The challenge of transformation of China's economic model

 The challenge of transformation of China's economic model
Chen Zhiwu (Yale University professor of financial economics)
Today I talk about the current topic of concern to everyone, especially the financial crisis, Chinese scholars, decision-making is also supported by all very concerned about China's future direction, social how to? economic how to do? in the economy, over the past years, China's economy depends mainly on investment, especially by government investment driven. by the investment-driven future, resulting in many manufacturing and production of energy (production) . After so much production capacity to rely on export markets of the entire production chain in China is rising, manufacturing plants in this way to provide sales channel.
But there is a problem in the past patterns of economic growth on the export of dependence on investment so high, how long can continue? This is what many academics and the industry is talking about the topic. Over the past ten years, many people called, including the Development and Reform Commission also called for many years, the transition to change the reliance on investment growth , export-dependent status of the transition must be adjusted. But about a decade, until now, not only did not reduce dependence on the contrary increased. Why? in particular the impact of the financial crisis, more to force us to think about this question: Why mention a decade, expressed desire for a dozen years, but so far not only failed to reduce reliance on exports, investment dependence, but also a lot worse? understood in terms of basic system, to see why the state-owned economy as long as China or as the main body (especially the state-owned assets and state-owned land, etc.), or unchecked to the right to tax, as long as the government continues to play a leading role in the economy, then, the economy growth mode transition will be very difficult to express this desire, but in the end is very difficult to achieve.
Specifically, I want to answer the following four questions:
first question: Why is it difficult to consumption of the Chinese economy driven model transformation, and can only continue to rely on investment, export-dependent?
second question: Why China, GDP growth rate if less than 8% to work? large to small levels of government in the pursuit of the most important goal is to ensure 8. Why is China so important to Paul 8? If you are an economist with other countries or people or government officials to say, in China must have 8% GDP growth rate, most people will be very much wonder, if the United States, the annual growth rate of Two Three per cent is high, and it will make the entire American society is thriving. But in China, to 8% to be able to generate enough jobs , so that people feel enough growth, why is it so? Last year I was in Guangzhou NetEase's chief operating officer with at lunch, he asked me the same question. I said: you put GDP growth in China with other private market economy, GDP growth make a direct comparison before the general growth rate of GDP in China should be first divided by 2, can make a direct comparison, or can not be directly compared. I then I will explain why.
The third question: This is actually related with the second question, why is the Chinese people's income growth rate is always slower than the GDP growth rate, that is, we can feel the economic growth of official GDP growth rate is not so high, why ?
fourth question: Why should the growth rate of 8% or more to generate enough employment opportunities, including graduate students here, graduated to have enough work for everyone to choose? why the Chinese GDP, employment growth can bring so low, generally lower than other countries?
me today to do for these four questions to answer.
past experiences
First of all, I want to stress that China, as state-dominated economy, the contribution made over the past 30 years, is still positive overall, a set of data which can be seen from .1980 year, the EU's GDP is almost 28% of global GDP, accounting for 22% of the U.S. China was only around 4%, although China's population has accounted for 20% of the global population .1980 or more years after the fastest economic growth in China, from 1980 to 4% of total world GDP, by 2006 rose to 16%, 3 times during the turn. Japan in 1980, when its share of world GDP of 8.5%, but decreased in 2006 to 6%, because the Japanese during this period, in addition to the rapid growth in other 1980m1990 after 1990 is basically a downward trend going down.
So, over the past 30 years, significant achievements in reform and opening up, of course, there are many reasons behind it. One of them told me about the theme of today's most relevant causes is that in the past 30 years, the state-owned system, indeed it is easy for the Government to mobilize resources, and big construction projects, particularly in infrastructure, as well as large industrial base, government investment capacity is very high indeed, to implement a If you're going to mobilize resources, like the United States as a very well-developed capital market to mobilize, otherwise it will be difficult to build large projects. But India is not relying on either side in a similar state. It is not very developed capital markets, not do as much as the U.S. capital market pooling of resources, mobilization of resources, difficult to mobilize billions of dollars, billions of dollars to develop large infrastructure projects or large manufacturing industries; it through the government such as China can not mobilization, because India is not a state system. comparison, India is not very developed capital markets, and no state ownership arrangements to mobilize resources to the Government brought this convenience, therefore, India's infrastructure, industrial infrastructure may be compared with China to be worse.
