China’s Challenges in Moving towards a High-income Economy

Description

With its per capita income surpassing US$10,000, China has now drawn up ambitious plans to further lift its income to the level of developed countries. Yet various constraints need to be overcome if China is to build on the achievements of the last 40 years and further boost its growth potential. Besides these constraints, the year 2020 saw human societies hit heavily by the COVID-19 pandemic and the global economy caught off guard and dipped into recessions caused by lockdown measures for controlling the spread of the pandemic. Nations around the world have experienced grave loss of human life and lockdown measures have knocked economies from their normal growth trajectories. Even as the pandemic continues to unfold, all signs point to China as being the first major economy to have emerged out of the crisis. But many questions remain. Has the Chinese economy emerged from the pandemic crisis relatively unscathed? What are the long-term prospects for its economy? This year’s Update book, China’s Challenges in Moving towards a High-income Economy, explores the challenges faced by the Chinese economy in the transition towards a high-income economy, including agricultural development, finance and fiscal system reform, RMB internationalisation, trends in urbanisation, as well as topics related to innovation, corporate sector development and market competition. China’s growth experience has been full of exciting changes and important lessons for reform and structural changes, and this year’s China Update is again the way to gain insights into these. List of figures Figure 1.1 Fixed-asset investment in three types of industries as a share of total investment in China (1996–2020) Figure 1.2 R&D intensity and R&D personnel intensity in various economies Figure 1.3 Major countries in patent applications in 2018 Figure 1.4 China's population by age group as share of total population, 1990–2020 (per cent) Figure 2.1 Stage of development versus economic growth Figure 2.2 Income distribution and stages of development Figure 2.3 Trends in labour migration Figure 2.4 Educational attainment and occupational upgrading by age Figure 3.1 China’s agricultural trade, 1978–2018 (millions of US$) Figure 3.2 China’s share of global agricultural exports and imports, 1978–2018 (per cent) Figure 3.3 Production support and trade protection in China, OECD countries and non-OECD countries, 1995–2015 Figure 3.4 Changes in the structure of China’s agricultural trade, 1978–2018 Figure 3.5 Value of China’s imports and exports of major agricultural products, 1978–2018 Figure 3.6 Regional distribution of China’s agricultural exports and imports, 2018 Figure 3.7 China’s imports of soybeans and beef, by region (thousand metric tonnes) Figure 3.8 The RCA index of major agricultural products in China, 1978–2018 Figure 3.9 RTA indices of China’s major agricultural products, 1978–2018 Figure 3.10 RCA and RTA indices of cereal crops for China and other major producers, 1998–2018 Figure 3.11 RCA and RTA indices of economic crops for China and other major producers, 1998–2018 Figure 3.12 RCA and RTA indices of livestock products for China and other major producers, 1998–2018 Figure 3.13 OBC coefficients for agricultural commodities between China and the world’s major producers, 2012–18 Figure 4.1 Changes in China’s urbanisation rate, 1949–1978 Figure 4.2 Changes in China’s urbanisation rate, 1978–2000 Figure 4.3 Changes in China’s urbanisation rate, 2001–2011 Figure 4.4 Changes in China’s industrial structure, 2001–2011 Figure 4.5 Changes in China’s urbanisation rate, 2012–2019 Figure 4.6 Changes in China’s industrial structure, 2012–2019 Figure 4.7 Urban population and urbanisation rate in China, 1949–2018 Figure 4.8 Urban and built-up areas in China, 2004–2019 Figure 4.9 Number of China’s prefecture-level cities, 2000–2019 Figure 4.10 Changes in China’s urban per capita housing area, 1978–2019 Figure 4.11 The number of Chinese urban residents participating in pension insurance and basic medical insurance, 1989–2019 Figure 4.12(a) The spatial expansion of Shanghai City, 1991 Figure 4.12(b) The spatial expansion of Shanghai City, 2000 Figure 4.12(c) The spatial expansion of Shanghai City, 2015 Figure 4.13 China’s income inequality index and