China’s Export-led Growth Model: Time to Change?

Slides accompanying remarks by

Yao Yang
Deputy Director China Center for Economic Research (CCER)

Delivered at China’s Economy in 2010: Forecast and Views

January 7, 2010, at the New York Stock Exchange

To access video or audio of Yao Yang’s remarks, in addition to slide presentations

and remarks by other speakers in this program, please visit:
http://www.ncuscr.org/programs/chinas-economy-2010-forum-nyse

Yao Yang is a professor at the China Center for Economic Research (CCER) and the National School of
Development (NSD) – both at Peking University. He currently serves as the deputy director of CCER
and deputy dean of NSD in charge of academic affairs and the editor of the center’s house journal China
Economic Quarterly. His research interests include economic transition and development in China. He
has published widely in international and domestic journals, as well as several sole-authored and co-
authored books on institutional economics and economic development in China, including Ownership
Transformation in China (co-author, World Bank, 2005), Globalization and Economic Growth in China
(co-editor, World Scientific, 2006), and CSR and Competitiveness in China (co-author, Foreign
Languages Press, 2009). He is an associate editor of Agricultural Economics and serves in the editorial
boards of several domestic and international journals. He is also a prolific writer for magazines and
newspapers.

Dr. Yao was awarded the 2009 Sun Yefang Economics Award – the highest economics award in China,
the 2008 Pu Shan Award in International Economics and the 2008 Zhang Peigang Award in Development
Economics. He was awarded the title of Best Teacher by the Peking University Student Union in 2006
and was named a Young Leader by the Nanfang People’s Weekly in 2008.

Dr. Yao obtained his B.S. in geography in 1986 and his M.S. in economics in 1989, both from Peking
University; his 1966 Ph.D. in agricultural and applied economics is from the University of Wisconsin-
Madison.

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 China’ss Export
China Export--led Growth
Model: Time to Change?
Yang Yao
NSD & CCER
Peking University

China’s Economy in 2010: Forecast 2010-1-15

and Views, NYSE, Jan. 7, 2010
1
What is wrong with the Chinese
growth model?

Source: China Statistical Yearbook, various years.

2010-1-15 2
The Conventional wisdom
y Savings
g explanation:
p
◦ Chinese people save a lot, so
◦ Domestic consumption is low and China has to
export a lot.
y Exchange rate explanation:
◦ China undervalues its currency so its products
are artificially competitive in the world market.
◦ But between 2005 and 2008, China’s export
volumes and CA surplus both increased
dramatically despite 20% revaluation of the RMB.
RMB
China’s Economy in 2010: Forecast and
2010-1-15 Views, NYSE, Jan. 7, 2010 3
Long--term factors
Long
y Industrial capacities
p
y Human capital
y Accession to WTO
y Demographic and structural
transformation
◦ A large labor force in the countryside: 40% of
the national total
◦ Demographic dividends: High working-to-
dependent ratio

2010-1-15 4
Ratios of working population in the world

Source: Bloom, David etc. "Demographic change, social security systems, and savings,"
Journal of Monetary Economics, 2007, 54(1), pp. 92-114.
2010-1-15 5
Capital deepening
Expansion of trade + Low wage rates

Hi h returns
High t to
t capital
it l

More investment

Share of capital Share of labor

gains in GDP + income in GDP
increases decreases

China’s Economy in 2010: Forecast and

2010-1-15 Views, NYSE, Jan. 7, 2010 6
High growth of labor productivity in manufacturing

Accumulative growth
Annual growth
Accumulative growtth (%)

Annual growth (%
%)
Source: Lu and Liu, “The Growth of labor Productivity in Two Sectors and International
Comparison.: China Economic Quarterly, 2007,Vol. 6, No. 2: 357-380.
2010-1-15 7
y 1991－2006:
• Labor prod. in manufacturing increased
by a rate of 13.6％
y 1978-2006:
◦ Manufacturing wage increased by a rate of
6.55%
y Consequences
◦ Profit rates increased fast
◦ Share of labor income declined
2010-1-15 8
 Profit rates have increased fast since 1998
20 利润总额/ 权益 利润总额/ 资产
18 总回报/ 权益 总回报/ 资产
净利润/ 权益 净利润/ 资产
16 净利润/ 固定资产净值
14
12
10
8
6
4
2
0
1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006
Source: CCER Research Team. “An Estimation of Capital Returns.” CCER Working Paper No. C2007002.

2010-1-15 9
Labor share in national income decreases

Source: China Statistical Yearbook, various years.

2010-1-15 10
 Distribution
Di ib i off NNational
i l Income:
I
1993－2007
08
0.8
0.7
0.6
0.5
Share

0.4 Residents
0.3 Enterprises
Government
0.2
0.1
0

Source: Chong-En Bai, and Zhenjie Qian. “Who Are Taking Away Residents’ Income?”
Social Sciences in China, 2009, No. 5.
2010-1-15 11
 Shares of national savings in GDP
0.5

0.45

0.4

0.35

0.3
Enterprises
0.25
Government
02
0.2 R id
Residents
0.15

0.1

0.05

0
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Source: China Statistical Yearbook, various years.

2010-1-15 12
Conclusions
y China’s export-led
p ggrowth model is
deeply rooted in the international division
of labor in which China is well prepared
p p
to export labor-intensive manufacturing
g
goods.
y Taking trade as given, rebalancing should
be more focused on better use of China’s
savings.

2010-1-15 13