The reform-era beginning in 1978 saw the rise of Deng Xiaoping as chairman of the People’s Republic of China(PRC). By initiating structural changes that would significantly alter the trajectory of Chinese growth, his path of reform deviated from what was initially set out by Mao Zhedong and the 5-year plan which aimed to achieve socialism. Now, a consensus has arisen
that sees China to be the economic hegemony by 2050 – growing from its current GDP of $12.24 trillion to c.$55-70 trillion. Thus, there is immense relevance in analysing how the sustainability of China’s growth has been impacted.
Before the arguments are presented, it is necessary to to clarify the metric used to determine the relative influence of each factor. The analysis of this debate revolves around the a broader condition. It considers one point and deciphers the extent to which it impacts or reflects the potential for sustained growth. On one side of the debate, this paper will be looking at endogenous reforms. Specifically, it will look at the development of a one-party state, the promotion of liberalisation in the economy, and the fostering of incentives to operate in international markets. On the other hand, an analysis of exogenous influences will incorporate the threat of Indian growth, the downfalls of foreign competition, and the US-China trade war.
On such a basis, the argument of whether endogenous or exogenous factor have the greater impact of the sustainability of Chinese growth shall be judged. I intend to analyse, as well, what previously carried investigated econometric models and historical events may construe about this area of focus.
Historical context of China’s progression as an economy
An analysis of Chinese growth should first discuss how and why growth came to be. China’s expansion as an urbanised city dates as far back as the eighteenth century. The works of Joseph Needham, a biochemist who wrote on science and technological advancements China depicted how apt the republic initially was in providing a platform for innovation and research. As he found, exports thrived in textiles, silk and muslins, their high levels of productivity with the iron-tipped plough has started to be put into use more than half a millennium before the likes of IndiaNeedham, J., 1954.
Serving as precursors to China’s eventual period of industrialisation in the early 20th century was the beginning of their steel industry, dating back to the Song dynasty(960-1279) during which, even levels of deforestation had risen to supply energy for industry Ebrey, P.B. and Walthall, A., 2013.Predictably, this history drove China’s economy down a path of industrialisation, and fostered a comparative advantage in the production of basic goods such as steel and machinery. China’s agricultural procedures also prevailed due to the centralised management system where a uniform collection system and land ownership pattern emerged effectively.
Why was China unable to achieve significant growth previous to 1979?
State control dominated the economy, the manifestation of their inefficiencies led to profound downfalls meaning organic growth could not be achieved. Prior to the late 1970s, China’s commodity trading was almost entirely determined by economic planning. The State Planning Commission designed import plans to increase the supply of machinery and equipment as well as industrial raw equipment and had export plans specifying the physical quantities of c.3000 individual commodities. Since planning was carried out in physical terms, the exchange rate and relative prices played little role in determining the magnitude and commodity composition of China’s foreign trade. Lardy explained in his analysis that this inefficient form of resource allocation meant China failed to enjoy a comparative advantage for a large portion of exports; producers lacked incentives to act on production targets and encourage efficient processesLardy , N. 2005.
Further inhibiting trade potential, state dominance saw China supporting highly complex and restrictive systems of controls; it involved limiting the number of countries allowed to carry out trade transactions, as well as providing guidelines on what could and could not be tradedLardy , N. 2005.
How was China’s growth spurred?
Liberalisation prevailed in the early 1980s as trade gradually became more decentralised and increasingly market-determined. Economic theory as determined by Sachs and Warner (1995) concluded that open economies, defined by the absence of five conditions, experienced an average annual growth rate of 2 per cent above that of closed economies in the period 1970 to 1989 – this goes to show the basic understanding that liberal economies are more capable of encouraging growth. Comprehensive foreign exchange regimes introduced in 1994, for example, simplified the procedures for acquiring and using foreign exchange for current account transactions Ding, S. and Knight, J., 2011and therefore fostered development in international relations and growth via the trading sector. Mobilising radical reforms to the rural, urban and private sectors of the economy initiated growth, serving to liberalise small enterprises from state control and stimulate competition within the industry.
Following a growth in economic prosperity, the Human Development Index(HDI) rose from .163 in 1950 to .726 in 2000, an 84% larger increase than what was seen in India – Chinese trade rose from 1.5 to 4.8 as a share of global trade since 1950. Essentially, reforms since 1978 inched China toward a more market-oriented stance and saw them reap the benefits.
The impacts of endogenous reform since 1978
The argument concerning the impact of endogenous reforms having an impact of sustainability of growth in China rests on 3 pillars. The first pillar asks how growth can continue sustainably in a one-party state, looking at what China’s political setting and and judging whether the unofficial restrictions on organic growth will inhibit sustainability. The second will draw to the state-devolution of power to private actors of the economy, and find how it has shifted China’s growth strategy to a more sustainable route. The third and final pillar with look look at China’s relatively recent integration into the international market to analyse the steps taken by the PRC to facilitate foreign relations and the inflow of FDI. This paper assumes that an impactful endogenous reform can be seen if it has a clear and direct parallel to sustainable growth, or has set a clear path to achieve so.
