The Balanced View Of China
Among all the books talking about China, the book, “China: The Balance Sheet,” provides the most balanced view, thanks to the word “balance” in its title. It “is the fullest attempt to understand and describe the most important emerging power in the world” by two of the world’s preeminent think tanks, the Center for Strategic and International Studies and the Institute for International Economics. From the preface of the book:
China is an exceedingly complex, and sometimes internally contradictory, society that is difficult for outsiders to decipher. Indeed, there is no single “China” any more than there is a single “United States of America”; sharply different views exist within that country on most topics as the leadership struggles with immense challenges both at home and as an emerging power on the world scene.
The book lists some interesting facts or statistics of China:
- Throughout the 1990s, China was the fastest growing export market for U.S. firms — a trend that actually accelerated from 2000-2005, as exports of U.S. firms to China rose by 160 percent while exports to the rest of the world rose only 10 percent.
- China graduates more than 800,000 students a year in engineering and sciences. While China’s numbers of engineering graduates are impressive, the average quality is less so. Recent studies by the McKinsey Global Institute estimated that only one-tenth of China’s engineering and IT graduates are capable of competing in the global outsourcing environment.
- By the mid-1990s, China’s adult literacy rate was just over 80 percent, compared to just over 50 percent in India — but China’s female literacy rate was 73 percent, compared to 38 percent in India. This gave China a crucial advantage in attracting foreign investment in manufacturing.
- Over the past few years China has become increasingly dependent on increases in investment to drive economic growth, suggesting that China’s financial system allocate capital inefficiently. As a result, by 2004 the share of investment in GDP had reached about 40 percent. Although China has received large amounts of foreign direct investment, these funds in recent years have financed only 5 percent of capital formation. Moreover, domestic savings have been more than sufficient to finance the high level of capital formation that has characterized the last three decades of economic growth.
- China’s unusually strong growth performance has been the sectoral transformation of its labor force. The share of the labor force employed in agriculture has declined from 70 percent at the outset of reform to about 50 percent today. China’s extreme shortage of arable land means that agricultural productivity is extremely low. Thus, as workers leave agriculture and are absorbed in either manufacturing or services, major productivity gains ensure.
- The earlier examples of Japan, Korea, and Taiwan show that severe resource constraints are not necessarily an impediment to rapid, sustained economic growth. As long as the global economy remains open, the raw materials and resources necessary for rapid economic growth can be imported. Indeed, China’s bill for its net imports of energy and other primary products in 2004 was only 4 percent of its GDP — less than the 5 percent level that prevailed in Japan and Taiwan at the beginning of their high growth in the mid-1960s, and less than half the levels these countries hit by the late 1970s, when energy prices had soared. On the other hand, compared to 1978, by 2004 China produced three and a half times as much output for each ton of standard coal equivalent of energy consumed.
- China, however, faces the additional problem that its rapidly rising demand for basic energy and mineral resources stems not only from rapid growth but, more importantly, from inefficient resource use. For example, China’s energy consumption per unit of China’s GDP in 2005 was only one-seventh that of the United States, its consumption of primary energy was slightly more than half of the U.S. level.
- Direct taxes on households are relatively small. In 2004, for example, combined government tax revenue from the personal income tax, levied on income of employees in the modern sector, and the agricultural tax, levied on peasant income, was only 1 percent of GDP.
- According to the United Nation’s projections, China’s working-age population will soon begin to shrink after peaking around 2015. Labor shortages have already begun to surface in some parts of China, such as in Guangdong Province.
- Increases in private consumption expenditure will depend to an unusual degree on a reduction in the savings rate of households, which has been running at about 25 percent of disposable income since 2000. By contrast in the United States in 2005 households spent more than their disposable in come, i.e., the savings rate was slightly negative!
- China’s economy at present apparently pays little price for corruption. The economic losses corruption causes are astonishing — as high as an estimated $84.4 billion or 5 percent of GDP in 2004. But foreign direct investment has not fallen as a result and China’s economy continues to outperform most of the rest of the world.
- No one claims that China is today a rule of law country. Nevertheless, most would acknowledge that China has moved a long way from the primarily “rule of man” governance approach of traditional China, and is taking steps beyond the instrumental “rule by law” approach characteristic of legal reform in recent years, toward a legal system that increasingly seeks to restrain the arbitrary exercise of state and private power and does provide the promise, if not the guarantee, to assert rights and interests in reliance on law.
My conclusion out of the book is that China will keep playing its role as “the world factory” for at least another decade as far as its workforce is growing. Higher energy cost can be easily absorbed by higher energy efficiency. Anyway, it is definitely a book worthing reading with a lot of details packed in about 200 pages.
