Page 68 - 2018 White Paper on the Business Environment in China
P. 68
8 White Paper on the Business Environment in China
1.4 Experimental Initiatives
Background has the potential to be more sustainable. Human capital
accounts for between 11 to 15 percent of China’s growth.
China has transformed itself from one of Factor accumulation (capital and labor) thus accounts
the world’s poorest countries to for about 60 to 70 percent of GDP growth. Summarizing
its second largest economy in just 30 years. Foreign the evidence, capital accumulation accounted for 3.2
investment has not only been a major component of percentage points of the 7.3 percent growth in output
this growth, but also a major influence in the country’s per worker from 1979-2004 with TFP accounting for 3.6
overall business culture. For example, one influential percentage points. Since the modern open-door policy
paper found that productivity was vastly improved took off in the early 1990s, capital accumulation has
when workers moved from state-owned firms, where accounted for 4.2 percentage points of the higher 8.5
there was little incentive to work hard, to the private percent growth in China, and interestingly outweighs
sector (Zheng et al.). The vast majority of state-owned the contribution of TFP by 2012. These estimates suggest
enterprises (SOEs) were effectively privatized in the mid that capital accumulation has contributed around
to late 1990s, dropping from over 10 million to some half of China’s economic growth, which is in line with
300,000 by the early 2000s (Yueh). About 8 percent of other estimates that find that most of China’s growth
China’s GDP growth was driven by the shift of resources is accounted for mostly by capital accumulation rather
from the public sector to the private by 2012. Spillover than TFP growth. That means that the next stage of
gains tied to foreign direct investment, joint ventures, growth will need to focus on TFP or raising the overall
and other ties to developed countries undoubtedly productivity of the Chinese growth drivers. Getting
had an impact on the Chinese economy since taking more from workers and investments will be crucial, and
off in the mid-to-late 90s. According to Van Reenen and perhaps one of the hardest challenges any economy
Yueh, GDP growth would be lower by between 0.43 to 1 faces as it seeks to become more prosperous. To
percent per year if not for joint ventures that allowed for achieve its ambition of sustaining growth for another
transfers of knowledge and technology, as opposed to 30 years, China will require not only technological and
domestic innovation. Positive spillovers and imitation of human capital improvements, but also reform of its
existing know-how thus could account for between one rule of law, the role of the state, and the re-balancing
third to two thirds of total factor productivity (TFP). It of its economy. Re-balancing the economy will involve
implies that TFP driven by innovation and technological boosting domestic demand (consumption, investment,
progress (independent of foreign investment) accounts government spending) to grow more quickly than
for about 5 to 14 percent of GDP growth (Van Reenen exports, shifting toward services (including non-tradable
and Yueh). areas) and away from agriculture, increasing urbanization
to increase incomes, and permitting greater external
China’s economic growth until recently was largely sector liberalization, including further internationalizing
labor-intensive with high levels of fixed capital the yuan. To achieve these aims will also require
investment. Researchers estimate that 10 to 20 percent examining the role of the state in China and the legal
of GDP growth may be attributable to the growth of system. The retention of large SOEs and the increasingly
the labor force, while capital accounts for about half perceived “un-level playing field” for both foreign and
of growth. But it’s also essential to figure out which domestic private firms raises doubts as to the efficiency
portion comes from skilled workers (often called human of China’s markets and thus its ability to overcome the
capital). In other words, growth isn’t just about adding “middle income country trap,” whereby countries start
more workers. It’s the quality of those workers that to slow after reaching upper middle income levels. For
also matter. Other experts have argued that economic China to realize its potential as an economic superpower
growth driven by improvements in education and skills requires reforms of both the microeconomic drivers of
68
1.4 Experimental Initiatives
Background has the potential to be more sustainable. Human capital
accounts for between 11 to 15 percent of China’s growth.
China has transformed itself from one of Factor accumulation (capital and labor) thus accounts
the world’s poorest countries to for about 60 to 70 percent of GDP growth. Summarizing
its second largest economy in just 30 years. Foreign the evidence, capital accumulation accounted for 3.2
investment has not only been a major component of percentage points of the 7.3 percent growth in output
this growth, but also a major influence in the country’s per worker from 1979-2004 with TFP accounting for 3.6
overall business culture. For example, one influential percentage points. Since the modern open-door policy
paper found that productivity was vastly improved took off in the early 1990s, capital accumulation has
when workers moved from state-owned firms, where accounted for 4.2 percentage points of the higher 8.5
there was little incentive to work hard, to the private percent growth in China, and interestingly outweighs
sector (Zheng et al.). The vast majority of state-owned the contribution of TFP by 2012. These estimates suggest
enterprises (SOEs) were effectively privatized in the mid that capital accumulation has contributed around
to late 1990s, dropping from over 10 million to some half of China’s economic growth, which is in line with
300,000 by the early 2000s (Yueh). About 8 percent of other estimates that find that most of China’s growth
China’s GDP growth was driven by the shift of resources is accounted for mostly by capital accumulation rather
from the public sector to the private by 2012. Spillover than TFP growth. That means that the next stage of
gains tied to foreign direct investment, joint ventures, growth will need to focus on TFP or raising the overall
and other ties to developed countries undoubtedly productivity of the Chinese growth drivers. Getting
had an impact on the Chinese economy since taking more from workers and investments will be crucial, and
off in the mid-to-late 90s. According to Van Reenen and perhaps one of the hardest challenges any economy
Yueh, GDP growth would be lower by between 0.43 to 1 faces as it seeks to become more prosperous. To
percent per year if not for joint ventures that allowed for achieve its ambition of sustaining growth for another
transfers of knowledge and technology, as opposed to 30 years, China will require not only technological and
domestic innovation. Positive spillovers and imitation of human capital improvements, but also reform of its
existing know-how thus could account for between one rule of law, the role of the state, and the re-balancing
third to two thirds of total factor productivity (TFP). It of its economy. Re-balancing the economy will involve
implies that TFP driven by innovation and technological boosting domestic demand (consumption, investment,
progress (independent of foreign investment) accounts government spending) to grow more quickly than
for about 5 to 14 percent of GDP growth (Van Reenen exports, shifting toward services (including non-tradable
and Yueh). areas) and away from agriculture, increasing urbanization
to increase incomes, and permitting greater external
China’s economic growth until recently was largely sector liberalization, including further internationalizing
labor-intensive with high levels of fixed capital the yuan. To achieve these aims will also require
investment. Researchers estimate that 10 to 20 percent examining the role of the state in China and the legal
of GDP growth may be attributable to the growth of system. The retention of large SOEs and the increasingly
the labor force, while capital accounts for about half perceived “un-level playing field” for both foreign and
of growth. But it’s also essential to figure out which domestic private firms raises doubts as to the efficiency
portion comes from skilled workers (often called human of China’s markets and thus its ability to overcome the
capital). In other words, growth isn’t just about adding “middle income country trap,” whereby countries start
more workers. It’s the quality of those workers that to slow after reaching upper middle income levels. For
also matter. Other experts have argued that economic China to realize its potential as an economic superpower
growth driven by improvements in education and skills requires reforms of both the microeconomic drivers of
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