Growth in a one-party state
The prevailing argument says that Chinese growth cannot be sustainable in a politically restrictive economy. As mentioned before, economic progress can only foster in a politically liberal environments so China’s one-party state envisages an unofficial restraint on potential growth. Under Megnad Desai’s analysis, China’s implicit answer seems to be that if the Chinese Communist Party (CCP) ‘ can deliver on fast and sustained economic growth while restructuring the economy continuously in a capitalist direction, then the CCP monopoly on political power [would be feasible]’ Desai , M. 2005.
Concern surrounding the prospect of the China’s political setting limiting growth stems from nation’s ‘extractive political institution’, as theorised in ‘Why Nations Fail’ by Acemoglu and Robinson. Several studies have backed this impact on the sustainability of growth by looking at the influence of political and economic freedom upon potential growth. Bjørnskov and Foss (2007) investigate differences in the level of entrepreneurship across countries; by interpreting differences in economic policy and institutions they find e.g. that the size of government (i.e. the extent of government intervention) and overall financial environment strongly determine the quality of entrepreneurship Bjørnskov, C. and Foss, N.J., 2008 pp324. Aghion et al. argue that democracy facilitates innovations since successful innovators will not be expropriated by the use of political pressure in more democratic economies Aghion, P. et al., 2013, pp 25.
In comprehending the dominance of the state, by looking at the large percentage of state-owned enterprises, we can challenge the concept of Chinese sustainable growth, since innovation, what China needs to harness beyond their comparative advantage of manufacturing with cheap labour and processes, can only be fostered in a truly free society, and so is essentially lost in a one-party ‘extractive’ system. Chinese growth draws several commonalities with that of the Soviet Union’s, where markets were highly constrained and both political and economic institutions are highly extractive. As Acemoglu and Robinson highlight, it raises concern by questioning whether the collapse of the Union will forecast China’s short-comings Robinson, J. and Acemoglu, R., 2012 pp 93-95.
In essence, China’s inability to pass reform that tackles the consequences of a one-party dominance has affected the potential quality of growth in the future. A particular problem as highlighted several times in the case of China refers to the legal framework – while civil and political liberties can be curtailed, once China begins to grant property rights, certain liberalising consequences will inevitably follow Desai, M. 2005. Therefore, the ability to sustain to growth may lie China’s ability to handle such dissent and consistently act upon their aforementioned implicit answer. Touching on historical episodes such as the Boxer rebellion in 1899, for example, go to highlight the state’s previous inability in handling public defiance. A repeat of such an episode would have destructive impacts on the productive capacity of the economy, destabilising their economic outlooks for potentially long-persisting effects.
Improvement of micro-management institutions and agriculture
This pillar of analysis considers the how China’s initial distribution of managerial autonomy impacted sustainable growth. Previous to the reform era, Chairman Mao Zhedong(1954-59) famously supported that the state monopoly of purchase and marketing was an important step toward achieving socialism. In implementing the First Five-year plan, they began to transform large private sector factories into joint state-private ventures. The private sector effectively vanished as the state-issued compulsory guidelines and indicators for State-Owned Enterprises(SOE’s). Similarly, in pushing for the collectivisation of agriculture, which also played a large part in the collapse of the Soviet Union, all sector profits were filtered through the state – less was returned to producers.
The first point of action was reforming the highly centralised and inefficient economic system. By pursuing structural reform and implementing the ‘Household Responsibility system’ in 1979, China began to delegate managerial autonomy to farmers and SOE’s. It strived to enable greater productive efficiency through less intervention from public actors and better wage incentives by taking fewer profits away from the labour force. Following this reform, the state further quashed intervening aspects of the system such as the dual-track pricing systemLin, J.Y., Cai, F. and Li, Z., 2003, which previously enabled the state to translate their fixed pricing into the market and the planned resource allocation system.
Economic theory tells us that private enterprise would shift resources into areas of production from where they could reap the most profit. With the lessened influence of a centralised system, the Chinese economy saw new streams of goods and capital equipment. This therefore led to the creation of a dual-track allocation system unlike a previously distorted production structure. More resources where funnelled through to labour-intensive industry to facilitate production efficiency. It promoted annual growth rate to c.10% for a consecutive 16 years Lin, J.Y., Cai, F. and Li, Z., 2003. The provision of autonomy within the private sector also fostered a higher degree of competition and potential for consumer spending. With firms holding greater managerial capacity over what goods to focus on and supply, there would face rivals in getting their goods to the consumer, hinting at predictable competitive tactics such as lowering prices and increasing investment into innovation. This, paired with a better financial position for consumers since more profits were more equally shared by the state, meant that quality of growth improved.
