Abstract
China’s economic performance since the start of economic reform in 1978 is widely heralded as a growth miracle. Although many transitional and developing economies, such as Russia and India, have implemented similar economic reform policies over the past few decades, in the course of economic reform, many experienced economic volatility and political instability. These reforms brought only moderate economic growth to these countries. By contrast, China has managed to sustain a long period of growth at a record rate while also maintaining macroeconomic and social stability. This chapter has two focuses. First, it identifies key factors that underpin China’s growth miracle. The second focus is to explain how China achieves the poverty reduction miracle.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Notes
- 1.
The key papers include Bosworth and Collins (2008), Chow and Li (2002), Chow (1993), Dekle and Vandenbroucke (2006), Fan and Zhang (2002), Hu and Khan (1997), Holz (2006a), IMF (2011), Kuijs and Wang (2006), Kwan (2006), Riedel et al. (2007),Keefer (2007), Lin et al. (2003), Lin and Liu (2000), Naughton (2006), El-Erian and Spence (2008), Knight et al. (2011), and Wang and Yao (2003).
- 2.
These include Botswana, Brazil, China, Hong Kong, Indonesia, Japan, the Republic of Korea, Malaysia, Malta, Oman, Singapore, Taiwan, and Thailand (see The Growth Report 2008).
- 3.
Schumpeter (1942, p.83, his emphasis): “The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers’ goods, the new methods of production or transportation, the new markets,…This process incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism.” Aghion and Howitt (1992) developed the endogenous growth models of creative destruction.
- 4.
Most of China’s surge in exports has taken the form of processing manufactures operated by multinational companies taking advantage of low-cost Chinese labors. Using the combination of firm-level production data with product-level trade data, Fu (2011) shows that processing FDI has generated positive information spillover effects, such as market intelligence and marketing techniques on the export performance of indigenous firms, although the technological spillovers are found to hinder the performance of indigenous firms.
- 5.
Some argue that a large component of this export growth in machinery is attributed to the growth in processing trade, i.e., assembling duty-free intermediate inputs of high skill content from developed economies such as the United States and Japan using low-cost Chinese laborers (Dean et al. 2007; Amiti and Freund 2008).
- 6.
East Asia also includes Indonesia, South Korea, Malaysia, Philippines, Singapore, Taiwan, and Thailand.
- 7.
Using the firm-level data, Li et al. show that the median Chinese firm is 156 % more productive than the median Indian firm.
- 8.
Growth accounting approach provides an analytical framework for attributing changes in a country’s GDP into contributions from changes in its factor inputs—capital and labor, plus a residual, typically named total factor productivity (TFP). TFP is interpreted as a measure of efficiency gains from factor input usages due to technology upgrading and improvement in management and business climate in general. The Cobb-Douglas production function is widely used for estimating TFP: Y = AKα(LH) 1 − α where Y, A, K, and α are measures of output, total factor productivity, physical capital services, and capital’s share of income, respectively. The capital share α is usually assumed equal to 0.4–0.5. L and H are labor input and educational attainment (e.g., average years of schooling of the labor force). The product of L and H is adjusted labor input taking account of improvements in the level of skills. The growth per worker Δln(Y/L) can be decomposed into growth in capital per worker Δln(K/L), education per worker Δln(H), and a residual measure of the contribution of improvements in total factor productivity Δln(A) as expressed as Δln(Y/L) = α [Δln(K/L)] + (1 − α) ΔlnH + ΔlnA. In interpreting the results from growth accounting decomposition, cautions should be taken because TFP captures anything unmeasured in the production function, except capital and labor input, ranging from technical progress and the effects of other determinants of the efficiency of factor usage, such as government policy, political region, and weather shocks.
- 9.
The average proportion of annual sale lost due to power outages for Chinese firms is 2 % compared with 9 % for Indian firms based on the firm-level data (Li et al.).
- 10.
Hu Jintao’s report delivered at the 18th National Congress of the CPC on Nov. 8, 2012.
