Self-Study Syllabus on the Chinese Economy
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Preface About this syllabus.
China
is the largest emerging market country and its economy is on track to become the largest in the world. Given the rapid evolution of the Chinese economy, no guide can stay current for long. Instead, this syllabus is organized to help a new analyst develop an understanding of recent Chinese economic history, provide context for the most important economic issues, and highlight sources of good information for the future. Though several book chapters are referenced in this syllabus, we mostly include articles due to their timeliness and ease of access. We also include some Chinese language articles, but these are not required reading.
The syllabus is organized by the major topics that define the debate around China’s economy. We assume that you have a basic foundation in economics and that you are somewhat familiar with current conditions in China. A common thread between these articles is that they rely on data to separate the “signal from the noise� and dispense with the ideological arguments that often dominate conversations about China. This syllabus is designed to build understanding of the Chinese economy in a step-by-step fashion based on reading around one document a night five nights a week for four weeks. In total, the key readings add up to roughly 750 pages suggesting around 30 pages for a night.
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Week One: Setting the Foundation How did the Chinese economy get to where it is today? • World Bank and the Development Research Center of the State Council, China, China 2030 Report (World Bank, 2013). pp. 4-14. (10 pages).
Overview The goal of this week’s reading is to provide a basic familiarity with the Chinese economy. The Chinese economy has evolved dramatically over the last thirty years. These readings discuss the history of this evolution and put the current state of the economy into context. Naughton’s book is a historic overview of economic reforms from 1949 until the mid-2000s. The Schell and Delury chapters are brief biographies of Deng Xiaoping and Zhu Rongji, the two most important figures in the Chinese economic reform. The speech from Zhu Rongji in 1994 and the Third Plenum of the 14th Party Congress illustrate how China overcame a difficult economic period in the early 1990s. Pay close attention to the differences between the 1993 Third Plenum compared to the most recent 2013 Third Plenum adopted by the Xi and Li administration. For example, the latest third plenum document discusses relying on the market to allocate resources (市场决定资源配置) whereas the 1993 document only discusses using the market as a benchmark for allocating resources (发挥市场机制在资 源配置中的基础性作用). The article by Naughton provides another interpretation of the Zhu Rongji era. This chapter of Lardy’s latest book discusses the evolving role of the market in the Chinese economy. Finally, the 2030 report is a brief summary of where the Chinese economy is today. • Barry Naughton, The Chinese Economy: Transitions and Growth. (MIT Press, Cambridge Massachusetts, 2006) Chapter 1,2, and 3, pp. 1-111 (110 pages) • Orville Schell and John Delury, Wealth and Power: China’s Long March to the Twentieth Century. pp. 259-352. (93 pages) • Zhu Rongji Speech on Economic Work
during 1994 NPC session (5 pages) • The Third Plenum of the 14th Party Congress of the CCP. (10 pages) • Barry Naughton, Zhu Rongji: Twilight of a Brilliant Career. (10 pages) • Nicholas Lardy, Markets Over Mao, (Peterson Institute for International Economics, 2014), Chapter 1, pp. 11–41. (30 pages)
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Week Two: Continuing Economic Reform How is the Chinese economy evolving?
Overview The objective of this week is to get analysts up to speed on the important economic reforms changing the Chinese economy today. First we will look at the evolution of the Chinese economic growth model. Second we will look at changes to the financial system. Changing the Economic Model: These papers are intended to give you an overview of how and why China is changing its economic growth model. The first paper by Lardy and Borst provides a framework for understanding the reform policies that will support the transition to a consumption-driven economy. The second reading by Andrew Batson will give you an overview of state sector reform. The third reading from Lardy’s latest book discusses the opportunities for future growth by promoting greater private sector participation in the service sector. Nabar and N’Diaye quantify the impact of reforms on future economic growth. Finally, the 12th Five Year Plan reveals the targets established by the Chinese government to help achieve rebalancing such as increasing service sector share of GDP and consumption.
• Nicholas Borst and Nicholas Lardy, Blueprint for Rebalancing the Chinese Economy (16 pages) • Andrew Batson, Fixing China’s State Sector, (24 pages) • Nicholas Lardy, Markets Over Mao (Peterson Institute for International Economics, 2014). Chapter 4 pg. 123-153. (30 pages) • Malhar Nabar and Papa N’Diaye, Enhancing China’s Medium-Term Growth Prospects: The Path to a High-Income Economy (19 pages) • The 12th Five Year Plan Outline (6 pages).