Tying this to our point of debate, the provision of autonomy to public enterprises meant the economy began to prosper whilst state intervention shifted to where it would best enable growth. Delegated flexibility to the private sector encouraged enterprises to hone in on what is now China’s area of comparative advantage, capital machinery and production goods due to the profit motive. Allowing the market to run more naturally led to, for example, wage growth and a more competitive economy, two phenomenons that go hand in hand to further stimulate growth that could not initially be stimulated under Mao’s joint state-private enterprise. Analysing the sustainability of growth gives consideration to how healthy the growth achieved is; through this grant of autonomy, China’s private economy became more free and flexible like many other strong economies of today. Therefore, it reflects the beneficial impacts of these reforms in promoting sustainable Chinese growth.
Trade liberalisation and foreign investment
The highly centralised planned system that existed pre-reform ensured that exchange rate and indirect controls played very little part in China’s trade. It essentially displaced China from the international market system through this unofficial anti-competitive advantage.
The final pillar of endogenous reform targets the polices that aimed to open China’s gates to trade. As the system of planned trading began to dismantle in the late 1970s, more firms were allowed to engage in the foreign exchange. Reform applied to the pricing of traded goods making them increasingly market-determined. As state control eased, they took to more traditional tools such as tariffs and quotas to regulate the levels of imports and exports. In 1978, China was ranked 32nd in the world for export volume. By 1989 it had doubled its world trade and became the 13th largest exporter. Between 1978 and 1990, the average annual rate of trade expansion was above 15% Wei, S.J., 1993. This point will analyse two key reforms adopted by China to facilitate global trading.
1. Currency de-valuation
Pre-reform, China often overvalued their currency, most often by intervening in the foreign exchange system and purchasing RMB to artificially boost an appreciation. In doing so, importing became unfairly cheap; it enabled producers to source cheaper resources from overseas, reducing their overall cost of production which could then be translated into more competitive exports.
Come reform, the state’s response was to correctly devalue the exchange rate; the RMB fell from the nominal value of Y1.5 to the US dollar in 1979 to Y8.7 in 1994 Lardy, N.R., 2005 and in doing so reduced the excess demand for importing foreign goods. Chinese exports began to trade at market value and took the republic to a more open and liberalised status.
2.Export/Import Tax rebate
Moving toward a more market-oriented trade platform, reforms gradually shifted to the foreign exchange. Previously, under the planned foreign exchange system, firms and enterprises were not rewarded with their own profits from foreign dealings. In 1983, to encourage an export-oriented economy, the state introduced an export-tax rebate to gather incentives for exporting. Through this, exporters had essentially been fully rebated for any product-related tax, e.g. VAT that applied to export goods. It meant exporting became a more profitable industry with fewer profits taken away by indirect taxes. 1988 not only introduced the full export rebate but also saw local governments and enterprises gain autonomy over international dealings.
The similar rebate principle was later applied to imported goods. By having the state virtually subsidise and make cheaper imports into Chinese firms, the domestic pricing of goods became more relaxed as importers were capable of maintaining profit margins whilst reducing prices. Exports, as Lardy researched, free from domestic pricing distortions, became more competitive. The rapidly increasing share of exports contributed by export processing reached £200 billion and accounted for 55% of total Chinese exports Lardy, N.R., 2005.
The reforms, with an initiative to foster better trading equality, allowed China to thrive when facing competition in the global market. Providing stimulative competition, by making Chinese price reflect supply and demand, opened up the economy. It enabled the state to encourage producer incentives and more routes to growth. By the time China entered the WTO in 2001, Chinese tariffs, previously at 56% in 1982 fell down to 15% by 2001Lardy, N. 1994. Growth, therefore, was made far more approachable; with an ability to enhance wage driven incentives and increased possible numbers trading partners, previously unforeseeable, the sustainability of growth was greatly aided.
3. Introducing export processing zones
To encourage growth, China has had to attract large sums of FDI. In doing so, the constant inflow of capital has facilitated large-scale operations and further investment into their comparative advantage and economic innovation.
China reciprocated the procedures of Taiwan and South Korea to establish 4 Special Economic Zones in 1980, in the Guangdong and Fujian Provinces. The main objective of the SEZ policy was to attract foreign direct investment by offering favourable terms and a good business climate in order to establish an outward-oriented economy Huang, J. and Chen, C. 1999. They were given, as an initial experiment, unique freedom to manage and operate their economies on a market basis and were allowed to offer concessionary tax polices to foreign investors. Foreign investors were made to be more confident in investing in market-oriented economic models. Although limited geographically to proceed further with large numbers of SEZ’s, China FDI was boosted enormously via this reform, reaching US$44.2 billion by 2001.
The changes made to their economy made them capable of, for example, exploiting their comparative advantage via the export-focused industry and supplement the rapid rate of growth. The process of decentralisation limited the manifestation of state inefficiency. Therefore, the liberalisation of the economy reflected an integral step taken by China to facilitate organic and sustainable future growth.
The impact of exogenous influences and changes
By opening its gates to trade, China strengthened its dependence on foreign economies – the republic was essentially integrated into the global market. Through this integration, the economy began to face more competition and consequently numerous setbacks that put into question their ability to manage the capacity of the growing economy. Additionally, recent trade escalations they face with the Unites States blurs the Chinese trajectory toward securing stable growth. In analysing the sustainability of Chinese growth, it is necessary to look at the economy within the global environment and assess how China can sustain.
