06 US 10.5 11.6 10.2 9.30 9.01 8.60 Five-country total 46.5 47.7 47.2 48.2 49.8 52.2 Source: (a) World Bank, World Development Indicators 2004 CD-ROM; (b) R. Barro and J. Lee, “International Data on Educational Attainment Updates and Implication,” NBER Working Paper, 2000; (c) data for China from Guojia tongjiju (National Bureau of Statistics of China), Zhongguo tongji zhaiyao 2001 (China Statistical Abstract 2001), Beijing: Zhongguo tongji chubanshe (China Statistics Press), 2001, p. 36. Notes: Working age populations refer to the population ages 15–64. Average years of school refer to the average years of education for those over 15. Total human capital refers to the working age population times the average years of school. Table 2.7 Natural resources of five countries (1975–2000) (% in world total) Country 1975 1980 1985 1990 1995 2000 Electricity production (kwh) China 3.15 3.82 4.43 5.54 7.86 8.83 India 1.33 1.46 1.89 2.47 3.17 3.53 Japan 7.35 6.99 6.87 7.25 7.45 7.05 Russia – 9.82 9.91 9.23 6.52 5.71 US 31.23 29.63 27.02 27.12 27.02 26.09 Five in total – 51.72 50.12 51.61 52.02 51.22 Commercial energy use China 8.18 8.68 9.18 10.07 11.84 11.56 India 3.51 3.5 3.76 4.18 4.82 5.08 Japan 5.19 5.01 4.73 5.1 5.49 5.31 Russia 10.24 11.03 11.7 10.5 6.9 6.21 US 27.98 26.17 22.94 22.37 23.06 23.26 Five in total 55.1 54.39 52.31 52.22 52.11 51.41 Arable land China 17.01 16.3 14.87 15.79 12.96 12.76 India 17.58 17.85 17.44 17.31 14.45 14.98 Japan 0.52 0.47 0.45 0.42 0.34 0.31 Russia – – – – 7.65 6.75 US 12.51 12.28 12.2 11.08 8.62 8.84 Five in total – – – – 44.02 43.64 Freshwater resources China 5.8 5.8 5.8 5.8 5.8 5.8 India 3.91 3.91 3.91 3.91 3.91 3.91 Japan 0.88 0.88 0.88 0.88 0.88 0.88 Russia 9.22 9.22 9.22 9.22 9.22 9.22 US 5.09 5.09 5.09 5.09 5.09 5.09 Five in total 24.9 24.9 24.9 24.9 24.9 24.9 Total natural resources China 8.54 8.65 8.57 9.30 9.62 9.74 India 6.58 6.68 6.75 6.97 6.59 6.88 Japan 3.49 3.34 3.23 3.41 3.54 3.39 Russia – – – – 7.57 6.97 US 19.20 18.29 16.81 16.42 15.95 15.82 Five in total – – – – 43.26 42.79 Source: World Bank, World Development Indicators 2004 CD-ROM. Notes: Electricity production is measured at the terminals of all alternator sets in a station. Freshwater resources refer to total renewable resources, broken down between internal flows of rivers and groundwater from rainfall in the country, and river flows from other countries. Freshwater resources per capita are calculated using the World Bank’s population estimates. Commercial energy use refers to apparent consumption, which is equal to indigenous production plus imports and stock changes, minus exports and fuel supplied to ships and aircraft engaged in international transport. Arable land includes land defined by the Food and Agriculture Organization of the United Nations (UNFAO) as land under temporary crops (double-cropped areas are counted once), temporary meadows for mowing or for pasture, land under market or kitchen gardens, and temporarily fallow land. Land abandoned as a result of shifting cultivation is excluded. Total natural resources equal all natural resources plus weight average (in all the cases, weight average is 25%). resources in the world total rose by only 1.09 percentage points, with their contribution to the newly added CNP being only 2.9 percent. This also reflects the fact that the percentage of China’s population is higher than the percentage of natural resources in the world total, but the per capita natural resources and utilization are lower than the world’s average, without any comparative advantages. Fourth, the percentage of China’s capital resources in the world total has risen rapidly, with greater potential to tap. At the beginning of reform, China was relatively short of capital resources. In 1980, the total domestic investment made up only 4.4 percent of the world total. There was no foreign direct investment and there was no capital market. Its capital resources accounted for only 2.21 percent of the world total. With opening up to the outside world and the development of the financial market, this percentage rose to 3.87 percent in 1990 and up to 10.14 percent by 2000 (see Table 2.8). Compared with the United States, the amount of domestic investment in the world total was slightly higher than the United States. China’s foreign exchange reserves were more than the United States. But the capital market (market value of the stock market) was far lower than the United States. In 2000, the market value of the U.S. stock market was twenty-six times that of China’s. Conversely, China has great potential in the development of its capital market, depending on how to open up, develop and standardize the capital market. Fifth, China is poor in knowledge and technological resources, the weakest of all its national strategic resources. In 1980, China’s knowledge and technological resources accounted for only 0.79 percent of the world total. In the 1990s, China’s knowledge and technological resources in the world total rose to 2.82 percent due to the rapid increase in mobile phones. But in the same period, the percentage of the United States was 35.19 percent and that of Japan, 14.7 percent. China’s knowledge innovation capabilities (number of scientific papers) were very low, accounting for only 2.21 percent of the world total. Technical innovation capabilities (number of patent applications filed by residents) accounted for only 2.82 percent of the world total (see Table 2.9). In reality, only 0.2 percent and 0.1 percent of the patents filed by Chinese residents were approved by the United States and Europe, respectively. Over the past dozen years, about 75 percent of the Nobel prize winners in the natural sciences, economics and sciences of medicine did research or lived in the United States. Most of the information on the Internet came from the United States.22 In 1999, the number of scientists and technical personnel in China reached 2.91 million, including 1.59 million scientists and engineers.23 According to the World Bank statistics, there were 1.02 million scientists and engineers engaged in R&D in the United States. The number in Japan was 620,000. China ranked third, with 570,000; Russia, 520,000; and India, 150,000.24 No matter how it was counted, China was lower than the other four major powers in terms of the number of papers and patents. This shows that although China has relatively abundant numbers of scientific and technical personnel (ranking third in the world), the current scientific and technical system has not shaken off the shadows 50 Economic and social transformation in China Table 2.8 Capital resources of five countries (1975–2000) (% in world total) 1975 1980 1985 1990 1995 2000 Gross capital formation China 3.45 4.41 7.61 8.32 16.26 18.23 India 2.92 2.73 3.96 4.56 5.77 4.66 Japan 10.56 10.29 10.26 11.99 10.76 10.20 Russia – – – 6.96 3.15 5.02 US 16.19 17.43 19.16 14.99 16.07 16.22 Five in total – – – 46.82 52.01 54.33 Market capitalization of listed companies China 0 0 0 0 0.24 1.80 India – – – 0.41 0.71 0.46 Japan – – – 31.0 20.6 9.81 Russia – – – – 0.09 0.12 US – – – 32.6 38.6 46.92 Five in total – – – 64.01 60.24 59.12 Net FDI China 0 0 5.12 5.46 40.27 10.39 India 0.56 0.26 0.35 0.22 2.62 0.72 Japan – 0.21 0.78 0.51 0.01 0.34 Russia – – – 0 1.6 0.74 US 6.83 28.6 21.5 18.1 15.6 16.59 Five in total – – – 24.29 60.1 28.78 Capital resources China 1.73 2.21 3.81 3.87 10.0 10.14 India 1.74 1.50 2.16 2.0 2.7 2.22 Japan 5.28 5.25 5.52 14.4 10.5 7.12 Russia – – – – 1.5 2.27 US 11.51 23.02 20.33 23.4 23.8 25.54 Five in total – – – 43.67 48.5 47.29 Source: World Bank, World Development Indicators 2004 CD-ROM. Notes: Gross capital formation consists of outlays on additions to the fixed assets of the economy plus net changes in the level of inventories. Fixed assets include land improvements (fences, ditches, drains, and so on); plant, machinery, and equipment purchases; and the construction of roads, railways, and the like, including schools, offices, hospitals, private residential dwellings, and commercial and industrial buildings. Inventories are stocks of goods held by firms to meet temporary or unexpected fluctuations in production or sales, and “work in progress.” According to the 1993 SNA, net acquisitions of valuables are also considered capital formation. Foreign direct investment is net inflows of investment to acquire a lasting management interest (10 percent or more of voting stock) in an enterprise operating in an economy other than of the investor. It is the sum of equity capital, reinvestment of earnings, other long-term capital, and shortterm capital as shown in the balance of payments. Gross capital formation (gross domestic investment in previous editions) is the sum of gross fixed capital formation, changes in inventories, and acquisitions less disposals of valuables. Market capitalization of listed companies (also known as market value) is the share price times the number of shares outstanding. The weighted average of the data for 1975–1985 is all calculated by 0.5; that of data for other years is calculated by capital resources = 0.4 ×domestic investment + 0.3 ×capital market +0.3 ×net FDI; capital market refers to the market value of stocks (US dollar). Table 2.9 Knowledge and technology resources of five countries (1980–2000) (% in world total) Country 1980 1985 1990 1995 2000 Personal computers installed in education China 0.37 1.14 4.24 India 0.2 0.5 0.97 Japan 5.56 6.28 8.44 Russia 0.38 1.08 1.32 US 40.67 35.91 34.76 Five in total 47.18 44.91 49.72 Patent applications residents China 1.61 (1996) 2.82 India 0.23 (1996) 0.10 Japan 46.88 (1996) 42.83 Russia 2.49 (1996) 2.61 US 15.39 (1996) 19.34 Five in total 66.6 (1996) 67.69 Scientific and technical journal articles China 0.33 0.54 1.02 (1989) 1.42 2.21 (1999) India 3.49 2.69 2.28 (1989) 1.8 1.74 (1999) Japan 7.47 8.31 8.87 (1989) 9.04 9.05 (1999) Russia 3.93 2.96 (1999) US 39.37 38.64 38.03 (1989) 32.68 30.93 (1999) Five in total 48.87 46.89 (1999) Internet users China 0.02 0.15 India 0.01 0.08 Japan 2.83 3.75 Russia 0.23 0.22 US 63.68 66.41 Five in total 66.77 70.61 R&D expenditure China 1.25 1.34 1.67 2.53 4.69 India 0.96 1.33 1.52 1.71 2.82 Japan 8.99 10.02 11.51 11.59 9.44 Russia 1.07 1.10 US 26.01 27.12 25.12 25.27 24.50 Five in total 42.17 42.55 Total technology resources in world total China 0.79 0.94 1.01 1.34 2.82 India 2.23 2.01 1.23 0.85 1.14 Japan 8.23 9.17 8.56 15.32 14.70 Russia 0.00 0.00 0.08 1.76 1.64 US 32.69 32.80 34.26 34.59 35.19 Five in total 44.88 53.86 55.49 Source: World Bank, World Development Indicators 2004 CD-ROM. Notes: Scientific and technical journal articles refer to scientific and engineering articles published in the following fields: physics; biology; chemistry; mathematics; clinical medicine; bio-medical research; engineering and technology; and earth and space sciences. Expenditures for R&D are current and capital expenditures on creative, systematic activity that increases the stock of knowledge. Included are fundamental and applied research and experimental development work leading to new devices, products, or processes. Patent applications filed are applications filed with a national patent office for exclusive rights for an invention – a product or process that provides a new way of doing something or offers a new technical solution to a problem. A patent provides protection for the invention to the owner of the patent for a limited period, generally twenty years. The weighted average of the data for 1980 and 1985 is 0.5 that of data for 1990 is 0.33; that of data for 1995 and 1998 is 0.2. of the planned economic model, thus greatly restricting innovation capabilities and labor productivity. That is why China is not a big power in terms of scientific innovation or in technological innovation. Sixth, China is the lowest of the five major powers in terms of the percentage of governmental resources, and the percentage is dropping steadily (see Table 2.10). In 1980, China’s expenditure on central finance made up only 1.84 percent of the world total, less than one-tenth of the United States, or 1.03 percent less than in 1995, barely half of India and Russia. In 2000, it was only 2.60 percent of the world total. The fiscal capabilities of the central government of China were barely one-sixth of the United States, far lower than the percentages of other types of resources in the world total. As a big populous power, China requires that the government should provide all kinds of public goods and services. As the biggest developing country, China requires that the government should invest in infrastructure and telecom facilities. As a country with the biggest regional disparities, the government should coordinate the development of different regions and promote the development of areas inhabited by national minorities. As the third largest country in terms of territorial land and seas and with a dozen neighbors that are still in a state of conflict, the government should have the necessary defense spending. Low fiscal capability cannot solve the above problems. This is the “fatal point” in China’s strategic resources. Seventh, China ranks first in terms of military personnel but it has a downward trend, dropping from 18.25 percent in 1985 to 11.32 percent in 2000 (see Table 2.11). According to the World Bank, China’s military spending accounted for 11.50 percent of the world total while that of the United States accounted Comprehensive national power (1980–2000) 53 Table 2.10 Governmental resources of five countries (1975–2000) (% in world total) Country 1975 1980 1985 1990 1995 2000 Central government expenditure (% of GDP) China 13.66 14.74 8.87 5.42 3.41 6.01 India 10.95 12.25 15.18 15.96 14.48 16.70 Japan 14.72 18.38 17.23 15.70 – – Russia – – – – 25.37 22.9 US 21.01 22.02 24.14 23.49 22.64 19.2 Five in total 23.04 25.34 27.51 26.17 29.58 6.01 Central government expenditure (% of world total) China 1.65 1.84 1.48 1.16 1.03 2.60 India 1.66 1.63 2.10 2.66 2.46 3.54 Japan 5.01 5.83 5.18 5.24 7.06 7.06 (a) Russia 2.60 2.33 US 20.7 19.1 19.0 18.7 15.9 16.13 Five in total 29.05 31.66 Source: World Bank, World Development Indicators 2004 CD-ROM. Notes: Central government expenditure includes both current and capital (development) expenditures and excludes lending minus repayments. (a) Data of 1995. 3 Why has China’s TFP dropped in 1995–2001?1 China began to enter the economic takeoff stage around 1980 and has since maintained high economic growth for a good generation of people. The economic growth rate reached as high as 9.1 percent in 2003. Is China’s economy overheated? Are China’s investments overheated? There are two diametrically opposed views that have aroused extensive concerns and disputes at home and abroad. So we need to concentrate on the following problems: Can China sustain its high growth in the future? Can China realize high-quality and high-efficiency high growth? What are the sources of China’s economic growth? What determines and affects China’s economic growth? How will its economic growth pattern change? How should China transit from low-quality high-growth to highquality high-growth? Historical experience: TFP is the key to economic growth Studies at home and abroad show that China’s economic growth has been higher following reform and opening up in that the Total Facts Productivity (TFP) has been rising sharply.2After analysis, we have found that there are four sources for China’s economic growth: (1) high growth of the labor force (2.6 percent); (2) high growth of capital stock (9.3 percent), but lower than the 11.5 percent from 1952 to 1978; (3) high growth of human capital, which is 2.2 percent if calculated by the number of years of education received by people above 15 years of age; (4) high growth of TFP, which has risen from –1.9 percent from 1952 to 1978 to 3.3–4.6 percent, calculated according to the weighted average of different capital or labor, and contributed to 33–47 percent of economic growth. The results of the calculation are fairly close to the conclusions arrived at by major studies in the world, such as the World Bank3and Maddison.4 This has explained why high economic growth appeared at the beginning period of China’s reform. Such growth is attributable mainly to TFP, which turned from negative to positive, rising by 5.2–6.5 percentage points, rather than capital growth, which dropped 2.2 percentage points. Changes in the growth pattern in recent years: significant drop in TFP But such high growth and TFP growth did not continue. After 1995, major changes took place in the sources of economic growth. Up to the present, no Chinese or foreign scholars have given this problem any analysis and attention. The main reason for this is that when analyzing economic growth sources, the selection of either the 1978–1995 period or the 1978–1999 period all contain one important presumption, that the economic growth pattern after reform and opening up has basically remained unchanged, or did not change much to affect the long-term growth equation. We hold that this presumption is applicable only to the 1978–1995 period, but not to the period after 1995. Economic growth (8.2 percent) from 1995 to 2001 was lower than the longterm potential growth (9.3–9.5 percent). Since that time, major changes have taken place in the sources of growth: (1) employment growth has dropped significantly, to only about 1.2 percent, giving rise to a situation characterized by high economic growth but low employment growth, indicating a drop in the ability to absorb labor; (2) high growth in capital stock (11.8 percent), 2.5 percentage points higher than in 1978–1995 or slightly higher than in 1952–1978 (11.5 percent). As a result, capital productivity (economic growth minus growth of capital stock) has turned from positive (0.5 percent) to negative (–3.6 percent), dropping by 4.1 percentage points, indicating a capital deepening process5and the per capita capital growth reached as high as 10.6 percent, the fastest capital deepening process in the world, almost 4 percentage points higher than in the 1978–1995 period. This has given rise to substitution of capital for labor and capital excluding labor. (3) Human capital has grown by 2.8 percent: enrollment of senior secondary schools and tertiary schools has expanded, with the total enrollment in tertiary education ranking first in the world in 2003. (4) TFP dropped sharply by 2–3 percentage points to about 0.3–2.3 percent (calculated according to different weights of capital and labor). These show that the main sources of economic growth in the 1995–2001 period were capital input and low labor input. Both capital productivity and TFP dropped significantly. What merits attention is the economic situation in 2003. GDP growth was 9.1 percent, close to the long-term growth potential (9.3–9.5 percent). Investment growth was 26.7 percent, far higher than the average growth (10.9 percent) in the 1979–2001 period. This shows that investment was already overheated. The authors estimate that the growth of capital stock over the year was 15.8 percent (depreciation factor taken into account), with the contribution to economic growth being about 6.3–9.5 percent (determined by weight of capital and labor). TFP growth dropped to 1.1 to –1.1 percent (see Table 3.1). It is estimated that the contribution by TFP for the whole year might be negative, similar to the planned economy period. This shows that, although economic growth in 2003 reached its potential growth, the economy as a whole was not overheated, but there was already overheated investment, with investment growth much higher than economic growth. This cannot produce a good investment effect; it can Why has China’s TFP dropped in 1995–2001? 61 only lower sharply the capital productivity growth, estimated at about –6.7 percent. Economic growth is much lower than capital stock growth, lowering sharply the TFP growth. This is, obviously, a typical high-growth and highinvestment of low quality and low efficiency. Of late, we have adopted the Malmquist indexing method to study the nonparameter frontier production function model and used it to analyze TFP growth during different periods since reform and found that TFP growth in 1979–1995 was 4.63 percent and it dropped to 0.60 percent in 1996–2001 (see Table 3.2). The highest TFP appeared in 1978–1984 (7.65 percent) and the lowest was in 1996–2001 (see Figure 3.1). The results are identical with the calculation results. Then, we dissected the TFP growth into contribution by technical progress and contribution by technical efficiency and found that technical progress slowed and technical efficiency dropped in 1996–2001.6 This shows that China’s economic growth in recent years is not realized by relying on technical progress and technical efficiency and investment efficiency, but by high growth of capital investment, a path characterized by low quality and high growth, with productivity dropping significantly. This is not a sustainable growth pattern. It is rather the price paid for overheated investment and 62 Economic and social transformation in China Table 3.1 Estimates of China’s economic growth sources (1952–2003) (%) 1952–1978 1978–1995 1995–2001 2003 Population 2.0 1.4 0.9 0.6 GDP 4.7 9.8 8.2 9.1 Per capita GDP 2.7 8.4 7.3 8.5 Employment 2.6 2.6 1.2 0.9 Labor productivity 2.1 7.2 7.0 8.2 Capital stock 11.5 9.3 11.8 15.8 Human capital 4.1 2.2 2.8 2.8 Capital productivity –6.8 0.5 –3.6 –6.7 Capital stock per labor 8.9 6.7 10.6 14.9 TFP a –1.9 4.64 (47.3) 2.28 (27.8) 1.11 (12.2) TFP b 3.95 (40.3) 1.30 (15.9) 0.27 (3.0) TFP c –3.24 3.26 (33.3) 0.32 (3.9) –1.12 (–12.3) Sources: Capital stock calculated at 1987 price from A. Hu and T. Liu, “Zhong mei ri yin guofang shili bijiao” (Comparison of Defense Capital Power among China, US, Japan, and India), Strategy and Management, vol. 6, 2003; Human capital from Ch. Li, “Renli ziyuan yu jingji fazhan diqu chaju yanjiu” (Study of Regional Gaps in Human Capital and Economic Development), Management master’s degree paper at School of Public Policy and Management of Tsinghua University under supervision of Prof. Angang Hu; GDP, population and employment from Guojia tongjiju (National Bureau of Statistics of China), Zhongguo laodong tongji nianjian (Chinese Labor Statistical Yearbook), Beijing: Zhongguo tongji chubanshe (China Statistics Press), 2000 and Guojia tongjiju (National Bureau of Statistics of China), Zhongguo tongji zhaiyao 2004 (China Statistical Abstract 2004), Beijing: Zhongguo tongji chubanshe (China Statistics Press), 2004, pp. 38 and 42. Notes: In calculating TFP, (a) weight of capital input is 0.4, labor input is 0.3, human capital input is 0.3, (b) weight of capital input is 0.5, labor input is 0.25, human capital input is 0.25, (c) weight of capital input is 0.6, labor input is 0.2, human capital input is 0.2. Data in brackets are contributions by TFP to GDP growth. blind investment. If we continue along this path, the pressure on energy and environment will grow and it will not pay off. The challenges facing China’s new government are not only to prevent big rises or falls in economic development, but to change the economic growth pattern and raise economic growth quality and efficiency in order to maintain the stability of the macro economy. Why has China’s TFP dropped in 1995–2001? According to the assets accumulation, economic growth and welfare analytical framework visualized by the World Bank in its “Growth Quality,”7there are Why has China’s TFP dropped in 1995–2001? 63 Table 3.2 TFP growth and its components during different periods of economic reform in China (1979–2001) Periods TFP growth Technical efficiency Technical progress change Mean Std Var. Mean Std Var. Mean Std Var. 1979–1990 1.0494 0.0139 1.3274 0.9902 0.0112 1.1286 1.0605 0.0065 0.6133 1991–2001 1.0185 0.0215 2.1092 0.9969 0.0131 1.3130 1.0216 0.0159 1.5527 1979–1995 1.0463 0.0128 1.2197 0.9932 0.0113 1.1402 1.0542 0.0059 0.5600 1996–2001 1.0060 0.0256 2.5414 0.9936 0.0138 1.3914 1.0124 0.0172 1.6992 1979–1984 1.0765 0.0191 1.7766 0.9847 0.0139 1.4108 1.0938 0.0100 0.9110 1985–1990 1.0222 0.0172 1.6801 0.9958 0.0162 1.6283 1.0272 0.0084 0.8200 1991–1995 1.0372 0.0234 2.2566 1.0020 0.0225 2.2450 1.0354 0.0166 1.6028 1996*–2001 1.0060 0.0256 2.5414 0.9936 0.0138 1.3914 1.0124 0.0172 1.6992 Source: J. Zheng and A. Hu, “Zhongguo gaige shiqi shengji shengchanlu zengzhang bianhua de shizheng fenxi (1979–2001)” (Provincial Productivity Trend in China (1979–2001): Analysis and Policy Implications), China Studies Reports, 2004, Issue No. 1. 