China’ s Growth Model and 

Structural Imbalances
Professor Yang Yao
Director, CCER
Deputy Dean, NSD
Peking University

The views expressed in this paper are the views of the author(s) and do not necessarily reflect the views
or policies of the Asian Development Bank (ADB), or its Board of Directors or the governments they
represent. ADB does not guarantee the source, originality, accuracy, completeness or reliability of any
statement, information, data, finding, interpretation, advice, opinion, or view presented, nor does it make
any representation concerning the same.

2010-06-04 1
 Contents
• Export-led growth
• Demography and the growth model
• Structural imbalances
• Policy recommendations

2010-6-4 2
 I. EXPORT-LED GROWTH MODEL
2010-6-4 3
 The World’s Factory
• Cheap but effective labor
• Manufacturing networks
• Cheap land
• Accession to WTO
• Asian Financial Crisis
• Intra-product trade

2010-6-4 4
 0
5000
10000
15000
20000
25000
30000

6/4/2010
1978
1979
1980
100 mil. USD

1981
1982
1983
1984
1985
1986
1987
1988
1989
1990

Import
1991
1992
1993
1994

Export
1995
1996
1997
1998
Trade
1999
2000
2001
2002
2003
China’s Trade volumes: 1978 - 2008

2004
2005
2006
2007
2008
5
 10%
15%
20%
25%
30%
35%
40%

0%
5%

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1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
Export/GDP：1978－2008

2000
2001
2002
2003
2004
2005
2006
6

2007
2008
 Processing trade
Processing Trade in Total Trade（1981－2008）
60%

50%

40%

30%

20%

10%

0%
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
export import import & export

6/4/2010 7
 Contribution of export
• Export contributes to 11% - 19% of China’s GDP
• Between 2001-2008, export grew by 28% per annum, so
export’s contribution to growth is
28% * 15% = 4.2%
In this period, China’s GDP grew by 10% per annum, so
export’s share of growth was 42%.
• In 2009, export declined by 5%, a net decline of 33%
compared with the period 2001-2008. So compared with
the period 2001-2008, GDP growth would decline by
33% * 15% = 4.95%
That is, the growth of 2009 would have been 5.05% the
highest if the government did not do anything.

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 II. DEMOGRAPHY AND GROWTH
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 Large Amount of labor in the Countryside
• By 2008, there were still 470 million laborers
in agriculture, but agriculture only contributed
11% of the national GDP.
• Labor shortage:
– Structural than
quantitative
– Increase of income
in the countryside

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 Per-capita net income in the countryside

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 Demographic dividends

来源: Bloom, David etc. "Demographic change, social security systems, and savings,"
Journal of Monetary Economics, 2007, 54(1), pp. 92-114.
2010-6-4 12
 Demography and growth model
Accession to WTO + Low wage rate

High returns to capital

More investment + Labor prod. increases

Share of capital gains in Share of labor income in

GDP increases + GDP decreases

2010-6-4 13
 Labor prod. In manufacturing increases

Source: 卢锋、刘鎏，“我国两部门劳动生产率增长及国际比较”，
《经济学季刊》，2007， Vol. 6, No. 2: 357-380.
2010-6-4 14
• 1991－2006:
• Manufacturing labor prod. Increased by 13.6% per annum
• 1978-2006:
– Manufacturing wage increased by 6.55% per annum
• Consequences:
– Corporate profits increased
– Share of labor income
decreased

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 Returns to capital increased
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
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 Shares of GDP: 1993－2007

0.8

0.7

0.6

0.5
Residents
Sare

0.4
Enterprises
0.3 Government

0.2

0.1

0
1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006
2010-6-4
2007 17
 Components of savings
0.5
0.45
0.4
0.35
0.3
Enterprises
0.25
Government
0.2
Residents
0.15
0.1
0.05
0
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

2010-6-4 18
 III. STRUCTURAL IMBALANCES
2010-6-4 19
• High current account surpluses
• Declining share of consumption
• Persistent inflationary pressures

2010-6-4 20
 %
Components of GDP expenditures
75.0

60.0

45.0

30.0

15.0

0.0

2006

2008
1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004
-15.0

consumption capital formation net export

2010-6-4 21
 Causes
• Labor and demography
• Low rate of urbanization
• Distortions in factor prices
• Under-developed financial markets
• Distorted government behavior

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 Costs of factor price distortions

2010-6-4 23
 Under-developed financial markets
• Limited number of banks: 120
• In the US
– 7500 commercial banks, 886 savings and loan
associations, 400 mutual savings banks, and 9900
credit unions.
• Consequences:
– SMEs cannot get enough loans.

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 Imperfect capital markets
• Be careful not to become a shareholder!

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 The government
• The Chinese government is a “corporation”
Percentage of capital investment in government expenditure
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

2010-6-4 26
• A big toy!
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2010-6-4 28
Tian-zi-fang in Shanghai

2010-6-4 29
 GDP’s employment elasticity
0.90
(three year moving averages)
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
GDP就业弹性 非农GDP就业弹性

2010-6-4 30
 IV. POLICY RECOMMENDATIONS

2010-6-4 31
• Accelerate the pace of urbanization
• Get the price right!
• Reform the financial sector
• Allow government policies to more reflect
citizens’ preferences

2010-6-4 32