I went to Brazil last October, when a chat with the taxi driver, he said: When the Brazilian government money, not to think of their airports, highways and other infrastructure to do, but is thinking about how this money distributed to the people, sent people to spend. I told him: the reverse is true in China, the Chinese government money, the first thought is not to the people made money, but where to build a few towers with a few more beautiful building or construction of highway overpass or the railways. Therefore, the two different institutional arrangements, bringing the expenditure, consumption, investment structure are radically different, which is why we will study When not just learn economics, political science has learned a lot, and other disciplines.
So, over the past 30 years, the state of resources, control of production has brought some benefits. However, its negative effects there are many, and today even the negative consequences than positive, this mode so that the whole economy is too large preference for infrastructure, industrial construction, etc., so that economy is too dependent on investment. This model should not and can not last forever. because After all, the purpose of economic development not only for construction, more importantly, the ultimate happiness of man. Of course, I know the older the Chinese people, the more will equate development with the building, and then again with the investment of economic development , with the expansion of production capacity such as to equate. This is a very one-sided.
we can think about, when you see a newspaper headline mm , your first reaction to this, understanding what will? I think you may immediately think of: to build many factories, to build a lot of capacity and building, to do more investment! but in my opinion, when the production capacity up to a certain level, at least not exactly equal to the economic development of the expansion of production capacity, and more around the life of happiness, the expansion around the consumer space, and in particular the deepening financial transactions. In other words, state control over this production, production resources, control of capital, do these big projects, do investment in infrastructure, capacity expansion, so a certain time, have to slow down, the focus of development must be transferred. After all, economic development is not intended to cover an infinite number buildings, nor is it infinitely more to build infrastructure, or an infinite number of plant, the ultimate goal is to maximize the well-being around people. mm to maximize the goal of happiness, to think carefully in the food and clothing to resolve after not entirely happy with the goal of maximizing production capacity, linked with the investment, when investment to achieve a certain scale, this pattern must change.
, of course, the reason why over the past 30 years, through continuous investment, continue to build infrastructure to continuously expand production capacity to develop the economy, can continue to grow, a critical reason is that globalization has brought the expansion of market scope, so that Chinese products sell to all parts of the world. But now, in the background of the global financial crisis , we find that the original export growth is not without limit, not unlimited continue, but today, let the share of exports to the rise in many overseas has become increasingly difficult.
So, today, even without the economic crisis, China's economic model has reached a bottleneck in mouth, to a turning point not selected. achievements of reform and opening up 30 years behind, but also hides a lot of problems, especially today, we have to turn to face the problems of these basic systems. These problems in the end is What?
higher the proportion of state-owned economy, private consumption grew more slowly
we look at some of the data, first in China, private consumption, household consumption over the years that the percentage of GDP, how much? government expenditure and GDP, is how high? In other words, the total private consumption divided by the annual GDP, government expenditure to do the same calculation, and then look at the changes between the two tracks. Then, before the nationalization in 1952 that China's private consumption is equivalent to 69% of GDP at that time, we say that Americans are too fond of money, but the United States, the equivalent of today's GDP, private consumption is 71%, so with the China 1952 GDP, private consumption is basically the same. Of course I want to stress , when the Chinese economy is more productive for food and clothing away, engaged in economic activities, therefore, almost all of the income is to wear around the room and board. Therefore, when the ratio of private consumption and the overall GDP is very high can understand. But in 1978, when the proportion of GDP, private consumption fell to about 45%, continued to decline in 1993 to 42%, until recently, private consumption fell to the equivalent of 35% of GDP. In other words, the past fifty years, the planned economy and reform and opening period, the proportion of GDP, private consumption has shown a downward trend.
with the corresponding proportion of private consumption, government expenditure in 1952, GDP, government consumption 16% to 30% recently rose to about doubled.