0 1 2 3 4 5 6 7 8 9 7.65 2.22 3.72 0.6 1979–84 1985–90 1991–95 1996–01 Figure 3.1 TFP growth in different periods (1979–2001) Source: Calculation based on Table 3.2. three kinds of capital for stimulating development: tangible capital, human capital, and natural capital. Tangible assets make contributions to welfare through economic growth. Human capital makes contributions to growth and welfare by raising its gains, because investment in human capital investment, such as education, health and drinking water, increases the welfare of the people directly. Similarly, investment in natural capital is an important factor for improving the ecological environment and people’s health and also an important part of the effort to improve the quality of life. However, excessive reliance on tangible assets or long-term implementation of distorted policies or inadequate investment in human capital and natural capital can also lower the growth of TFP.8 First of all, tangible capital has been excessively deepened; marginal returns of investment have dropped progressively; and the profit-taking of investment has inevitably dropped. Secondly, the country granted too many tax concession to foreign capital enterprises and provided disguised subsidies by leasing land, infrastructure facilities and energy at low prices, thus distorting the allocation of resources of tangible assets; thirdly, capital price (real interest rates on loans) is far lower than labor price (real wage growth and other welfare), encouraging firms to use more capital but less labor, to invest more tangible capital but less human capital. Since 1995, there appeared a sharp rise in the capital stock of state-owned enterprises. But it did not create new jobs. Instead, it created a large number of lay-offs. By the end of 2002, the number of on-the-job workers in state-owned and urban collective units was reduced by 60 million, more than the total population of France and equivalent to the reduction (22 million) of employment in the manufacturing of twenty major countries in the world from 1995 to 2002. Fourthly, enterprises and departments engaging in natural resources development possess a large amount of resource rents, giving the incentive to excessive development, thus reducing the efficiency of the utilization of resources. The coal output in 1996 was reduced from 1.4 billion tons to 1 billion tons by 2000 and rose a little to 1.5 billion tons by the first half of 2003, thus damaging the ecological environment. Fifthly, the income gap has been further enlarged, thus reducing the impact of economic growth on people’s welfare. The World Bank report holds that China’s income inequality is rapidly rising, from a level lower than that of India (Gini coefficient 0.20) to close to the level of the United States (Gini coefficient 0.40 in 1998 and in some cases 0.51, after taking into consideration non-regular incomes). The poverty reduction brought about by a 1 percentage point increase in the total income of Chinese residents has dropped.9Some scholars have discovered that the Gini coefficient of China increased by 1 percentage point every year from 1988 to 1995, indicating a rapid polarization process.10 Dr. Lin Boqiang with the Asian Development Bank holds that this process has been accelerated by the policy of “letting part of the people get rich first” at the beginning of the reform, which marked the start of the rapid expansion of economic growth and polarization. He has discovered that the index of impoverished people in 1995–2001 was reduced by only 10 percent, but it was reduced by 18 percent in 1985–1990 (see Table 3.3 and Table 3.4). The degree of inequality in 1985 64 Economic and social transformation in China was low (Gini coefficient 0.23), indicating that economic growth effectively reduced poverty. By 1995, the inequality situation got worse (Gini coefficient 0.33) and the effect of economic growth in reducing poverty also lowered markedly.11 Another World Bank study developed a pro-poor growth measuring method, which is not based on the average economic growth of a country, but on the income growth of poor people. The study found that China’s average economic growth from 1990 to 1999 was quite different from the pro-poor growth. The average income growth of Chinese families was 7 percent, but the income growth of poor families was only 3 percent and the income growth of the wealthiest families was 11 percent. Although China’s economic growth in the 1990s and the income growth of residents were the highest in the world, the pro-poor growth was only about 4 percent.12 Further, high governance costs and social trading costs have offset the efficiency and results of the utilization of the three major capitals. It did not create new wealth, but transferred wealth, Why has China’s TFP dropped in 1995–2001? 65 Table 3.3 Poverty indicators and Gini coefficient (1985–2001) (%) 1985 1990 1995 2001 Human Poverty Index (H) 57.85 40.08 25.48 15.44 Income gap (I) 0.34 0.29 0.27 0.26 Poverty gap (PG = H ×I) 19.00 11.76 6.89 3.43 FGT 8.37 4.75 2.56 1.03 Gini coefficient 0.23 0.29 0.33 0.35 Source: B. Lin, “Zhongguo de jingji zengzhang, pinkun jianshao yu zhengce xuanze” (China’s Economic Growth, Poverty Reduction and Policy Options), Jingji yanjiu (Economic Research Journal), 2003, Issue No. 12, 15–25. Note: Poverty gap is the mean shortfall from the poverty line (counting the non-poor as having zero shortfall), expressed as a percentage of the poverty line. This measure reflects the depth of poverty as well as its incidence. Table 3.4 Indicators for gauging poverty and changes in Gini coefficient (1985–2001) (%) 1985–1990 1990–1995 1995–2001 Reduction ratio of poor 17.77 14.60 10.04 population indicator (H) Reduction ratio of income 0.05 0.02 0.01 shortage rate (I) Reduction of poverty shortage 7.24 4.87 3.46 (PG = H ×I) Reduction ratio of FGT 3.62 2.19 1.53 Increase in Gini coefficient 0.06 0.04 0.02 GDP growth 7.9 12.0 8.2 Source: Same as for Table 3.3. thus reducing economic growth. For instance, the rents of the financial market reached 9 percent, thus increasing the actual cost of borrowing by enterprises and individual persons.13 The authors of this chapter have made an initial estimate of the four major types of corruption (rent-seeking, underground economic activities, tax drain, public investment and public spending) during the transitional period. In the latter half of the 1990s, the economic costs caused by the above four types of corruption averaged 13.3–16.9 percent of GDP.14 In the 1998–2002 period, the courts of the country cleared 41.88 million cases, averaging 326 per 10,000 people, 36 percent more than five years earlier. The number of civil and commercial cases cleared by courts at all levels reached 23.62 million, 20 percent more than five years earlier, with the total amount of money involved reaching 3197.1 billion Yuan, increasing by 2.4 times.15 The estimate by the authors of this chapter is equal to 7.2 percent of the total GDP of the period. Conclusions: China needs to adjust its approach to development and change its economic growth pattern Chinese leaders began to become aware of the problems of its economic growth pattern in the mid-1990s and clearly put forward objectives and a strategy for change. But in the latter half of the 1990s, China’s economic growth was lower than the long-term growth potential, with TFP growth dropping markedly. When China was still in the lower-middle income stage, it was too early for the country to enter the capital deepening process, and it failed to make full use of its rich labor resources to more effectively develop labor-intensive industries. As a result, fewer and fewer jobs were created, leading to a peak in lay-offs and unemployment, and increasing inequality in income distribution, active rentseeking activities, and sharp rises in social cost. These not only affected economic growth, but also directly or indirectly affected the welfare of the people. This has also made economic growth that relies on capital input, energy consumption and pollution discharge unsustainable. It seems very important for the government to give up the traditional strategy of pursuing high economic growth and investment-driven growth and instead adopt a new strategy of pursuing the quality and efficiency of economic growth and productivity-driven growth. At the same time, China also needs to shift from low-employment growth to high-employment growth, from unfair growth to fair growth, and from unsustainable growth to sustainable growth and to further improve the quality of policies and the quality of the government in managing society.16 This is exactly the economic and social background for the new Chinese leadership to put forward the new “putting people first” approach to development. 66 Economic and social transformation in China 4 From unevenness to coordination for China’s regional development (1978–2004)1 Background China is now undergoing an in-depth economic development and social transition. Historically, except for China, no other country has ever achieved such a quick economic growth and such an extensive social transition with regard to such a huge population and within such a short period of time. In particular, since the beginning of the reform and opening up, China has already experienced three historic transitions: the first was from a traditional agricultural society to a modern industrial society (namely, industrialization); the second was from a centrally planned economy into a market-oriented one (namely, marketization); and the third is from a closed economy into an open one (namely, economic globalization). Many distortions and deficiencies existing under the previous planned economy have been gradually eliminated. Market force is now playing an increasingly important role in economic operations and decision-making. Obviously, China has achieved unprecedented economic growth and enhanced its comprehensive national power. As statistical data show, the annual average growth rate of China’s GDP reached 9.4 percent from 1979 to 2002, while during all of the 1980s and the first five years of the 1990s, this rate has even exceeded 10 percent. In 1996, China’s GDP even equated to two-thirds of the economic aggregate of the rest of East Asia (exclusive of Japan), while in 2002, the comparable weight has grown to 1.2 times. In 2003, despite the negative influence of the SARS crisis and the slackening of world trade growth, China’s GDP still kept climbing at a speed as high as 9.1 percent. China is unique in the world as a large-sized developing country, featuring a huge population and broad territory. It is now also listed among those countries in the world that witness the biggest disparities in terms of physical geography, population resources, economic development and social development. We find that the relative variation coefficients of per capita GDP (in US dollars) and human development indicators among the 31 provinces, municipalities and autonomous regions have all turned out higher than those of all the other countries in the world. Nevertheless, one basic feature of contemporary China is significant regional disparities and remarkably uneven development. We summarize the real China as “One China, four worlds or groups.”2 The first world or group mainly comprises developed cities such as Beijing, Shanghai, and Shenzhen. The per capita income (PPP) of Shanghai and Beijing are US $15,516 and US $9,996 respectively, far higher than that of high/middleincome countries (US $8,320), approximately 63.5 percent and 40.9 percent of that of high-income countries (US $24,430), and ranking in forty-fifth and sixtyfourth places respectively among the 206 countries and regions in the world. The total population of Shanghai and Beijing occupies about 2.2 percent of the whole country. The second world or group is composed of large/middle sized cities and those high/middle-income regions in coastal areas, such as Tianjin, Guangdong, Zhejiang, Jiangsu, Fujian and Liaoning. The per capita GDPs of the above six provinces are all higher than the average level (US $3,960) of middle/low-income countries, but lower than the average level of high/middleincome countries. The total population in the second group amounts to 274.04 million, making up approximately 21.8 percent of the country’s total. The third world or group is low/middle-income regions, including Shandong, Hebei, Heilongjiang, and Jilin provinces. The per capita GDP of this group is lower than the average level of low/middle-income countries, ranking between 100th and 139th in the world. The total population in the third group is estimated to reach 337.83 million, taking up about 26.0 percent of the country’s total. The fourth group comprises the poverty-stricken regions in central and western China, minority areas, rural areas, remote areas and other low-income areas. Specifically, the per capita GDP of Guizhou province is US $1247, lower than the average level (US $1790) of low-income countries, ranking the 177th place in the world. In addition, Gansu, Shanxi and Tibet rank the 157th, 155th and 152nd places respectively. About half of China’s regions rank after 140th. The total population in the fourth group accounts for about 630 million, occupying half of the country’s total. In 2000, China reported a Gross National Income (GNI) of US $3920 (PPP) which was classified as a low-middle income level in the world. But the GNI was still lower than the average level of low-middle income countries, and approximately 53 percent of the world average level of US $7410. China features a coexistence of four development worlds or groups in terms of per capita income, but the underdeveloped worlds or groups (i.e. the third and fourth worlds or groups) are absolutely dominant, hosting about three-quarters of the country’s population. Therefore, as a whole, China’s economy in terms of per capita income still remains at a relatively low level in the world. To gain a clearer insight into China’s situation, it is necessary to pay more attention to the remarkable disparities of economic growth and social development among different provinces, rural and urban areas, and even different regions within the same province. Since the 1990s, unbalanced economic development across regions has become unprecedented, and regional disparities have already been viewed as one of the most serious barriers that hinder economic development, political reform and social stability in China.3Therefore, how China realizes coordinated regional development has become a major issue in both academic researches and policy practices. 68 Economic and social transformation in China The historical trend of regional development disparities Many researches have conducted in-depth studies on the regional disparities of development in China.4However, most of them focus only on the disparity of economic development, more specifically on a single indicator: per capita GDP. In fact, the imbalance and inequality of China’s development is typically multidimensional.5Accordingly, the disparity should also be reflected in multiple China’s regional development (1978–2004) 69 Table 4.1 Per capita incomes and distribution in China (1999) (in US dollars, PPP) Region Per capita Per capita Per capita Global GDP GDP GDP ranking (RMB Yuan) (US $) (US $, PPP) (US $ in PPP) National level 6534 780 3291 128 Beijing 19846 2369 9996 64 Tianjin 15976 1907 8047 72 Hebei 6932 828 3491 127 Shanxi 4727 564 2381 144 Inner Mongolia 5350 639 2695 141 Liaoning 10086 1204 5080 98 Jilin 6341 757 3194 131 Heilongjiang 7660 914 3858 118 Shanghai 30805 3677 15516 45 Jiangsu 10665 1273 5372 92 Zhejiang 12037 1437 6062 84 Anhui 4707 562 2371 144 Fujian 10797 1289 5438 92 Jiangxi 4661 556 2348 146 Shandong 8673 1035 4369 108 Henan 4894 584 2465 143 Hubei 6514 778 3281 129 Hunan 5105 609 2571 142 Guangdong 11728 1400 5907 87 Guangxi 4148 495 2089 155 Hainan 6383 762 3215 131 Chongqing 4826 576 2431 144 Sichuan 4452 531 2242 149 Guizhou 2475 295 1247 177 Yunnan 4452 531 2242 149 Tibet 4262 509 2147 154 Shaanxi 4101 490 2066 155 Gansu 3668 438 1847 157 Qinghai 4662 557 2348 146 Ningxia 4473 534 2253 149 Xinjiang 6470 772 3259 131 Sources: Per capita GDP is from Guojia tongjiju (National Bureau of Statistics of China), Zhongguo tongji nianjian 2000 (China Statistical Yearbook 2000), Beijing: Zhongguo tongji chubanshe (China Statistics Press), 2000; Data in US $ and PPP are author’s calculation in reference to World Bank, World Development Report 2000/2001: Attacking Poverty, New York: Oxford University Press, 2000. Notes: The global rank refers to the place of that province among 206 countries in the world. cultural development indicators, sanitary development indicators, and environmental development indicators. In order to evaluate the development levels of social service in different regions of China, we try to comprehensively explore each of the preceding social indicators. By investigating social development indicators (such as population, education, sanitation, science and technology, culture, environmental pollution and infrastructure), we find that regional disparities, either relatively or absolutely, exist to different degrees in China. At either a national level or per capita level, China has already reached the middle social development level in today’s world, and a few coastal regions have even measured up to the high international level. However, many inland regions still remain on rather low levels in comparison to the world. The relative regional disparities in terms of the major social development indicators have appeared quite large. The coefficients of relative variations of major development indicators in terms of population, education, sanitation, and culture (except for books and magazines per capita) turn out much lower than those of per capita GDP in the same periods. The coefficients of relative variations of scientific and technological indicators (except for the number of approved patents per every 1,000 people) and environmental indicators are lower than those of per capita GDP. The coefficients of relative variations of major infrastructure indicators (except for per capita electricity) are higher, or much higher, than those of per capita GDP. In brief, most regional disparities of social development are smaller than those of economic development. For different social development indicators, the relative regional disparities have evolved inconsistently since the beginning of reform and opening up, sometimes narrowing, remaining unchanged or enlarging slightly. Taking population indicators as an example, the total fertility rate, birth rate, mortality rate, and natural growth rate have all been lower than the world’s average levels, thus ranking China at the top of developing countries. Since the beginning of reform and opening up, the regional disparities in terms of total fertility rate and mortality rate have been declining, but those in terms of birth rate and natural growth rate have been rising in a fluctuant way. In those economically underdeveloped regions, the total fertility rate, birth rate, mortality rate, and natural growth rate have all remained on a relatively high level. What is more, these regions also lag behind in terms of human development. In China, the total fertility rate was 2.58 in 1981, and dropped down to 2.31 in 1990. Remarkable gaps still exist between these regions and the developed regions. The birth rate of the country was 33.43 per thousand in 1970, dropped down to 18.21 per thousand in 1980, later climbed up slightly to 21.06 per thousand in 1990, and kept descending throughout the 1990s. Finally in 1999, the birth rate dropped to the lowest level of 15.23 per thousand since the beginning of reform and opening up. This birth rate is lower than not only the world’s average level, but also the national level of developing countries reporting high human development indicators. Specifically, the birth rates of nine provinces (including Shanghai, Beijing, Tianjin, Liaoning, Jilin, Zhejiang, Jiangsu, Shandong and Hunan) have fallen below the average level of industrialized countries. As a 76 Economic and social transformation in China matter of fact, China is a country with a relatively low birth rate. The birth rate is low in developed regions, while it definitely remains high in underdeveloped regions. The regional disparities in terms of birth rate have been expanding in a fluctuant way. The coefficients of relative variations of birth rate were 23.29 percent in 1980, 22.48 percent in 1985, and 20.27 percent in 1990. In the 1980s, this coefficient kept descending linearly. In 1995, the same coefficient climbed up to 27.7 percent, and even reached 30.3 percent in 1999, reaching a peak value during the past 25 years. In brief, among the coefficients of relative variations of thirty-one social development indicators in eight main categories, twenty-one indicators have descended, seven have ascended, and the other three have only undergone slight changes (see Table 4.6). This indicates that the coefficients of relative variations in terms of most social development indicators have been descending, and also indicates that since the adoption of reform and opening up, the regional disparities in terms of accessibility of public services have been narrowed to different degrees. Regional disparities of knowledge development Knowledge is the most important factor in economic development and social transition today. Knowledge creates wealth, promotes development and facilitates reform. Knowledge resources are the most important resources of a country or region for driving its economic development. For underdeveloped countries and regions, the low knowledge development level is the biggest bottleneck to economic development.8 It is demonstrated by many researches that regional disparities are also reflected in the dimension of knowledge development (see Table 4.7). In order to conduct quantitative analysis on the regional disparities of knowledge capability, we set up an Evaluation Framework of Comprehensive Knowledge Capability, and calculated the indices of comprehensive knowledge capability for different regions. By investigating these indices, we can see that the distribution of knowledge resources in China is extremely unbalanced, and the resulting index for eastern China turns out much higher than that for central and western China. All those regions whose knowledge capabilities are at a high or high/middle level are nestled in eastern China. However, the knowledge capabilities in central and western China all remain at a low level, except that Jilin, Hubei, Heilongjiang and Shaanxi provinces lie at a middle/low level. In some regions and minority areas of western China, certain groups of people are faced with the risk of knowledge division. In fact, the regions in western China suffer the most insufficient knowledge resources and the largest knowledge developing disparities, which have already become a bottleneck hindering their further development. By analyzing and comparing the preceding indicators, we can see that China has already reached the middle/low-income level and the high/middle human development level, the consumption structure has undergone unprecedented China’s regional development (1978–2004) 77 78 Economic and social transformation in China Table 4.6 Coefficients of relative variations for different regions in terms of major economic and social development indicators (1978–1999) Indicators 1978 1980 1982 1985 1990 1995 1999 Economic indicators Per capita GDP 97.2 96.8 96.2 87.5 83.0 88.2 94.5 (Yuan) (a) Per capita government 186.3 200.0 200.0 170.0 102.8 91.5 98.8 revenue (Yuan) Per capita government 68.8 59.5 70.3 55.8 52.2 65.9 74.5 expenditure (Yuan) (a) Per capita Gross Domestic 74.7 88.8 94.4 103.0 112.3 121.5 Investment (Yuan) (a) Population indicators Birth rate (‰) 23.5 23.3 16.3 22.5 20.3 29.1 30.3 Death rate (‰) 14.9 14.8 17.0 20.4 11.4 13.3 10.4 Natural growth rate 33.4 34.9 22.4 31.1 28.0 46.3 54.0 of population (‰) Total fertility rate 31.3 26.8 Educational indicators Enrollment rate of 3.7 5.4 7.9 11.1 6.8 7.2 school-age children (%) Percentage of graduates 9.9 15.9 21.1 20.2 14.9 8.9 of primary schools entering junior secondary schools (%) Percentage of graduates of 32.7 32.9 34.6 30.9 40.6 33.9 junior secondary schools entering senior secondary schools (%) Health development indicators Number of doctors per 51.1 52.5 52.2 52.8 49.3 47.3 37.3 1,000 people Number of hospital beds 36.9 31.7 37.9 32.9 36.9 38.6 34.9 per 1,000 people Incidence of diseases rate 65.0 36.8 36.4 from infectious disease to be reported by laws (%) Science and technological (S&T) indicators Number of persons 84 77 54.6 engaged in scientific and technological activities per 1,000 people Number of workers and 20.9 19.0 17.1 staff members engaged in scientific and technological activities Total patents granted to 164.5 154.7 149.9 122.8 residents per 1,000 people Total patents granted per 57.1 71.0 10,000 S&T personnel China’s regional development (1978–2004) 79 Table 4.6 continued Indicators 1978 1980 1982 1985 1990 1995 1999 Cultural development indicators Per capita number of 65.8 61.7 62.1 newspapers Per capita printed sheets 76.5 100.7 106.1 75.5 Radio coverage rate (%) 39.4 24.3 15.2 TV coverage rate (%) 44.9 16.0 11.0 Environmental indicators Volume of solid industrial 66.8 59.0 63.1 waste (10,000 tons/ 100 million Yuan) (a) Volume of waste water 37.4 36.6 32.5 discharge (10,000 tons/ 100 million Yuan) (a) Volume of waste gas 51.3 46.6 51.8 emission (100 million cu. m meters/100 million Yuan) (a) Infrastructure indicators Per capita electricity 105.8 92.8 89.5 82.8 67.8 55.9 production (kilowatthour/person) Length of highways per 120.4 144.1 141.8 132.3 124.2 114.3 million people Length of railways per 74.0 81.6 76.3 104.6 107.6 110.1 million people Mileage of navigable 71.9 84.8 85.4 82.3 88.3 84.2 inland waterways per million people Number of telephone sets 83.7 80.9 81.6 87.7 96.1 89.7 77.3 owned per 100 people Business volume of postal 140.6 135.3 113.7 122.5 130.6 110.3 and telecommunications service (million) a Human development indicators Average years of school of 24.3 20.6 19.7 16.4 people aged 15 and above (years) Adult literacy rate (%) 9.5 9.2 8.3 13.1 Life expectancy at birth 5.1 5.2 (years) Human development index 9.0 10.2 Source: A. Hu and P. Zou, Shehui yu fazhan: woguo shehui fazhan diqu chaju de yanjiu (Society and Development: Study of Gaps of Social Development among Different Regions of China), Hangzhou: Zhejiang renmin chubanshe (Zhejiang People’s Press), 2000. Authors’ calculation based on related information. Note: (a) Calculated in 1978 fixed prices. changes (urban areas are categorized in the well-off group, while rural areas are categorized in the well-to-do group), and the percentage of the povertystricken population has been cut down remarkably (far lower than the average level of developing countries). However, China is not a homogeneous country, but a heterogeneous one. We sum up the national situation in China as “one China, two systems (urban and rural),” “one China, four worlds,” “one China, 80 Economic and social transformation in China Table 4.7 Regional disparities in terms of comprehensive knowledge capabilities: ranking by knowledge development indicator (KDI) (1998) Eastern China Central China Western China High knowledge Beijing (606.05) level (KDI ≥150%) Shanghai (529.03) Tianjin (283.70) Guangdong (212.74) Fujian (156.48) Jiangsu (154.55) High/middle Hainan (127.64) knowledge level Liaoning (126.69) (150% > KDI≥100%) Zhejiang (122.71) Middle/low Shandong (82.05) Jilin (99.53) Shaanxi (88.05) knowledge level Hebei (75.69) Hubei (92.18) (100%>KDI≥75%) Heilongjiang (84.63) Low knowledge Hunan (69.72) Xinjiang (65.85) level (KDI < 75%) Shanxi (64.27) Chongqing (63.71) Henan (63.74) Gansu (58.32) Jiangxi (61.04) Inner Mongolia (56.59) Anhui (57.69) Ningxia (54.70) Sichuan (51.49) Guangxi (50.88) Yunnan (48.75) Qinghai (44.18) Guizhou (38.32) Tibet (31.99) Source: A. Hu and Y. Xiong, “Woguo zhishi fazhan diqu chaju yanjiu: tedian, duice he chengyin” (Analysis of Regional Disparities of China’s Knowledge Development: Characteristics, Causes and Countermeasures), Guanli Shijie (Management World), 2000, Issue 3. Notes: National KDI = 100%. Indicators used for measuring knowledge development in a certain region include three dimensions: acquiring knowledge, absorbing knowledge and exchanging knowledge. The three dimensions are measured respectively by the number of internationally employed treatises (including those covered by three retrieval tools, SCI, EI and ISTP) per every one million people, the number of approved patents