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Introduction to the Symposium: Greater China and the World Economy
Journal of Comparative Economics 29, 310–313 (2001) doi:10.1006/jcec.2001.1712, available online at http://www.idealibrary.com on
Introduction to the Symposium: Greater China and the World Economy1 Kar-yiu Wong2 University of Washington, Seattle, Washington 98195-3330 E-mail: [email protected] Received October 1, 2000; revised February 15, 2001
China, the sleeping dragon, is no longer sleeping. Since opening its door to the rest of the world at the end of the 1970’s, China has undergone widespread and drastic changes, which no one could have foreseen. These changes have been responsible for China’s prolonged economic growth. Column 2 of Table 1 presents annual growth rates from 1970 to 2000. In early 1970, China was recovering from the Cultural Revolution, so economic development began from a fairly low base. Growth in the first decade was somewhat erratic, ranging from a low of −2.68% in 1976 to a high of 16.19% in 1970. Beginning in the early 1980’s, a series of domestic changes accompanied by trade and investment liberalization policies promoted high growth rates. Starting from 1982, with the exception of only two years, China did not have an annual growth rate lower than 7%. In fact, in one-half of the 18 years from 1982 to 2000, China was able to grow at rates higher than 10%. Such long periods of high growth rates were unprecedented and propelled China into a position of importance in the world economy. Why China grew so fast and for so long is an interesting question for economists and government planners. There is probably no simple answer, and certainly no complete answer can be found without first investigating thoroughly the features of 1 Earlier versions of the papers included in the present symposium were presented at the conference “Greater China and the World Economy,” held on the campus of City University of Hong Kong in July 2000. The organizing committee, which was co-chaired by Richard Y.K. Ho of City University of Hong Kong and Kar-yiu Wong, consisted of members from the City University of Hong Kong, the Chinese Economic Association in North America, and the Chinese Economists Society. 2 Richard Ho and I thank all the participants and the supporting staff at the City University of Hong Kong for contributing to the success of the conference. We are also grateful to the City University of Hong Kong for providing financial support and to the Chinese Economic Association in North America and the Chinese Economists Society for jointly organizing the conference.
0147-5967/01 $35.00 C 2001 by Academic Press Copyright ° All rights of reproduction in any form reserved.
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INTRODUCTION
311
TABLE 1 Growth, Export, and Inward Foreign Direct Investment of China, 1970–2000
Year
Real GDP growth (%)
Export/GDP (%)
Inward DI/GDP (%)
1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
16.19 6.9 4.6 12.81 4 6.81 −2.68 8 7.68 6.96 7.91 4.4 8.56 10.68 13.98 13.5 8.8 11.6 11.3 4.1 3.8 9.2 14.2 13.5 12.6 10.5 9.6 8.8 7.8 7.1 7.5
2.76 2.39 2.76 3.92 5.50 4.92 4.42 4.10 5.11 5.95 6.55 7.70 6.89 7.12 8.87 13.84 14.52 13.45 13.78 13.17 13.76 15.71 16.68 17.15 21.32 18.44 16.99 15.83 14.83 16.73 n.a.
n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 0.15 0.21 0.41 0.54 0.63 0.72 0.80 0.76 0.90 1.08 2.31 4.58 6.23 5.12 4.91 4.92 4.62 3.91 n.a.
Source. Exports and direct investment are from International Financial Statistics, Feb. 2001, while nominal GDP numbers and real GDP growth rates come from World Economic Outlook, Sept. 2000. Note. Here, “n.a.” means not available.
the economy and the policies of the government. However, some obvious reasons emerge. Internally, the privatization and restructuring of state-owned enterprises, greater flexibility of movement of factors including labor and capital, and greater reliance on the market mechanism come to mind. Externally, the opening of the economy to more foreign trade and foreign investment has been important.