The threat of India’s growth
India’s and China’s economies both only share a few commonalities namely their growth rates and population sizes, but differ more significantly, for example, in the political environment they have adopted for fostering growth. India, similar to China, has achieved comparatively high growth-rates for an economy of its size, at a rate of 6.8% .Therefore, this analysis will judge the ability for China to grow whilst India develops a manufacturing competitive advantage. After all, if India is able to surpass the productive capabilities of the Chinese economy to be a more efficient supplier of resources,China’s economic strengths may be discounted.
India, in aiming to support democracy, adopted a softened version of socialism namely Fabian socialism to, therefore, enable the nation to achieve economic growth with greater degrees of transparency and economic freedom. This more democratic stance has allowed for India to provide a more nurturing environment that better encapsulates innovation and entrepreneurship This is backed by the several companies competing in the international market such as software giants Infosys and Wipro as well as pharmaceutical companies namely Ranbaxy and Dr Reddy’s Labs. A research paper by Huang and Khanna, when judging India’s growth, found that the Forbes 200, an annual ranking of the world’s best small companies included 13 Indian firms but just four from mainland China Huang, Y. and Khanna, T., 2003).
The period 1980-1995 also constituted as a reform era in India, during which trade controls and foreign exchange mechanisms had been adjusted for rapid and sustained growth. Previously restrained under numerous industrial controls, one point of reform in 1985, was the expansion of industrial delicensing. Following this, 25 and later 31 in 1990 firms were made free of overarching state control Panagariya, A., 2005. Similarly, in 1986, larger firms within 26 industries were granted the ability to switch productional lines between similar products, e.g. cars to trucks Panagariya, A., 2005 making for greater flexibility and potential to grow. The impact of reform in India could be seen by the consequent acceleration in industrial growth from 4.5 in 1985 to 10.5 in 1989 Goldar, B. and Renganathan, V.S., 1990, illustrating the success of India’s organic growth strategy.
Secondly, the quality of Indian growth. The point emerges; does the ‘ground-up’ growth of India, fostered by traditional economic tools and domestic investment, triumph over the ‘top-down’ growth of China, where foreign input playing the largest role. Maddison’s calculations show that while FDI per capita for China in 2001 was US$183, in India it was only US$14 Maddison, A., 2001, with China’s FDI amounting to US$44.2 billion. This led to a greater initiative by India to support domestic private enterprise, for example by delivering on stronger infrastructure projects Huang, Y. and Khanna, T., 2003. By relying primarily on a more organic grassroots form of growth, India has been more efficient with the utilisation of its resources and has chosen a path that may well deliver more sustainable growth than China.
This comparison identifies that China is not a singled-out growth phenomenon. The Indian economy, through a similar process of reforms, threatens China. Nevertheless, as Panagariya explains, the response to liberalising reforms in India’s economy was not as significant as in China. Exporting goods grew at an annual rate of 12.9% in China, more than a third the rate on India Panagariya, A., 2005. Despite general praise for the facilitating aspect of India politics, many studies criticise the high level of corruption, ranking 78 out of 180 in the CPI stemming from the high level of state intervention within enterprise. In effect, China’s strength in attracting FDI has ensured the economy will not fall short of expectation. The hot money inflow ensures the stability of the economy by strengthening its exchange rates and competitive advantage. However, China’s capacity to build on and invest into the efficient utilisation of resources, to reduce economic profligacy and sustain their growth potential, plays a significant factor in sustaining growth within the global economy.
The after-effects of liberalised trade
Opening the nation’s gates to trade amounted to them facing higher degrees of competition in the international markets. To decipher the increased levels of competition, one relevant metric is the import ratio to GDP. This shows how much the domestic economy had to compete with foreign affiliates to supply for Chinese consumers. According to China’s statistical yearbook( a state conducted comprehensive collection of information on China’s social and economic development), the import ratio increased from 13% in 1990 to 31% in 2003(CSY, 1990-2003), nearly three times as much as India’s ratio. Indicators also go to illustrate China’s capability to manage competition, hinting at their strength to adapt as to the economic setting. The analysis of the after-effects of liberalised trades will show how China fairs in a closely integrates foreign market, and therefore forecasts any threats the nation may fail. There are two indicators to weigh the impact of this competition on China’s economy.
1. State sector employment decline
As China’s economic reform picked up, employment in the state sector continued to grow, exceeding 100 million by 1995(CSY, 1995). However, this flourish was reversed between 1995 and 2002, where state sector employment dropped by more than a third; by 40 million and fell below the employment level in 1978 by 1999(CSY, 2003). This unpredicted collapse in employment had its manifestation on China’s manufacturing output which shrank alongside. FDI inflows(as % of GDP) fell from 5.13 to 4.84(CSY, 1993-1997). It also led to a growth in domestic reliance on foreign trading partners since SOE’s failed to operate efficiently with low productive capacity.