per every one million people, per capita FDI; the per capita number of years on average of exposure to education, the proportion of students entering the elementary schools, the number of students on campus in middle schools per every 10,000 people, the number of students on campus in colleges and universities per every 10,000 people, and the per capita number of newspapers subscribed, telephone diffusion rate, and the number of computers possessed per every 10,000 people. The country’s average level is at 100%, then conduct indexation of these indicators. The knowledge capability indicators of different regions can be worked out by means of weighted averages. four societies (agricultural, industrial, service and knowledge society),” which is far more complicated than we can depict. This is a basic national situation to which we must pay special attention when discussing how to construct an all-round well-off society. Insights into the real problems Breakdown of income disparities Since the beginning of reform and opening up, income disparities among different regions, between rural and urban areas, and even within rural areas and within urban areas, have kept enlarging. The 2004 World Bank Report analyzed in detail various factors giving rise to income disparities, and also broke down those factors using the data from 1990 to 1999 (see Figure 4.2). They point out that the main factor is the increasing income disparities between rural and urban areas in the middle and late 1990s, which reflects the institutional costs of “one country, two systems” (i.e. different institutional systems governing the urban and rural areas). The second factor is the income disparities among rural areas, which reflects the slow growth or even decline of agricultural income in the inland agricultural provinces. This decline is due to the descending prices of most agricultural products in the international and domestic markets associated with the opening of China’s agricultural products market in the first half of the 1990s. The third factor is the expanding income disparities among urban areas,which is caused by the emergence of so-called transitional poverty-stricken populations associated with enormous unemployment of former employees in the state-owned and collective enterprises in the second half of the 1990s. The last factor is the expanding income disparities among provinces. It is noteworthy that the regional disparities, to a large extent, can be explained by the regional gaps at the urbanization level. In other words, the development disparities across regions are highly correlated to the development disparities between rural and urban areas. Therefore, in the World Bank Report, the breakdown of income disparities using the Theil index consists of the income disparities between rural and urban areas first, and then the income disparities among provinces (inter-province disparities), and finally the income disparities within the same provinces (inner-province differentials).9In fact, such a breakdown has underestimated the influence of unbalanced regional development on income disparities. Income disparities due to regional features In order to further explore the origins behind the variations of regional disparities in terms of per capita GDP, we may breakdown the Theil coefficient, which represents the variations of per capita GDP, into regional components, and study how these components and their discrepancies influence and contribute to the China’s regional development (1978–2004) 81 Table 4.8 Regional disparities from a multi-dimensional perspective Economic development (a) Human development (b) Social development (b) Knowledge development (c) Indicators Economic development Economy, education (average Population, education, science Abilities in acquiring, and indicators such as per capita years of exposure to and technology, culture, absorbing and disseminating connotations GDP, government revenue and education), health (life sanitation, environmental knowledge expenditure, capital formation expectancy) protection, infrastructure, etc. Features Historically, the most serious Relatively underdeveloped, Most regional disparities of Significant regional disparities, period and listed as one of the falling behind economic social development are especially in terms of core world’s biggest countries. disparity narrower than those of economic indicators but the regional disparities of infrastructure development are relatively large. Trends The regional disparities have been Descending holistically The coefficients of relative Underdeveloped regions and narrowed during 1980s, but have variations of most social their people are suffering risks been expanding since early 1990s, development indicators have of knowledge division and will keep expanding for quite been descending a long period in the future. Reasons Restrictions by initial status of Emphasis on the progress of Emphasis on the policies of New technological revolution development, impetus by market elementary education and population control and and the unbalanced deployment forces, the expanding disparities medical technology elementary education, etc.; it of knowledge resources by differentiated policies; also reflects the shortening of weakening of the fiscal resource regional disparities in terms of of the central authorities; bias of accessibility to public services, investment policies; regional since reform and opening-up advantages, and variant abilities to deal with globalization Policies and Formulate a strategy for balanced Insist on humanPromote equal access to basic Implement knowledge measures regional developments, facilitate orientation, increase the social and public services, development strategy, reinforce much fairer developments, investment in education facilitate coordinated sociothe establishment of education, eliminate barriers to free flow of and healthcare, reform economic developments, and science and technology and resources like labor force, relevant mechanisms, realize sustainable and green communication infrastructures, increase transfer payment, develop facilitate good governance, development and enable nationally equal human resources and knowledge and give priority to the access to basic knowledge resources in underdeveloped benefits of those povertyservice facilities regions stricken population, minorities and the weak groups Notes: (a) Sh. Wang and A. Hu, The Political Economy of Uneven Development: The Case of China, New York: M. E. Sharpe, 1999. (b) Hu and Xiong, “Woguo zhishi fazhan diqu chaju yanjiu.” (c) Hu and Zou, Shehui yu fazhan. national coefficient of variations of per capita GDP. We find that the within-group variation in each of the three major regions shows a trait of “convergence,” while the between-group variation among them takes on an obvious “divergence.” Since the early 1990s, the expansion of regional disparities has mainly originated from the enlargement of regional disparities among the three major areas or regions. The within-region disparities, either absolutely or relatively, have kept falling. For instance, the Theil coefficient with regard to within-region disparities declined from 0.075 in 1978 to 0.043 in 2002, and the contribution rate to regional disparities has dropped from 70.81 percent in 1978 to 31.29 percent in 2002. Specifically, the within-region disparities of eastern China have reduced at the fastest speed, which is also the principal reason for the decreasing regional disparities in 1980s. In contrast, the Theil coefficient with regard to between-region disparities climbed from 0.031 in 1978 up to 0.096 in 2002, and the contribution rate to regional disparities also surged from less than 30 percent in 1978 up to two-thirds in 2002. Similar situations are observed in terms of human development disparity, social development disparity and knowledge development disparity. The major reason behind these phenomena is the disparities between coastal regions (in eastern China) and inland regions (in central and western China). In Table 4.9, aside from western regions, northeastern regions also dropped down in the ranking list. This indicates that aside from the well-known “gaps between the east and the west” (or east–west gaps), the “gaps between the south and the north” (or south–north gaps) also exist in contemporary China. The 84 Economic and social transformation in China 1990 0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 1999 Theil index Disparity between rural and urban areas Disparity amoung provinces Disparity within urban areas Disparity within rural areas Figure 4.2 Breakdown of income disparities (1990–1999) Source: World Bank, China: Promoting Growth with Equity (Chinese edition), Beijing: Qinghua daxue chubanshe (Tsinghua University Publishing House, 2004). south–north gaps mainly refer to the disparities between coastal regions in southern and eastern China and those regions in northern and northeastern China. Compared to the east–west gaps, the south–north gaps are much smaller and present different features. The development level of northeastern China is higher than the national average, while that of western China is lower than the national average. The south–north gaps are mainly due to the disparity of development speed, while the east–west gaps can be attributed also to the disparity of development level. Statistically, the expanding gaps between the east and the west are the major factors responsible for the enlarging regional disparities, while the south–north gap of development speed has, to some degree, reduced the overall regional disparities at the national level. However, if the south–north gap of development speed keeps expanding, it will become an important source for the regional disparities in China. Evolutionary trend of regional disparities China is a country with a broad territory and rapid socio-economic development. It is very difficult to distribute the benefits of economic growth equally among different groups and regions. The spontaneous market forces will give rise to the continuous enlargement of development gaps, especially economic disparities. Therefore, it is highly necessary to adopt measures to prevent such trends. China’s regional development (1978–2004) 85 Table 4.9 Ranking of all provinces: the changing trend (by per capita income, 1980–2002) Variations of Going up Going down the ranking results No.6–No.15 Fujian (15), Henan (9) Tibet (13), Ningxia (12), Gansu (12), Qinghai (11), Shanxi (9) No.3–No.6 Shandong (8), Zhejiang (6), Heilongjiang (5), Liaoning (4), Hainan (6), Chongqing (6), Shaanxi (3) Hebei (4), Inner Mongolia (4), Xinjiang (4), Anhui (4) No.1–No.2 Hunan (2), Guangdong (2), Jilin (2), Sichuan (1) Yunnan (2) Unchanged Beijing, Tianjin, Shanghai, Jiangsu, Jiangxi, Hubei, Guangxi, Guangxi, Guizhou Sources: Gaige kaifang shiqinian de zhongguo diqu jingji (China Regional Economy: A Profile of 17 Years of Reform and Opening-up), Beijing: Zhongguo tongji chubanshe (China Statistics Press); Guojia tongjiju (National Bureau of Statistics of China), Zhongguo tongji nianjian 2000 (China Statistical Yearbook 2000), Zhongguo tongji chubanshe (China Statistics Press), 2000, p. 62 and p. 65. economy-of-scale effects from national and regional markets, just as the member countries in the EU gain benefits from the greater EU market.11 By investigating the development of China’s labor force market, we find that the flow of the labor force across enterprises, industries and regions has promoted the adjustment of economic structures, and also facilitated decreasing gaps between rural and urban areas and between different regions. As productivity in the agricultural sector lags behind that of industry and the service sector, the transfer of the agricultural labor force into non-agricultural sectors is extremely vital to promoting economic growth and coordinated regional development in the future. Currently, a majority of productive employment opportunities are available in those regions with intensive economic activities, but not in remote rural regions. Therefore, the transfer of the agricultural labor force into nonagricultural sectors is now closely associated with the movement of the agricultural population into urban areas. It is necessary that we clarify the responsibilities of local government with respect to local enterprises, financial institutions and courts, and make clear the responsibilities of local governments in monitoring market activities and making policies. In addition, it is necessary to take some innovative measures so as to ensure the accountability of local governments for their market interventions. Such measures may include a market survey to investigate the management practices of local government. Moreover, China should complete its legal system corresponding to its commitments to WTO. It is advised that further systematic reform be implemented to facilitate the movement of the labor force, and to further release the restrictions upon population movement. In fact, such measures were already taken in 2001. If social security funds and related services are concentrated at the provincial level, and the coverage of the social security system is expanded to include non-stateowned sectors in urban areas (i.e. inclusive of both local residents and migrant workers), this will undoubtedly facilitate the free flow of the labor force across and within urban regions. It is essential to continue reforming the regulations on land use, so as to enable farmers to receive adequate compensation by subleasing or transferring their lands through lawful ways. Such reforms will be helpful for the movement of the population from rural areas into urban ones. One more measure, which may be beneficial for increasing the overall liquidity of the labor force market, is to develop the urban land market and to promote housing development for the low-income population living in urban and suburban areas. Urbanization: a good remedy for narrowing the disparities between urban and rural areas and between different regions The concentration of population and resources will promote economies of scale and will improve economic efficiency. Due to the economic advantages resulting from industry clustering, the newly added outputs and productive employ92 Economic and social transformation in China ment opportunities in both service sectors and the manufacturing industry may emerge principally in urban and suburban areas. Since the beginning of reform and opening up, a majority of employment opportunities in non-agricultural sectors have been created by small and medium sized cities. Specifically, the suburban areas have witnessed the largest number of newly added employment opportunities. It is necessary to set up a complete market system for the development of land used for industrial purposes, so as to facilitate the development of housing for low-income populations. Such a measure will further demonstrate the advantages of integrated development in China. If strict supervision and powerful policy support from government are both available, commercial interests will drive the development and utilization of land towards the expected mode. The holistic effects of urbanization also depend on measures taken by the government to boost the development of suburban regions and to improve the quality of life in urban areas. When moving out from central urban areas, industrial enterprises may prefer suburban regions, as these regions are advantageous for both initiating business activities and housing development. In this respect, local governments may have to play a more active role in the market of suburban lands for housing purposes, so as to boost the development of housing for low-income populations. International experience has proven that the roles of government should include providing basic social infrastructures and public services in those regions close to economic activities, or in those regions suitable for low-income populations to live in. As a matter of fact, public services are increasingly important in establishing a self-contained central area that not only hosts economic activities, but also promotes a high quality of life. Such public services may include an appropriate public transit network, basic educational facilities for local residents, sound environmental protection, and so on. Allow equal access to basic public services at a national level In order to eliminate the remarkable regional disparities of socio-economic development, it is necessary to enable national citizens to equally obtain access to basic public services. To reach this goal, it is necessary to formulate the national minimum standards of basic public services. It is necessary to set up a system for standardizing transfer payments from the treasury. For central and western regions, the transfer payment should be increased so as to balance the per capita financial capability across all regions. In China, the current intra-government fiscal system cannot ensure the sufficiency of public services. Despite a relatively big amount of inter-government transfer payments (in 2001 and 2002, the amount of central government’s transfer payments constituted 46 percent and 48 percent of the financial expenditure of local governments respectively), the unreasonable transfer system makes local government unable to provide funds for some important social services, such as education and public health care in rural areas. The central government has China’s regional development (1978–2004) 93 shifted the responsibility of financial expenditure to local governments, but not provided adequate financial supports at the same time. Such incompatibility will worsen the imbalance of financial operations, and further expand the income disparities among different regions. Obviously, this conflicts with what the governments should be doing (such as alleviating the income disparities, protecting the poverty-stricken population and the weak groups). To make things worse, the governments in poverty-stricken regions are providing fewer public services with lower quality, and shifting a relatively high proportion of the costs to local people. It is essential to clarify the expenditure purposes of transfer payments from the exchequer. We find that, in 1998, among the eight provinces/autonomous regions where minorities occupy a relatively higher proportion, seven provinces/ autonomous regions except Guizhou province all reported a per capita financial expenditure level higher than the national average. However, their major social development indicators and human development indicators have all turned out lower than the national level. Among these regions, a majority of funds were spent to support institutions and their employees, whereas only a small portion was invested in public services. As a result, it is necessary to shift from unconditional transfer payments to conditional ones. The central government should provide funds in such a way as to force local governments to effect reforms, so as to enhance the effectiveness and efficiency of financial transfer payments for offering public services. In addition, the centralization of public service responsibilities and fund management authorities will facilitate the provision of better services. For example, the shift of some responsibilities concerning service provision and fund-raising from governments at village, town or county levels to their super-ordinate governments can enhance efficiency, management abilities and fairness. The reform of the financial revenue and expenditure system should make the financial and institutional capabilities of governments compatible with their corresponding responsibilities. Coordinated regional development requires the clarification of responsibilities between the central government and provincial governments, and the implementation of a combined mode of “centralization of central government and decentralization of local governments.” Further, it is necessary to make clear the respective responsibilities of the central government and the local governments in respect to economic adjustment, market supervision, social management and public services. Those affairs at national or intra-provincial levels should be coordinated by the central authority, so as to guarantee a unified legal system, governmental decrees and national markets. Those affairs within local administrative regions should then be managed by local governments, so as to improve working efficiency, reduce managerial costs and enhance administrative capability. As to those affairs jointly managed by the central authority and local governments, it is necessary to identify their respective roles, and to clarify the primary and secondary responsibilities as well. 94 Economic and social transformation in China Developing human resources: a prioritized strategy for narrowing regional disparities of development Human capital constitutes the most important component of national wealth. China has the largest population in the world, and possesses the richest human resources. However, China badly lacks physical resources, capital resources and technical resources in comparative terms. The conflict between abundant labor resources and relatively scarce natural resources and capital resources has become the primary contradiction in modern China. Therefore, developing human resources is the basic national policy for China to pursue long-term development. The scarcer natural resources are, the more important it is to develop human resources. The more deficient capital is, the more necessary it is to invest in human capital. The less developed the economy is, the more essential it is to develop education, science and technology. In China, the fundamental national policies should focus on education and science. This is the only choice for China. The basic means of developing human resources include investing more in human capital, speeding up the development of various categories of education, promoting scientific and technological advancement, ensuring the health of every citizen and eliminating absolute poverty. The core is to develop, invest in and utilize the labor resources in underdeveloped regions, so as to increase the national wealth, promote coordinated socio-economic development, and narrow regional disparities of development. Implementing the knowledge development strategy The domestic and international experience have indicated that knowledge is the most important factor in facilitating development. In the twenty-first century, knowledge will be the most important resource in the economic development of a country or a region. A low level of knowledge development will be the biggest bottleneck that impedes the economic development of a country or a region. Knowledge-facilitated development and knowledge-oriented society will be the themes of human development in the twenty-first century. The level of knowledge development in regions with relatively lower socio-economic development falls far below that in the developed coastal regions. The disparities of key knowledge capability will become much bigger. Thus, it is necessary to prioritize the implementation of the knowledge development strategy in underdeveloped western regions, to enhance the people’s abilities to acquire, absorb and exchange knowledge, and to improve their abilities in gaining knowledge assets and information knowledge. Corresponding to the phenomena of “one China, four scenarios,” and “one China, four societies,” the implementation of knowledge development strategy in China should follow three steps: 1 To allow equal access to basic knowledge services. This is the foundation for Chinese people to participate in knowledge creation and sharing. China’s regional development (1978–2004) 95 2 To accelerate the application of knowledge nationally. In contemporary China, the scientific level and technological innovations still remain on a rather low level from an international perspective, which means that acquiring and absorbing foreign knowledge should be the primary consideration for accumulating a knowledge base. Therefore, all regions in China should improve their abilities in utilizing global knowledge as quickly as possible, complete their networks for dissemination and application of knowledge, and promote more intensive utilization of knowledge in socio-economic development. 3 To strengthen the capabilities of knowledge innovation step by step. The first two measures aim at improving “basic knowledge capabilities.” On the basis of these basic knowledge capabilities, China should cultivate its capabilities in knowledge innovation gradually, formulate an effective stimulating mechanism, set up an interactive innovation system and utilize limited resources to develop new knowledge. Among these, allowing equal access to basic knowledge services nationwide serves as the foundation for implementing the knowledge development strategy, and thus should be treated as a high-priority strategy. 