312
KAR-YIU WONG
Column 3 of Table 1 contains the ratios of nominal export to nominal GDP, while column 4 reports the ratios of inward foreign direct investment to GDP, from 1970 to 1999. In the early 1970’s, China was more or less a closed economy, exporting less than 3% of its GDP to the rest of the world. Gradually the GDP share of exports rose to nearly 6% toward the end of the decade. As the government signaled its approval to conduct more business with the rest of the world, the export-to-GDP ratio jumped significantly. Since 1985, exports have not been less than 13% of the GDP. These ratios are impressive, especially considering the size of the country and the fact that GDP was rising quickly itself. At the same time, China was receiving substantial direct investment from many countries, notably Hong Kong and Taiwan. Starting from virtually zero at the end of the 1970’s, the ratio of inward foreign direct investment, i.e., the capital inflow, to GDP gradually and steadily climbed to more than 1% by 1991. From 1993 to 1999, this ratio was above 4.5%. Foreign capital brought with it not only employment opportunities for local workers but also advanced technologies and management skills to local enterprises. While China was negotiating intensively with various countries over conditions for accession to the World Trade Organization, it was important to assess its trade and development policies, its economic problems, and its relations with neighboring countries, such as Hong Kong and Taiwan. In the summer of 2000, the City University of Hong Kong, the Chinese Economic Association in North America, and the Chinese Economists Society organized a conference entitled “Greater China and the World Economy,” which was held on the campus of the City University of Hong Kong. This symposium contains four of the papers presented at that conference. These four papers provide in-depth analysis or empirical studies of important issues concerning the growth and trade of the Chinese and Hong Kong economies. The first paper by Chao, Chou, and Yu examines the impact of export tax rebates that the Chinese government imposed during the Asian financial crisis to offset partly the effects of a relatively overvalued domestic currency. Using a theoretical model, the authors show that export tax rebates on imported foreign intermediate 3
Since 1992, China has become the biggest recipient of foreign direct investment among developing countries. About half of this capital has come from Hong Kong. 4 Eighteen other papers were presented and discussed, on topics pertaining to the growth and trade experiences of China, Taiwan, and Hong Kong. Participants came from many countries in Asia, North America, Australia, and Europe. The conference was attended by nearly 100 people and proved to be a valuable opportunity for researchers in this field to share their research experiences and interact. For more information on this conference, please visit http://faculty.washington.edu/karyiu/confer/HKCCC00/index.htm. 5 During the Asian crisis in late 1997, almost all Asian countries experienced drastic devaluation of their currencies. The two exceptions were China and Hong Kong, who pegged their currencies to the U.S. dollar. Since many of China’s exports compete closely with the exports of other Asian countries in the world market, it was argued that a devaluation of China’s currency would lead to further competitive currency devaluation among these countries.
INTRODUCTION
313
products can have expansionary effects on related up-stream and down-stream industries. They confirm these effects empirically using data from China. In the second paper, Zhang, Zhang, and Zhao investigate the performance of Chinese enterprises by quantifying the effect of ownership and market competition on productive efficiency. They find that ownership is an important determinant of enterprise efficiency, as foreign-owned enterprises had the highest efficiency scores while state-owned enterprises (SOEs) had the lowest scores. This ownership effect is robust to considerations of market competition and industry factors. The authors also find two somewhat surprising results. Technical efficiency is improving in SOEs, and enterprises owned by investors from Hong Kong, Macao, or Taiwan display lower growth rates of efficiency than firms in other ownership categories during the 1996 to 1998 period. In the third paper, Cheng and Wu investigate the key determinants of the performance of foreign-invested enterprises (FIE), i.e., enterprises with significant foreign ownership. They find that cash contributed by foreign parent companies and duration of operation both have a positive and significant impact on the profitability of FIEs. The authors find that FIEs selling more output to the domestic market and those in industries consistent with China’s comparative advantages performed better. Although these outcomes might have been expected, the authors uncover two somewhat surprising results. FIEs owned by Hong Kong investors did not perform better than those owned by other foreign investors, and FIEs located in Special Economic Zones performed worse than those located outside of these areas. The final paper by Imai focuses on relations between Mainland China and Hong Kong by examining the structural transformation and economic growth of the Hong Kong economy. Since the mid-1980’s, many Hong Kong manufacturing firms have located their production facilities in China to take advantage of cheap labor. This led to a reduction in the manufacturing sector but an expansion of the services sector in Hong Kong. Imai notes that total factor productivity (TFP) growth is high in the declining manufacturing sector but low in the booming services sector. As a result, there was a significant slowdown in Hong Kong’s overall TFP growth in the 1990’s. Since the mid-1990’s, the deceleration of service exports and the shrinkage of the manufacturing sector have lowered significantly Hong Kong’s potential output growth rate.
