Lecture Two and ThreeIndustrial Development in China Prof. Xingmin Yin China Center for Economic Studies Fudan University
Contents 1. Introduction 2. Industrial Structure in General 3. Industrial Development Strategy 4. Growth of Manufacturing Exports 5. Industrial Restructuring 6. The Future of China’s Industry Questions
1.Introduction • China is a developing country with huge population. Its GDP per capita in 2000 was only $950 at official exchange rate, and increased to about $3200 in 2008. • During past 30 years, the big change in Chinese industry and economy was taken place and had an extraordinary influence on the world economy. • It increased its share of world merchandise exports from 0.95% in 1980 to 4.12% in 2002, to 5.8% in 2003, and further to 8.7% in 2008 respectively. • China’s success at exporting has led to account surpluses since 1994. • The volume of foreign exchange reserves has accumulated into US$ 1.95 trillion up to early 2009.
Historical ExperienceThree Stages for Structure Changes • Agriculture dominance in economy • The sector transformation from agriculture to manufacturing industry, and 1000 USD per capita as indicator. • The contribution of science and technology to industry is increased, and service sector will expand its scale to society. • Market demand is the major driving force for structural changes……
Market Demand for Industrial Development • The household income has increased greatly in the past decade. • The changes of consumer behavior have a strong influence on firm’s production • What kind of products and service will be preferred by households?
Walt W. Rostow View • It is possible to identity all societies, in their economic dimensions, as lying within one of five categories: the traditional society, the pre-conditions for take-off into self-sustaining growth, the take-off, the drive to maturity, and the age of high mass consumption … • Can we apply this point of view to analyze China?
2. Industrial Structure in General • Industry accounts for 43 percent of total GDP; and 91 percent of exports. • Industrial capacity, especially new technology-intensive sectors, has expanded rapidly and also based on huge investments. • The rise of China as a major trade player and industrial power raises many issues for China as well as developing countries.
Development Issues • The importance of macro-management in economic development. • The success of export-orientation strategy or import liberalization strategy. • The development targets for labor-intensive or technology-intensive industries. • The role of industrial sophistication to China’s integration into the world economy. • Changes of industrial structure in China.
Comments • The industry made a great contribution to China’s economy progress. • The growth rate of industry was 14.8% in 2007. • How to understand the lower growth rate of service sector that was taken place in the last decade? • Is it sustainable for China’s economy growth? • Can the central government control the growth rate in development?
Macroeconomic Management • The macro scorecard for China is remarkablystrong on an absolute as well as on a relative scale. • Three aspects of China’s performance are especially worthy to note. • Its GDP growth rate over 30 years is among the highest one on record. • Although the pace of expansion was unusually rapid, inflationary pressure was largely absent in the most years. • Industry has remained the leading sector since 1984. During the past two decades, industry has grown by above 12 percent per annum.
Industry is the largest sector in terms of GDP. • The role of agriculture to GDP has decreased from 27.1% in 1990 to 11.3% in 2007. • The rural labor force still accounts for 40.8% of the national employment, by decreasing 30 percentage points in the past 30 years, and will further to reduce under a new urbanization policy.
Discussion • At present, the contribution of employment provided by service sector is very limited due to its support share in GDP, showing the absolute underdevelopment. • There exists a huge gap between China’s capacity to produce goods and its ability to provide economic and social services. • Aside from the economic development, the raising of people’s standard of living should be the main way to expand the employment in services sector in the coming decades.
3. Industrial Development Strategy • Most Latin America countries posses more advanced industrial sectors. But in the 1970s and 1980s, economies like Singapore and Republic of Korea greatly accelerated the growth of their manufacturing output. Does China follow this strategy? • In terms of sheer size, China has the largest manufacturing sector in the developing countries, but this sector is nevertheless relatively small in relation to the nation’s enormous rural population.
Industrialization strategy in China • Can you define the major features of China’s industrialization strategy?