96 Economic and social transformation in China 5 China’s economic growth and poverty reduction (1978–2002)1 The trend and evaluation of China’s poverty reduction (1978–2002) Great achievements in poverty reduction Since China’s economy entered the takeoff stage in 1978, the average growth rate of per capita GDP has been as high as 8.1 percent. As Amartya Sen has analyzed, in the past two decades China’s economy has been developing very rapidly. The growth of China’s income per capita is much faster than that of any other region in the world. Nevertheless, people have always failed to realize that this is rather astounding for such a large country as China. It’s totally different from those well-known countries or regions with rapid economic growth such as Hong Kong and Singapore. Unlike China, which has a very large rural population, Hong Kong and Singapore are actually cities. It is an extraordinary achievement for such a large country with dramatic regional differences to achieve such a high average growth rate.2Meanwhile, China’s rural impoverished population has decreased by a large margin. According to China’s national poverty line, the rural impoverished population has dropped from 250 million in 1978 to 28.2 million in 2002, decreasing by 88.7 percent. The impoverished population has decreased by an average of 9.24 million per year (see Table 5.1). According to the international poverty line, at which the cost of living per capita per day is below $1, the World Bank estimates that China’s rural impoverished population has dropped from 280 million in 1990 to 124 million in 1997, decreasing by 55.7 percent. The impoverished population has decreased by an average of 22.29 million per year (see Table 5.2). These different estimates demonstrate that while China is the country with the largest population and the largest impoverished population, it has made unprecedented achievements in poverty reduction. China’s achievements in poverty reduction constitute a huge contribution to poverty reduction throughout the world. It is estimated by the World Bank that according to the international poverty line (per capita cost of living below $1 per day), China’s impoverished population dropped from 542 million to 375 million in the 1980s (referring to the period from 1980 to 1990), decreasing by 98 Economic and social transformation in China Table 5.1 Annual rural poverty reduction, the growth rate of per capita GDP and farmers’ consumption level (1978–2002) Year Annual poverty The growth rate The growth rate The growth rate reduction of per capita of farmers’ of farmers’ net announced by GDP (%) (b) consumption income per capita the government level (%) (c) (%) (c) (million) (a) 1978–1985 17.86 8.3 10.0 15.1 1985–1990 8.00 6.2 2.5 3.0 1990–1997 5.00 9.9 8.0 5.0 1997–2002 4.36 7.7 3.4 3.8 1978–2002 9.24 8.1 5.6 7.2 Sources: Guojia tongjiju (National Bureau of Statistics of China), Zhongtuo tongji zhaiyao 2002 (China Statistical Abstract 2002), Beijing: Zhongguo tongji chubanshe (China Statistics Press), pp. 18, 32 and 91. Data for 2002 are from Guojia tongjiju (National Bureau of Statistics of China), “Zhongguo 2002 guomin jingji he shehui fazhan tongji gongbao” (The Communiqué of China’s National Economy and Social Development 2002), Economy Daily, March 1, 2003. Notes: (a) Calculated according to the data of Table 5.2; (b) and (c): all calculation in fixed prices. Table 5.2 The impoverished population in rural China and the rate of poverty (1978–2002) Year Rural Official Impoverished The rate of The rate of population impoverished population poverty (%), poverty (%), (ten thousand population estimated by Official data World Bank persons) (a) (ten thousand the World Bank (c) data persons) (b) (ten thousand persons) (d) 1978 79014 25000 33.1 1984 80340 12800 15.9 1985 80757 12500 15.5 1986 81141 13100 16.1 1987 81626 12200 14.9 1988 82365 9600 11.7 1989 83164 10600 12.7 1990 84142 8500 28000 10.1 33.3 1991 85280 9400 28700 11.0 33.6 1992 84799 8000 27400 9.4 32.3 1993 85166 8000 26600 9.3 31.2 1994 85549 7000 23700 8.2 27.7 1995 85947 6500 20000 7.6 23.3 1996 86439 6000 13800 6.9 16.0 1997 86637 5000 12400 5.8 14.3 1998 86868 4200 4.8 1999 87012 3412 3.7 2000 80837 2200 2001 79563 2713c 2002 2820c Sources: (a) Guojia tongjiju, Zhongguo tongji zhaiyao 2002; (b) “A Monitoring Report of China’s Rural Poverty in 2000” by the research office of rural social economy of national statistics bureau, China’s Statistical Press, 2000, p. 7; (c) “Statistical Communiqué of China’s Economy and Society” by National Statistical Bureau, quoted from Economic Daily, March 1, 2003; (d) World Bank, 1999. 167 million. In the corresponding period, the impoverished population of the whole world decreased by 98.3 million. China’s contribution rate to the world’s (mainly referring to the developing area) poverty reduction is 166.9 percent. In the 1990s, China’s impoverished population decreased by 115 million, and the contributing rate was 122.8 percent. It is also estimated by the World Bank that China’s impoverished population will drop to 74 million; the net decrease will be 150 million, compared with that in 1999, which will account for 41.7 percent of the whole world’s (mainly referring to the developing area) poverty reduction. In 1990, China’s impoverished population accounted for 29 percent of that of the world; the number has been down to 19.2 percent in 1999, decreasing by approximately 10 percent. It is forecast that the number will be down to 9.1 percent in 2015 (see Table 5.3). Asia has the largest and most condensed impoverished population. Among the five Asian countries with the most condensed impoverished populations (China, India, Pakistan, Indonesia and Bangladesh), according to the international poverty line, China’s current proportion of impoverished population is the lowest. The ratio between China’s per capita GDP (PPP) and India’s per capita GDP is 1.6:1; and India’s ratio of people whose cost of living per day is less than $1 is 25.7 percent higher than that of China, while India’s ratio of people whose cost of living per day is less than $2 is 32.5 percent higher than that of China (see Table 5.4). The preceding statistics demonstrate that China has experienced a period in human history in which the impoverished population decreased by the largest margin in the past two decades, and reversed the trend that the impoverished population has been increasing in the past five decades of world history, causing the impoverished population of the world to decrease for the first time (see Table 5.5). That is to say, without China’s efforts at poverty reduction, or excluding China’s impoverished population, the impoverished population of the China’s economic growth and poverty reduction 99 Table 5.3 Number of people living on less than $1 per day, estimated by World Bank (1990–2015) (million) Region 1990 1999 2015 East Asia and the Pacific 486 (37.6%) 279 (23.9%) 80 (9.9%) Excluding China 110 (8.5%) 57 (4.9%) 7 (0.9%) Europe and middle Asia 6 (0.5%) 24 (2.1%) 7 (0.9%) Middle East and North Africa 48 (3.7%) 57 (4.9%) 47 (5.8%) Latin America and Caribbean region 5 (0.4%) 6 (0.5%) 8 (1.0%) South Asia 506 (39.2%) 488 (41.7%) 264 (32.6%) Sub-Sahara Africa 241 (18.7%) 315 (26.9%) 404 (49.9%) Total 1292 (100.0%) 1169 (100.0%) 809 (100.0%) Excluding China 917 (71.0%) 945 (80.8%) 635 (90.9%) China 375 (29.0%) 224 (19.2%) 74 (9.1%) Source: World Bank, Global Economic Prospects and the Development Countries, Washington, DC: World Bank, 2003, Table 1.9. Note: The data in brackets are the ratio of impoverished population as a percentage of the world total population. world would have increased from 848 million in 1980 to 917 million in 1990, and then to 945 million in 1999. Why can China decrease its impoverished population by a large margin? The main reasons are as follows. Continuous high economic growth is the basis of poverty reduction. The average per capita growth rate of GDP of China was 8.1 percent in the period 1978–2002 (see Table 5.1), which is the longest-lasting period with the highest growth rate of GDP per capita and the largest population who benefit from it. This corresponds to doubling per capita GDP every 8.6 years, 5.4 times the global GDP per capita growth rate in the same period (1.5 percent). According to the estimate made by the World Bank, it took Britain 58 years to double its per capita income (1780–1838), America 47 years (1839–1886), Japan 34 years 100 Economic and social transformation in China Table 5.4 Percentage of the impoverished population in several Asian countries GDP per Population below national Population’s Population’s capita poverty line (%) expenditure expenditure (PPP$) below $1 per below $2 day (%) per day (%) Bangladesh 1,423 (1998) 42.7 35.6 29.1 (1996) 77.8 (1996) (1991–1992) (1995–1996) China 3,356 (1998) 6.0 (1996) 4.6 (1998) 18.5 (1998) 53.7 (1998) India 2,101 (1998) 40.9 (1992) 35.0 (1994) 44.2 (1997) 86.2 (1997) Indonesia 2,806 (1998) 15.7 (1996) 27.1 (1999) 7.7 (1999) 55.3 (1999) Pakistan 1,794 (1998) 34.0 (1991) 31.0 (1996) 84.7 (1996) Source: World Bank, World Development Indicators 2001, Washington, DC: World Bank, 2001, p. 64. Note: Numbers in brackets are the years when the researches were carried out. Table 5.5 Impoverished population and the poverty rate of the world (1950–1999) 1950 1960 1970 1980 1992 1999 The Impoverished 1805.6 1946.5 2200.7 2426.6 2800 2320 population (million) (a) Population in dire 1376.2 1330.1 1304.7 1390.3 1294 1169 poverty (million) (b) Poverty rate (%) 71.9 64.3 60.1 55.0 51.3 38.1 Dire poverty rate (%) 54.8 44.0 35.6 31.5 23.7 13.3 Source: The data for 1950–1992 are quoted from F. Bourguignom and C. Morrisso, “Inequality among World Citizens: 1820–1992,” American Economic Review, September 2002, pp. 727–744; the data for 1999 are quoted from World Bank, Global Economic Prospects, Table 1.9. Notes: (a) refers to people living under $2 per day; (b) refers to people whose cost of living per day is less than $1. (1885–1919), South Korea 11 years (1966–1977). In China, the annual growth rate of the rural population’s consumption level (the majority of China’s population) is 5.6 percent; the annual growth rate of per capita net income of farmers is 7.2 percent, corresponding to doubling their per capita income every 9.7 years (see Table 5.1), which is the major reason leading to China’s great poverty reduction in the rural areas. In 1978 nearly 100 percent of peasant households had per capita net incomes below 500 Yuan. In 1985, the percentage was 77.7 percent; in 1990 it was 35 percent; and in 2001 it was only 2.5 percent. In 1985 the percentage of peasant households whose per capita net income was less than 1000 Yuan was 97.69 percent, while in 2001 the ratio was down to only 13.22 percent (see Table 5.6), which shows that the extremely poor and poor households have been sharply decreased. A great deal of rural labor force transfers to non-agricultural industries. More and more people are employed in village and township enterprises. The number has increased from 28.27 million in 1978 to 130.86 million in 2001, accounting for 26.7 percent of the total rural work force, compared with the original ratio of 9.2 percent. In addition, in 2001, 38.16 million people worked in private rural enterprises or were self-employed, accounting for 7.7 percent of total rural employees. The total of the above two ratios is 34.4 percent, exceeding onethird of total rural employed population (see Figure 5.1). Urbanization has been speeding up. China has experienced the largest population transition in the world since the policy of reform and opening up was carried out. This includes population transference, referring to moving from the place where one originally lives. In China’s case, it refers to transferring one’s household register or transforming from an agricultural population to a nonagricultural population, directly recruiting personnel for employment from rural areas, such as graduates of junior college, technical secondary school, demobilized servicemen, professional personnel and so on. Population flow refers to those whose living place remains the same, but the person himself (or herself) leaves the living place and move across a given administrative region, and China’s economic growth and poverty reduction 101 Table 5.6 Percentage of rural households grouped by per capita annual net income (1978–2001) (%) Grouping by per capita 1978 1985 1990 1995 2001 net income 100 Yuan and below 33.3 1.0 0.3 0.21 100–300 Yuan 64.3 36.9 8.34 1.06 2.51 300–500 Yuan 2.4 39.8 26.41 3.77 Over 500 Yuan 22.3 64.95 94.96 97.49 Over 1000 Yuan 2.31 22.78 69.77 86.78 Sources: The data for 1978 and 1985 are quoted from Guojia tongjiju (National Bureau of Statistics of China), Zhongguo shehui tongji ziliao 1990 (China’s Social Statistics 1990), Beijing: Zhongguo tongji chubanshe (China Statistics Press), 1990, p. 68; the data for 1990 and 1995 are quoted from Guojia tongjiju (National Bureau of Statistics of China), Zhongtuo tongji nianjian 2000; the data for 2001 are quoted from Guojia tongjiju, Zhongtu tongji zhaiyao 2002, p. 99. 108 Economic and social transformation in China Box 5.1 China’s poverty line and discussion A broad gap exists between China’s official poverty line and the international poverty line. The impoverished population in 1998 estimated according to China’s national poverty line (per capita annual income less than 650 Yuan) accounts for 4.6 of its total population, while the povertystricken population in the same year estimated according to the international poverty line (per capita everyday living cost less that $1) accounts for 18.5 percent of the total population, differing by about 14 percent. In Brazil, the impoverished population accounts for 22 percent of its total population according to its national poverty line, and accounts for 9.0 percent of its total population according to the international poverty line; in Bengal, the two proportions are 35.6 percent and 29.1 percent respectively; in Indonesia, the two proportions are 27.1 percent and 7.7 percent respectively. This demonstrates that the national poverty lines of the three countries are higher or slightly lower than the international poverty line. China’s national poverty line is much lower than the international poverty line, which leads to the underestimation of the poverty-stricken population and the low-income population, at least 100 million less than the real number. The following table shows China’s rural poverty-stricken population estimated according to different schemes. Scheme A is the current national poverty line; per capita income is 1,000 Yuan, which is the poverty line set by scheme B; 1,500 Yuan is the poverty line set by scheme C. The result is that if scheme C is adopted, the estimated result is closer to the estimate made by the World Bank; if scheme B is adopted, the estimated result is between that of the World Bank and that of the national poverty line. The national Poverty line/ The estimated Rural povertyRural povertypoverty line per capita rural povertystricken stricken GDP (%) stricken population/ population/ population total rural total (10000) population population (%) (%) Scheme A: 650 Yuan 8.6 2713 3.4 2.1 Scheme B: 1,000 Yuan 13.2 10518 13.22 8.2 Scheme C: 1500 Yuan 19.9 24044 30.22 18.8 Characteristics of China’s poverty since the 1990s Distribution of the impoverished population in urban and rural areas Most of the impoverished population lives in rural areas where the degree of poverty is much deeper than that of urban habitants. One of the major reasons for this disparity is that there is a great gap between the per capita income of urban habitants and that of rural habitants, which surpasses that in common developing countries.5In addition, poor habitants in urban areas enjoy the lowest living insurance provided by the government, while most of the impoverished population has no other living insurance besides their own land. Regional distribution of the impoverished population Since the 1990s, China’s rural poverty gradually demonstrated regional and marginal characteristics. The poverty rate is high in the western areas of China, China’s economic growth and poverty reduction 109 The estimating method of schemes B and C: rural impoverished population under various poverty lines is estimated according to the proportion that poverty households account for in total households. According to Annals of China’s Statistics of 2002, the households with per capita income below 1,000 Yuan account for 13.3 percent of investigated households. The rural total population is 795,630,000 according to the new statistics of population. The estimated population with income below 1,000 Yuan is calculated by performing multiplication of the two numbers. The estimated population with income below 1,500 Yuan can be obtained in the same way. 2001 per capita Accounting for per Proportion of Total impoverished income (Yuan) capita GDP (%) impoverished population (10000) population (%) 100–600 1.3–8.0 3.87 3078 600–800 8.0–10.6 3.88 3087 800–1000 10.6–13.3 5.47 4352 Subtotal 13.22 10518 1000–1200 13.3–15.9 6.3 5012 1200–1300 15.9–17.2 3.45 2745 1300–1500 17.2–19.9 7.25 5786 Total sum 30.22 24044 where the impoverished population is the most concentrated and the degree of poverty is the deepest across the country. According to the data given by the Rural Research Office of National Statistics Bureau in Zhongguo nongcun pinkun jiance baogao 2001 (A Monitoring Report on China’s Rural Poverty (2001), in the 592 national poverty counties mentioned in 1986, about two-thirds of the total impoverished population were distributed in the eastern and middle provinces but the impoverished population of these regions has decreased rapidly since then. In 2000, 10 percent of the impoverished population was distributed in the eastern regions in a fragmentary state and 28 percent was distributed in the middle regions. The impoverished population in the western twelve provinces and areas has increased by 590,000, mainly distributed in geographically allotted areas, accounting for 62 percent of the total impoverished population of the whole country (see Figure 5.4). According to the official poverty line, the poverty rate in the west is far higher than that in the east. In 2000, the poverty rate in middle-west provinces such as Heilongjiang, Shanxi, Inner Mongolia, Shanxi, Gansu, Yunnan, Tibet, Guizhou, Qinghai and Ningxia was higher than 10 percent, while the poverty rate in the eight eastern provinces (namely Shanghai, Beijing, Tianjin, Zhejiang and so on) was lower than 1 percent. Extreme poverty has been thoroughly diminished in these regions. Per capita income of poor farmers in the western areas is far lower than that in the east, and the rate of poverty occurrence in the west is rather high – about 30 percent in recent years. This rate is especially high when these regions are by natural disasters and overall economic decline. The multi-dimensional characteristics of poverty In the past two decades, the strategies of poverty reduction of the Chinese government mainly focused on eliminating income poverty, especially in national poverty counties. It is a reasonable choice of policy, and it is very necessary, too. However, as we enter the new century, the problems of new types of poverty such as human poverty and knowledge poverty are increasingly apparent, and the combined population of these is far greater than that of income poverty. Such types of poverty have gradually become major types of poverty. Human poverty refers to the lack of basic human ability, such as illiteracy, malnutrition, short life expectancy, low level of health condition of mothers and infants and the harm caused by preventable diseases. Knowledge poverty is a new form of poverty when humans enter the knowledge based society in the twenty-first century, which can be defined as the problems caused by people’s lack of the abilities to obtain information, communicate with each other, utilize and create knowledge and information, or the lack of basic rights and chances to obtain these abilities. These three types poverty are not independent of one another, but interrelated. The impoverished population is not always faced with only one type of poverty, but the problems of multi-dimensional and interdependent poverty. Figure 5.5 is a three-dimensional coordinate map weighing poverty. It can differentiate 110 Economic and social transformation in China various types of poverty. The impoverished population faced with the three types of interrelated poverty is inside the cube. One of the indexes weighing status of human poverty is the human poverty index (HPI).6China’s HPI is shown in Figure 5.6. In addition, China’s status of knowledge poverty is reflected by the great gap among different regions (see Figure 5.7, Table 5.11). Factors affecting China’s poverty reduction since the 1990s The relationship between economic growth and poverty reduction is not simple. It is not the speed of economic growth but the quality of economic growth that actually plays an important role. Since the 1990s, the economic development of many developing countries, especially in east Asia, demonstrates that although economic growth plays an important supporting role in social development, too rapid economic growth will still produce damaging effects on the environment and resources. Moreover, if the economic growth is not based on good environmental systems, various marketing distortions, inefficient investments and prevailing corruption will come into being. The public, especially the impoverished population, will be deprived of the ability and chance to participate in marketing activities and political decision-making. Therefore, we must comprehensively survey the complex relationship between economic growth and poverty reduction. Although China’s economy has been increasing very rapidly since the 1990s, the quality of its economic growth is declining and the income allocation is unfair, which results in a decreased proportion of benefits being obtained by the impoverished population. This is an important reason for China to slow down its pace of poverty reduction. Quality of economic growth has declined: rapid economic growth has not helped to decrease poverty China’s growth rate of per capita GDP in the 1990s has created the highest record in history, but why is the achievement of poverty reduction so limited? China’s economic growth and poverty reduction 111 Central areas Eastern areas 10% Western areas 62% Figure 5.4 Regional distribution of China’s rural impoverished population (2000) Source: National Bureau of Statistics of China, Zhongguo nongcun pinkun jiance baogao 2001 (A Monitoring Report on China’s Rural Poverty 2001). 112 Economic and social transformation in China Income poverty Human poverty Knowledge poverty Y K H Figure 5.5 Multi-dimensional framework of poverty Sources: UNDP, Poverty Report: Overcoming Human Poverty 2000, New York: Oxford University Press, 2000. Notes: Y refers to average status of income poverty; K refers to average status of knowledge poverty; H refers to average status of health poverty. Figure 5.6 Human poverty index (1998) Sources: UNDP, Poverty Report: Overcoming Human Poverty 2000, New York: Oxford University Press, 2000. China’s economic growth and poverty reduction 113 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% Beijing Shanghai Jiangsu Zhejiang Guangdong Inner Mogolia Guangxi Chongqing Sichuan Guizhou Yunnan Tibet Shanxi Gansu Qinghai Ningxia Xinjiang Total Male Female Figure 5.7 Proportion of illiterates and semiliterates above 15 years (1997) Sources: Guojia tongjiju (National Bureau of Statistics of China), Zhongguo renkou tongji nianjian 1998 (China’s Population Yearbook 1998), Beijing: Zhongguo tongji chubanshe (China Statistics Press), 1998, p. 39. Table 5.11 Ranking of comprehensive knowledge developing index of different regions (1998) Eastern areas Central areas Western areas High level Beijing (606.05) (It ≥150) Shanghai (529.03) Tianjin (283.70) Guang Dong (212.74) Fujian (156.48) Jiangsu (154.55) Medium-high level Hainan (127.64) (150 > It ≥100) Liaoning (126.69) Zhejiang (122.71) Medium-low level Shandong (82.05) Jilin (99.53) Shaanxi (88.05) (100 > It≥75) Hebei (75.69) Hubei (92.18) Xinjiang (65.85)? Heilongjiang (84.63) Chongqing (63.71) Low level (It<75) Guangxi (50.88) Hunan (69.72) Gansu (58.32) Shanxi (64.27) Ningxia (54.70) Henan (63.74) Sichuan (51.49) Jiangxi (61.04) Yunnan (48.75) Anhui (57.69) Qinghai (44.18) Inner Mongolia (56.59) Guizhou (38.32) Tibet (31.99) Sources: A. Hu and Y. Xiong, “Woguo zhishi fazhan diqu chaju yanjiu: tedian, duice he chengyin” (Analysis of Regional Disparities of China’s Knowledge Development: Characteristics, Causes and Countermeasures), Guanli Shijie (Management World),2000, Issue 3. This is mainly because the quality of economic growth has declined, and China’s poverty stratum has not directly benefited from the high growth rate of the gross economy, which can be shown by the following points. The growth of per capita income and consumption lags far behind the growth of GDP per capita. In the past two decades, a rather complex relationship has emerged between China’s growth rate of per capita income and that of per capita GDP (see Figure 5.8). In the period 1978–1985, the growth rate of per capita GDP was 8.4 percent, which is calculated according to a fixed price (as are the following rates). The growth rates of per capita consumption level and per capita net income of rural residents were 9.7 percent and 15.1 percent respectively, higher than the growth rate of per capita GDP, also much higher than the growth rate of per capita consumption level of urban residents (1.3 percent), which demonstrates that the broad masses of farmers have directly benefited from the economic growth in the early stage of reform. In the period 1985–2001, the growth rate of per capita GDP has separated from that of per capita income: the growth rate of per capita consumption level of rural and urban habitants and the growth rate of per capita income of rural people are 114 Economic and social transformation in China 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00% 1978–85 1985–90 1990–97 1997–2001 1978–2001 GDP per capita Expenditure per capita, urban Expenditure per capita, rural Income per capita, rural Figure 5.8 Annual growth rate of GDP and consumption level per capita, urban and rural people (1978–2001) Sources: Data of per capita consumption (1978–1999) are quoted from Guojia tongjiju (National Bureau of Statistics of China), Xinzhongguo wushinian tongji ziliao huibian (Comprehensive Statistical Data and Materials on 50 Years of New China), Beijing: Zhongguo tongji chubanshe (China Statistical Press), 1999; the rest of the data are quoted from Guojia tongjiju, Zhongguo tongji nianjian 2002. Note: Data are calculated in comparable prices. obviously lower than that of per capita GDP (except during the period 1997–2001 when the growth rate of per capita income of urban habitants was slightly higher than that of per capita GDP). The proportion of agricultural production value in GDP has greatly declined. The ratio of agricultural labor productivity to national average labor productivity has declined. The ratio of farmers’ income per capita to GDP per capita has declined. The proportion of farmers’ agricultural income in their total income has continuously declined. The proportion of agricultural production value in GDP has been decreasing continuously. Calculated at current prices, the proportion of agriculture in GDP was 28.4 percent in 1985 and has decreased to 18.1 percent in 2002, declining 10.3 percentage points. The proportion of the agricultural labor force in the total labor force had been decreasing until 1995. Since then, the proportion has stopped at about 50 percent (see Figure 5.9), which leads to the rapid decrease of the ratio between agricultural productivity and national average productivity after 1985. Although the ratio has slightly increased in the middle of 1990s, the obvious trend of declining has arisen after that year. This reflects the decrease of relative agricultural productivity. The ratio between farmers’ income per capita and GDP has also been dropping continuously. The highest ratio was 46.5 percent in 1985, which has rapidly decreased since then, decreasing to 31.1 percent in 1994, and then fluctuating around that level after that year (see China’s economic growth and poverty reduction 115 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 1978 1980 1985 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 The proporion of agriculture in GDP The proportion of agricultural labor in total labor Figure 5.9 Status of agriculture in the national economy (1978–2002) Source: Guojia tongjiju, Zhongguo tongji nianjian 2002. Figure 5.10). In terms of the sources of farmer’s per capita annual net income, agricultural income accounted for 75 percent of total income in 1985, and the proportion decreased to 49.9 percent in 2000, decreasing 33.5 percentage points (see Figure 5.11). Generally speaking, agriculture is still the main income source of farmers. This shows that the gap between per capita GDP and farmers’ per capita net income and per capita real consumption level has obviously become larger, which produces a large negative impact on poverty reduction. This analysis partly explains the reasons for China’s slow pace of rural poverty reduction after the middle of the 1980s. The opportunities for employment in rural areas are declining. Since the 1990s, the opportunities for employment created in urban areas are far more than those in rural areas. In the period 1990–2001, the growth rate of urban employment was 40.5 percent, while that in rural areas was only 2.9 percent; in the period 1978–1985, the number of people who were employed in rural areas had increased by 21 percent (see Figure 5.12). In the period 1990–2001, rural labor force decreased by 6.2 percent. The development of village and township enterprises had undergone serious setbacks. The number of people who were employed decreased by a large margin, decreasing by 8 million just in the period from 1996 to 1998. Because large quantities of employees had been laid off and lost their jobs, there is a limit for rural labor to enter into cities. This has produced a very serious impact on rural poverty reduction. This will be reflected as follows: first, the pressure of employment competition will become larger; and secondly, 116 Economic and social transformation in China 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 1978 1980 1985 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Farmers' income per capita/national GDP per capita Agricultural productivity/national productivity Figure 5.10 Farmers’ income and agricultural labor productivity (1978–2002) Sources: The proportion between farmers’ per capita income and national per capita GDP is calculated according to the data of Guojia tongjiju, Zhongguo tongji nianjian 2002; the ratio between agricultural productivity and national productivity is calculated according to the data of Figure 5.9. the remitting income flowing from cities to rural areas will decline. Since many cities set a limit on rural labor forces flowing into cities or adopt discriminatory policies (such as the requirement of formal residential identity), the wages of these workers will be directly influenced. In addition, the living costs of the children of these new migrant families in cities will increase. China’s economic growth and poverty reduction 117 0.00% 20.00% 40.00% 60.00% 80.00% 100.00% 1985 1990 1995 200 0 Primary industry Secondary industry Tertiary industry Figure 5.11 Proportions of various income sources in farmers’ per capita net income (1985–2000) Source: Guojia tongjiju, Zhongguo tongji nianjian 2002. 