Reforming the Financial System: These reports are a good introduction to financial reform and shadow banking in China.The first paper is a good refresher for those trying to get up to speed on the history
of financial reform in China. Borst and Lardy trace the evolution of China’s financial system away from a traditional bank-dominated and state-directed financial system toward a more complex, market-based system. The second paper by Elliott et al. is a great overview of the issue of shadow banking. The paper highlights the risks without exaggerating the probability of a financial crisis. Walter and Howie explain how China’s financial system was restructured during the early 2000s and provide insight into some of the bureaucratic politics that continue to shape financial reform in China. Finally, the speech by Zhou Xiaochuan in 2013 outlines the Chinese government’s current priorities and objectives in financial reform. • Nicholas Borst and Nicholas Lardy. Maintaining Financial Stability in the People’s Republic of China during Financial Liberalization (28 pages) • Douglas J. Elliott, Arthur R. Kroeber and Qiao Yu, Shadow banking in China: A primer (30 pages) • Carl E. Walter and Fraser J.T. Howie. Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise. Chapter 3 and 5 (40 pages) • Zhou Xiaochuan, Deepening Financial Reform,(9 pages)
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Week Three: China and the World Economy How do Chinese policymakers change the economy?
Overview The objective of this week is to provide analysts with a foundation for understanding the process of economic decision making in China. The first document is a survey of the economic decision making apparatus in China. This report outlines the key players in formulating economic policy, highlights some of the bureaucratic struggles which hinder policy implementation and tries to asses how all of this might change in the Xi Jinping administration. Within the Goodman and Parker report are links to a plethora of useful additional readings on economic reform. The Third Plenum Communique is an official document that serves as the defining roadmap for the current government’s reform agenda. Justin Lin’s article provides insight into the party’s view of why the government needs to play a strong role in guiding development and why China can continue to grow despite slowing growth. Naughton provides insight into economic reforms under Xi Jinping and Li Keqiang, illustrating how the new leadership is likely to move forward. In the final article, Li Keqiang responds to questions at Davos on the Chinese economy. His answers illustrate how the Chinese leadership is currently thinking about the economy.
• Matthew Goodman and David Parker, Navigating Choppy Waters: China’s Economic Decision Making at a Time of Transition, Chapter 3 and 4 • Third Plenum Communique (Sections 2-26) (中共中央关于全面深化改革若干重大问题的决 定) (23 pages) • Justin Lin, “China Can Escape the Middle
Income Trap” (中国可以摆脱中等收入陷阱” • Barry Naughton, Is There a “Xi Model” of Economic Reform?--Acceleration of Economic Reform since Fall 2014 (14 pages) • Li Keqiang, “Eight Words Describing on the Chinese Economy” September 10, 2015.
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Week Four: China and the World Economy How does the Chinese economy impact the global economy? hugely important new economic trend.
Overview The objective this week is to help analysts understand the relationship between the Chinese economy and the world economy. First we will look at the U.S-China economic relationship. Second we will analyze how China impacts the global economy.
US-China Relations: These two papers will help you familiarize yourself with US-China economic relations. This first report by Wayne Morrison of the Congressional Research Service will outline the key issues affecting U.S-China trade and investment relations from the U.S. perspective. The second paper by Arvind Subramanian discusses the evolving role of China in shaping the global economic system and the implications for US foreign policy. The third article contains remarks by Xi Jinping regarding China’s current objectives in US-China economic relations. • Wayne M. Morrison, China-U.S. Trade Issues (59 pages) • Arvind Subramanian, Preserving the Open Global System: A Strategic Blueprint for
China and the United States. (17 pages) • Xi Jinping speaking on US-China trade and investment relations following his visit to the United States. (3 pages)
• Ashvin Ahuja and Malhar Nabar, Investment-Led Growth in China: Global Spillovers (23 pages) • National Development and Reform Commission, Vision and proposed actions outlined on jointly building Silk Road Economic Belt and 21st-Century Maritime Silk Road (推动共建丝绸之路经济带和21世纪 海上丝绸之路的愿景与行动). • Wenjie Chen, David Dollar, and Heiwai Tang Why is China investing in Africa? Evidence from the firm level (30 pages)
Global Economic Influence: These three papers will help you understand the impact of China’s economic rise on the global economy. The first paper discusses how a slowdown in China is impacting the economies of other countries, especially commodity-driven nations. The second article is the “One Belt, One Road” plan put forward by the Chinese government. The plan represents a significant economic and diplomatic push by China that influence foreign direct investment and trade. The final paper by Chen et al. provides a level-headed look at China’s investments into Africa, a
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The Next Steps: Keeping Up and Moving Forward Moving Beyond Familiarity toward Expertise Security Commission writes an annual report to congress discussing developments in China of interest to U.S. policymakers such as bilateral trade and investment, and currency reform.