Therefore, we generally see two trends in China over the past six years, the proportion of GDP, private consumption fell in a straight line, and GDP, government spending is soaring, and these two trends, whether planned economy, or the period of reform and opening up have not changed, this is the situation in China. Why?
to see more clearly, we can compared with other countries. For example, the United States from 1952 to 2004, GDP, private consumption increased from 65% in the beginning to the nearest 71%, so the United States over the past fifty years, private consumption is rising in general, of course, The speed is very slow. because in the end, if we as a percentage measure of any thing, the highest number? 100%, no matter how you rise, the final should not exceed the GDP of 100% level. the United States government consumption in 1952 When that time with China about the relative level, equivalent to 16% of GDP, to the recent U.S. government spending-GDP dropped to between 10m11%. Thus, the United States, the trend is that private consumption increasing relative to the level of GDP high, and government consumption declining slowly, from the original 16%, down to the present level of almost 10%, this is the case of the United States.
Perhaps we are too rich that the United States, China can not be compared with. then we look at Brazil, because Brazil is China's per capita GDP twice though, but it is much lower than the United States. Brazil in 1950, private consumption is equivalent to 51% of GDP, private consumption in 2003 rose to 60% of GDP, In 2001 and 2002 are 64m65% or so. So, the Brazilian GDP, private consumption, the overall trend is gradually increased over the past fifty years, of course, is that the middle years, due to the impact of financial crisis, but the general trend is the increasing private consumption. In 1950, government consumption is equivalent to 22% of GDP, or to maintain the 2003 level of 22%, so the proportion of private consumption in Brazil increasing, not overall government consumption how they change, this is the case in Brazil.
Russia in 1991-92 after the reform is broadly similar with the Brazil In 1991, the Russian GDP, private consumption accounts for 35%, that is, before the shock treatment to Russia, the private consumption similar to today's China, but now, this proportion rose to 55%. Government spending had accounted for 25%, now accounts for 22% of GDP. Therefore, the case of Russia, with Brazil, with the general trend is the same as the United States, and its civil increasing the proportion of consumption in the economy, but government consumption either flat or declining.
fact, I can tell you to see the data in many countries, but because of the time, not to talk about the data in more countries was. But if you do analysis of each country, you will find the following two conclusions:
First: In a democratic constitutional state, because the tax authority and the right of the government budget constraints of democratic constitutional system, government consumption relative GDP expansion in the proportion of hard, difficult to control. This is why we have just seen in Brazil, the United States, Russia, Japan, have shown that the basic common ground, the government consumption share of GDP, or not very changed, or is going down This constitutional democracy with the constraints of power, especially the right to tax the constraints of a great relationship.
second, compared with the state-owned economy, the private market economy, it enables the simultaneous growth of private consumption as the economy. This is Why do we have to see these countries, each country's share of private consumption relative to GDP over the past fifty years, the trend is rising, Russia is so after 1991.
course, you may think Maybe I give you to see these data reflect only the situation in these countries is a result of my selection of a special case of some exceptions. In order to illustrate not the case, from the perspective of doing research, in addition to other cases, we should go to collect the samples as large as possible, to do a systematic analysis.
To answer this question, I told the students how happy water to 70 different countries, the data together, first in 1980, according to each country when the state-owned enterprises GDP, the proportion of output, divided into five equal parts from high to low groups, each consisting of 14 countries, and then to see from 1980 to 2003 in these countries the growth rate of private consumption, who high who is low? In other words, growth of a country's GDP by one percentage point each, the number of percentage points in private consumption will grow? GDP growth rate of the sensitivity of how high? For example, the lowest proportion of state-owned enterprises (3%) of the first group of countries, in these 14 countries, GDP growth rate of private consumption on the sensitivity was 0.97, meaning that the private economy in these countries, GDP increased by one percentage point each, the people's consumption will increase 0.97%. So, these five groups of countries is essentially like this: The higher the proportion of the national state-owned economy, the growth of private consumption and GDP growth based on this factor lower, the lowest was 0.82, that is, the highest proportion of state-owned economy of this group of countries, their GDP growth by one percentage point each, civil consumption increased by only 0.82% of the people. Of course, the highest proportion of China's state-owned economy that group.