0 10000 20000 30000 40000 50000 60000 70000 80000 1978 1985 1991 1993 1995 1997 1999 2001 Total number of employed persons Number of employed persons, urban Number of employed persons, rural Figure 5.12 Status of employment since reform (1978–2001) Source: Guojia tongjiju, Zhongguo tongji nianjian 2002. areas. Tax policies are preferential to the rich, which intensifies the income gap. Only if economic growth with high quality is maintained, can investment distortion be avoided, and full exploitation and utilization of human capital be realized. Only then can all of society benefit from economic growth so as to prevent poverty. New strategies of poverty reduction (2002–2015) The United Nations and the World Bank have publicly promised that the impoverished population of the whole world is to decrease by half by 2015. China’s success or failure in poverty reduction is directly related to the realization of the world’s objective. To sum it up, although China has made huge achievements in poverty reduction, the economic growth since the middle of the 1980s has not led to corresponding poverty reduction; the pace of poverty reduction has slowed down and some new types of poverty have arisen. Moreover, China’s official national poverty line is relatively low, far lower than the international poverty line prescribed by the World Bank, the ratio of which to per capita GDP has continuously declined. This means that the gap between this part of the impoverished population and the social collective is enlarging – their relative situation is deteriorating. Recently, China’s new Premier Wen Jiabao mentioned at a press conference that China’s poverty line is at a low level and he classified the issue of employment and poverty as one of the top three tough tasks. However, after the “87 anti-poverty plan” ended in 2000, the central government has not put forward new plans on poverty reduction. The Sixteenth National Congress of the Communist Party of China (CPC) points out that for 124 Economic and social transformation in China Table 5.17 Tax proportion of farmers by different income groups (1999) Income of Average income Income Tax/fee ratio Tax/fee ratio group (Yuan ) (Yuan) (a) Components (b) (c) (d) < 800 522.40 86.52 17.53 11.51 800–1600 1204.91 82.22 10.35 6.75 1600–2400 1970.35 72.98 6.71 4.12 2400–3200 2766.30 60.18 5.22 2.90 3200–4000 3570.66 46.41 4.27 2.18 4000–6000 4804.11 41.83 3.42 1.44 6000–8000 6868.57 30.51 3.89 1.16 8000–12000 9532.26 22.32 2.91 0.32 > 12000 23594.92 6.89 5.14 0.30 Sources: Y. Lin and T. Ren et al., “Issue of Chinese Farmers’ Tax Burden,” China Center for Economic Research, Peking University, June 2002 Notes: (a) Average income indicates that of different groups’ net income per capita; (b) Income components are the proportions of agriculture income in net income per capita; (c) Tax/fee ratio indicates the proportion of national tax and local charges in average income; (d) Tax/fee ratio indicates the ratio of local charges to average income. the first two decades of the twenty-first century, the most important goal of our country is to concentrate on building a well-off society with a higher all-round standard to the benefit of well over one billion people and further to develop the economy, improve democracy, advance science and education, enrich culture, foster social harmony and upgrade the standard of living for the people. Poverty is the opposite of being well-off. Therefore, poverty reduction should be a priority in the comprehensive construction of a well-off society. By the year 2020, the total population of China will probably reach 1.44 billion, the gross economic value will quadruple the one of 2000, the finance income will increase enormously, China’s overall national strength and international competitiveness will increase markedly, the income of residents will improve markedly, the people will lead a more affluent life, and the country and society will be more capable of further reduction of the impoverished population in cities and rural areas, and the elimination of varied phenomena of poverty. China’s development objective of building a well-off society in an allround way conforms to the Millennium Development Goals (MDGs). According to UNDP’s statistics the chief development index of China by the year 2001 has reached or approached the main targets of the Millennium Development Goals (see Table 5.18). If China continues its high speed of economic development, maintains stability of its society and promotes social development, not only will the goal of building a well-off society in an all-round way come true by 2015, but the Millennium Development Goals will gain great benefits from China’s efforts at the same time. China’s five targets of anti-poverty in the future are: further increase average income of poor peasants by 60–65 percent by the year 2010, eradicate the impoverished population under the national poverty line, make great strides to eradicate the impoverished population under the international poverty line, at least reduce by two-thirds; ensure poor peasants’ normal meals and basic food needs; create more opportunities for employment for the impoverished population, break barriers of systems against labor flow; enhance investment of human capital for the poor population, offer basic public services, provide conditions for learning, absorbing and applying knowledge, extend development scopes, promote the development ability of poor people radically; realize the objective of environment protection and infrastructural construction. For further background, see Table 5.19. To this end, a new anti-poverty plan for the longer term (2003–2015) should be set down. Aiming at current problems, the anti-poverty strategic direction should be adjusted to: re-confirm the national poverty standard close to the international poverty line; identify the three types of poverty (income poverty, human poverty and knowledge poverty); pay great attention to increasing the chances of the vulnerable to participate in social activities and constructing the system of benefits; design an effective comprehensive anti-poverty strategic framework so as to keep anti-poverty policies in accordance with appropriate macroeconomic policies and regional developing policies. The suggestions in detail are as follows. China’s economic growth and poverty reduction 125 126 Economic and social transformation in China Table 5.18 To achieve millennium development goals (1990–2015) 1990 2001 2015 Poverty GDP per capita China 1603 4020 (PPP US $) 2001 East Asia and the Pacific 2346 4233 Famine Undernourished people China 16 9 8 (%) East Asia and the Pacific 16 10 Education Net primary enrolment China 97 93 100 ratio (%) East Asia and the Pacific 96 93 Gender Ratio of boys to girls in China 81 98 100 equality primary and secondary East Asia and the Pacific 84 89 education (%) Health Under-five mortality China 49 39 16 rate(per 1,000 live East Asia and the Pacific 58 43 births) Water Population with China 71 75 sustainable access to an East Asia and the Pacific 71 76 86 improved water source (%) Sanitation Population with access to China 29 38 65 improved sanitation (%) East Asia and the Pacific 35 46 Human Human development China 0.624 0.721 0.85 developIndex value East Asia and the Pacific 0.722 ment Source: UNDP, Human Development Report 2003 (Chinese edition), Beijing: Zhongguo caizheng jingji chubanshe (China Financial and Economic Publishing House), 2003. Table 5.19 Policy evolution of employment and transference of rural labor force (1984–2003) Year The institution The publicized Main contents of the document publicizing the document document 1984 The Central Document No. 1 Allowing farmers to raise funds Committee of the independently and provide houseCommunist Party hold register for themselves to of China do manual works in towns and cities 1993 The Third Plenary The Resolution about Encouraging and steering surplus Session of the Some Issues of rural labor force to orderly flow Fourteenth Central Establishing into non-agricultural industries in Committee of the Socialistic different regions step by step Chinese Communist Marketing Party Economic System China’s economic growth and poverty reduction 127 Table 5.19 continued Year The institution The publicized Main contents of the document publicizing the document document 1994 Labor Department Interim Regulations Adopting management of of Rural Labor employment card or certificate Force Flowing across Provinces 1995 The General Office Suggestions about To adopt the system of unified of Central Strengthening employment card of flowing Committee Management of population and card of temporarily Flowing Population residence 2001 The National Specific Programming To reform the employment system Planning of Pivot Development dividing up urban and rural areas Committee of Urbanization in except in very few especially large The Tenth Five-Year cities, to eliminate those restrictive Plan employment policies aiming at farmers and population from other places 2001 The Ministry of Suggestions about Perpetual township household Public Security Promoting register can be conducted for Management migrant workers and their direct System of relatives who live with them as Household Register long as they have legal and fixed in Small Cities and habitation, stable jobs and sources Towns of living 2002 The Central Document No. 2 Migrant farmers should be treated Committee of the fairly, guided rationally, managed Communist Party perfectly and served excellently. of China Unreasonable restrictions on farmers entering cities and illegal charges should be cleaned up 2003 The General Office Document No. 1 Farmers should be treated fairly of the State Council The Notice of and the guidance, service and Performing Good management to them should be Jobs of Employment strengthened. Migrant workers’ Management and legal rights and benefits should be Services to Farmers protected and they should be Who Enter Cities and involved in insurance of industrial Do Manual Work injuries. The right to accept compulsory education of migrant workers’ children should be guaranteed. Source: B. Ren, “The Breakthrough of Policies towards Farmer Workers”, Finance and Economy, 2003, issue 3/4, pp. 95–97. First, to adjust the national poverty line, to re-define the rural impoverished population, and to establish anti-poverty strategic steps according to the new poverty line. Box 1 lists the three schemes for estimating the rural impoverished population. Scheme A is the current national poverty line; scheme B sets the poverty line at per capita income of 1,000 Yuan; scheme C sets the line at per capita income of 1,500 Yuan. When scheme B is adopted, the estimated rural impoverished population is 100 million, of between the estimation of the World Bank and the national poverty line; when scheme C is adopted, the estimated rural impoverished population is 240 million, very close to the estimate made by the World Bank. We suggest that scheme B be adopted, and then transit from scheme B to scheme C gradually. According to scheme B, the current rural impoverished population of China is about 100 million. Effective measures should be taken to decrease this part of the impoverished population in ten years, by the year of 2015. Scheme C is to be taken into consideration by 2015 and then new plans should be carried out to reduce poverty in the framework of scheme C. Secondly, to practice macroeconomic policies and regional development policies which benefit poverty reduction. The anti-poverty experience of East Asia and China in the early 1980s shows that if policies which can effectively promote macroeconomic growth can combine with poverty reduction policies aimed at benefiting the poor, the number of the impoverished population will be greatly decreased and the burden on the impoverished population will be lightened. This includes the following: 1) Various macroeconomic policies aimed at increasing domestic demands should be connected to poverty reduction. Policies of increasing domestic demands should especially benefit peasants and the rural impoverished population first, which can reduce the gap between urban and rural areas, alleviate the living pressures of the impoverished population, promote the adjustment of the rural structure and increase the ability of peasants to develop themselves so as to ease poverty. It is suggested that policies of increasing domestic demands should adopt direct adjustment to provide basic facilities to the rural impoverished population and realize the objective of the “seven provisions,” namely water provision (gap water, clean drinking-water, the necessary water supply for living and producing), electricity and electric net provision, post provision, road provision (country roads or simply roads), cable provision (broadcasting and TV), telephone provision (telephones, especially public telephones), and network provision (Internet, especially public Internet in county and village); to help farmers accelerate adjusting the agricultural structure and provide support in terms of technology, funds, information, qualified personnel and policies to adjust the agricultural structure; to help farmers develop a commodity base of agricultural products with high quality and encourage them to develop the export of green food with high added-value; to encourage large-scale agricultural enterprises to establish contractual relationships with poor farmer families and provide technical guidance and planting information to them; to help farmers and communities to establish markets for agricultural products and a transporting 128 Economic and social transformation in China and selling system; to encourage and support farmers to store, process, transport and sell agricultural products; to increase employment opportunities for farmers and promote regional labor force flow or migration; to increase the input of rural basic education and basic public health. 2) To practice fiscal policies that are helpful in benefiting the impoverished population and increase the inputting proportion of the anti-poverty fund. New resources of revenue can be adopted by means of increasing individual income tax, imposing inheritance tax, and imposing social security tax, which can also increase the progressive degree of revenue. This will be used in poor-aid funds, bringing the proportion of poor-aid funds in GDP to 1.5 percent from the current 0.27 percent. The government will not give allowances to enterprises that suffer from loss and business (including state-owned food supplies enterprises) anymore. Instead, the government will directly give allowances to the poor. Poor-aid funds should be used to assist poverty-stricken villages or poor farmer families instead of poverty-stricken areas, the proportion of which is no less than 60 percent. The proportion of investment in the impoverished population’s human capital should be increased by a large margin; it should increase to more than 20 percent from the current 2–3 percent. 3) To practice monetary policies that are helpful to benefit the broad masses of the impoverished population. To maintain macroeconomic stability, the general level of prices of agricultural products has direct bearing on farmers’ incomes. On the contrary, if the macro economy is not prosperous and the price of agricultural products is continuously falling, the agricultural income of the rural impoverished population will be directly influenced. The government should help the poor to obtain loans, with discounts given by the government. The loans should be used to directly assist poverty-stricken women or families, providing necessary subsidies to poor farmer’s families. 4) To get adjusted to trade policies after entering into the WTO and to aid farmer’s families in producing labor-intensive agricultural products. These include vegetables, fruits, fresh flowers, tea, medicinal materials, forestry products and livestock products. The government should help farmers enhance the quality of agricultural products and increase the proportion of increment of agricultural products; the input of the government in agricultural RND should be increased by a large margin; the government should also provide market information, product information and technical services to farmers. 5) To practice regional policies that are beneficial to reducing the regional development gap. This includes establishing normative and fair systems for fiscal transfer payments, realizing the objective of basically equalizing regional average resources, enhancing the ability of poverty-stricken counties and villages to provide fundamental public services; reducing the tax and charge burden of poor farmer families; setting down national basic standards of public service and expenditure; adjusting the pivotal investment of the government in povertystricken areas; increasing investment in human capital; reducing disparity of public services in different regions. The poor-aid office of the State Council China’s economic growth and poverty reduction 129 notifies the standing committee of NPC at least once each year of the distribution scheme of investment in aiding the poor, and the progress of investment, especially the effect index of investment such as per capita net income of poor farmers, per capita living costs and expenditures, rate of illiterate adults, enrollment rate of children, infant mortality and maternal mortality, and so on. The office will also announce the above information and the evaluation advice given by the standing committee of the NPC to the whole country. The National Auditing Office will regularly audit various expenditures of the aid-fund given by the central government, and publicize the auditing results showing irregularities. Evaluating groups made up of experts from home and abroad are established and will give their evaluation as an independent third party. Regular monitoring reports of regional poverty will also be announced by the National Statistical Bureau. Thirdly, to adopt the developing strategies of taking employment as a priority to create more employment chances for poor people. First, various levels of governments should take creating employment as one of the most important developing objectives. Creating employment is a conscious activity. An increase in employment will not happen automatically, so the government should take creating employment as a prior objective, put into effect employment-oriented strategies and actively develop labor-intensive industries. Compared with other types of groups, the main resource of the urban or rural impoverished population or low-income population is their labor. To be engaged in formal or informal employment is their main source of obtaining income or increasing income. To increase their employment opportunities means to increase their opportunities of increasing income. Therefore, the gist of practicing employment-oriented polices is to give people the opportunity to obtain employment, including temporary, short-term and flexible informal employment. Secondly, the transfer of the agricultural labor force should be actively promoted. The most outstanding problem of development in China is that almost one-half of the labor force is concentrated in agricultural departments and the labor productivity of agricultural departments is very low. The large-scale transfer of surplus agricultural labor forces is both the core of China’s economic development strategies and an important measure of China’s anti-poverty strategies. Looking into the future, with the supply of agricultural exceeding demand and China’s entry into WTO, the ability to increase farmers’ per capita income seems likely to become smaller and smaller. Therefore, farmers’ labor service income and non-agricultural income should be increased and the proportion of that in farmers’ per capita net income should also be increased. In the long term, the fundamental method for solving China’s rural problems is to transfer farmers and reduce the number of farmers. As a result, every region should actively encourage farmers to do manual work in cities and towns, and should improve the related laws and policies. The central government should take a firm stance against discriminating against the rural labor force by governments of different regions, and should set down in writing employment policies allowing farmer workers to compete fairly and should encourage the orderly flow and transfer of the rural labor force. 130 Economic and social transformation in China Fourthly, to create opportunities for democratic participation and expression by the poor population. One of the fundamental reasons for the gap between urban and rural areas and for rural poverty is that the broad masses of peasants in China have neither their own representatives nor a system for expressing their opinions. According to statistics, workers and farmers account for only 18.46 percent of the total delegates to the Tenth NPC. This proportion is obviously too low because the rural population accounts for 64 percent of the total national population. If the most fundamental and major group of peasants are neglected in terms of representative structure, the immediate interests of peasants cannot be protected. As a result, the reform of the selection system of NPC delegates should be undertaken to absorb more representatives of peasants into the range of delegates. Furthermore, the impoverished population should take part in the events that can influence their life through various channels, for example, participating in the design of poverty reduction projects and performing supervision and evaluation publicly. The government should change from exclusive management and control to social governance and public management, and encourage and support privately-run departments, social groups, non-governmental organizations and international organizations to take part in China’s cause of aiding the poor. Finally, the ultimate way to reduce poverty is to invest in people and to promote the abilities of the impoverished population. First, the educational investment in the impoverished population should be increased by a large margin. Various rural education programs should be accelerated, and nine years of compulsory education should be taken as a major objective to be realized. A national educational fund should be used to directly assist the impoverished population, such as providing the tuition fees of children, the cost of books, the living subsidy of country teachers, the input fund of constructing schoolhouses and buying equipment. The government should assist poverty-stricken areas to set up semi-lodging schools, classes of young girls, and classes of minorities in primary school and secondary school. The project of educating migrants should be vigorously carried out in poverty-stricken areas in the twentyfirst century. The government should provide funds to subsidize the children of poor families who are willing to study (or after mobilization), and to achieve nine years of compulsory education or even twelve years of education, enabling them to permanently emigrate from poverty-stricken areas, giving them the same high-quality education as children in cities. The governments of major cities in the east should provide funds to local primary schools and secondary schools to make them accept “educational migrants” in poverty-stricken areas. Secondly, providing basic public health services to the impoverished population, investing in people’s health and diminishing health poverty should be important contents of the anti-poverty policy. What the government should do is change from helping poverty-stricken rural areas to reestablishing a cooperative medical care system, and to establish a medical treatment assistance fund, assisting sick people and the impoverished population, giving subsidies to clinical service China’s economic growth and poverty reduction 131 expenditure, family planning expenditure and women’s childbearing expenditure among the impoverished population, adopting assistance projects with low cost, high income, high social benefits and wide coverage. The government should also widely spread knowledge of public health care, meals and nutrition, enhance the ability of impoverished population to build health capital and prevent diseases, and advocate that doctors of hospitals in cites should travel to poverty-stricken areas regularly or for a short term to provide medical services to poor people. The government should provide funds to undergraduates and postgraduates of medical colleges and should encourage them to go to poor rural areas to undergo medical practice and provide medical services. Only when the government invests in people’s health and education, reduces the birthrate of the population and enhances the ability of the impoverished population to support themselves, can knowledge poverty and human poverty be alleviated and income poverty be eliminated. 