Overview For those who wish to go beyond this syllabus to develop one’s expertise on Chinese Economic Affairs:
Routine Readings: The sources below are a few ways to keep up with developments in the Chinese Economy: • IMF Article IV Report. The Article IV documents are produced annually by the IMF staff. They provide an overview of key economic issues in China and also highlight the findings of recent IMF research on China. Pay careful attention to the special topics covered in these reports because they correspond to the issues IMF staff are most concerned about. • World Bank China Economic Update. These reports are produced twice a year, so they are often more current than the Article IV. Both reports tend to shy away from making strong claims, but a careful reading can reveal staff views of a variety of issues. • China Leadership Monitor. Quarterly articles on Chinese politics by Stanford’s Hoover Institute. Barry Naughton frequently writes on
the political economy of economic reform. • Quarterly Monetary Policy Report of the People’s Bank of China (季度中国货币政策执 行报告). Within a month of the end of each quarter the People’s Bank of China publishes a quarterly report on monetary policy in China. The report covers key issues in the macroeconomy as well as exchange rate and monetary policy concerns. • China International Balance of Payments Report (中国国际收支报告) the State Administration of Foreign Exchange (SAFE) in charge of currency and cross-border monetary flows releases an annual report every March discussing issues such as balance of payment, foreign exchange reserves, and international investment position. As with the quarterly monetary policy report you may look to specific exhibits discussing timely topics. • US-China Economic and and Security Review Commission Annual Report to Congress The U.S. China Economic and
More in-depth reading for advanced analysts: • Li Gan, China Household Finance Survey ( 中国家庭融资调查) This survey is one of the few viable alternatives to official Chinese government household survey (which has many known problems).The report uses a large sample size and professional surveying methods to gain insight into areas such as investment trends, income inequality and employment. The full report comes out periodically as well shorter papers on specific issues. • John Fernald, Israel Malkin, and Mark Spiegel, On the Reliability of Chinese Output Figures China bears and other critics frequently disparage the accuracy of Chinese economic statistics. This article is a useful check on some of the conspiracy theories. The authors show that most of the alternative indicators that the skeptics point to, such as electricity, rail cargo shipments, and loan disbursements actually track official GDP pretty well. The authors find that partner reported trade data and industrial production to be consistent with official GDP.
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• Mali Chivakul, W. Raphael Lam, Xiaoguang Liu, Wojciech Maliszewski, and Alfred Schipke, Understanding Residential Real Estate in China The authors provide a solid overview of the housing market and apply an analytical framework for evaluating housing oversupply in China. The authors then use a model to predict the impact of excess housing on GDP. The baseline scenario shows a small negative impact from a housing correction, nothing close to the more extreme scenarios offered by many analysts. • W. Raphael Lam and Philippe Wingender, China: How Can Revenue Reforms Contribute to Inclusive and Sustainable Growth? • Yuanyan Sophia Zhang and Steven Barnett, Fiscal Vulnerabilities and Risks from Local Government Finance in China. The paper discusses the nature of local government financing platforms. It also provides an international context to understand the issue of public debt sustainability in China. • W. Raphael Lam, Xiaoguang Liu, and Alfred Schipke, China’s Labor Market in the “New Normal”. As China implements reforms under the “new normal,” maintaining stability in the labor market is a priority. The country’s demography and labor dynamics are changing, after benefitting in past decades from ample cheap labor. This paper quantifies to what extent structural trends and the reform pace affect employment
growth under the new normal. • Ryan Rutkowski, Service Sector Reform in China • FSB Peer Review of China. An excellent review of China’s financial regulatory system and it’s ability to coordinate in the event of a financial crisis.
General Reference Books: • Barry Naughton, The Chinese Economy: Transitions and Growth (MIT Press, Massachusetts, 2006). • Nicholas Lardy, Sustaining China’s Economic Growth After the Global Financial Crisis (Peterson Institute for International Economics, Washington D.C, 2012). • Nicholas Lardy, Markets Over Mao (Peterson Institute for International Economics, Washington D.C, 2014). • Loren Brandt and Thomas Rawski, China’s Great Economic Transformation (Cambridge University Press, 2008). • Thomas Orlik, Understanding China’s Economic Indicators: Translating the Data into Investment Opportunities 1st Edition (FT Press, 2011).