So, from 70 countries of the situation, the state-owned enterprises, state assets, high proportion of the economy, the more people will be suppressed income, private consumption suppressed.
why the suppression of state ownership in private consumption?
from an academic, why the higher the proportion of the social state-owned economy, private consumption is relatively lower growth rate? Why is that? If you are familiar with modern economic optimization model of consumption and investment budget, then the model has a basic assumption that your personal and family every day in deciding how much to spend, how much money you can save, you have two incomes, one is labor income is wages, with the labor-related income; the second important source of income is income from assets is capital appreciation, or the type of wealth, property type income. when we see a major asset if the wealth of society as a whole, property rights are private, then, that private land, resources, buildings, stocks, etc., all of these investments and non-value-added investment products can be reflected in each individual, the family's consumption and investment budget constraints, you can go directly to the people calculations of the daily expenses, this is the case of private ownership of state.
However, if state ownership, the difference is to big, because the state-owned assets, the state-owned enterprises, state-owned shares, their value more, despite the name that each national individuals have a can in fact feel free to ask an ordinary Chinese person, asked him: crazy! thousand dollars of their own wealth, a three person family in the middle of thousands of dollars of wealth 3. Therefore, any time the oil price up 10%, the wealth of almost every Chinese person has increased by $ 100! If this is the case of private ownership If each person in the direct ownership of their own oil stock, then added later, there will be a lot of people immediately went to the restaurant to eat a meal, the ladies could buy a nice dress, right? In other words, , if it is private ownership, those in the oil, Sinopec, Bank of China, Industrial and Commercial Bank of equity wealth and so on can be converted to private income, private consumption. you know, according to market value, ICBC, CCB and Bank of China today is a global ranking of the top three banks, but no matter how high the value of these banks, more appreciation, more appreciation in the oil, nor will any one of the Chinese people a sense of new revenue immediately, bringing new spending or re- desire to invest, because we all know that the appreciation of state assets, with me every day how much money to spend, how much can be saved, there is no relationship. because the current arrangements for public ownership in the name of the whole people, but in fact no one has . So, we decided to spend every day how much money, how much memory, it does not, can not be counted come the appreciation of state assets.
However, in countries where private ownership does not have this problem. In 1998, 1999, 2000, the United States during the Internet bubble, we guess the U.S. was how high the growth rate of GDP? highest when only 4%. However, in the United States, 4% of the GDP growth rate to give the consumer society, thriving extent than China 8%, 10% of the GDP growth rate brought about by the even higher level of prosperity. Why is that? one very important reason, is in private ownership, the way people share the benefits of growth in addition to labor income, there is property income, there is asset appreciation benefits. According to my rough calculations, the magnitude of the U.S. stock market rose almost every year GDP growth rate about three times. In other words, private ownership arrangement, with the GDP by 3% , 4% growth rate, labor income people also by almost 3%, 4% annual rate of growth, but equally important, even more importantly, their assets which may be on private property that a 9% m12% the rate of appreciation, dividend income, there are many assets. With the growth of the two revenue streams to share a channel of labor income, a wealth of assets channels, two channels through which growth of the GDP, according to amplify the effect of three to four times household consumption of great people driving force, so in countries where private ownership, not 8%, 10% economic growth, social still able to flourish!
It is due to the above mentioned state-owned block The channel property income people in our GDP growth rate of the Chinese national GDP growth rate of private property to do with the comparison before, in general China's GDP growth rate should be first divided by two, and then we can compare, or not the same thing. The reason is that China's GDP growth on the role of people of basic consumption growth is only a single channel through which labor income, wealth, value-added of state-owned system of this channel is sealed.