Introduction to the Symposium: Greater China and the World Economy1 Kar-yiu Wong2 University of Washington, Seattle, Washington 98195-3330 E-mail: [email protected] Received October 1, 2000; revised February 15, 2001
China, the sleeping dragon, is no longer sleeping. Since opening its door to the rest of the world at the end of the 1970’s, China has undergone widespread and drastic changes, which no one could have foreseen. These changes have been responsible for China’s prolonged economic growth. Column 2 of Table 1 presents annual growth rates from 1970 to 2000. In early 1970, China was recovering from the Cultural Revolution, so economic development began from a fairly low base. Growth in the first decade was somewhat erratic, ranging from a low of −2.68% in 1976 to a high of 16.19% in 1970. Beginning in the early 1980’s, a series of domestic changes accompanied by trade and investment liberalization policies promoted high growth rates. Starting from 1982, with the exception of only two years, China did not have an annual growth rate lower than 7%. In fact, in one-half of the 18 years from 1982 to 2000, China was able to grow at rates higher than 10%. Such long periods of high growth rates were unprecedented and propelled China into a position of importance in the world economy. Why China grew so fast and for so long is an interesting question for economists and government planners. There is probably no simple answer, and certainly no complete answer can be found without first investigating thoroughly the features of 1 Earlier versions of the papers included in the present symposium were presented at the conference “Greater China and the World Economy,” held on the campus of City University of Hong Kong in July 2000. The organizing committee, which was co-chaired by Richard Y.K. Ho of City University of Hong Kong and Kar-yiu Wong, consisted of members from the City University of Hong Kong, the Chinese Economic Association in North America, and the Chinese Economists Society. 2 Richard Ho and I thank all the participants and the supporting staff at the City University of Hong Kong for contributing to the success of the conference. We are also grateful to the City University of Hong Kong for providing financial support and to the Chinese Economic Association in North America and the Chinese Economists Society for jointly organizing the conference.
0147-5967/01 $35.00 C 2001 by Academic Press Copyright ° All rights of reproduction in any form reserved.
310
INTRODUCTION
311
TABLE 1 Growth, Export, and Inward Foreign Direct Investment of China, 1970–2000
Year
Real GDP growth (%)
Export/GDP (%)
Inward DI/GDP (%)
1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
16.19 6.9 4.6 12.81 4 6.81 −2.68 8 7.68 6.96 7.91 4.4 8.56 10.68 13.98 13.5 8.8 11.6 11.3 4.1 3.8 9.2 14.2 13.5 12.6 10.5 9.6 8.8 7.8 7.1 7.5
2.76 2.39 2.76 3.92 5.50 4.92 4.42 4.10 5.11 5.95 6.55 7.70 6.89 7.12 8.87 13.84 14.52 13.45 13.78 13.17 13.76 15.71 16.68 17.15 21.32 18.44 16.99 15.83 14.83 16.73 n.a.
n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 0.15 0.21 0.41 0.54 0.63 0.72 0.80 0.76 0.90 1.08 2.31 4.58 6.23 5.12 4.91 4.92 4.62 3.91 n.a.
Source. Exports and direct investment are from International Financial Statistics, Feb. 2001, while nominal GDP numbers and real GDP growth rates come from World Economic Outlook, Sept. 2000. Note. Here, “n.a.” means not available.
the economy and the policies of the government. However, some obvious reasons emerge. Internally, the privatization and restructuring of state-owned enterprises, greater flexibility of movement of factors including labor and capital, and greater reliance on the market mechanism come to mind. Externally, the opening of the economy to more foreign trade and foreign investment has been important.