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Appendix: Key Chinese Language Terms and Phrases 中文
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英文
人均收入 金融危机 收入分配 基尼系数 中等收入陷阱 新结构经济学 工业革命 附加价值 生产要素 农业部门 制造业部门 现代服务业部门 产业升级 产业结构 世界银行 增长与发展委员会 开放经济 技术创新 高储蓄 高投资 诺贝尔经济学奖 要素禀赋结构 劳动力可用资本 比较优势 投资回报率 宏观经济 利润 价格信号体系 专利制度 因势利导 结构主义
rén jūn shōu rù jīn róng wéi jī shōu rù fèn pèi jī ní xì shù zhōng děng shōu rù xiàn jǐng xīn jié gòu jīng jì xué gōng yè gé mìng fù jiā jià zhí shēng chǎn yào sù nóng yè bù mén zhì zào yè bù mén xiàn dài fú wù yè bù mén chǎn yè shēng jí chǎn yè jié gòu shì jiè yín háng zēng zhǎng yǔ fā zhǎn wěi yuán huì kāi fàng jīng jì jì shù chuàng xīn gāo chǔ xù gāo tóu zī nuò bèi ěr jīng jì xué jiǎng yào sù bǐng fù jié gòu láo dòng lì kě yòng zī běn bǐ jiào yōu shì tóu zī huí bào lǜ hóng guān jīng jì lì rùn jià gé xìn hào tǐ xì zhuān lì zhì dù yīn shì lì dǎo jié gòu zhǔ yì
per capita income financial crisis income distribution Gini Coefficient middle income trap new structural economics industrial revolution value added production factor agriculture sector manufacturing sector modern service sector industrial upgrade industrial structure World Bank Commission on Growth and Development open economy technological innovation high savings high investment Nobel prize for economics factor endowment structure capital available for labor comparative advantage return on investment macro economy profit price signal system patent system to facilitate structuralism
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中文
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资本密集 寻租 发展绩效 新自由主义 华盛顿共识 休克疗法 补贴 双轨制 计划经济 外资企业 三资企业 民营经济 扭曲 单轨制 中小企业 山西煤老板 发达国家 专利保护 知识产权保护制度 政府采购 规模经济 行政命令 生物能源 市场经济 通货膨胀 环比 国务院 服务业 原材料 国家统计局 国有粮店
zī běn mì jí xún zū fā zhǎn jì xiào xīn zì yóu zhǔ yì huá shèng dùn gòng shí xiū kè liáo fǎ bǔ tiē shuāng guǐ zhì jì huá jīng jì wài zī qǐ yè sān zī qǐ yè mín yíng jīng jì niǔ qǔ dān guǐ zhì zhōng xiǎo qǐ yè shān xī méi lǎo bǎn fā dá guó jiā zhuān lì bǎo hù zhī shí chǎn quán bǎo hù zhì dù zhèng fǔ cǎi gòu guī mó jīng jì háng zhèng mìng lìng shēng wù néng yuán shì chǎng jīng jì tōng huò péng zhàng huán bǐ guó wù yuàn fú wù yè yuán cái liào guó jiā tǒng jì jú guó yǒu liáng diàn
capital intensive rent-seeking development performance neo-liberalism Washington Consensus shock therapy subsidy dual-track system planned economy foreign enterprise three kinds of foreign-funded enterprises private sector distortion single-track system small and medium size companies Shanxi coal mine owners developed countries patent protection intellectual property right protection system government procurement economies of scale executive order bioenergy market economy inflation comparing with last month State Council service industry raw material National Bureau of Statistics state-owned food store
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中文
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供求矛盾 调控能力 净进口 净出口 固定资产投资 国有民营 供销社 外汇储备 灰色收入 供需矛盾 财政赤字 房地产 纺织工业 库存 三角债 国有企业 养老保险 失业保险 医疗保险 小康社会 温室气体 境外投资 工业化 信息化 城镇化 市场化 国际化 内需 低碳技术 战略性新兴产业 电子商务
gòng qiú máo dùn diào kòng néng lì jìng jìn kǒu jìng chū kǒu gù dìng zī chǎn tóu zī guó yǒu mín yíng gòng xiāo shè wài huì chǔ bèi huī sè shōu rù gòng xū máo dùn cái zhèng chì zì fáng dì chǎn fǎng zhī gōng yè kù cún sān jiǎo zhài guó yǒu qǐ yè yǎng lǎo bǎo xiǎn shī yè bǎo xiǎn yī liáo bǎo xiǎn xiǎo kāng shè huì wēn shì qì tǐ jìng wài tóu zī gōng yè huà xìn xī huà chéng zhèn huà shì chǎng huà guó jì huà nèi xū dī tàn jì shù zhàn luè xìng xīn xìng chǎn yè diàn zǐ shāng wù
supply-demand imbalance control capacity net import net export fixed asset investment state owned private run supply and marketing cooperative foreign reserve grey income supply demand imbalance fiscal deficit real estate textile industry inventory chain debt state-owned enterprise endowment insurance unemployment insurance health insurance moderately well-off society greenhouse gas outbound foreign direct investment industrialization informationalization urbanization marketization internationalization domestic demand low carbon technology strategic emerging industry Ecommmerce
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绩效评价 民间资本 市场准入 上市公司 债券市场 收支平衡 利率市场化 负面清单
jì xiào píng jià mín jiān zī běn shì chǎng zhǔn rù shàng shì gōng sī zhài quàn shì chǎng shōu zhī píng héng lì lǜ shì chǎng huà fù miàn qīng dān
performance evaluation private capital market entry publicly trade company bond market balance of payment interest rate marketization negative list
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