these years, China's land value so much, but the land nominally collectively owned, but in fact, the operational level of national ownership, the land value through financial or other means of land into a local government and the central government can spend money. of course, not to mention the oil, petrochemical, China Mobile and other trillion yuan of profits on the year, these could have been transferred to the pockets of ordinary people, but in the present circumstances, the transfer of the channel is sealed. Of course, many friends will say, if, as now the stock market and assets are shrinking, when people do not directly own these assets to avoid financial crisis is not more risk? because they shrink is borne by the state, these losses are not borne directly by the people. However, we must see that, although the property will be depreciation, but in the petroleum, petrochemical, and other values today or tens of thousands of yuan, the people will not have these options certainly do not shrink the face of the property, but not with those values. Moreover, whether the United States or other countries in the long term an appreciating asset.
in China, why it is difficult private consumption growth?
just mentioned may be relatively more abstract, based on a large sample of 70 countries analyzed, there is a defect, is always felt less specific. In a country where state-owned enterprises, state-owned economy, as well as constitutional democracy or constitutional democracy, in the end is to hinder the private income, private consumption? To be clear, let's look at the specific situation in China, see special constitutional democracy is right to tax and budget constraints or not having the right to restrict, in what way the final private consumption growth inhibition. then one is state ownership arrangements, and why it will further hamper growth in private consumption?
start with the perspective of income Look, it is to see the annual national income, according to the three groups of points, which the government, urban residents and farmers of three groups, which groups a share of the largest groups which share from growth to a minimum? We know China's current tax base is not the right to control by the National People's Congress, but by the administrative departments have, almost all departments to have the right to introduce new taxes or new fees species, can also be constraints on the existing situation without taxes continue to increase tax rates, including stamp duty on stock transactions.
Then, in the constitutional level, the tax has been given the right to unfettered in the end the three groups of Chinese society in general? the distribution of income among them, what impact ? from 1995 to 2007, after deducting the impact of inflation, only the tax revenue to the State budget 5.7 times doubled, not including land sales, the income of local and central budget! and the per capita of urban residents disposable income increased 1.7 times during the same period, per capita net income of farmers increased by only 1.2 times.
Thus, in the absence of constitutional democracy, the Government assigned the proportion of national income, by the Government to cut the cake to this one, in the past 12 years, constantly expanding. This necessarily means that the people assigned to this piece is getting smaller and smaller. the fruits of economic growth away from the government the most, followed by urban residents, the bad, to share At least the farmers.
another point of view we can expand the size of government out of control trend. that is, relative to the size of government finance income people is in the end be? like us to do research, particularly in macroeconomic encounter data, make people feel too abstract, you say how much additional government revenue or GDP, disposable income of urban residents increased the number, etc., these figures for the individual abstract. In order to avoid too abstract, I put the Government's annual budget fiscal year revenue divided by disposable income of the people, to see how much government revenue to support the income of the people had.
order to have a comparison object, we need to ask, in Chinese history, the court's income is equal to How many people income? For example, the Qing dynasty Qianlong period (Kangxi and Qianlong Well), the court how much tax revenue a year? 1766, the court's financial and tax 49.37 million ounces of silver. was in Beijing about a month of ordinary artisans earn 2 two silver, two-year 24. This calculation, when the fiscal year the Qing Dynasty is equivalent to 2.05 million tax annual income of Beijing craftsmen, almost is 2.05 million Beijing craftsmen can support all aspects of the Qianlong court costs.
Today, governments of other countries be? In 2007, the U.S. federal government tax revenue (excluding local governments) is 2.5 trillion U.S. dollars, divided by the current U.S. per capita disposable income, which is equivalent to 85 million American people that year's disposable Income .8500 million Americans income can support the federal government. relative to China's Emperor Qianlong court, now the U.S. government is indeed big, big, because the court from the 2.05 million Qianlong Beijing's income can feed it! then again, most of the time the Qing Dynasty, the state tax revenue gross national income is only about 3% m5%, that time is a real sense of is so authoritarian, so feudal, how do you say, how cursed are good, but take a look at these figures, the original that time is truly a model of small government. Of course, not the Qianlong court did not want to abuse of power to more money, but at that time collection very difficult. We all know that food is transported through the canal so hard, you have to charge more money, easier said than done it! But now tax collection easier, especially with the computer, you escape also can not escape, it also illustrates the government's tax capacity, transport capacity than ever before, the constraints of constitutional democracy the right to tax by how important it!