Competition shined light on the economy’s inability to sustain the constantly growing levels of employment and led to events characterised by a recession. Additionally, the fall in FDI demonstrated how close China was to collapse considering their top-down growth strategy – heavily reliant on foreign input.
2. Shrinkage in inventory accumulation
Inventory accumulation refers to the number of unsold goods that producers may find hard to move, usually after an unplanned economic collapse. China had to support very high levels of inventory accumulation, reaching 6% of GDP by 1995(CSY, 1995). In context, economic growth in this period averaged 11% in real terms, whilst 6% of output had gone to inventory, a large portion never to be sold Lardy, N. (2002. This rising threat, however, similarly climaxed. Inventory levels fell from 6 % in 1995 to an average of 0.9% by 2001, reflecting China’s ability to cope amidst an economic collapse to co-ordinate the lay off of excess workers in order to reduce over-production. As profitability became the main indicator of a firms success, instead of how many workers they employ, the state fostered an incentive in firms to rationalise productive inputs and therefore prevent a misallocation of resources domestically.
Contrary to the unexpected impact of rising unemployment, the shrinkage in inventory accumulation, prompted by the state in the face of the foreign competition, showed China’s ability to resuscitate growth despite a near recession. For example, the profitability of state-owned manufactures rose by 6% of GDP from 1997 to 2002(CSY, 1997-2002). It can be seen that foreign competition, an exogenous influence, highlighted the effectiveness of the economy to adapt and maintain high growth rates. Yet the evermore fiery conditions of global system questions, to a larger extent, helps forecast the destructive impact of future crises on strength of the economy.
The US-China trade war and foreign relations
Since 1949, U.S.-China relations have evolved from tense standoffs to a complex mix of intensifying diplomacy, growing international rivalry, and increasingly intertwined economies. By 2011, the U.S. trade deficit with China rose from $273.1 billion in 2010 to an all-time high of $295.5 billion Maizland, et.al 2019, signifying the interdependence that is held between the two economies. Analysing the recent ignition of the US-China trade war seeks to judge how China will cope in the absence of a major trading partner. Trump’s decision was to impose a 10% tariff on $300 billion worth of Chinese exports. Previously set at 25%, which would have theoretically led to -0.8% change in China’s GDP, the rectification to 10% delayed to December 2019 has meant GDP at this stage is to fall 0.3%. Although seemingly a small change, this accounts for $36.72 billion in loss, solely through the tariff. Cerutti highlights that beyond just the causal effect of a tariff, the consequences e.g. fall in FDI and exporting power has led to the IMF forecasting a 1.6% GDP loss Cerutti, E et al., 2019.
Economic theory states that as China is embroiled in this play of tariffs, their imports are made more expensive for the American buyer, meaning demand would fall. Less exporting abilities in China, considering their debt levels of 46.7% of GDP, and the fact that most new corporate lending has been going to the country’s least-profitable state-owned companies, suggest the nation is nearing a debt crisis and prominent balance of payments deficits. The imposition of tariffs also causes concern for future employment in China. With a decreased demand for China’s export goods, where this industry is so prominent, surveys have predicted an average 40% drop in demand for labour. Unemployment, in this case, may have a persisting effect in requiring the future expense and long-term intervention from the state to build new job opportunities.
Means of adding to the impact would also be the demise of investor confidence. The effects of deteriorating trade relations cast doubt on the ability of the nation to recuperate. Any consequential result on the FDI would have predictably threatening impacts on the stability of an FDI driven economy. Chinese consumers are predicted to hold off spending on consumer goods in the face of an economic collapse. The option of saving money has been made to look risky by way of the 4.31% base rate and 3.06% yield on a 10-yr government bond showing the economy, in effect, to be in a plea for help.
Witnessing China’s struggles to finance the growing regional problems caused by the U.S’s tariffs puts into question their strength in facilitating rapid growth. In fact, assuming such rifts would directly impact the inflow of FDI, it is essentially impossible to sustain growth in a global market where rivalling economies often succumb to the traditional tools of tariffs and quotas to enhance protectionism. Their economic inability extends to their weakness in maintaining trading relations with other economic powers, most crucially the U.S who is their top trading partner, with $479.7 billion, $176.7 billion more than Hong Kong in second Workman, D., 2019. The US-China trade has not only displayed the immediate setbacks to the economy from deteriorating relations but has highlighted many failures in China’s economic procedures to ensure the economy is stable and hinders future sustainable growth.
Conclusion
Having analysed the opposing viewpoints surrounding this debate, it is highly evident that both the formation of economic policy and political setting, as well as exogenous shifts and influences have grossly reflected and impacted China’s potential to achieve sustainable growth.
