Frontmatter Page
Original calligraphy on the cover, by Jieyan Yin, represents the Chinese character for dragon.
Copyright
© 2003 International Monetary Fund
Cover design: Lai Oy Louie
Typesetting: Choon Lee
Library of Congress Cataloging-in-Publication Data
China, competing in the global economy: edited by Wanda Tseng and Markus Rodlauer.
p. cm.
Includes bibliographical references.
ISBN 9781589061781
1. China—Economic policy—2000–. 2. China—China—Economic policy—1976–2000. 3. Competition, International.
I. Tseng, Wanda. II. Rodlauer, Markus.
HG427.95.C437 2002
338.951—dc21 2002038867
Price: $26.00
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Foreword
China’s economic performance in recent years has been impressive by most standards. The country was able to weather the storm of the Asian crisis relatively unscathed and has sustained rapid growth in the face of last year’s global downturn. These achievements have added to the visible success of economic transformation that two decades of market-oriented reforms have brought to China, including large gains in income per capita, the creation of a vibrant nonstate sector, and major inroads into poverty. One of the key driving forces of this growth and transformation has been the progressive opening up of the economy to foreign competition and investment, culminating in China’s recent accession to the World Trade Organization (WTO).
At the same time, analysts point to problems in state-owned banks and enterprises, medium-term fiscal pressures, growing unemployment and income disparities, and weak governance. How will China be able to compete successfully in the global economy with these problems weighing on its economy, especially as WTO accession has set the stage for a further and decisive round of opening up?
The key task facing policymakers in China today is thus to push ahead with the unfinished reform agenda, to ensure sustained rapid growth and social stability, and to prepare the economy for increased global competition resulting from WTO accession. This book looks at those challenges and China’s efforts to meet them, issues that have been at the center of the IMF staff’s work on China in recent years.
The book brings together material and analysis prepared during 2000–01 by IMF staff working on China under the direction of Wanda Tseng. The team of authors was led by Markus Rodlauer and David Robinson and included Thomas Dorsey, Jahangir Aziz, Paul Heytens, Christoph Duenwald, Paul Gruenwald, Thomas Richardson, Raju Singh, George Tsibouris, Harm Zebregs, James Daniel, Cem Karacadag, Nicolas Blancher, and Yongzheng Yang.
Yusuke Horiguchi
Director
Asia and Pacific Department
Acknowledgments
The authors acknowledge the valuable input and comments provided by many present and former colleagues at the IMF, including John Anderson, Ray Brooks, James Gordon, Aasim Husain, Russell Krelove, Bernard Laurens, Doug Laxton, Jun Ma, Ichiro Otani, and Sunil Sharma. Special thanks are due to Tarhan Feyzioğlu who saw to the completion of the book. The IMF staff’s work on China has also benefited greatly from collaboration with our colleagues at the World Bank, in particular Deepak Bhattasali and Albert Keidel. Jieyan Yin of the Bank of Communications in China provided the elegant calligraphic work for the cover of the book. Anna Maripuu and Bin Zhang provided excellent research assistance, and we are indebted to Pihuan Cormier, Abdul Majeed Mahar, and Lakshmi Sahasranam for assisting with numerous drafts. The authors are also grateful to Michael Treadway, who edited the book, and Gail Berre of the External Relations Department, who coordinated its production.
The opinions expressed here, as well as any errors, are the sole responsibility of the authors and do not necessarily reflect the views of the Chinese authorities, the Executive Directors of the IMF, or other members of the IMF staff.