I often say that the reason why constitutional democracy is in human society modern things, not accidental. For example, the first truly establish a democratic constitutional government is the United Kingdom, it was only after the Glorious Revolution of 1688 to complete the historical process. So, to have the 1688 first democratic constitutional state, and most of We are familiar with democratic countries, it is only appeared after World War II.
can think about, why is this? constitutional democracy is so recent human phenomenon, the technological revolution with the development of human relations is very great. For example, Qianlong period, I have talked about the tax share of national income 3% m5%, then even though the court free to increase taxes, but the modern means of transport at that time had not, computer technology is not. So, no trains, cars, planes of these means of transport support, unchecked powers to the private interests, to the people can form a threat to property is also very limited. disguised protection, there is a lack of means of communication, it also disguised the private interests of the people, property and civil young girls to better protected.
But now with trains, cars, airplanes, tons of ship, but also have the Internet age, tax capacity, the ability to move the transport interests of the people is really unprecedented it! you can not get away to escape it! this time, the democratic constitutional power to bind up the need for the government, at any time in history, compared with comparison, are much higher. because you do not bind the powers of a little, so little power play, abuse, then benefits to the people impact and injury can constitute an unprecedented high. This is why not only in China, in almost all other countries, constitutional democracy is in the last two hundred years, even decades to become the common aspiration of the society.
many of us that democracy and freedom, constitutional democracy, is not always the Chinese tradition, Chinese culture is very compatible with . I want to say, constitutional democracy is not only the Chinese tradition, nor is any country in the world, the tradition of the past. No country in 1688 before the operation, there really good, modern sense of the democratic constitutional system. At this time, If we do not pay attention a little, it is easy to be blinded by the words of some scholars, they say, there is no constitutional democracy in China has always been, so no need to have the future. Imagine also, Qin, Han, Tang, Song, etc. are not of constitutional democracy, but these people will not tell you, not only in China is so in the past all the world countries do not have democracy and freedom, there is no constitutional government. We must take into account the transportation technology, means of communication and the mobilization of people's property and the flesh and blood ability to look at these things must be relative to the power of democracy and the constraints of the need.
see Qianlong imperial court and the United States the size of government in 2007, we look at from 1978 to 2007 changes in the size of the Chinese government, State tax revenue equal to the number of urban residents in each year's income? 1978, the state tax revenue is equivalent to 300 million 3 year thousands of urban residents in disposable income. that time is the all-around administration, at least for urban people , work, child education, health care, retirement, pension, housing, etc., these packages down by the state, because of this, so we should reform. With the deepening of reform and opening up to the 1994, 1995, tax revenue is equivalent to 100 000 000 5 thousands of disposable income of urban residents. From this sense, the relative size of government in the reform and opening up the first phase, is reduced by half, cut half, but that is far greater than the income of only 205 million people the scale of the Qianlong court can provide more than twice the U.S. government.
However, the 1995 tax reform, direct effect is to enable the Government to get from the share of national income to re-scale recovery. So to 2007, State tax revenue rose to the equivalent of 300 million 7 of millions of urban residents income, bigger than in 1978. From 1978 to mid-90s, the implementation of the reforms are indeed moving towards the direction of small government; however, from 90 the mid-started forward again to big government; the recent impact of the financial crisis, the Government increased spending and investment spending, increase the size of government once again.
relative to net income of farmers in terms of the 1978 State tax revenue equal to the current 800 million 5 million of net income of farmers; 1996, the equivalent of 300 million 8 million net income of farmers, by 2007 the figure was 1.2 billion net income of 3 million farmers.
so , the right to tax is not controlled in the hands of elected representatives of the people, but by the hands of the executive branch, the result is taxed out of control, and the trend is getting worse. I know that many scholars, especially economists, very fond of saying that China should strengthen tax, increasing tax revenue in China to make that tax increase as possible. This is of course the Treasury happy. In particular, many scholars recently ...