The reform-era since 1978 initiated several liberalising changes that were directly oriented toward converting the PRC into a market economy, with the granting of greater autonomy to private actors through decentralisation and facilitating an export industry by encouraging trade incentives. Improving the market mechanism played an essential role in the allocation of resources which created an equal, competitive environment for the entry and exit of firms Cai, F. and Lu, Y., 2016. The quasi-privatising of numerous firms led to managers investing more into profit-driven incentives, most importantly a drive to build on China’s comparative advantages, thus improving domestic total factor productivity(TFP) and output. Such improvements in building an allocatively-efficient economy has amounted to their more stable trajectory for growth. `state inefficiency was replaced with healthy competition between domestic firms; it illustrates how endogenous reforms have helped China to find a new more organic path to sustainable growth.
The PRC’s political setting has had reforms predicate on the intent of integrating traditional economics principles with one-party capitalism. This aspect of reform has continually strengthened the unofficial limits to prospective growth. All previously considered evidence amounts to the fact that China’s politics restricts innovation, an ability that the economy needs to but has failed to harness. The ability for economic institutions to capture technological innovation and mobilise the talents and skills of a large number of individuals is critical for economic growth Robinson, J. and Acemoglu, R., 2012 pp 79. Therefore, through the evidence of studies by Sachs and Warner and many others, we can predict the sustainability of Chinese growth is restricted by the presence of a one-party state.
On balance, exogenous shifts have construed the difficultly China may face in achieving growth whilst operating in international markets. With an exporting surplus of $421 billion, the international market is China’s most dependable source of growth. There is no doubt, therefore, the escalations in tariff wars with the U.S. has highlighted China’s inability to maintain integral trade relations, and so may threaten their potential to grow if such relations are to deteriorate often. The more reassured and organic growth of India questions the top-down FDI driven approach that China boasts, raising concern for whether Chinese growth is too highly dependent of external factors such as investor confidence that are highly susceptible to change. Furthermore, the failures China suffered in the face of international trading competition, seen for example by large fall is state employment, alerts whether they can sustain rapid growth in an international market where economies often employ competitive tactics to ensure their exporting industries are more advantaged. In effect, exogenous setting questions China’s capacity to support its market amidst strong competition and the employment of traditional protectionist tools, and so reflects the potential threats to growth.
In answer to the question at hand, the evidence shows that endogenous reforms arguably have the greater impact to China’s sustainable growth trajectory. Granted, the impacts on the sustainability of growth are only predictable and are largely dependent on how China fairs in the global market. However, productivity, innovation, allocative efficiency and growing labour supply are still areas that endogenous reforms have yet to tackle. Doing so would go ensure China strengthens its economy for sustainable growth and means the impacts of exogenous shifts have a less severe impact on an already thriving domestic economy.
Bibliography
Research papers from the collection ‘India and China’s Recent Experience with Reform and Growth’
Lardy, N.R., 2005. Trade liberalisation and its role in Chinese economic growth. In India’s and China’s recent experience with reform and growth (pp. 158-169). Palgrave Macmillan, London.
Panagariya, A., 2005. The triumph of India’s market reforms: the record of the 1980s and 1990s. Washington, DC: Cato Institute.
Desai , M. 2005. India and China: An Essay in the Comparative Political Economy
Available at: https://link.springer.com/chapter/10.1057/9780230505759_1
Research Papers
Lardy, N.R., 1994. China in the world economy. Peterson Institute Press: All Books.
Huang, J. and Chen, C. 1999. Effects of trade liberalisation on agriculture in China: institutional and structural aspects (No. 1438-2016-118940).
Wei, S.J., 1993.Gradualism versus big bang: Speed and sustainability of reforms. Research Programs, John F. Kennedy School of Government, Harvard University.
Goldar, B. and Renganathan, V.S., 1990. Liberalisation of capital goods imports in India. National Institute of Public Finance and Policy Working Paper, (8).
Cai, F. and Lu, Y., 2016. Take‐off, persistence and sustainability: The demographic factor in Chinese growth. Asia & the Pacific Policy Studies, 3(2), pp.203-225.
Ding, S. and Knight, J., 2011. Why has China grown so fast? The role of physical and human capital formation. Oxford Bulletin of Economics and Statistics, 73(2), pp.141-174.
Aghion, P., Van Reenen, J. and Zingales, L., 2013. Innovation and institutional ownership. American economic review, 103(1), pp.277-304.
Cerutti, E., Claessens, S. and Rose, A.K., 2019. How important is the global financial cycle? Evidence from capital flows. IMF Economic Review, 67(1), pp.24-60.
Books
Lin, J.Y., Cai, F. and Li, Z., 2003. The China miracle: Development strategy and economic reform. Chinese University Press.
Needham, J., 1954. 2004. Science and civilisation in China, 7.
Robinson, J. and Acemoglu, R., 2012. Why nations fail. Crown Publishing Group.
Ebrey, P.B. and Walthall, A., 2013. East Asia: A cultural, social, and political history. Cengage Learning.
Maddison, A., 2001. Development Centre Studies The World Economy: A Millennial Perspective. OECD Pub..
Bjørnskov, C. and Foss, N.J., 2008. Economic freedom and entrepreneurial activity: Some cross-country evidence. Public Choice, 134(3-4), pp.307-328.