132 Economic and social transformation in China 6 China’s macro-economy and health1 Introduction In the usual discussions about the issue of health, people always consider the issue separately. They seldom observe the health issue in the macro-economic perspective. The two issues are combined and discussed in the report on Investing in Health for Economic Development by the Commission on Macroeconomics and Health (CMH) of the World Health Organization (WHO), with Professor Jeffery D. Sachs as its Chairman. The theme of the report is the macro-economic and health issue of the world, putting forward a new thinking about development, namely, to invest in health so as to promote economic development, which provides us with a new perspective on global economic development and health issues. Many analyses and suggestions in the report are very valuable to developing countries, especially to the poorest nations. A large number of research results related to health and development are listed in the report, and the main agendas of the economic development in health as well. The report suggests in particular that each country establish its own committee of national macro-economy and health, evaluate the national health areas that take precedence, broaden the coverage of the basic health services, and reinforce cooperation with other departments to guarantee that health development is identical to the overall macro-economic policies. The report also discusses how to reach the goal of reducing poverty and improving people’s health standards by peaceful methods, by means of applying the most advanced scientific technologies and tremendous wealth of the rich nations, combined with joint efforts of the whole world. It provides important knowledge and enlightened of policies for promoting global health and development. China is a country that has one of the world’s fastest economic growths. The achievement of China’s economic growth has become the focus of world attention. However, there are few discussions about the relationship between health development and macro-economy at home. What is the relationship between economic growth and health development in China? What characteristics does the relationship have in different periods? In the area of health which is related to China’s macro-economy, what are the main problems China is confronted Third, it is necessary to intensify the two-way democratic supervision system from top to bottom and from bottom to top. In the past, stress was laid in the inner Party supervision of local Party organizations by the Central Committee and this is very necessary. However, we should also stress the inner Party supervision from bottom to top according to relevant provisions of the Party constitution. This includes the democratic supervision by the Political Bureau of the CPC Central Committee over its standing committee, the democratic supervision of the Political Bureau of the CPC Central Committee by the CPC Central Committee and the democratic supervision of the CPC Central Committee by the National Congress. Apart from the functions and powers of the National Congress as provided for by the Party constitution (six in all), it is necessary to clearly define the functions and powers of the plenary session of the CPC Central Committee, which should include hearing and reviewing and voting on reports by the Political Bureau of the CPC Central Committee or its standing committee; hearing, examining and voting on the report by the Central Discipline Inspection Commission, hearing, examining and voting on the report by the Organizational Department of the CPC Central Committee; discussing and deciding on matters of major importance concerning the Party; co-opting or re-electing members to the Political Bureau of the CPC Central Committee and members of the CPC Central Committee, and co-opting or reelecting members to the Central Discipline Inspection Commission. The plenary session of the CPC Central Committee should make normal changes and adjustments to personnel according to the provisions of retirement age, needs of work and requirements for exchange of cadres. During the plenary session of the CPC Central Committee, CPC Central Committee members and alternate members and observers should give objective comments and positive suggestions with regard to the reports by the CPC Political Bureau, the Central Discipline Inspection Commission and the CPC Organizational Department. In order to maintain the principle of “correctly carrying out criticism and self-criticism in the political life of the Party” as provided for by the General Principles of the Party constitution, it is necessary to formulate procedures and implementation rules for carrying out criticism and self-criticism in the Political Bureau of the CPC Central Committee, the National Congress of the CPC and the CPC Central Committee to make them institutionalized and regular and, if necessary, they should be published inside the Party (Party Congresses at all levels and all Party committees should follow the above-mentioned practices). Fourth, it is necessary to provide institutionally the terms of offices and retirement age for Party leaders. The core of the reform of the Party is the normalization and institutionalization of the leadership change so as to ensure relative stability of the leading groups and at the same time realize the institutionalization of the succession procedures for Party leadership and ensure the continuity of the Party’s line and principles. First of all, it is necessary to clarify the functions, powers and term of office of the Party General Secretary and the procedures for election when the post is vacated. As the CPC is a ruling Party, the term of office of Party General Secretary should be the same as the President 236 Economic and social transformation in China of the People’s Republic of China as provided for in the state constitution and the extension of the terms should not exceed two terms. Apart from the provisions of Article 21 of the party constitution that “the General Secretary is responsible for calling meetings of the Political Bureau of the CPC Central Committee and its standing committee and presides over the work of the secretariat of the CPC Central Committee,” it should also provide for the specific functions and powers of the General Secretary so as to make him a leader with limited rather than unlimited powers. It should also provide for the procedures to follow when the post of the General Secretary is vacant. Secondly, there must also be a limit on the terms of office for members of the Political Bureau of the CPC Central Committee and members of the Standing Committee of the Political Bureau of the CPC Central Committee. The terms of office should not be too long, so as to enhance the liquidity of the leading body, which is conducive to maintaining the innovative power and vitality of the collective leadership of the Party. Thirdly, the retirement age for central leaders should be clearly defined. In 1982, the CPC Central Committee clearly stipulated the retirement age for provincial and ministerial level officials (including deputies). Now it is necessary for the central leadership to clearly define the retirement age so that it would become normal for leaders to retire at the prescribed age and ensure the institutionalization and stability of leadership change. Fifth, it is necessary to prevent any leader from exercising individual autocracy and to ban any form of personality cult. The CPC is a unified entity that has been organized according to the principle of democratic centralism and it exercises a high degree of centralism on the basis of a high degree of democracy. Article 16 of the Party constitution provides: “Any Party member, irrespective of official ranking, cannot make decisions on issues of major importance” and “it is not allowed to exercise individual autocracy and put individuals above Party organizations.” Article 10 of the Party constitution provides: “The Party bans any form of personality cult and it is imperative to ensure that the activities of Party leaders are subject to supervision by the Party and people and at the same time safeguard the prestige of leaders that represent the interests of the Party and people.” It is, therefore, necessary to incorporate into the Party constitution the following provisions made at the second plenary session of the Seventh CPC Central Committee: “Celebration of the birthdays of Party leaders is forbidden. Naming places, streets and enterprises after Party leaders is likewise forbidden. We must keep to our style of plain living and hard work and put a stop to flattery and exaggerated praises.”13 It should also be added that Party leaders are not allowed to write inscriptions in their personal names and the signatures of Party leaders on public buildings and public places should be treated properly. There should also be clear stipulations about the rules governing foreign visits and internal inspections by Party leaders. The TV coverage (national news program) of Party leaders should be strictly defined, with necessary restrictions. Except for major events or major political problems, there should be no report or they should be reported briefly. Transition of the Communist Party of China 237 Sixth, it is necessary to stick to the principle that “party leadership is chiefly political, ideological and organizational leadership” as stipulated in the General Program of the Party Constitution, to redefine the relationship between Party and administration and introduce political rule and let the Party withdraw from administrative areas to intensify the management functions of the government, and to encourage social participation and introduce a new type of “social governance.” At the central level, it is good for the Party general secretary to concurrently take up the post of the president of the state; at the local levels, local Party secretaries take up the post as chairman of the local people’s congress at the same level. This is conducive to the Party exercising leadership and supervision over the government. The Party does not participate in the handling of specific administrative affairs but represents the people in exercising political power and supervising the government through the constitution and law and other means and through the institutional arrangement of the People’s Congress. For instance, Article 92 of the Constitution of the People’s Republic of China provides: The State Council is responsible, and reports on its work, to the National People’s Congress or, when the National People’s Congress is not in session, to its Standing Committee. Reform of the National People’s Congress (NPC) The second task of China’s political reform is to change the system of the NPC standing committee to make the “rubber stamp,” “political home for the aged” a people’s democratic policy decision-making system that is true to its name. First of all, there is serious discrimination against the rural population in the distribution of the number of people’s deputies. There is one rural people’s deputy for every 960,000 rural people while there is one people’s deputy for every 260,000 urban people, four times that of the rural areas. This has not only violated what is stipulated in Article 33 of the constitution, that is, “all citizens of the People’s Republic of China are equals before the law,” but also violates Article 34 of the constitution, that is, “All citizens of the People’s Republic of China who have reached the age of 18 have the right to vote and stand for election, regardless of nationality, race, sex, occupation, family background, religious belief, education, property status, or length of residence, except persons deprived of political rights according to law.” In addition, it has created differences in the number of people’s deputies per one million people, with areas with a high proportion of urban population, such as Tianjin, Beijing and Shanghai, having more people’s deputies per one million people, and rural areas where the proportion of one million people is less, such as Henan, Hebei and ten other provinces (see Table 12.1) having fewer deputies. The unequal distribution of political resources with regard to the number of people’s deputies has a direct bearing on the unequal distribution of economic resources. We have found that the per capita transfer payments in various areas are closely associated with the number of people’s deputies per one million people. 238 Economic and social transformation in China Secondly, the current National People’s Congress lacks broad representation as it has become more and more elite both politically and intellectually and less and less connected to the common people and the workers and peasants. The changes in the makeup of the people’s deputies of all National People’s Congresses show that the proportion of communists in the Ninth NPC was as high as 71.3 percent versus only 54.48 percent in the First NPC; the proportion of cadres and intellectuals and their combination rose to 33.2 percent, Transition of the Communist Party of China 239 Table 12.1 Number of people’s deputies per one million persons in various areas (2000) Total population Number of deputies % (10000) per million persons, Ninth NPC National 126583 2979 2.35 Beijing 1382 59 4.27 Tianjin 1001 45 4.5 Hebei 6744 120 1.78 Shanxi 3297 68 2.06 Inner Mongolia 2376 57 2.4 Liaoning 4238 116 2.74 Jilin 2728 72 2.64 Heilongjiang 3689 105 2.85 Shanghai 1674 67 4 Jiangsu 7438 151 2.03 Zhejiang 4677 89 1.9 Anhui 5986 112 1.87 Fujian 3471 64 1.84 Jiangxi 4140 79 1.91 Shandong 9079 185 2.04 Henan 9256 163 1.76 Hubei 6028 126 2.09 Hunan 6440 119 1.85 Guangdong 8642 166 1.92 Guangxi 4489 90 2 Hainan 787 18 2.29 Chongqing 3090 58 1.88 Sichuan 8329 151 1.81 Guizhou 3525 66 1.87 Yunnan 4288 88 2.5 Tibet 262 20 7.63 Shaanxi 3605 67 1.86 Gansu 2562 46 1.8 Qinghai 518 19 3.67 Ningxia 562 18 3.2 Xinjiang 1925 59 3.06 Army 250 268 107.2 Source: Numbers of People’s Deputies is from http://www.peopledaily.com.cn/item/lianghui/zlhb/ rd_9.htm. Population of various areas is from National Statistics Bureau, China Statistics Yearbook 2001, Beijing: China Statistics Press, 2001. 21.1 percent and 54.3 percent from 13.38 percent, 14.96 percent and 28.34 percent in the Fifth NPC; the proportion of workers and peasants and their combination dropped from 26.71 percent, 20.59 percent and 47.3 percent to 10.8 percent, 8.0 percent and 18.8 percent (see Table 12.2). Thirdly, the current standing committee of the NPC is more and more like a “political home for the aged” for senior Party and government officials. Article 65 of the constitution provides that “The Standing Committee of the National People’s Congress is composed of the following: The Chairman; The ViceChairmen; The Secretary-General; and Members. Minority nationalities are entitled to appropriate representation on the Standing Committee of the National People’s Congress. The National People’s Congress elects, and has the power to recall, all those on its Standing Committee. No one on the Standing Committee of the National People’s Congress shall hold any post in any of the administrative, judicial or procuratorial organs of the state.” However, most of the members, chairmen, vice-chairmen and the Secretary General of the NPC Standing Committee and the chairmen and vice-chairmen of the sub-committees had served in state administrative agencies, judicial organs and procuratorial organs and most of them are above the retirement age as provided by the CPC Central Committee in 1982. Such non-institutional arrangements (not nominated and elected by people’s deputies) lack proper representation (especially of the peasants who make up two-thirds of the national population) and at the same time have weakened the abilities of the NPC to supervise the government. As the basic political and democratic institution of the People’s Republic of China and also the foundation for a transparent political system, the National People’s Congress bears the fundamental tasks of representing the people and fully exercising its democratic power to supervise the government, to restrict the government and to help realize good social governance and to fight serious corruption within the government. Reform of the NPC and its standing committee must occur within the system provided by the basic principles of the Constitution of the People’s Republic of China. The objective of reform is to genuinely establish people’s democratic policy decision-making mechanisms, not in name only, so as to give effect to the established provisions for supervision and restriction of the government by the NPC, and to win the trust of the people in implementing, protecting and defending the constitution. The NPC must become the true representative of the people instead of a “club for political and intellectual elites” or the retreat for senior Party and government officials after retirement. It is, therefore, necessary to distribute the number of people’s deputies equally. According to the provisions of Article 33 of the constitution, “All persons holding the nationality of the People’s Republic of China are citizens of the People’s Republic of China. All citizens of the People’s Republic of China are equal before the law. Every citizen enjoys the rights and at the same time must perform the duties prescribed by the Constitution and the law.” Further, the rural population should receive “national treatment” and all discriminatory provisions against the rural people should be scrapped and there should be introduced, 240 Economic and social transformation in China Table 12.2 Composition of people’s deputies to all National People’s Congresses (1954–1998) First Second Third Fourth Fifth Sixth Seventh Eight Ninth (1954) (1959) (1964) (1975) (1978) (1983) (1988) (1993) (1998) Total number of deputies 1226 1226 3040 2885 3497 2878 2970 2978 2979 CPC members 668 708 1667 2217 2545 1861 1986 2037 2130 54.48% 57.75% 54.83% 76.80% 72.78% 62.5% 66.8% 68.4% 71.5% Members of 274 284 565 238 495 543 540 572 460 non-communist parties 22.35% 23.16% 18.58% 8.3% 14.15% 18.2% 18.2% 19.2% 15.4% Persons without party 284 234 808 affiliations 23.16% 19.09% 26.57% Workers 100 69 175 813 935 443 684 332 323 8.16% 5.6% 5.75% 26.71% 26.71% 14.9% 23% 11.2% 10.8% Peasants 64 67 209 662 720 348 280 240 5.14% 6.87% 6.87% 22.9% 20.59% 11.7% 9.4% 8% Cadres 322 468 636 733 842 988 11.2% 13.38% 21.4% 24.7% 28.3% 33.2% Chinese People’s 60 60 120 486 503 267 267 267 268 Liberation Army 4.89% 4.89% 3.95% 16.85% 14.38% 8.97% 9% 9% 9% Intellectuals 346 523 701 697 649 628 11.99% 14.96% 23.5% 23.4% 21.8% 21.1% Returned overseas Chinese 30 30 30 30 35 40 49 36 37 2.45% 2.44% 0.98 1.03% 1% 1.3% 1.6% 1.2% 1.31% People of minority 177 180 373 270 381 404 445 439 428 nationalities 14.43% 14.68% 9.4% 9.4% 10.9% 13.6% 15% 14.8% 14.4% instead, urban–rural unified, equal, open and democratic elections. According to the provisions of Article 34 of the constitution, “All citizens of the People’s Republic of China who have reached the age of 18 have the right to vote and stand for election, regardless of nationality, race, sex, occupation, family background, religious belief, education, property status, or length of residence, except persons deprived of political rights according to law,” and, further, peasantworkers in urban areas, whether temporary or resident, should all have the equal right to vote and stand for election. Second, the national people’s deputies should have broad representation and it is necessary to increase the proportion of people from all walks of life. The preamble of the constitution clearly says: “In building socialism it is imperative to rely on the workers, peasants and intellectuals and unite with all the forces that can be united.” And Article 2 provides: “All power in the People’s Republic of China belongs to the people.” In order to reflect the basic principles of the constitution, more workers, peasants and other laboring people should serve as people’s deputies to the National People’s Congress and there should be fewer CPC members, reducing it to 54.48 percent as in the first NPC. There should be control of the deputies from non-communist parties (the proportion of deputies from these parties has reached 15.5 percent while the total population of these parties makes up less than 1 percent). Their proportion should be controlled at a percentage only slightly higher than the proportion of their population. There should be fewer deputies from cadres and intellectuals. The proportion of people’s deputies from the army should be cut sharply (their proportion is one per 10,000 people), with the number of deputies achieved by these cuts to be distributed among other population groups. Third, according to the provisions of Article 65 of the constitution, “No one on the Standing Committee of the National People’s Congress shall hold any post in any of the administrative, judicial or procuratorial organs of the state,” and members of the NPC standing committee shall not be those who hold administrative, investigative or procuratorial posts after retirement. Article 56 provides that “the National People’s Congress elects and has the right to remove members of the NPC standing committee” and specifies how to elect and how to remove NPC standing committee members. NPC standing committee members should be elected directly by the people’s deputies and the proportions of the number of nominees should be expanded. NPC standing committee members should be full-time rather than half-time. During their tenure, they should be independent of their original units and should enjoy the allowances and benefits provided by the state. Their term of office should not be more than two years and they should make open commitments to the state and the people. Fourth, Article 73 of the constitution provides: “Deputies to the National People’s Congress during its sessions, and all those on its Standing Committee during its meetings, have the right to address questions, in accordance with procedures prescribed by law, to the State Council or the ministries and commissions under the State Council, which must answer the questions in a responsible manner.” The provisions need to be specified. For instance, the NPC Standing 242 Economic and social transformation in China Committee or its sub-committees should address questions to leaders of government ministries and commissions no less than one time per year and should vote on the report on the questioning. When necessary, the questioning sessions should be open to the national people’s deputies or the public or broadcast live by radio and TV so that the people of the whole country can have the right of information just as NPC standing committee members. The people’s government should put the results of their policies and programs and their implementation under the supervision of the people. Fifth, in order to implement the provisions (9) and (10) of Article 62 of the constitution about the powers and functions of the NPC “to examine and approve the plan for national economic and social development and the reports on its implementation,” “to examine and approve the state budget and the report on its implementation” and the provisions (5) of Article 67 about the functions and powers of the NPC Standing Committee to “examine and approve the state budget and the report on its implementation,” it is necessary to clarify the procedures, rights, obligations, agenda and agenda of questioning for the examination and approval of the national economic and social development plans and budget and final account by the NPC and its Standing Committee. The key to erasing its image as a “rubber stamp” lies in the right of examining and approving the fiscal and investment appropriations as clearly provided for in the constitution, including vetoing and non-approval. The members of the NPC’s financial and economic committee and budget committee, apart from central representatives, should have one member from each province and each province have one vote and final decisions should be taken according to majority vote on major investment projects and investment amounts put forward by the state planning commission. The distribution plan for transfer payments and tax collection should be, according to the provisions of Article 62 of the Constitution, submitted to the annual NPC session for examination and approval. The NPC has the right to examine and approve major expenditure projects, investment estimates for trans-provincial major projects, the expenditure budget, project schedule and quality, project management and returns. Sub-committees of the NPC Standing Committee have the