References
Aghion P, Howitt P (1992) A model of growth through creative destruction. Econometrica 60(2):323–351
Amiti M, Freund C (2008) An anatomy of China’s export growth. Prepared for 2008 NBER conference
Bardhan P (2009) Economic reforms, poverty and inequality in China and India. Berkley University working paper
Bosworth B, Collins S (2008) Accounting for growth: comparing China and India. J Econ Perspect 22(1):45–66
China National Bureau Statistics (2010) China statistics yearbook 2009. China Statistics Press, Beijing
Chow GC (1993) Capital formation and economic growth in China. Q J Econ 108(3):809–842
Chow GC, Li K-W (2002) China’s economic growth: 1952–2010. Econ Dev Cult Change 51(1):247–256
Commissions on Growth and Development (2008) The growth report : strategies for sustained growth and inclusive development. World Bank, Washington, DC
Dean J, Fung KC, Wang Z (2007) Measuring the vertical specialization on Chinese trade. Unpublished mimeo
Dekle R, Vandenbroucke G (2006) A quantitative analysis of China’s structural transformation. http://www.frbsf.org/publications/economics/papers/2006/wp06–37bk.pdf
Deng X (1994) Science and technology constitute a primary productive force. In: Works of Deng Xiaoping, vol 3. People’s Publishing House, Beijing
Eberhardt M, Helmers C, Yun Z (2011) Is the dragon learning to fly? An analysis of the Chinese patent explosion. CSAE working paper WPS/2011–15, University of Oxford
El-Erian MA, Spence M (2008) Growth strategies and dynamics: insight from country experiences. Commission on Growth and Development, working paper No 6
Fan S, Zhang X (2002) Production and productivity growth in Chinese agriculture: new national and regional measures. Econ Dev Cult Change 50(4):819–838
Fu X (2011) Processing-trade, FDI and exports of indigenous firms: firm-level evidence from high-technology industries in China. Oxford Bull Econ Stat 73(5)
Hofman B, Wu J (2008) Explaining China’s development and reforms. Commission on growth and development working paper No 50
Holz CA (2006a) China’s reform period economic growth: how reliable are Angus Maddison’s estimates? Rev Income Wealth 52(1):85–119
Holz CA (2006b) Measuring Chinese productivity growth, 1952–2005. Unpublished paper. http://ihome.ust.hk/socholz/Chinaproductivity-measures-web-22July06.pdf
Hu Z, Khan M (1997) Why in China growing so Fast. IMF Economic Issues
IMF (2011) People’s Republicof China, IMF Country Report No. 11/192
Kanbur R, Squire L (1999) The evolution of thinking about poverty: exploring the interactions. Working papers, Cornell University, Department of Applied Economics and Management
Keefer P (2007) Governance and economic growth. In: Winters A, Yusuf S (eds) Dancing with giants. World Bank/Institute for Policy Studies, Washington, DC/Singapore
Knight J, Ding S (2010) Why does China invest so much? China Growth Centre discussion paper series, no 4
Knight J, Yao Y, Yueh L, Guest Editors (2011) Economic growth in China: productivity and policy editorial introduction. Oxford Bull Econ Stat 73(6):0305-9049. doi:10.1111/j.1468-0084.2011.00679.x
Kuijs L, Wang T (2006) China’s pattern of growth: moving to sustainability and reducing inequality. China World Econ 14(1):1–14
Kwan CH (2006) Improving investment efficiency in China through privatization and financial reform. Nomura Capital Mark Rev 9(2):33–43
Lin JY (1992) Rural reforms and agricultural growth in China. Am Econ Rev 82(1)
Lin JY (2012) Demystifying the Chinese economy. Cambridge University Press, Cambridge
Lin Y, Liu Z (2000) Fiscal decentralization and economic growth in China. Econ Dev Cult Change 49(1):1–22
Lin Y, Cai F, Li Z (2003) The China miracle: development strategy and economic reform, Rev. ed. The Chinese University Press, Hong Kong
Naughton B (2006) The Chinese economy: transitions and growth. MIT Press, Cambridge, MA
Riedel J, Jin J, Gao J (2007) How China grows: investment, finance and reform. Princeton University Press, Princeton
Schumpeter JA (1942) Capitalism, socialism and democracy. Harper and Brothers, New York
Sen KA (1999) Development as freedom. Oxford University Press, Oxford
Sen A (2009) Capitalism beyond the crisis. The New York review of books
Wang X (2012) Poverty measurement: theory and methods. Social Sciences Academic Press, Beijing
Wang Y, Yao Y (2003) Sources of China’s economic growth 1952–1999: incorporating human capital accumulation. China Econ Rev 14(2003):32–52
World Bank (2009a) Addressing China’s water scarcity: recommendations for selected water resource management issues. World Bank, Washington, DC
World Bank (2009b) Good and bad inequality
Zhou Q (2002) Property rights and institutional change. Social Sciences Academic Press, Beijing
Author information
Authors and Affiliations
Rights and permissions
Copyright information
© 2014 Social Sciences Academic Press (China) and Springer-Verlag Berlin Heidelberg
About this chapter
Cite this chapter
Wang, X., Wang, L., Wang, Y. (2014). Explaining China’s Growth and Poverty Reduction Miracle. In: The Quality of Growth and Poverty Reduction in China. International Research on Poverty Reduction. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-36346-7_3
Download citation
DOI: https://doi.org/10.1007/978-3-642-36346-7_3
Published:
Publisher Name: Springer, Berlin, Heidelberg
Print ISBN: 978-3-642-36345-0
Online ISBN: 978-3-642-36346-7
eBook Packages: Business and EconomicsEconomics and Finance (R0)