312
KAR-YIU WONG
Column 3 of Table 1 contains the ratios of nominal export to nominal GDP, while column 4 reports the ratios of inward foreign direct investment to GDP, from 1970 to 1999. In the early 1970’s, China was more or less a closed economy, exporting less than 3% of its GDP to the rest of the world. Gradually the GDP share of exports rose to nearly 6% toward the end of the decade. As the government signaled its approval to conduct more business with the rest of the world, the export-to-GDP ratio jumped significantly. Since 1985, exports have not been less than 13% of the GDP. These ratios are impressive, especially considering the size of the country and the fact that GDP was rising quickly itself. At the same time, China was receiving substantial direct investment from many countries, notably Hong Kong and Taiwan. Starting from virtually zero at the end of the 1970’s, the ratio of inward foreign direct investment, i.e., the capital inflow, to GDP gradually and steadily climbed to more than 1% by 1991. From 1993 to 1999, this ratio was above 4.5%. Foreign capital brought with it not only employment opportunities for local workers but also advanced technologies and management skills to local enterprises. While China was negotiating intensively with various countries over conditions for accession to the World Trade Organization, it was important to assess its trade and development policies, its economic problems, and its relations with neighboring countries, such as Hong Kong and Taiwan. In the summer of 2000, the City University of Hong Kong, the Chinese Economic Association in North America, and the Chinese Economists Society organized a conference entitled “Greater China and the World Economy,” which was held on the campus of the City University of Hong Kong. This symposium contains four of the papers presented at that conference. These four papers provide in-depth analysis or empirical studies of important issues concerning the growth and trade of the Chinese and Hong Kong economies. The first paper by Chao, Chou, and Yu examines the impact of export tax rebates that the Chinese government imposed during the Asian financial crisis to offset partly the effects of a relatively overvalued domestic currency. Using a theoretical model, the authors show that export tax rebates on imported foreign intermediate 3
Since 1992, China has become the biggest recipient of foreign direct investment among developing countries. About half of this capital has come from Hong Kong. 4 Eighteen other papers were presented and discussed, on topics pertaining to the growth and trade experiences of China, Taiwan, and Hong Kong. Participants came from many countries in Asia, North America, Australia, and Europe. The conference was attended by nearly 100 people and proved to be a valuable opportunity for researchers in this field to share their research experiences and interact. For more information on this conference, please visit http://faculty.washington.edu/karyiu/confer/HKCCC00/index.htm. 5 During the Asian crisis in late 1997, almost all Asian countries experienced drastic devaluation of their currencies. The two exceptions were China and Hong Kong, who pegged their currencies to the U.S. dollar. Since many of China’s exports compete closely with the exports of other Asian countries in the world market, it was argued that a devaluation of China’s currency would lead to further competitive currency devaluation among these countries.
INTRODUCTION
313
products can have expansionary effects on related up-stream and down-stream industries. They confirm these effects empirically using data from China. In the second paper, Zhang, Zhang, and Zhao investigate the performance of Chinese enterprises by quantifying the effect of ownership and market competition on productive efficiency. They find that ownership is an important determinant of enterprise efficiency, as foreign-owned enterprises had the highest efficiency scores while state-owned enterprises (SOEs) had the lowest scores. This ownership effect is robust to considerations of market competition and industry factors. The authors also find two somewhat surprising results. Technical efficiency is improving in SOEs, and enterprises owned by investors from Hong Kong, Macao, or Taiwan display lower growth rates of efficiency than firms in other ownership categories during the 1996 to 1998 period. In the third paper, Cheng and Wu investigate the key determinants of the performance of foreign-invested enterprises (FIE), i.e., enterprises with significant foreign ownership. They find that cash contributed by foreign parent companies and duration of operation both have a positive and significant impact on the profitability of FIEs. The authors find that FIEs selling more output to the domestic market and those in industries consistent with China’s comparative advantages performed better. Although these outcomes might have been expected, the authors uncover two somewhat surprising results. FIEs owned by Hong Kong investors did not perform better than those owned by other foreign investors, and FIEs located in Special Economic Zones performed worse than those located outside of these areas. The final paper by Imai focuses on relations between Mainland China and Hong Kong by examining the structural transformation and economic growth of the Hong Kong economy. Since the mid-1980’s, many Hong Kong manufacturing firms have located their production facilities in China to take advantage of cheap labor. This led to a reduction in the manufacturing sector but an expansion of the services sector in Hong Kong. Imai notes that total factor productivity (TFP) growth is high in the declining manufacturing sector but low in the booming services sector. As a result, there was a significant slowdown in Hong Kong’s overall TFP growth in the 1990’s. Since the mid-1990’s, the deceleration of service exports and the shrinkage of the manufacturing sector have lowered significantly Hong Kong’s potential output growth rate.