right to examine and approve relative state projects and report them to the NPC and, if necessary, to reveal the projects to the whole country so as to subject major public spending and public projects to supervision by the people. Sixth, apart from the Supreme People’s Procuratorate and the Supreme People’s Court, which must report to the NPC on their fight against corruption, all anti-corruption organizations of the government, such as the Ministry of Supervision, the Ministry of Justice, the Auditing Office, the Ministry of Public Security and the Ministry of State Security, should report on the progress of major measures against corruption in all fields of endeavor to the NPC Standing Committee or its law sub-committee, which should designate a special group to examine and discuss the reports. The reports to the NPC by the State Planning Commission and the Ministry of Finance should have greater content on the fight against corruption. Transition of the Communist Party of China 243 Article 71 of the “Constitution of the People’s Republic of China” provides: “The National People’s Congress and its Standing Committee may, when they deem it necessary, appoint committees of inquiry into specific questions and adopt relevant resolutions in the light of their reports. All organs of state, public organizations and citizens concerned are obliged to supply the necessary information to those committees of inquiry when they conduct investigations.” It is necessary to make timely investigations into major corruption cases, especially at the higher levels of government, major accidents, major economic costs and major destabilizing events and make corresponding resolutions and timely reports to the NPC and its Standing Committee and publish them. Citizens who have provided related materials during investigations should be rewarded and their personal safety should be protected. Seventh, members of the NPC Standing Committee and people’s deputies must declare their personal and family income sources, assets and liabilities as they actually occur and accept open supervision and auditing. They must take an oath and make a written guarantee to the state and the people that they will not accept any forms of bribes and will not receive, collect, provide or actually enjoy any property and benefit from any person or organization. Otherwise, they shall be regarded as having violated the law and their qualifications as people’s deputies shall be terminated automatically or they shall be dismissed. Eighth, the NPC Standing Committee and people’s deputies should have their personal open websites to hear the views of the public and know what the public suggests and should intensify their ties with the public so as to create a situation of mutual action between the people’s deputies and the public and to make people’s deputies truly mirror the will of the people as their title suggests. Reform of the government The objectives of the reform of the government are to enable the unlimited government to become a limited government, to clarify the functions and powers that are not clear enough in order to become a truly responsible government, to enable an invisible government to become a visible government, to enable a government that intervenes too much to become a government that provides services and has a public finance system and simple and streamlined administrative examination and approval systems and an information provision and disclosure system. The state auditing organ must intensify its independent auditing and supervising functions. Article 91 of the constitution provides: “The State Council establishes an auditing body to supervise through auditing the revenue and expenditure of all departments under the State Council and of the local governments at different levels, and those of the state financial and monetary organizations and of enterprises and undertakings. Under the direction of the Premier of the State Council, the auditing body independently exercises its power to supervise through auditing in accordance with the law, subject to no interference by any other administrative organ or any public organization or individual.” In order to 244 Economic and social transformation in China play its role as a watch-dog of the state finances, state assets and resources, the auditing organ must have independence in operations and financial resources. 1 The State Auditing Office should submit an auditing report to the NPC Standing Committee or the NPC and make public the results of auditing and results of punishment; 2 The state should formulate detailed auditing procedures on fiscal spending and state property management and receipts in order to effectively reduce waste, the probability of corruption and possibilities of discovery and formulate regulations on punishments; 3 It is necessary to design a set of procedures for supervision over the use and whereabouts of state property, sources of income, sales or rental of state property in order to ensure that state property and income cannot be appropriated at will or used for other purposes or lie idle; 4 The auditing organ should audit on behalf of the state major government procurement and the use of money for major projects and report to the State Council and the NPC Standing Committee and accept questioning by people’s deputies; 5 The state shall ensure the sources of funds for the auditing office and the funds should be appropriated directly by the budget committee of the NPC Standing Committee; 6 The State Auditing Office should have an open website to encourage the citizens and insiders to report irregularities and protect such citizens and insiders; 7 The auditing office should publish its auditing manual, provide detailed technical guidance and information, select and absorb competent and experienced professional personnel. It should entrust well-reputed domestic or foreign certified public accounting offices to undertake auditing of public agencies and large state-owned units to make full use of the resources of professional personnel. Reform of the judicial system The objective of the reform of the judicial system is to establish a relatively independent judicial system to ensure law enforcement. The establishment of an independent judicial system is one of the important measures against corruption. By independence, we mean relative independence, that is, the financial system should have an independent organization, independent staff, independent sources of overhead expenses, and independent enforcement of law. It is, therefore, recommended: 1 Judicial organs at all levels should be independent of administrative organs at all levels; administrative organs at all levels must respect and ensure the independence of judicial organs at all levels and they must not be allowed Transition of the Communist Party of China 245 report. After that, we went on to provide several national conditions reports and related materials to the State Council led by Zhu Rongji. We wrote national conditions reports in order to “get a clear picture of the national conditions, show concern for the people’s livelihood, offer our opinions and influence the national policies.” Our reports concentrated on problems concerning the people’s livelihood, covering such issues as laid-off workers, social security, the income of peasants, the poverty in areas inhabited by minority people, ecology and environmental protection and social equality. These reports have caught the attention of State Council leaders, who made a number of notes. I, myself, attended two expert forums called by Premier Zhu Rongji, where I put forward my policy recommendations. I was deeply impressed with the fact that at the forums, Premier Zhu Rongji encouraged experts to air their views and even debates. After Wen Jiabao took office as the premier, I attended two expert forums presided over by Wen. Premier Wen Jiabao made several notes to our national conditions reports. I also attended two forums on clean government presided over by Wu Guanzheng, member of the CPC Central Committee and secretary of the Central Disciplinary Commission, at which I stated my suggestions concerning the building of a clean government system. On April 13, 2003, I wrote an article “Cope with Global SARS Crisis Actively in an All-Round Manner.” The second day, I submitted the report to the CPC Central Committee and the State Council. This was the first report on how to deal with the SARS crisis delivered to the CPC Central Committee and the State Council. I put forward a nine-point proposal, which was adopted. By the end of June, I wrote and compiled 32 SARS study reports, providing the policy decision-makers with information, knowledge and recommendations for making policy decisions. The national conditions reports collected in this book mainly focus on the major challenges to China’s development after the Party’s Sixteenth National Congress, how to respond effectively and take up challenges, how to deal with the serious losses caused by the SARS crisis and what lessons can be drawn from it. The core is how to understand the new approach to development, how to realize the transition from the first generation of development strategy to the second generation of development strategy. It should be said that the third plenum of the Sixteenth Party Congress for the first time established the new “people first” approach to development, with new strategies for unified development in five major aspects. The significance is no less important than the decisions taken at the third plenum of the Eleventh Party Central Committee twenty-five years ago. It has lent a new line of thought and established a new mechanism for realizing the grand goal and historic mission of building a welloff society that will benefit more than one billion people. The major contribution that a scholar can make is to offer his knowledge to the state and the people. In 2000, I and Zou Ping jointly wrote the article “Society and Development: Study of the Regional Disparities in Social Development in China” (Zhejiang People’s Publishing House). The article gives 252 Economic and social transformation in China a detailed account of the new “people first” approach to development. In the same year, I and Zou Ping recommended to the State Planning Commission that “people first” should be the guiding thought for mapping out the Tenth Five-Year Plan and Long-Term Development Program. The study laid an academic foundation for coordinated development of the economy and society. During the SARS crisis, on June 17, 2003 I attended the expert forum called by Premier Wen Jiabao on how to strengthen public health so that it would develop alongside social development. I stated my views, which left a deep impression. On July 21, I published my article “On the People-First Approach to Development” in the Liberation Daily in Shanghai. What is gratifying is that not long afterwards, the view I presented was written into the decisions adopted at the third plenum of the Sixteenth CPC Central Committee. Such a situation would have been impossible were it not for the major changes in the policy decision-making process. What is most important for a scholar is to have the courage to pursue his studies relentlessly for the interests of the state and the people. On June 12, 2002 I wrote the article “The Party’s Sixteenth National Congress and Trends in the Future of China,” in which I give full stress to the awareness that from now on, China has entered a new stage of political development marked by institutionalization, standardization and proceduralization of changes of Party committee members and state leaders. One of the important hallmarks is retirement at a prescribed age, not half-retirement or transfer of posts. This has been thoroughly institutionalized. Another important hallmark is that the members of the Political Bureau of the CPC Central Committee and members of the CPC Central Committee secretariat are younger, reaching the average age formerly obtaining at the Thirteenth Party Congress. The issue used to be very sensitive and it used to be very risky to raise the issue before the Sixteenth Party Congress. Courage is needed to put forward bold views. But it was for the sake of the fundamental interests of the Party and state that I stated my views. This book collects the article “The Sixteenth Party Congress and Replacement of Old Officials with the New,” which gives an objective assessment of how the Party realized the goal. It has in fact gone beyond my expectations. I am not sure that our recommendations have played a positive role, but the fact that I dared to speak out shows that the policy decision-making process in China has undergone encouraging changes. If we say that A-bombs are material, good policies and public policies are spiritual A-bombs (a famous metaphor of Mao Zedong). The key lies in how to turn spiritual A-bombs into material A-bombs. Only when a scholar provides knowledge that becomes public knowledge is it possible to have a social impact. Only when research achievements have become public policies with positive application, is it possible to influence social changes and push society forward. It is not enough to have personal knowledge on major social and economic issues. One must take the initiative to influence policy decision-makers so that knowledge becomes the common understanding of not only policy-makers but also the whole society. Only by doing this is it possible to benefit the people Improving policy decision-making 253 and promote social progress. I call this process knowledge innovation, spread and contribution. Despite the fact that I teach at the Chinese Academy of Sciences of Tsinghua University, I advocate the necessity of coming down from the top of the pyramid and going into society. In order to become an outstanding scholar, it is essential to lead the social tide with knowledge, to effectuate changes in social concepts and to push social development, as history and historical assessment have shown. At the same time, a more democratic society means everyone may have the opportunity to offer his or her good ideas. This is determined by whether or not you can obtain the latest knowledge in the world, whether or not you know, assimilate and accumulate the best knowledge so far known to man and whether or not you can localize this knowledge. This is the opportunity and challenge brought about by reform and opening up. Unlike the experience of the older generation of scholars such as Ma Yinchu, our generation has had the opportunity to get involved in this reform and development era on a scale never witnessed in human history and we may contribute to society with our acquisition, innovation, spread and exchange of knowledge. Research into national conditions is so tempting that I will never be able to stop studying, thinking, researching and writing. 254 Economic and social transformation in China Notes Introduction 1 Z. Mao, “Rende zhengque sixiang shi cong naili laide?” (Where do Correct Ideas Come From?), in Selected Readings from the Works of Mao Zedong, Beijing: Waiwen Chubanshe (Foreign Language Press), 1967, p. 405. 2 Z. Jiang, “Quanmian jianshe xiaokang shehui, kaichuang zhongguo tese shehui zhuyi shiye xin jumian” (Report at the Sixteenth National Congress of the People’s Republic of China), Shiliuda yilai zhongyao wenxian xuanbian (Selective Collection of Important Documents since the Sixteenth National Congress of the Communist Party of China), Beijing: Zhongyang wenxian chubanshe (Central Documentation Press), 2004. 1 Why has China’s economy grown so fast? 1 This article was based on a presentation made by Dr. Angang Hu at the Institute of the Far Eastern Studies of Russia Academy of Sciences on June 18th, 2004 when he was awarded Honorary Doctor in Economics. 2 A. Gerschenkron, Economic Backwardness in Historical Perspective, Cambridge, MA: Harvard University Press, 1962. 3 A. Maddison, Monitoring the World Economy, 1820–1992, Paris: OECD, 1995. 4 V. Tomas and Y. Wang, “East Asian Lessons from Economic Reforms,” in W. Woo, S. Parker and J. Sachs, Economies in Transition: Comparing Asia and Eastern Europe, Cambridge: The MIT Press, 1990, pp. 217–242. 5 Gerschenkron, Economic Backwardness. 6 Investigation and study of 48 product innovations in chemical, pharmaceutical, electronics and machinery industries show the imitation cost is 65% of the innovation cost on average. But different products vary greatly. About half of the products’ imitation and innovation costs are 60%–90%. See Y. Shu, Z. Xie and A. Kong, Models of Modern Economic Growth (Xiandai jingji zengzhang moxing), Shanghai: Fudan University Press (Fudan daxue chubanshe), 1998. 7 A. Maddison, The World Economy: A Millennial Perspective, Paris: OECD, 2001. 8 A. Hu, “Future Economic Growth of China Is Determined by TFP” (zhongguo weilai de jingji zengzhang qujue yu TFP), in A. Hu (ed.) China’s Grand Strategy (zhongguo da zhanlue),Hangzhou: Zhejiang People’s Press (Zhejiang renmin chubanshe), 2003, pp. 241–251. 9 World Bank, China 2020 – Development Challenges in the New Century, Washington, DC: the World Bank, 1997. 10 A. Maddison, Chinese Economic Performance in the Long Run, Paris: OECD Development Centre, 1998. 11 World Bank, The East Asian Miracle: Economic Growth and Public Policy, New York: Oxford University Press, 1993. 12 National Bureau of Statistics of China (guojia tongjiju), China Statistical Abstract 2004 (zhongguo tongji zhaiyao 2004), Beijing: China Statistics Press (zhongguo tongji chubanshe), pp. 17, 158. The figure might be overestimated, because China’s GDP might have been underestimated according to the official exchange rate of RMB to the dollar. This means that the ratio of China’s trade to GDP is likely to be overestimated. See World Bank, China 2020, p. 95. 13 World Bank, China 2020, p. 95. 14 Q. Wu, “Impact of Institutional Changes on Long-Term Economic Performance: Theories, Models and Application,” doctoral dissertation at School of Economics and Management of Tsinghua University under the supervision of Dr. Hu Angang, 2002. 15 The ten indicators are divided into three categories: one is technical knowledge: papers on science and technology (per million people), patent applications by residents (per million people), net inflow of FDI in GDP (%); one is intelligent capital: per capita years of education (years), enrolment in primary schools (%), enrolment in secondary schools (%), enrolment in tertiary education (%); the other is materialized knowledge: TV penetration rate (‰),telephone penetration rate (including both mobile and fixed (‰), Internet using rate (‰). See Y. Xiong, “Yi zhishi wei jichu de fazhan zhanlue yanjiu: lilun moxing yu jingyan fenxi” (Study on Knowledgebased Development Strategy: Economic Model and Empirical Analysis), Management master’s degree paper of Tsinghua University (Supervisor: Angang Hu), School of Public Policy and Management of Tsinghua University, October 2003. 16 A. Hu, “Dangqian woguo jingji yu shehui fazhan xingshi fenxi he ruogan jianyi” (Analysis of the Current Economic and Social Development and Recommendations), in A. Hu (ed.) Yingxiang juece de guoqing baogao (Reports that Influenced Policy Decision-making in China), Beijing: Tsinghua University Press (qinghua daxue chubanshe), 2002, pp. 68–72. 17 World Bank, World Development Report 2000/2001: Attacking Poverty, Chinese Edition, Beijing: Zhongguo caizheng jingji chubanshe (China Financial and Economic Publishing House), 2001. 18 Y. Xiong, Yi zhishi wei jichu de fazhan zhanlue yanjiu. 19 World Bank, World Development Indicators, Washington, DC: World Bank, 2001, Table 2.2. 20 Wen Jiabao, “Laogu shuli he renzhen luoshi kexue fazhanguan” (Foster a New Approach to Development), cited from Renmin ribao (People’s Daily), February 29, 2004. 21 Renmin ribao (People’s Daily), June 18, 2003. 22 Hu, Yingxiang juece de guaging baogao. 2 Comprehensive national power (1980–2000) 1 The Chinese version of this chapter was published on Zhanlue yu guanli (Strategy and Management), 2002, No. 3. The article was coauthored with Dr. Honghua Men and presented at Carnegie International Peace Foundation in February 2004. The authors thank Mr. Shaujie Zhou for his help in data calculation and related analysis. 2Zhongguo xiandai guoji guanxi yanjiu suo (China Institute of Contemporary International Relations), Quanqiu zhanlue da geju: xin shiji zhongguo de guoji huanjing (Global Strategic Pattern – International Environment of China in the New Century), Beijing: Shishi Press, 2000. 3 S. Huang, Zonghe guoli xinlun: jianlun xin zhongguo zonghe guoli (New Theory on CNP: CNP of China), Beijing: Zhongguo shehui kexue chubanshe (Chinese Academy of Social Sciences Press), 1999. 256 Notes 4 A. Tellis et al.,Measuring National Powers in the Postindustrial Age, Santa Monica: RAND, 2000. 5 Ibid. 6 M. Porter, The Competitive Advantage of Nations, New York: The Free Press, 1990; M. Porter et al., The Global Competitiveness Report 2000, New York: Oxford University Press, 2000. 7 R. J. Barro and J. Lee, International Data on Educational Attainment Updates and Implication, NBER Working Papers, 2000. 8 The last indicator is drawn from the global education databank of Barro and Lee of Harvard University. Data for China come from the national population census (National Bureau of Statistics, 1982, 1990, 2000). 9 Porter, The Competitive Advantage of Nations. 10 Tellis et al.,Measuring National Powers. 11 K. Knorr, The War Potential of Nations, Princeton: Princeton University Press, 1956. 12 S. Wang (ed.), Shijie zhuyao guojia zonghe guoli bijiao yanjiu (Comparative Studies of the Comprehensive National Power of the World’s Major Nations), Changsha: Hunan chubanshe (Hunan Press), 1996. 13 Huang, Zonghe guoli xinlun. 14 Huang, Zonghe guoli xinlun, p. 119; Wang, Zhuyao guojia zonghe guoli bijiao, p. 439; Zhongguo xiandai guoji guanxi xueYuan, Global Strategic Pattern, p. 28. 15 P. Kennedy, “The Eagle Has Landed: The New U.S. Global Military Position,” Financial Times Weekend, February 1, 2002. 16 Guojia tongjiju (National Bureau of Statistics of China), China Statistical Abstract (2001), Beijing: Zhongguo tongji chubanshe (China Statistics Press), 2002, p. 19. 17 Porter, The Global Competitiveness Report 2000. 18 A. Maddison, Chinese Economic Performance in the Long Run, Paris: OECD, 1998. 19 A. Maddison, The World Economy: A Millennial Perspective, Paris: OECD, 2001, Table 13. 20 Porter, The Global Competitiveness Report 2000. 21 Maddison, Chinese Economic Performance. 22 @*NOTES:Kennedy, “The Eagle Has Landed”. 23 National Statistics Bureau, China Statistical Abstract 2001, Beijing: China Statistics Press, 2001, p. 168. 24 World Bank, World Development Indicators 2001, Washington DC: World Bank, 2001, pp. 12–14, 310–312. 25 Alexei Arbatov, “US Military and Industry Integrity,” Russian News Service, February 5, 2002. 26 A. Hu, “Prospects for 21st Century: How Should China Catch up with the United States,” China Studies Report, 2000, Issue No. 80. 3 Why has China’s TFP dropped in 1995–2001? 1 This article is coauthored with Dr. Jinghai Zheng and was originally published in Zhongguo jingji shibao (China Economics Times), March 26, 2004. 2J. Sachs and W. Woo, “Understanding China’s Economic Performance,” NBER Working Paper Series, 1997, Working Paper 5935; Z. Hu and M. Khan, “Why is China Growing So Fast?” Economic Issues, 8, 1997, Washington, DC: International Monetary Fund; A. Young, “The Razor’s Edge: Distortions and Incremental Reform in the People’s Republic of China,” Quarterly Journal of Economics, 2000, Vol. CXV, Issue 4; D. Bhattasali, “Sustaining China’s Development: Some Issues,” Presentation to Tsinghua University 90th Anniversary Celebrations Seminar Series, Beijing, People’s Republic of China, April 24, 2001; Y. Wang and Y. Yao, “Sources of China’s Notes 257 Economic Growth 1952–1999: Incorporating Human Capital Accumulation,” China Economic Review, 2003, 14, pp. 32–52; A. Hu, “Weilai zhongguo jingji zengzhang qujueyu TFP” (China’s Future Economic Growth Depends on TFP), in A. Hu (ed.), Zhongguo Dazhanlue (Grand Strategy of China), Hangzhou: Zhejiang renmin chubanshe (Zhejiang People’s Press), 2003, pp. 241–251. 3 According to the World Bank estimate, China’s average TFP growth was 4.3% in 1978–1995, contributing to 46% of economic growth. See World Bank, China 2020: Development Challenges in the New Century, Washington DC: World Bank, 1997. 4 According to the calculation by A. Maddison, China’s TFP annual growth was –0.78% from 1952 to 1978 and 2.23% from 1978 to 1995, contributing to 30% of economic growth. See A. Maddison, Chinese Economic Performance in the Long Run, Paris: OECD, 1998. 5 The authors of the chapter have found that the first half of the 1990s experienced a rapid “capital deepening” process in its economic growth and the ability to absorb new labor was weakened. The state industrial enterprises followed a “capital deepening” technical line in industrialization, with capital investment growth far higher than employment growth and capital intensity rising rapidly. The net value of fixed assets of industrial enterprises that practiced independent accounting increased by 2.4 times in 1990–1996, but the number of employment grew only 1.1%. See A. Hu, Jiuye yu fazhan (Employment and Development), Shenyang: Liaoning renmin chubanshe (Liaoning People’s Press), 1998; J. Zhang, “Gaige yilai zhongguo de ziben xingcheng yu jingji zengzhang: yixie faxian jiqi jieshi” (Capital Formation and Economic Growth of China since Reform: Some Discoveries and Interpretations), available at http://prozhang.nease.net/lunwen/capital%20formation.pdf (accessed June 20, 2004). 6 J. Zheng and A. Hu, “Zhongguo gaige shiqi shengji shengchanlu zengzhang bianhua de shizheng fenxi (1979–2001)” (Provincial Productivity Trend in China (1979–2001): Analysis and Policy Implications), Center for China Studies Working Paper, Beijing: Tsinghua University, 2004, Issue No. 1. 7 World Bank, The Quality of Growth, Chinese edition, Beijing: Zhongguo caijing chubanshe (China Finance and Economics Press), 2001. 8 Ibid. 9 Ibid. 10 J. Knight and L. Song, “Economic Growth, Economic Reform and Rising Inequality in China,” in Riskin, Zhao and Li (ed.), China’s Retreat from Inequality: Income Distribution and Economic Transition, New York; M.E. Sharpe, 2001, pp. 84–122. 11 B. Lin, “Zhongguo de jingji zengzhang, pinkun jianshao yu zhengce xuanze” (China’s Economic Growth, Poverty Reduction and Policy Options, Jingji yanjiu (Economic Research Journal), 2003, Issue 12, pp. 15–25. 12 M. Ravallion and S. Chen, Measuring Pro-Poor Growth, WPS 2666. Available at http://econ.worldbank.org/files/15290-wps2666.pdf (accessed June 20, 2004). 