Websites
Maizland, J., 2019. U.S. Relations with China
Available at: https://www.cfr.org/timeline/us-relations-china
Workman, D., 2019 China’s Top Trading Partners
Available at: http://www.worldstopexports.com/chinas-top-import-partners/
Huang, Y. and Khanna, T., (2003. Can India overtake china?. Foreign Policy, 137(July–August),
pp.74-81
Available at: https://foreignpolicy.com/2003/07/01/can-india-overtake-china/
China Statistical Yearbook [editions from 1990 to 2003]
Editions since 1999 are available at: http://www.stats.gov.cn/english/Statisticaldata/AnnualData/
Source Evaluation
India and China’s Recent Experience with Reform and Growth containing: Lardy, N.R., (2005 Trade liberalisation and its role in Chinese economic growth. In India’s and China’s recent experience with reform and growth (pp. 158-169). Palgrave Macmillan, London.
Panagariya, A., 2005. The triumph of India’s market reforms: the record of the 1980s and 1990s. Washington, DC: Cato Institute.
Desai , M. 2005. India and China: An Essay in the Comparative Political Economy
Available at: https://link.springer.com/chapter/10.1057/9780230505759_1
This book contains a collation of research papers written by many well-renowned authors and economists. The papers are were gathered by the International Monetary Fund(IMF) indicating their credibility – the publications of the IMF greatly influence the decisions taken by economic actors, the spreading of any misinformation would, therefore, be somewhat illegal. The books are published by Palgrave Macmillan, a relatively popular source of literature. The books contain one paper of Nicholas R.Lardy who is a Senior Fellow at the Peterson Institute for International Economics and writes extensively on China’s economy and their foreign relations. Therefore, his work is highly recognised and credible in this field of study, he is regularly cited in other research papers meaning his work is very reliable. Another featured author, Meghnad Desai, is a very prominent British politician and economist. His work has primarily focused on analysing economic principles and educating on Indian history; it shows that he is likely to be an expert in this field. Despite being heavily biased toward left-wing politics in the British Parliament, this would be hard to force in an analysis on the development paths of India and China and so does not raise any concern. Overall, I am not worried about any information being incorrect or misleading as the texts from this book are completed to a degree of high expertise and have been referenced by other authors on several occasions.
Development Centre Studies The World Economy: A Millennial Perspective by Angus Maddison
This book is published by OECD Publishing which is led by the Organization for Economic Cooperation and Development(OECD); an intergovernmental economic organisation which has 34 democratic market economies working to encourage growth and sustainable development. Thus, it is evident that this source is highly credible as it comes from a source that is designed to encourage prosperity on a global scale – it can be assumed that all information channelled through this publishes would be heavily challenged to be made reliable. The author of this book is Angus Maddison, a British economist who predominantly focused on measuring economic performance through models for different regions and subtopics. He played a role in education as Emeritus Professor at the Faculty of Economics at the University of Groningen, meaning his work has the purpose of proving reliable information rather than expressing his individual view. His credibility in assessing China came through his study of economic growth in China over the past twenty centuries which strongly boosted the historical debate on Chinese and European growth. Referencing throughout this book has been evident meaning his calculations are more reasoned and therefore better reflective of China’s economy. Therefore, this book is reliable in using to refer to China’s growth statistics – I have used it for the very crucial economic statistics regarding FDI per capita.
Innovation and institutional ownership by Aghion, Van Reenen and Zingales
This paper was released in the American Economic Journal, which is considered to be the most respected scholarly journals in economics. It has several notable papers published, with 13 published authors going on to win the Nobel prize in economics. Therefore it can be be seen that this paper draws a high degree of credibility as it was assessed and published in this journal. Authors of this paper include Philippe Aghion who is a professor at the LSE and fellow of the econometric society. His background in the fields of economic growth and endogenous growth theory construes his credibility to carry out reliable econometric analysis on the relationship between institutional ownership and innovation. Similarly, co-author John Van Reenen has focused lengthy on productivity growth in OECD thereby giving the paper good relevance to the study of Chinese growth. Throughout the paper, several references had been made to other studies, with endnotes at the end of the report, showing their research to be a more reasoned and better representative of the Chinese economy. Overall, I see this paper to be very reliable in demonstrating econometric models that contextualise the trajectory of Chinese reforms and so I have referred to it in a very crucial area of this report. The only setback for me referencing this paper was that it was presented in 2009, over 10 years ago – it signalled potential ambiguity in whether their finding would stand in the present day. Yet since the paper still proves that a liberal political setting can encourage innovation, it doesn’t hinder the credibility of my reference to this study.
Science and Civilisation in China by Joseph Needham
The Science and Civilisation books are a series by the biochemist and historian Joseph Needham. The books are published by Cambridge University Press which has published over 50,000 academic titles and so assures a relatively high degree of reliability in all its publications. The author Needham is widely known for his research on Chinese science and technology and so asserts the credibility of his work to analysing the procedures on Ancient China; he has had his work referenced in many papers that draw insight as well into the background of Chinese growth. Overall, I am confident his work can be relayed in mine. Although these books date back several years, they still proved clear evidence of the process carried out by China, as so does not hinder the reliability of the paper. I have only referenced this paper once, it provided important insight into the early beginnings of the Chinese economy through their domestic processes.