Contents
Foreword
Acknowledgments
1. Introduction and Overview
Markus Rodlauer and Paul Heytens
2. How Fast Can China Grow?
Paul Heytens and Harm Zebregs
Appendix I: Data Sources and Description
Appendix II: Aggregate Production Functions and TFP Growth
Appendix III: Measuring the Progress of Structural Reform
3. Provincial Growth Dynamics
Jahangir Aziz and Christoph Duenwald
4. The Growth-Financial Development Nexus
Christoph Duenwald and Jahangir Aziz
5. Foreign Direct Investment in China: Some Lessons for Other Countries
Wanda Tseng and Harm Zebregs
6. Foreign Direct Investment and Output Growth
Harm Zebregs
7. China and the Asian Crisis
Paul Gruenwald and Jahangir Aziz
8. Medium-Term Fiscal Issues
James Daniel, Thomas Richardson, Raju Singh, and George Tsibouris
9. State Enterprise Reforms
Paul Heytens
10. Financial System Soundness and Reform
Cem Karacadag
11. The Finances of China’s Enterprise Sector
Paul Heytens and Cem Karacadag
Appendix I: Data Sources
12. The Impact of WTO Accession
Thomas Dorsey, David Robinson, Yongzheng Yang, and Harm Zebregs
13. Exchange Rate Policy
Nicolas Blancher
Boxes
5.1. China’s FDI Regime
5.2. Open Economic Zones in China
5.3. Tax Incentives for FDI
7.1. Was China the First Domino?
9.1. Premier Zhu’s SOE Revitalization Objective
9.2. The Social Safety Net for Laid-Off SOE Workers
9.3. Restructuring Programs in Selected Industries
10.1. Operations of the Asset Management Companies
12.1. Main Elements of China’s WTO Accession Agreement
12.2. Financial Sector Components of China’s WTO Accession Agreement
12.3. Market Views on Sectoral Winners and Losers
12.4. Opening to Foreign Banks: Experience in Other Transition Economies
Figures
2.1. Actual and Potential Output Growth and the Output Gap
2.2. Potential Output Growth and the Output Gap: Estimates from a Translog Production Function
2.3. Potential Output Growth and the Output Gap: Estimates from a Cobb-Douglas Production Function with Exogenous TFP Growth
2.4. Potential Output Growth and the Output Gap: Estimates from a Cobb-Douglas Production Function with Endogenous TFP Growth
3.1. Income Per Capita by Province
3.2. Gaussian Kernels of Provincial Relative Income Distribution
3.3. Examples of Distribution-Preserving Movements Within Gaussian Kernels
3.4. Distribution Dynamics Across the Reform Period and in Subperiods
3.5. Projected Distribution Dynamics on Current Trends
3.6. Conditioned Distribution Dynamics Across the Reform Period and in Subperiods
4.1. Financial Intermediation and Growth
4.2. Growth and Financial Intermediation
4.3. Financial Intermediation and SOE Concentration
4.4. Profitability and Growth
5.1. FDI Inflows
5.2. FDI Inflows by Sector, 1998
5.3. FDI Inflows by Region, 1983–98
5.4. FDI by Type of Ownership Arrangement
5.5. Transparency International Corruption Perceptions Index for Selected Countries, 2001
6.1. Real GDP and the Stock of FDI
6.2. TFP and the Stock of FDI
6.3. Provincial FDI and TFP Growth
7.1. Growth in GDP
7.2. Current Account Balances
7.3. Dollar Exchange Rates
7.4. Growth in Trade
7.5. Ratio of Short-Term Debt to Reserves
7.6. Real Exchange Rates
7.7. Growth in Real Domestic Credit
7.8. Ratio of Trade to GDP
7.9. Fiscal Balances
7.10. Nominal Interest Rates
8.1. State Budget
10.1. Banking System Credit to the Private Sector and GDP per Capita in Developing Economies, 2000
10.2. Change in Credit Growth from Previous Year
10.3. Lending by the People’s Bank of China to the Financial System
11.1. Ratio of Value Added to Fixed Assets of Industrial Enterprises
13.1. Export Growth
13.2. Bilateral and Effective Exchange Rates
13.3. China’s Share of Foreign Import Markets
13.4. Product Composition of Manufactured Exports
Tables
2.1. Contributions to Output Growth
2.2. Estimated Aggregate Production Function for the Chinese Economy
2.3. Contributions to TFP Growth
2.4. Contributions to Output Growth, Actual and Projected
3.1. Real GDP per Capita Relative to Shanghai, by Province
3.2. Selected Previously Reported Tests of Convergence for China’s Provinces
3.3. Results of Provincial Growth Regressions
4.1. Indicators of Financial Development in Selected Countries and Country Groups, 1993–2000
4.2. Allocation of State Bank Credit
4.3. Summary Financial and SOE Data by Province, 1988–97
4.4. Results of Regressions of Output Growth on Financial Intermediation Measures
4.5. Results of Regressions of Investment on Financial Intermediation Measures
4.6. Results of Regressions of Productivity on Financial Intermediation Measures
5.1. Alternative Measures of FDI Inflows
5.2. Sources of FDI
5.3. China and India: Selected Openness Indicators
5.4. Infrastructure Indicators
6.1. FDI and Growth of GDP by Province, 1990–97
6.2. Estimation Results from Single-Equation Regressions
6.3. Results of Regressions of Growth in Non-FFE Output on FFE Share of GDP, Using Provincial Data
7.1. Selected Financial Indicators in Six East Asian Countries, 1996
8.1. Official and IMF Measures of the Fiscal Deficit and the Debt Stock, 2001
9.1. Capacity Utilization by Industry, 1995
10.1. Financial System Assets by Type of Institution
10.2. Assets and World Ranking of State Commercial Banks
10.3. Selected Prudential Regulations
10.4. Reported Nonperforming Loans at SCBs and Selected Other Financial Institutions
10.5. Operations and Recoveries of Asset Management Companies, December 31, 2001
11.1. Output, Employment, and Value Added of Industrial Enterprises by Ownership Type
11.2. Net Fixed Assets of Industrial Enterprises by Ownership Type
11.3. Ratio of Total Liabilities to Equity of Industrial Enterprises by Ownership Type
11.4. Ratio of Operating Profits to Interest Expense of Industrial Enterprises by Ownership Type
11.5. Operating Margins of Industrial Enterprises by Ownership Type
11.6. Inventories, Receivables, and Fixed Assets of Listed Companies
11.7. Leverage of Listed Companies Under Illustrative Scenarios
11.8. Profitability of Listed Companies
11.9. Liquidity of Listed Companies
11.10. Interest Coverage and Implied Nonperforming Loans of Listed Companies
11.11. Sources of Financial Data on Chinese Firms
12.1. Economic Structure of Sectors Affected by WTO Accession, 1995
12.2. Differences Between WTO Accession and Baseline Scenarios
12.3. Estimates of the Domestic Macroeconomic Impact of China’s WTO Accession
12.4. Projected Impact of China’s WTO Accession, 2006
12.5. Projected Net Exports by Region and Product Type Following China’s WTO Accession, 2006
12.6. Projected Change in Textile and Clothing Exports and Production Resulting from China’s WTO Accession, 2006
The following conventions are used in this volume:
… to indicate that data are not available or not applicable;
— to indicate that the figure is zero or less than half the final digit shown;
– between years or months (for example, 2001–02 or January–June) to indicate the years or months covered, including the beginning and ending years or months;
/ between years or months (for example, 1991/92) to indicate a fiscal or financial year.
“Billion” means a thousand million; “trillion” means a thousand billion.
“Basis points” refer to hundredths of 1 percentage point (for example, 25 basis points are equivalent to ¼ of 1 percentage point).
Minor discrepancies between constituent figures and totals are due to rounding.