the proportion of inequality of opportunity Figure 5.1 Tax enforcement and the Laffer curve Figure 5.2 Changes in fiscal pressure and average effective VAT rate (comparison before and after reform) Figure 5.3 Changes in fiscal pressure and variance of the effective VAT rate (comparison before and after reform) Figure 5.4 Changes in fiscal pressure and aggregate TFP (comparison before and after reform) Figure 5.5 Dynamic effect of fiscal pressure and variance of the effective VAT rate Figure 5.6 Dynamic effect of fiscal pressure and aggregate LOG(TFP) (covariance of OP) Figure 6.1 R&D expenditure and number of full-time-equivalent R&D researchers Figure 6.2 Patent applications Figure 6.3 Share of enterprises (above designated size) conducting product, process, organisational and marketing innovation, by industry, 2018 (per cent) Figure 6.4 Distributions of the number of new-product projects, 2011–2018 Figure 7.1 Industrial sector financial indicators Figure 7.2 Industrial sector profitability Figure 7.3 Listed company profitability (return on equity) Figure 7.4 Exports Figure 7.5 Industrial employment Figure 7.6 Listed company leverage (debt to equity) Figure 7.7 Listed real estate company leverage Figure 7.8 Loan growth and demand Figure 7.9 Listed company implied interest rates Figure 7.10 Industrial sector accounts receivable average payback Figure 7.11 Listed company direct government subsidies Figure 8.1 Proportions of processing trade and ordinary trade in total exports Figure 8.2 Productivity growth trend of different types of exporters: Processing trade versus ordinary trade (per cent) Figure 9.1 The dynamic path of the relationship between the bilateral exchange rate changes of the offshore renminbi relative to major currencies and global risk factors Figure 9.2 The dynamic path of the relationship between the bilateral exchange rate changes of the offshore renminbi relative to the currencies of the BRI countries and global risk factors List of tables Table 2.1 Differential treatment in the urban labour market Table 3.1 RCA and the corresponding level of trade comparative advantage Table 3.2 Self-sufficiency ratio of China’s major agricultural products in 2025, 2035 and 2050 Appendix Table 3.1 Table 4.1 Characteristics of and problems with the three stages of urbanisation Table 5.1 Descriptive statistics of variables Table 5.2 Fiscal pressure and variance of the effective VAT rate Table 5.3 Fiscal pressure and aggregate LOG(TFP) (OP covariance) Table 5.4 The impact of fiscal pressure on the actual VAT rate and factors of production Table 6.1 Unit root tests Table 6.2 Regression results Table 6.3 Regression results with capital and labour Table 6.4 Summary statistics Table 6.5 Industry estimation results Table 6.6 Industry estimation results: Process innovation Table 6.7 Industry estimation results: Marketing and organisational innovation Table 8.1 Benchmark model regression Table 8.2 Parallel trend test Table 8.3 Regression with mixed-pattern firms Table 8.4 Robustness test for region and industry characteristics Table 8.5 Robustness test for pretreatment trend and other coexistent policies Table 8.6 Heterogeneity test with location Table 8.7 Heterogeneity test regarding firm status Table 8.8 Heterogeneity test by region and trade mode Table 8.9 Heterogeneity by firm status Table 9.1 Currency names and their corresponding symbols Table 9.2 UIP regressions for the offshore renminbi against major currencies Table 9.3 UIP regressions for the offshore renminbi against the currencies of countries along the BRI Table 9.4 Augmented UIP regressions for the offshore renminbi against major currencies Table 9.5 Augmented UIP regressions for the offshore renminbi against the currencies of countries along the BRI Contributors Acknowledgements 1. Challenges and roadmaps for moving towards a high‑income economy 2. Tackling social challenges to avoid the middle-income trap 3. China’s agricultural trade: A global comparative advantage perspective 4. China’s urbanisation in the new technological revolution 5. Revenue-neutral tax reform in China 6. Innovation and its growth effects in China 7. Conditions in China’s corporate sector 8. The transformation and upgrading of processing trade and its impact on firms’ productivity 9. The renminbi’s status as a safe‑haven currency Index