13 P. Xie and L. Lu, “Zhongguo jinrong fubai yanjiu: cong dingxing dao dingliang” (China Financial Corruption Study: From Qualitative Analysis to Quantitative Analysis), Bijiao (Comparative Studies),2003, Issue No. 8, pp. 1–48. 14 A. Hu, “Zhongguo jiushi niandai houbanqi fubai zaocheng de jingji sunshi” (Economic Costs Caused by Corruption in the Latter Half of the 1990s), Guoji jingji pinglun (International Economic Review), 2001, vol. 33, pp. 12–21. 15 Guojia tongjiju (National Bureau of Statistics of China), China Statistical Yearbook (2003), 2003, pp. 146–147. 16 A. Hu, “Jingji zengzhang zhanlue: weilai zhongguo jingji zengzhang qujueyu TFP” (China’s Future Economic Growth Depends on TFP), in A. Hu (ed.), Zhongguo da zhanlue, Hangzhou: Zhejiang renmin chubanshe (Zhejing People’s Press), 2003, pp. 241–251. 258 Notes 4 From unevenness to coordination for China’s regional development (1978–2004) 1 Presentation for China Reform Forum: Rand Corporation Annual Meeting, June 2005. Li Chunbo helped with the editing. 2 A. Hu (ed.), Quyu yu fazhan: xibu kaifa xinzhanlue (Regions VS Development: New Strategy of Development of China’s West), Beijing: Zhongguo jihua chubanshe (China Planning Press), 2001. 3 A. Hu, S. Wang and X. Kang, Zhongguo diqu chaju baogao (Reports on Regional Disparities in China), Shenyang: Liaoning renmin chubanshe (Liaoning People’s Press), 1995. 4 Such as A. Hu et al., Zhongguo diqu chaju baogao; K. Tsui, “Economic Reform and Inter-provincial Inequalities in China,” Journal of Development Economics, 1996, vol. 50, issue 2, pp. 353–368; Y. Lin, F. Cai and Z. Li, “Zhongguo jingji zhuanxing de diqu chayi fenxi” (Analysis of Gaps among Different Regions during the Period of Economic Transformation in China), Jingji Yanjiu (Economic Research Journal), 1998, vol. 6, pp. 3–10; X. Wang, and G. Fan, “Zhongguo diqu chaju de biandong qushi he yingxiang yinsu” (Trend of Variations in Terms of Gaps among Different Regions of China and Factors Influencing Such Variations), Jingji Yanjiu (Economic Research Journal), 2004, vol. 1. 5 S. Wang and A. Hu, The Political Economy of Uneven Development: The Case of China, New York: M. E. Sharpe, 1999; A. Hu and P. Zou, Shehui yu fazhan: woguo shehui fazhan diqu chaju de yanjiu (Society and Development: Study of Gaps of Social Development among Different Regions of China), Hangzhou: Zhejiang renmin chubanshe (Zhejiang People’s Press), 2000; A. Hu (ed.), Quyu yu fazhan: xibu kaifa xinzhanlue (Regions VS Development: New Strategy of Development of China’s West), Beijing: Zhongguo jihua chubanshe (China Planning Press), 2001. 6 Wang and Hu, The Political Economy of Uneven Development; Hu and Zou, Shehui yu fazhan; Hu (ed.), Quyu yu fazha; A. Hu and Y. Xiong, “Woguo zhishi fazhan diqu chaju yanjiu: tedian, duice he chengyin” (Analysis of Regional Disparities of China’s Knowledge Development: Characteristics, Causes and Countermeasures), Guanli Shijie (Management World), 2000, Issue 3; UNDP, China Human Development Report 2002 (Chinese edition), Beijing: Zhongguo caizheng jingji chubanshe (China Finance and Economics Publishing House), 2002. 7 UNDP, China Human Development Report 2002. 8 See World Bank, World Development Report 1998/99: Knowledge for Development, New York: Oxford University Press, 1999; World Bank, China and the Knowledge Economy, Seizing the 21st Century, Washington, DC: World Bank Institute, 2001. 9 World Bank, China: Promoting Growth with Equity, (Chinese edition), Tsinghua University Publishing House, 2004. 10 Renmin ribao (People’s Daily), October 15, 2003. 11 See B. Naughton, “How Much Can Regional Integration Do to Unify China’s Markets?” Paper for Conference on Policy Reform in China, Center for Research on Economic Development and Policy Research, Stanford University, November 18–20, 1999; OECD (Organization for Economic Cooperation and Development), China in the World Economy (Chinese version), Tsinghua University Publishing House, 2004; World Bank, China: Promoting Growth with Equity. 5 China’s economic growth and poverty reduction (1978–2002) 1 This chapter is coauthored with Linlin Hu and Zhixiao Chang. It was originally presented at “A Tale of Two Giants: India’s and China’s Experience with Reform and Growth,” International Monetary Fund and National Council of Applied Economic Research of India, New Delhi, India, November 14–16, 2003. Notes 259 2 A. Sen, “The Conceptual Challenge of Evaluating Inequality and Poverty,” Economics (quarterly), Beijing: China Center for Economic Research, Peking University, 2003, vol. 2, issue 2, pp. 257–258. 3 A. Sen, “Preface”, Development as Freedom (Chinese version), Beijing: Renmin daxue chubanshe (Chinese People’s University Press), 2002. 4 A. Khan, Poverty in China in the Period of Globalization: New Evidence on Trend and Pattern (Issues in Development Discussion Paper), Development Policies Dept., International Labor Office, 1998. 5 Khan, Poverty in China in the Period of Globalization. 6 The human poverty index is a new index adapted by UNDP in 1997 to measure degrees of poverty. This index measures three main elements in human life, such as life expectancy, lack of knowledge and decent life. Among them, life expectancy is reflected by the proportion of people who do not live longer than 40 years in the total population; lack of knowledge is measured by rate of illiterate adults; life standard is comprehensively tested by three variables, namely the proportion of people without access to safe water, proportion of people without access to medical care and proportion of underweight children (below 5 years old). 7 P. Zhang, “Zhongguo zhuanxing shiqi de shouru fenpei” (Income Distribution in China during Transition), Economic Research, vol. 4, 1998. 8 Guojia tongjiju (National Bureau of Statistics of China), Zhongguo nongcun pinkun jiance baogao 2001 (A Monitoring Report on China’s Rural Poverty 2001), 2001. 9 I. Adelman and D. Sunding, “Economic Policy and Income Distribution in China,” Journal of Comparative Economics, September, 1987. 10 Quoted in E. Ahmad and Y. Wang, “Inequality and Poverty in China: Institutional Change and Public Policy, 1978 to 1988,” World Bank Economic Review, 1991, vol. 5 (2). 11 Ahmad and Wang, “Inequality and Poverty in China,” pp. 231–257. 6 China’s macro-economy and health 1 This chapter was originally presented at the international symposium on Global Macro Economy and Health co-sponsored by the State Commission of Planning and Development, Ministry of Finance, Ministry of Health and WHO on December 18, 2002. This is a response to the report by Jeffery Sachs on global macro economy and health. 2 “Two systems” does not refer to the “one country, two systems” carried out between the mainland and Hong Kong, and Macao as well, but to the two different systems of identity, education, employment, public service and financial transfer for the inhabitants urban areas and rural areas. “Four worlds” refers to China’s unbalanced development in different regions. For more details, please refer to A. Hu (ed.), “Forward,” The Strategy of China, Hangzhou: Zhejing renmin chubanshe (Zhejiang People’s Press), 2002. 3 A. Maddison, Monitoring the World Economy: 1820–1992, Paris: OECD, 1998. 4 Maddison, Monitoring the World Economy. 5 Hu, “Forward,” The Strategy of China. 6 RAND, China’s Continued Economic Progress: Possible Adversities and Obstacles, 5th Annual CRF-RAND Conference, Beijing, October 31–November 1, 2002. 7 Y. Huang, The Health Condition of China, Shanghai: Shanghai Medical University Press, 1994, pp. 35. 8 The World Bank published its national savings data using a green national accounts system in 2002. See World Bank, World Development Indicators 2002, Washington, DC: World Bank, 2002, pp. 188–191. 9 The report mentions the low-cost measures aimed at chronic and non-contagious diseases, for example, aimed at cardiovascular system diseases, diabetes and cancer; 260 Notes some prevent actions related to drinking and eating, smoking and lifestyle are taken as intervening measures. It also mentions the low-cost cast management of diabetes and heart disease, etc. Also, to strengthen the intervention provided for contagious diseases and reproduction health will simultaneously enhance the health care level for non-contagious diseases. 10 This percentage in America is 13%; in general Western countries it is 8–9%; in Japan it is a bit lower, 7–8%. All are higher than in China. 11 The Commission on Macroeconomics and Health (CMH) of the World Health Organization (WHO), Investing in Health for Economic Development, p. 45. 12 The concept of “governance” first appeared in the report of the World Bank in 1989. It has gradually developed into a theory of rich intentions and wide applications in the ten years following and has been widely applied in many countries in politics, administration and reform of social management. For more details, please refer to K. Yu (ed.), Governing and Good Governance, Beijing: Shehui kexue wenxian chubanshe (Social Science Documents Press), 2000. 7 Health insecurity 1 This chapter is coauthored with Linlin Hu. It was originally comments on the speech by Rao Kewin, director of the Statistics and Information Center of the Ministry of Public Health entitled “Major Results of the Third National Health Survey” at the Forum of China’s Health Service Survey called jointly by the Ministry of Public Health, WHO and DELI on December 2, 2004. The comments have been revised. The majority of the data in the article come from Statistics and Information Center of the Ministry of Health, Disanci guojia weisheng fuwu diaocha fenxi baogao (Analytical Report on the Third National Health Service Survey), Beijing: Zhongguo xiehe yide daxue chubanshe (Peking Union Medical College Press), 2004. 2 Ministry of Health, Disanci weisheng diaocha baogao. 3 A. Hu (ed.), Toushi SARS: Jiankang yu fazhan (SARS in Perspective: Health and Development), Beijing: Qinghua daxue chubanshe (Tsinghua University Press), 2003, p. 20. 4 The health conditions in the Third National Health Service Survey cover three aspects: first, the general evaluation of the physical conditions of people surveyed, which requires people surveyed to answer “very good,” “good,” “just so so,” “poor” and “very poor” on their body and mental state; second, the self evaluation of the bodily conditions, including self service, work and house chore abilities, vision, bodily pain, requiring the respondents to give one of the four answers “difficult” to “without difficulty.” Third, the self evaluation of the mental state, including energy concentration or memory, in poor spirit due to not good rest, and sad, worry, low spirit or depressed. 5 National Bureau of Statistics of China, 2004 Zhongguo tongji zhaiyao (China Statistics Abstract 2004), Beijing: Zhongguo tongji chubanshe (China Statistics Press), 2004, pp. 22 and 99. 6 Xinhuanet.com, February 21, 2004. 7 The diseased group defined by the survey report are from the angle of medical and health services and should be regarded as self reported cases. They are, specifically: (1), feeling uncomfortable but refusing to go to hospital for treatment; (2) feeling unfit but refusing to go to hospital for treatment and take medicines or receive some auxiliary treatment by themselves; (3) feeling unfit but refusing either to go to hospital or take medicine or receive auxiliary treatment, absent from work or school for at least one day. One of the three cases is regarded as being sick. 8 The definition of chronic diseases covered by the survey is: all kinds of chronic diseases diagnosed by doctors within six month before the survey through inquiries, including chronic communicable diseases (such as TB) and chronic noncommunicable diseases (such as heart trouble and high blood pressure) or such cases Notes 261 10 Hu Angang, Zhongguo fazhan qianjing (Prospects of China’s Development), Hangzhou: Zhejiang Renmin Chubanshe (Zhejiang People’s Press), 1999, pp. 89–90. 11 Hu Angang, Zhou Jianmin, and Wang Shaoguang, “Goujian guojia anquan tixi, qianghua weiji chuli nengli” (Construct National Security System and Intensify Crisis Handling Capabilities), in Zhongguo guoqing fenxi yanjiu baogao (Analysis and Reports of China Studies), No. 37, May 21, 2000. 268 Notes adaptation mechanism, for coping with aging society 178–9 added values 13; industrial 13, 14 administrative corruption 220–1 aging society: challenges of 168–72; coping with 177–9; trend of 168–71 agricultural labor force (see also farmers) 116–17, 128, 130; flow to cities 102, 116–17, 205; incomes of 101, 102; liberalization 30; need for representation 131; transfer of 92, 101, 102, 126–7, 130, 206 agricultural products 129; price of 81, 104, 118, 129 agriculture 115, 116, 20 AIDS 134, 138, 141; ignorance about 159; measures to control 147 air pollution 28 alcohol consumption 158 ‘An Analysis Report on the Third National Health Services Survey’ 152 announcement and information systems 250 anti-poverty strategies 107, 124, 125–32; and health improvement 150 arable land 36 arbitrary charges 220–1 army 232 auditing 244–5 baby boom period 174–5 backwardness, and catch-up 9–11, 19 Bangladesh 99 banking, market orientation 22 basic living allowance 193–4 Beijing 26, 68; birth rate 76; human poverty index 72; unemployment 191, 102 birth control 146–7 birth rate 168, 176; regional differences 76–7 Bo Yibo 248 Boqiang, B. 64 Botswana 208 Brazil, impoverished population 108 bribery 217–18, 244 Canada, timber exports 213 cancer 138 capital 11, 16, 17–18; production 209; productivity 61; tangible 64 capital deepening 201 capital resources 36–7, 42, 50 capital stock growth 16, 17, 18, 60, 61 catch-up 9–11, 19–20, 29 central government 27, 204; anti-poverty policies 104, 107, 110; conflicting interests with local government 91, 93–4; and economic development 225–6, 228; and educational development 280; health development objectives 148–51, 161–5; mandatory plans 88; market reform 22; powers in planned economy 204; reform of 58, 244–5; role in regional development 91, 93; and social development 27, 31; transfer payments 93–4 child health 157, 163 China Institute of Contemporary International Relations 40 Chinese Academy of Social Sciences 39 Chinese Military Academy 39 Index The following abbreviations have been used in this index: CPC: Communist Party of China TFP: total factor productivity Chow, G. 248 Cipollone, P. 173 class struggle 247 Cline, R. 39 coal industry 64, 210, 216 coastal regions 84, 88–9; human poverty index 72; social development 76 coercive mechanism 232 collective enterprises, laid-off workers 81, 191 commercial energy usage 48, 49 ‘common prosperity’ 57, 89, 226 common understanding mechanism 232 Communist Party of China 224–5, 228; Central Committee 87–8, 235, 236, 237, 253; constitution of 235, 236, 237; and economic development 224–5, 227–8; General Secretary 236, 237, 238; leadership 236–8; legitimacy of 228; National Congress 30, 89, 124–5, 134, 147, 148, 228, 230, 235, 236, 249, 250; reform of 234–8, 249; relationship with people 234; and socialist political democracy 228–31 competitiveness 22, 33, 57, 125 comprehensive national power 33, 34, 43, 46, 55, 67; changes in, in great powers 41–4; measuring 38–41; national strategic resources 35–8 Constitution of People’s Republic of China 86, 238, 240, 242, 243, 244 construction industry 200, 202, 206 consumer spending, urban/rural gap 26 coordination mechanism 232–3 continuing education 181–2 corruption 27, 226, 229, 234; anticorruption measures 243–4, 245; economic costs of 66, 217–23; investigations into 244 crime 27 cultural development indicators 79 Cultural Revolution 175, 247, 248–9 death rate 168 defalcation 217–18 defense spending 58 democracy 229, 234, 249; CPC and 235–6 democratic centralism 249, 250 democratic decision-making 213, 240, 249, 250–1 demonstrations 199 Deng Xiaoping 88, 226, 229, 230; Cultural Revolution and 248–9; and economic development 29–30 desertification of land 28 development gap 12 development history of China 12–13 development strategies 29–30, 88–9, 91, 148; green 31; human-oriented 86–7 dire poverty rate 107 dirty energy 210 Disabled Adjusted Life Years 144 disabled people 159 disaster management 57 disease: economic costs of 144–5, 160–1, 162; incidence of 154–5; smoking and 158; urban/rural gap 138–9 domestic demands 128 drinking water, access to safe 157, 158, 159, 163, 164 east/west gaps 84–5 eastern regions 84; knowledge capabilities 77; poverty rate 110 ecological environment: cost of protection policies 213–14; need to improve 31; pollution 211, 26 economic advisory committee 251 economic consequences of unemployment 196–7 economic costs: of corruption 66, 217–23; of disease 144–5, 160–1, 162 economic development (see also development strategies) 247; beneficial to poor 137; and political reform 229, 230; regional disparities 70–1, 82–3 economic globalization 11, 33, 67, 91, 103 economic growth 13, 14–15, 67, 100–1, 203–4; challenges to 26–9; employment and 28–9, 199–200, 206; factors driving 18–25; in first transition 224–5; and pro-poor growth 65–6; rate of 97, 107; social crises and 226; source of 15–18; TFP and 61–2; theories of 11 economic indicators 78 economic resources, measuring 35, 42 economic restructuring, and employment structure 200–2, 207 education 57, 95, 126, 180; after age 15 15, 16, 18, 35, 60; compulsory 180–1; and economic growth 35; improvement in 103–4; income and 173; investment in for poor 131; for laid-off 188; tertiary 18, 46, 47, 61, 135, 137; urban/rural gap 180–1 education indicators 78 270 Index electricity production 47, 49 embezzlement 219–20 employment (see also labor force growth; unemployment; working-age population): creation of for poor 130; economic growth and 28–9, 199–200, 206; economic restructuring and 200–1, 207; in formal/informal economy 201, 202, 204, 205, 207; in rural areas 116 endowment insurance 173 energy depletion costs 210 energy sources 58 environmental degradation 28, 226 environmental indicators 76, 79 expert consultation 250 exports: and economic growth 19–21, 29; role in poverty reduction 102–3 expression mechanism 233 extreme poverty rate 107 family planning 146–7, 248 famine 126 farmers 102, 104, 121; delegates to 10th National People’s Congress 131; income of 106, 115–16, 120, 130; unemployment of 185, 187 fertility rate 168; regional disparities 76 financial swindling 221 financial system, reform of 58 fiscal distribution, and urban/rural income inequality 119–22 fiscal policies 58; for poverty reduction 129 Five-Year Plans 210, 253; health objectives 162, 164–5; and unemployment 199, 202 food problem 16 foreign direct investment (FDI) 36, 50, 102; acquisition of new technologies 24 forestry 28, 57, 213; depletion costs 212–13 formal economy, employment in 201, 202, 204, 205, 207 Fucks, W. 38 Fujian province 68; unemployment in 191 Gansu 68, 192 GDP (gross domestic product) 16, 29, 35, 45–6, 55, 67, 136, 137; aging and 171; comparison of major countries 11–12, 13, 45; of ‘four worlds’ 68; green 208; per capita growth rate 100–1, 107, 111, 114–15; prioritizing growth in 87; gender equality 126 genuine domestic savings 209, 216, 221; cost in natural resources 209, 215–16 German, C. 38 Gerschenkron, A. 9, 10 Global Competitiveness Report 2000 45, 46 global resources security strategy 215–16 GNP (gross national product) 35 good governance 225, 227; in health 150 governance, levels of 86 government see central government; local government government resources 37, 42, 53, 55, 58 Great Cultural Revolution 175, 247, 248–9 Great Leap Forward, losses caused by 247–8 green development 31 green national accounts system 145, 208, 215 gross national income 68 Guangdong 26, 68; labor force flow into 103; unemployment in 191 Guizhou province 68, 72 health 126, 146–7; challenges to 137–45; expenditure on 148–9; fair distribution of resources 150; history of relationship with economic growth 134–7; macro-economy and 133–4, 144–5, 149–51 health development: evaluation of 164–5; indicators of 78, 142–3, 146; objectives of 145–7; regional differences 139–41, 142–3 health education 147 health/healthcare services 136–7 145, 156; access to 75, 145; investment in 148–51; for poor 131–2; regional disparities 139–41 Hebei province 68 Heilongjiang province 68, 191 Henan province, unemployment in 191 Hong Kong 97, 197 horizontal effect 18 hospitals, births in 157, 163 housing, in suburban areas 93 Hu Angang 251–2, 252–3 Hu Jintao 30, 166 Hu Yaobang 229 Hua Guofeng 229 Index 271 Hubei province, unemployment in 191, 192 human capital (see also human resources) 64; growth of 18, 61, 176; indicators of in early industrialization 135–6; investment in 57, 89, 177–8, 216; relationship to life-long income 173; resources 35, 42, 46–7 human development 32, 126; indicators of 79; regional differences 71–5, 82–3 Human Development Index 57, 71 human insecurity 165–6 human-oriented development 86–7, 88 human poverty 110, 112 Human Poverty Index 72, 112 human resources 35, 42, 46–7; and aging society 168, 177–9; development of 95, 179–83; and gross national wealth 208–9 Hunan province: birth rate 76; unemployment 191, 192 ideational ethos 34 illegal capital transfers 220, 223 illiteracy 110, 113, 180 illness insurance 192, 193 immunization programs 157, 163 imports of technologies 23–4 impoverished population (see also rural population, impoverishment of) regional distribution 109–10, 120 income distribution 91; inequality in 26–7, 29, 30, 64–5, 118–24, 226; regional differences 81, 84, 86 income poverty 110, 112 incomplete information 250–1 India 43; capital resources 51; China as threat to 44; economic resources 45, 46, 47; government resources 53; human capital resources 47, 48; impoverished population 99, 108; international resources 56; knowledge and technological resources 50, 52; military power 54; natural resources 49 Indonesia 99; impoverished population 108 industrialization (see also modernization) 67; and aging society 167; China as latecomer 11–15 industry (see also manufacturing industry) 14, 88; monopolies 91 infant health 157, 163 infant mortality 104, 135, 137, 146, 149, 163; urban/rural gap 157 informal economy 205–6; employment in 201, 202, 204, 205, 207 infrastructure indicators 76, 79 insecurity 165–6, 197–9 institution building 225–8, 231–3; objectives of 231; and socialist political democracy 229–31 institutional changes, and economic growth 16, 17 institutional effect 21–2 integration mechanism 233 interest groups 27, 91, 234 international aid, to develop health care 150–1 international resources 38, 43, 55, 59 Internet hosts 37, 50 investment 18, 57, 61, 62–3; to aid poor 130; domestic 36, 50, 208; foreign direct 36, 50, 103; hardware/software 27, 31 Japan 43; capital resources 51; catch-up with USA 10, 19; China as threat to 44; economic resources 45, 46, 47; forestry 213; human capital resources 48; government resources 53; increase in per capita income 100; international resources 56; knowledge and technological resources 50, 52; military power 54; natural resources 49 Jiang Zemin 30, 89 Jiangsu 26, 68; birth rate 76; unemployment 191 Jilin 68, 80; birth rate 76; unemployment 191, 192 judicial system, reform of 245–6 Kennedy, P. 44 Knorr, K. 38 knowledge accumulation indicators 16, 17, 24 knowledge and technological resources 37, 42, 50, 51, 53, 58 knowledge development: 16, 17; implementation of strategy 95–6; indicators of 17, 77, 80; innovation 58; regional disparities 77–81, 82–3, 86 knowledge poverty 110, 112 Korea: Republic of, catch-up with Western Europe 10; South, increase in income 101 Kwan, Y. 248 labor disputes 27, 197 272 Index labor force 35–6; growth of 16, 17, 31–2, 61 labor market 57–8, 92, 203 laid-off workers 175, 177, 184, 185, 187; age structure 188, 190; continuing education for 181–2; education structure 188; pensions for 175; receiving basic living allowances 193–4; re-employment 205, 207; regional characteristics 191–2; sectoral characteristics 190, 191; sources of 190 land use reform 92, 93 latecomers to industrialization, benefits for 10–11, 19 leadership 230, 231, 249; of CPC 236–8; retirement age for state leaders 253 Li Shimin, Emperor 225 Liaoning province 68; birth rate 76; unemployment 191, 192 liberalization 21–2, 29 life expectancy 104, 135, 137, 138, 144, 149; and aging society 182; after retirement 172; urban/rural gap 157 life-long education 57, 179–83 living standards 125, 162 loans, for poor 19 local government 27; and health development 150; responsibilities in regional development 92; unable to fund some social services 93–4 Ma Yinchin 248 Macao 197 macroeconomic policies, for poverty reduction 128–9 Maddison, A. 11, 12, 45, 135, 136 malnutrition 110 manufactured goods, exports of 21 manufacturing industry 13, 200, 202, 206; laid-off workers 190, 201 Mao Zedong 248; Four Modernizations 29 market economy 21–2, 29, 201, 225 market-oriented reform 21–3 marketization 67, 200, 203 markets, opening up, and regional development 91–2 medical insurance 155–6, 165, 262n mental resources of labor 179 military power, and economic growth 37, 42, 54, 53–5, 58–9 Millennium Development Goals 125, 126, 166 mineral depletion 211–12 mineral industry 200, 202, 206; laid-off workers 190, 201 modernization 9, 11–15, 227; catch-up paradigms 9–11 monetary policies, for poverty reduction 129 monopolies, corruption in 218–19 national accounts system 208; green 145, 208, 215 national conditions 250–1, 252 National Health Services Surveys 152, 166 National People’s Congress 236, 238; 9th Five-Year Plan 164; reform of 238–44; selection system of delegates 131; standing committee 240, 242, 243 national power 34 national security 57, 88 national strategic resources 34–8, 42 natural capital 64, 209; costs of 208, 209, 210–16 natural resources 28, 47–50, 64, 95; depletion costs 209–10, 211–13; and economic growth 36, 42, 209; exploitation of 209; genuine domestic savings 209, 215 New China, baby boom period 173, 174 non-nationalization 200 occupational injury insurance 192, 193 old age insurance 173 old age support ratio 170, 171 old age support system 168; human capital and 173–7 old people (see also aging society) education and training for 182–3 ‘one China, four worlds’ 26, 67, 80, 134 ‘one China, two systems’ 26, 80, 81, 134, 260 open economy 200 opening-up effect 19–20, 225 Orsen, M. 19 ‘Outlined Children’s Development Program for the 1990s’ 162, 163 ‘Outlined Program for China’s Women’s Development (1995–2000)’ 162, 163, 164 Pakistan 99 participation in democracy 231; by poor people 131 patent applications 37, 50 peasants see agricultural labor force Index 273 [Document text truncated for crawler view.]