The China Miracle by Yifu Lin
This is an academic book published by Chinese University Press, a press that publishes only c.50 titles each year. Therefore, the reliably of this work should be questioned since this publication may not be reviewed by many and so cannot be corrected if mistakes in the research are evident. Nevertheless, the reliability of this book is ensured through the credibility of its author Justin Yifu Lin who was appointed Chief Economist and Senior Vice President of the World Bank where he served from 2008 to 2012. Additionally, as the founder of the China Center for Economic Research, the author has been largely exposed to Chinese growth and so would be reliable to comment on the threats to China from rapid growth and whether this can be continued. Throughout the book, referencing was thorough, with a list of apparently credible sources listed at the end to the book; it shows his work was not only built on one independent theory but was also influenced and built upon by other studies. The only negative aspect of this book is that it was published in 2003, over 15 years ago. Although it plays to significant impact on the quality of analysis, I was caution in picking out my material as I had to ensure none of it was outdated i.e. misleading. The book was useful for my report, the credibility of its information meant I wouldn’t have to worry over any incorrect information and I extracted past statistics that were not affected by is early publishing.
Can India overtake China by Khanna and Huang
This article was published on ‘Foreign Policy’, a relatively small private website that discusses current news events and economic conditions. Since the posts on the website regularly offer balanced arguments from neutral viewpoints, I am confident that the website does not hold any significant bias which would make any information potentially inaccurate or misleading. One of the authors for this paper, Tarun Khanna, is a professor at Harvard Business school after having previously studied the methods of social and economic development. Therefore, his analysis of the differences in paths to growth in India and China is reliable as he has expertise in realising and commenting on the growth trajectory of the two countries. Furthermore, Yasheng Huang, the other author and professor at MIT Sloan School of Management has written considerable amounts on China’s FDI-driven growth. He is, therefore, a very reliable source of information to manipulate when I search for analysis on why China’s top-down approach to growth may not be sustainable. Overall, despite questioning the reliability of the website due to its lack of popularity, I am confident in using this source for my report to analyse the threat of India’s growth on the sustainability of China’s, since the authors are experts in this field meaning their analysis is highly focused and detailed.
Why has China grown so fast by Ding and Knight
This research paper is published on the Oxford Bulletin of Economics and Statistics, a platform on behalf of the Oxford Department of Economics – it hosts papers of applied economics with an emphasis on practical importance and theoretical interests. One author, Dr Sai Ding, a senior economics lecturer at the University of Glasgow, has done extensive research on trade, growth and development and the Chinese economy, meaning the research content of this paper on the predicators of China’s growth is largely reliable. Since this paper was written in 2011, I had to keep in mind that the presented views were slightly short-sighted, as I felt the views of China’s rapid growth could have changed in the following 8 years. Although this paper is not as credible as my other sources, considering the ambiguity in the quality of its research, it assesses growth looking at China’s degree of openness and institutional change which remained highly useful to my EPQ.
Effects of trade liberalisation on agriculture in China: institutional and structural aspects by Huang and Chen
This paper, written in 1999, condensed the topic of international trade by looking deeper into the agricultural market. The author Chunlai Chen specialised in studying the evolution of the Chinese economy through trade liberalisation and FDI. I looked into this paper with the objective of inquiring into China’s methods of trade liberalisation – Chen’s analysis of export-processing zones proved to be very useful for me in understanding how they stimulated growth. His background on studying China’s FDI and trade liberalisation policies meant it was unlikely that the information on the report was not factual. The other contributing author, Jikun Huang, is largely incorporated into China’s agricultural policy which means that the contents of this paper have no misleading information. Overall, the source proved to be reliable and so I used it to find evidence on the policies China adopted to open the economy to foreign trade. My only fault with this paper was the constant connection it drew back to agriculture in China. To use this source to its maximum capacity, I had to carefully pick up which parts that would directly apply to my focus.
China Statistical Yearbook
The CSY is a collection of statistics which reflect the social and economic development of China. It is research that is conducted and published by the National Bureau of Statistics of China which is a deputy-cabinet level agency directly under the State Council of the PRC. Since it is directly under the supervision of the state, there is an obvious bias toward trying to make the economy looks stronger than it really is. As I conducted research on the reliability of the CSY, I found several articles to conclude that the NBSC has always tried to adjust the local data before producing the national estimates since there are few discrepancies between local data and the weighted national data. Knowing this, I still decided to refer to the CSY for several data points as it is still the most reliable data available. Additionally, when taking notes on several of my sources, I found the CSY to be referenced often, meaning my report can maintain its credibility. For this reason, I am confident to reference many annual reports of the CSY as it proves to be the best source of information and there is no inherent evidence of intentional falsification by the NBSC.
Economics Relate 