A. Growth of Industrial Output • Industry has been the most important driver for China’s economic growth. • The value of industrial output was only RMB160.7 billion in 1978 and RMB685.8 billion in 1990. • Industrial output increased 3.24 times over the period 2001-2007. • By the first quarter 2009, industry output (including construction) reached RMB3.2 trillion, accounting for 48.62% of GDP.
Growth of Industrial Value-added Billion RMB
Discussion • The higher growth rate of manufacturing industry, the higher of GDP growth rate emerges in China’s industrializing process. • Do you have any comments on China’s industrial development in the past decades? • How do you understand the role of industrialization to developing countries?
Business Cycle and Industrial Growth • Will Chinese economy be recovery through traditional industrialization during the global downturn caused by the US financial crisis? • Discussion on historical case.
B. Growth of Industrial Assets • The growth rate of industrial assets has been lower than that of industrial output. The growth of industrial assets was not as high as expected in comparison to industrial output. • Industrial assets increased 1.15 times, from RMB7923.4 billion to RMB13540.3 billion over the period 1995-2001. • However, industrial asset has increased its growth rate since 2003, which shows the new feature of industrial fixed-asset investment.
Growth of Industrial Assets RMB Billion
More fixed-asset investments have been flowed into steel production, machinery, electronics, and transportation equipment industries. • General trends for manufacturing investment booming in the past eight years.
C. Growth of Labor Productivity • Explanation on productivity…… • The rising of industrial competitiveness is strongly related with the growth of labor productivity in manufacturing sector. • Different growth rates for industrial output and labor……
Discussion • Industrial products increased more rapidly than labor force in all manufacturing industries over the surveyed period. • Comparison on industrial output and labor productivity between China and US over the period 1998-2007.
Growth of Industrial Outputs US$ billion.
Labor Productivity US$ per person/year.
Discussion • Difference of growth rates in manufacturing sectors. • China’s labor productivity in manufacturing increased 2.78 folds, while that of US increased 18.2% over the period 1998-2005. • Furthermore, labor productivity in China’s manufacturing increased 52.71% from 2005 to 2007.
However, the productivity of the US has much higher than that of China in manufacturing industries. • Thus, the productivity gap between USA and China is still very large.
D. Output of Major Industrial Products • Assessments on the achievement of industrialization in China. • Analysis of industrial products.
Growth of Steel Products 10,000 tones
Growth of Aluminum 10,000 tones
Growth of Automobiles 10,000 units
Discussion • Industrial output in China has been experiencing a rapid wave of increases since 1992. • What we can learn from the expansion of industrial capacities in the developed countries?
d. International Comparison on Industrial Products • The potential demand for industrial products will be larger than our expectation today. • The case of Japan may be useful for the estimation of China’s industrial capacity. • Value of per capita: to estimate China’s industrial capacity in the coming decades.
Discussion • A growing economy is real good news for industrial growth. • Growth of affordable income: GDP per capita in China will increase from US$3,200 in 2008 to US$5,000 in 2015. • By 2020, China will continue to drive the global demand and possibly produce 25 million vehicles, accounting for 20% of global production.
e. International Comparison on Sectoral Employment • Is it possible for China to create more jobs for its huge population? • What lessons can be learned from the developed countries?
Observations • In view of percentage, Germany and Japan provides more jobs in manufacturing industry in comparison with that of the USA. • China still needs to create more jobs for rural labor force in non-primary sector. • The USA is a service-oriented economy. • In which year, will China enter into the middle-income country with GDP 10,000(USD) per capita?
4. Growth of Manufacturing Exports • China’s sudden rise as a global trading power has been greeted with a curious mixture of both admiration and fear. • As an open economy and a large importing country, China has opened its door for foreign firms to develop new markets for their goods and services, especially high-value-added products such as aircraft, software, industrial design, advanced machinery, and components such as semiconductors and integrated circuits.
It is estimated that China would be the largest exporter within a short period such as ten years, even five years in the world market, both developing and developed economies. • If it is true, what is a real effect on the global pattern? What can we learn from the past experience? • Brief discussion on trade strategy……