Special Issue on the People’s Republic of China
This special issue of the Asian Development Review contains a selection of papers on the People’s Republic of China’s (PRC’s) economic growth and on policies that influence its pattern. It is generally accepted that the PRC can no longer sustain the double-digit growth rates it experienced in the last three decades as it undergoes economic transformation. The papers focus on recent patterns of growth and on some of the policy issues that confront the PRC as it moves towards a lower but more sustainable and inclusive growth path.
The paper by Dwight Perkins examines factors that have contributed to the deceleration of the PRC’s growth. He notes that, on the supply side, total factor productivity growth has been slowing down instead of increasing as the PRC’s labor force growth has reached its demographic limit. On the demand side, the largely investment-led growth experienced in the past is expected to substantially decelerate as the PRC rationalizes its infrastructure build-out program. Justin Lin and Fan Zhang take a contrarian perspective, and their paper considers the possibility of a sustained high-growth environment in the PRC, arguing that its large technological gap with more advanced economies could still represent a substantial bonus in terms of “advantage of backwardness.” They, however, note that for the PRC to sustain its growth rates, it needs to satisfy a number of preconditions, such as to develop well-functioning markets, to undertake successful structural reforms, and to implement effective governance systems.
Two papers discuss macro policy challenges confronting the PRC. Masahiro Kawai and Li-Gang Liu’s paper outlines monetary and exchange rate policy challenges, specifically the decline in the effectiveness of capital controls and monetary policy autonomy. Using both Taylor- and McCallum-like rules, they cannot reject the hypothesis of diminished monetary policy autonomy. Ran Li and Yiping Huang examine the impact of greater financial openness by analyzing the effects of foreign bank entry on industrial efficiency in the PRC. Their findings suggest that while there is positive impact as a whole, effects vary across groups. Specifically, the impact is negative for state and collective sectors, positive for the private sector, and insignificant for foreign-invested firms.
Although domestic aggregate demand is expected to play a greater role in the future, the PRC’s export markets will continue to be an important source of economic growth. Rui Mao and Bin Zhang’s paper analyzes the growth of the PRC’s aggregate export market penetration. They find that export competitiveness weakened during 2002–2014 due to increases in production and trade costs. They argue that for exports to stabilize, the PRC must facilitate the structural transformation of its export basket.
The continuing development of the local financial sector and the growing importance of private sector finance is highlighted by Di Guo, Kun Jiang, and Xiaoting Mai’s paper on venture capital investments and the performance of entrepreneurial firms in the PRC. Using firm-level panel data, they examine the performance of entrepreneurial firms after tapping into the local equities market through an initial public off ering. They find a positive and significant relationship between corporate governance and the incidence of investments from venture capitalists.
The last two papers in this issue of the ADR are on the dispensation of health care expenditures and education, two areas known to promote inclusive growth under certain conditions. Jin Feng, Pingyi Lou, and Yangyang Yu use survey data spanning two decades to examine the age profiles of health expenditures for rural and urban residents from the PRC. They find that the estimated age-expenditure profiles in both rural and urban areas were steeper in 2004–2011 than in 1991–2000. Dandan Zhang, Xin Li, and Jinjun Xue also use survey data to examine education inequality between rural and urban areas in the PRC and assess potential bottlenecks for human capital accumulation. They find that the education levels of rural children and children of rural-to-urban migrants are signifi cantly lower than those of their urban counterparts, after accounting for individual attributes such as nutrition and style of parenting.
The Asian Development Review thanks its contributors, especially Dwight Perkins, Professor Emeritus, Harvard University, for his role as guest editor.
