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China's Economhy - Overcoming Challenges and Constraints

30 important questions on China's Economhy - Overcoming Challenges and Constraints

What kind of challenges does China have to overcome to continue economic growth?

Human Resource (Development)
WTO & Globalization
Rising unemployment
Social constraints
Physical constraints

Why will China's human resources pose a constraint on industrial development in the long run?

Because of the one-child policy, China's fertility rate is below the replacement level of fertility. In addition, the population will rapidly age during the second decade of the 21st century. This will change the labor force structure.

Furthermore, it will be difficult to uprade China's economy into a more skill-intensive one if China's illiteracy rate continues to be high (in comparison to other countries). Also, only 25% of the relevant age group received tertiary education (90% in South Korea).

These factors could affect China's long-term growth potential.

When was China admitted to the World Trade Organization (WTO)?

December 11, 2001

Before China's official accession into the WTO, it already took measures to intensify its trade reforms. Give two examples of these measures.

For example:

Lowering tariff rates
Merging the dual exchange rate

Name a positive effect of China being admitted to the WTO.

For example:

Foreign direct investments (FDI) increased to all-time highs.
Many foreign businesses established a stronghold in the Chinese market.
China has easier access to world markets for its exports and Chinese products are subjected to less unfair treatment or discrimination in certain markets.

What disruptive WTO effect was expected by commentators?

They were questioning the ability of China's ailing state-owned enterprises and inefficient financial sector to survive foreign competition.

Why was it not surprising that China was able to manage its post-WTO economy with full confidence?

Because the external balance of its economy had been exceptionally strong:

China had huge trade surpluses year after year
The influx of FDI continued
China's foreign exchange reserves kept on rising

In addition, the government took trade and invement liberalization measures to prepare its sectors to compete both domestically and internationally for the post-WTO era.

Which sectors were particularly vulnerable to the international competition?

Services industries like banking, insurance and telecommunication. These industries used to be highly protected.

This was also the case for SOEs in less competitive sectors like automobiles, pharmaceuticals and agriculture.

Why was the government reluctant to close unprofitable state enterprises before 1997?

The government was afraid that this would lead to social instability (resulting from massive layoffs).

The government was reluctant to close unprofitable state enterprises before. How did this affect the state-owned commercial banks?

They bincurred high proportions of non-performing loans (NPLs) because of political pressures to lend to SOEs

How did the government reform the banking sector and bring down the high proportions of NPLs?

By:

Setting up a state-run assets management corporation for each of China's state banks (4 in total) and introduced the debt-equity swap scheme.
Writing off $500 billion of the NPLs
Corporatization and ownership diverification of state-owned commercial banks
Participation of foreign banks in restructuring the bank sector

What is a sign that the corporate governance of state banks has improved?

All four state-owned banks are listed on the Shanghai Stock Exchange and/or the Hong Kong Stock Exchange.

Besides the efforts of the government, there is another reason why the high proportion of NPLs could be dealt with effectively. What is that reason?

Chinese people are big savers. There is over 30 trillion yuan in household saving deposits. These huge deposits could absorb the accumulated bad loans.

What factors have led to the growing structural unemployment in China?

The economy undergoing vigorous macroeconomic reforms
Businesses are forced to restructure for greater efficiency to meet WTO challenges

What is the consequence of the rising unemployment for China's economy?

Because of the rising number of people competing for a job, the wages are held down. This makes it difficult for domestic consumption to expand; people simply do not have enough income to buy new goods (especially houses and cars).

Why has there been an increase in rural discontent in many areas?

Because of the widening rural-urban income inequalities as well as local misgovernment. Many small farmers suffer because of the greater international competition from the world's more efficient agricultural producers.

What measures has the government taken in recent years to improve the conditions of workers and the unemployed?

It has started human resource development programs, which includes job retraining.
Social security programs: a national minimum living guarantee scheme was established and steps are taken to establish pension systems and insurance schemes for unemployment, health care and work-related injuries.

In 2008 the government invested heavily in infrastructure and speculative loans to avoid an economic slowdown. Why are investors worried that these measures will not work again if a new economic slowdown appears?

The housing prices are inflating, food and households are costing more, uneployment is rising and wages are stagnating. It is thus not certain that the massive new blocks of condominiums which are built on speculation will be sold or that new toll roads and trains will attract enough traffic. If that is the case much of the loans can become nonperforming.

What kind of negative social externalities have risen because of the rapid economic growth?

Rising social expectations
Rising crime
Rising superstition

What is the solution to deal with the negative social externalities which have appeared as by-products of economic growth according to the author?

To continue with rapid economic growth in order to generate more resources to deal with these social problems.

Corruption is a social problem in China. How can corruption hamper economic growth?

By:

Increasing transaction costs
Reducing efficiency
Slowing trade and investment

Official statistics indicate that there is an increasing income disparity between urban and rural areas. But why is the economic plight of rural people much worse than these official statistics indicate?

The income of urban dwellers is disposable income, but the income of rural households is gross income, which includes imputed elements of food and livestock as well as working capital. In addition, rural household receive little state welfare for education, housing and medical care. Urban dwellers do receive this. Furthermore, the rural population has to pay burdensome levies and taxes, both lawful and unlawful.

Which aspects does the discussion of the rural problem usually involve?

The agricultural problem (nongye)
The village problem (nongcun)
The peasant problem (nongmin)

Together they are called the san-nong issue.

What does nongye involve?

The agricutural problem (nongye) involves food production and agricultural trade.

China has largely solved its food production problem (nongye). How?

By increasing the agricultural productivity through greater mechanization and technological progress. (It has however made many rural laborers redundant who now must leave their village for nonfarm employment).

Why may physical constraints be the biggest challenge to China's growth and development?

The country's worsening air and water pollution, lowering water tables, increasing droughts and melting glaciers threaten China's food production and health of its people. China is also becoming increasingly dependent on imported oil, food and natural gas to fuel economic growth.

China experimented with the Green GDP. What is that?

This is an index which shows the cost of pollution. In 2004 this was about 3% of China's GDP.

China set a couple of targets to reduce pollution in the period 2006-2010. Name two of these targets and explain how these targets were (largely) met.

Targets:

Reduce chemical oxygen demand in water and sulphur dioxide (2% per year) in order to reduce acid rain.
Reduce energy consumption by 20% per unit of GDP.

These targets were largely met by closing hundreds of small and inefficient coal-fired plants and by introducing scrubbers and desulfurization facilities to all state-owned coal-fired plants and factories.

Which problems does China's agricultural production face?

Rises in food prices
Pollution
Water shortages (China's average freshwater resource per head is 31% below the world average and in North China only 16% of water resources can be found while about 60% of cultivated land is located here).

Which project has been set up in North China to deal with water shortages?

the South-to-North Water Diversion Project

The question on the page originate from the summary of the following study material:

Understanding contemporary China | 9781588268440 | Robert E Gamer

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