China’s Development - Past Present and Future

These are notes from a talk given by Liu Xiaoming, Chinese ambassador to the UK at the Marshall Society economics conference in Cambridge in January 2014.

Poverty reduction

• China has made an extraordinary contribution to extreme poverty reduction in the world
• 616m lifted out of extreme poverty, reducing the rate from 84% in 1980 to 10% now (source: The Economist)
• Rural population in absolute poverty has come down from 250m to 35m - China is the 1st country to meet the MDG of halving rural poverty

More information on poverty reduction here

Regional balance

China is now more focused on balanced regional development - greater emphasis on development programme in Western provinces and regions - more than 40% of transfer payments from central government now diverted to these areas

Excellent article here from the FT on shifts in regional investment, costs, growth

Delta Blues (Financial Times, January 2014)

Increasing development capacity of regional development

Investment in micro credit and expansion of small enterprises

South-South cooperation

Aid/financial assistance from China to more than 120 countries

China and the Lewis Turning Point

In the process of development, there is a point when excess labour in the subsistence sector is fully absorbed into the modern sector of the economy. At which point, after extra capital investment to drive growth higher, labour shortages drive up wages and unit labour costs. Will this erode China's comparative advantage in manufacturing?

• China has no labour shortage at the moment - only a temporary effect
• Reforms aimed at increasing geographical mobility including reformed system of housing registration to allow more surplus labour in rural areas to migrate to cities. The urbanisation process in China will accelerate.
• Investment in human capital to raise productivity to offset the natural growth of wages that comes with a fast-growing economy
• Focusing on quality rather than quantity in labour supply
• Adjustments to China's demographic policy - allowing parents to have two children - increasing the base of population and tackle population ageing

Inequality in China

China's Gini coefficient has been between 0.47 and 0.49 in recent years - China recognises the dangers that can arise from a high and growing gap between rich and poor . Recent evidence suggests a small fall in income inequality in China: Read: http://www.shanghaidaily.com/Business/economy/Chin...

Response:

1. Raising minimum wage levels and pension standards
2. Increased transfer payments to lower income earners
3. Scaling up support for farmers and rural areas
4. Policies to stimulate growth in poorer regions
5. Anti-corruption measures to reduce the impact on inequality of rent seeking from owners of capital

China needs to find the right balance between development and distribution, between markets and efficiency

Environmental challenges

• A severe test for China's economy
• Tightened measures of environmental protection

Investment in renewables - see David Shukman (BBC(

China on world's biggest push for wind power: http://www.bbc.co.uk/news/science-environment-2562...

Rapid expansion of local carbon trading schemes (a key part of the 3rd five year plan)

See this article from Reuters: http://www.reuters.com/article/2014/01/21/china-ca...

Middle Income Trap

• Will China experience the middle income trap? Will economic growth be held back by social upheavals, slowing productivity and a reduction in innovation. China must keep the growth engine running:
• Deepening of economic reform - the most powerful driving force for economic development - market forces will play a decisive role in resource allocation.

Suggestions for further reading

Coverage here of the Shanghai free trade zone: http://www.bbc.co.uk/news/business-25774227

The BBC's Linda Yueh has a good feature on the changing nature of Chinese economic growth

"The Chinese government is attempting to persuade markets and others that it is slowing the economy down to a more sustainable pace and trying to be less reliant on investment-led, credit-fuelled growth."

More here: http://www.bbc.co.uk/news/business-25807357