The Critical Path for Continuing Chinese Economic Reform

The Critical Path for Continuing
Chinese Economic Reform
Lawrence J. Lau, Ph. D., D. Soc. Sc. (hon.)
Kwoh-Ting Li Professor of Economic Development
Department of Economics
Stanford University
Stanford, CA 94305-6072, U.S.A.
October 2001
Phone: 1-650-723-3708; Fax: 1-650-723-7145
Email: ljlau@stanford.edu; WebPages: http://www.stanford.edu/~ljlau

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Outline:
u The Chinese Economy Today
u Review of Chinese Economic Reform (1979-present)
u Problems Old and New
u The Critical Path for Continuing Chinese Economic
Reform
Lawrence J. Lau, Stanford University
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The Chinese Economy Today (1)
u East Asia is the fastest-growing region in the world over the past two
decades, the East Asian currency crisis of 1997-98 notwithstanding
u China is the fastest growing country in East Asianearly 10% p.a.
since beginning of economic reform (1979)
u China survived the East Asian currency crisis relatively unscathed
u China is one of the very few socialist countries that have made a
successful transition from a centrally planned to a market economy--
the rate of interest (the price of money) and the exchange rate are the
only prices that are still administratively determined on the margin
u The private (non-state) sector accounts for more than 60% of GDP in
2000
u China is the 7th largest trading country in the world (exports of
US$250 billion and imports of US$225 billion in 2000)
u China is no longer a Ԣshortage” economy--insufficient aggregate
Lawrence J. Lau, Stanford University
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demand is a real possibility

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The Chinese Economy Today (2)
1979
2000
US$ (2000 prices)
Real GDP
176 bill.
1.08 trill.
Real GDP per capita
182
860
Lawrence J. Lau, Stanford University
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The Chinese Economy Today (3)
U.S.
China
US$ (current prices)
2000 GDP
9.962 trill. 1.08 trill.
2000 GDP per capita
36,165
860
Lawrence J. Lau, Stanford University
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Rates of Growth of Real GDP and Inflation
(% p.a.)
u
Actual
Real GDP
RPI
CPI
1997
8.8
0.8
2.8
1998
7.8
-2.6
-0.8
1999
7.1
-2.9
-1.3
2000
8.0
-1.5
0.4
2001Q1
8.1
-1.1
0.7
2001Q2
7.8
-0.6
1.0
2001H1
7.9
-0.5
1.1
2001Q3 7.6
-0.5
1.0
u
Projections
2001
>7.0
(NBS)
7.2
(ADB)
7.5
1.0
(Lau)
7.6
(PECC)
u
The National Bureau of Statistics (NBS) projected that the award of the 2008
Summer Olympic Games to Beijing should add 0.3-0.4% to the average annual
growth rate
u
The long-term core inflation rate--inflation rate net of changes in the prices of
energy and food--may be estimated at 1 percent--there is no deflation
Lawrence J. Lau, Stanford University
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Quarterly Rates of Growth of the Real GDP of
the Chinese Economy, Y-o-Y
YoY Quarterly Rates of Growth of Real GDP
25%
GDPQ1
GDPQ2
20%
GDPQ3
GDPQ4
15%
10%
Percent per annum
5%
0%
1983q1
1984q3
1986q1
1987q3
1989q1
1990q3
1992q1
1993q3
1995q1
1996q3
1998q1
1999q3
2001q1
-5%
Lawrence J. Lau, Stanford University
Quarter
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The Rates of Growth of Real GDP:
Selected East Asian Economies
Quarterly Rates of Growth of Real GDP, Year-over-Year, Selected East Asian Economies
20.0
China
Hong Kong
Indonesia
Korea
Malaysia
Philippines
Singapore
Taiwan
15.0
Thailand
Japan
India
10.0
5.0
0.0
1996Q1
1996Q2
1996Q3
1996Q4
1997Q1
1997Q2
1997Q3
1997Q4
1998Q1
1998Q2
1998Q3
1998Q4
1999Q1
1999Q2
1999Q3
1999Q4
2000Q1
2000Q2
2000Q3
2000Q4
2001Q1
2001Q2
2001Q3
Annualized Rates in Percent
-5.0
-10.0
-15.0
Quarter
Lawrence J. Lau, Stanford University
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The Consumer and Retail Price Indices
Monthly Rates of Change of Price Indices Since 1995 (Y-o-Y)
25
%
20
RPI
CPI
15
CPI for 36 Big Cities
Price Index for Agricultural Production Material
10
5
0
95-03
95-10
96-05
96-12
97-07
98-02
98-09
99-04
99-11
00-06
01-01
01-08
-5
-10
Month
Lawrence J. Lau, Stanford University
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Has “Deflation” Stopped?
u Deflation has slowed/stopped:
u In 1999 the RPI declined 2.9%; in 2000 the RPI declined only 1.5%;
u In 1999 the CPI declined 1.3%; in 2000 the CPI rose 0.4%
u In 2001/09, the CPI rose 1% and the RPI declined 0.2%
u In 2001/01-08, the PPI decline 1.3% Y-o-Y
u In 2001Q1-Q3, the CPI rose 1.1%
u The “core” rate of inflation is positive
u The decline in prices over the past two years was due in part to the fall in the
prices of energy and in particular oil and food because of the good harvest
u The long-term core inflation rate--inflation rate net of changes in the prices of
energy and food--may be estimated at 1 percent--there is no deflation
Lawrence J. Lau, Stanford University
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