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Topic 3: Success of the Chinese Economy, Topic 4 Rich Man, Poor Man:…

- - - - 1.In the earlier stages of the reform, input markets were under-developed
        2.Local government officials acted as entrepreneurs who identified profitable opportunities and used their connections/powers to take advantage of the opportunities
        3.This kind of entrepreneurship gradually gave way to private entrepreneurship as input markets developed over time.
      - The reforms gained broad support from the population as they:
        1.Achieved Pareto improvement in the initial stage
        2.Enabled reforms of Kaldor improvement to proceed smoothly
        3.Minimised social costs of transition
  - - - Global Competitiveness Index: 12 Pillars
        
        12 Pillars Explained
        
        Pillar 1: Institutions – Security, property rights, social capital, checks and balances, transparency and ethics, public-sector performance and corporate governance.
        
        Pillar 2: Infrastructure – The quality and extension of transport infrastructure (road, rail, water and air) and utility infrastructure.
        
        Pillar 3: ICT– The degree of diffusion of specific information and communication technologies (ICTs).
        
        Pillar 4: Macroeconomic environment – The level of inflation and the sustainability of fiscal policy
        
        12 Pillars Explained
        
        Pillar 5: Health - Health-adjusted life expectancy (HALE), the average number of years a newborn can expect to live in good health.
        
        Pillar 6 Skill - The general level of skills of the workforce and the quantity and quality of education.
        
        Pillar 7 Product market – The extent to which a country provides an even playing field for companies to participate in its markets. It is measured in terms of extent of market power, openness to foreign firms and the degree of market distortions.
        
        Pillar 8 Labor market – It encompasses “flexibility”, namely, the extent to which human resources can be re- organized and “talent management”, namely, the extent to which human resources are leveraged.
        
        Pillar 9 Financial system– The depth, namely the availability of credit, equity, debt, insurance and other financial products, and the stability, namely, the mitigation of excessive risk-taking and opportunistic behaviour of the financial system.
        
        Pillar 10 Market size – The size of the domestic and foreign markets to which a country’s firms have access.
        
        Pillar 11: Business dynamics - The private sector’s capacity to generate and adopt new technologies and new ways to organize work, through a culture that embraces change, risk, new business models, and administrative rules that allow firms to enter and exit the market easily.
        
        Pillar 12: Innovation capacity – The quantity and quality of
        
        formal research and development; the extent to which
        
        a country’s environment encourages collaboration, connectivity, creativity, diversity and confrontation across different visions and angles; and the capacity to turn ideas into new goods and services.
        
        China is ranked as 28th in global competitiveness
    - - 1.Fixed exchange rate regime: fixed, but with a provision for the revaluation (usually devaluation) of a currency
        2.Floating exchange rate: its exchange rate is allowed to vary against that of other currencies and is determined by the market forces of supply and demand
        3.Managed exchange rate: hybrid of the fixed and floating exchange rate regimes, usually with a pre-determined bands
        
        China – Exchange effective exchange rate movements
    - - Bilateral exchange rate: the value of one country’s currency relative to another country’s currency
      - Nominal exchange rate: the value of a currency relative to another currency
      - Effective exchange rate: is an index that describes the relative strength of a currency relative to a basket of other currencies.
      - Nominal effective exchange rate (NEER): is a measure of the value of a currency against a weighted average of several foreign currencies. An increase in NEER indicates an appreciation of the local currency against the weighted basket of currencies of its trading partners.
      - Trade-weighted exchange rate: a special case of NEER. It is compiled as a weighted average of exchange rates of home versus foreign currencies, with the weight for each foreign country equal to its share in trade.
      - Real exchange rate: describes how many of a good or service in one country can be traded for one of that good or service in another country
      - The real effective exchange rate (REER): is the weighted average of a country's currency relative to an index or basket of other major currencies, adjusted for the effects of price and inflation.
  - - - A Multinational subsidiaries has headquarters in one country and operates several in different countries
      - Producing a final good for serving home and foreign markets
      - Production uses multiple-inputs (e.g. Engines, body, seats, etc. in automotive industry) – which can be produced in-house (in home country or in foreign countries) or outsourced to firms in home country or in foreign countries
  - - - Rising labour costs
      - Environment degradation
      - The growth of non-agricultural employment is slow.
      - In 2006, the ratio of non-agricultural labor productivity to agricultural labor productivity was 5.6, implying that further transfer of labor from agriculture to non-agricultural sectors would increase wealth production.
      - The income gap has widened, and poverty reduction remains an important policy issue.
      - Regional disparity has also widened and remains very high.
      - Why can't China Innovate?
        
        Failure to protect intellectual property rights.
        
        Education focuses on duplication, rather than innovation
        
        Authoritarian system: top-down approach, has its merits, but might pick up the wrong winners. Worse still, it might suppress the innovations from the private sector
        
        After 2012, China is gradually turning into a totalitarian country – which will enhance the absolute authority of the top leader in almost every field – including R&D. A recent example is a chaotic nation-wide rush to the semiconductors industry.
- - - - The Gini coefficient = The area between the equality diagonal and the Lorenz curve / Area of the triangle
- - - - 1.Over the past fifty years inequality has peaked three times
      - 2.The rural–urban gap accounts for a large share of overall inequality in the whole period
      - 3.The inland–coastal disparity has grown rapidly since late 1970s when China started its economic reform.
  - - - Dualism is the persistent and significant productivity difference between the rural sector and the rest of the economy
      - During early stages of economic development, the level of capital accumulation may be too low to absorb all the rural labor willing to migrate to urban areas.
      - This gives rise to the phenomenon of “unlimited supplies of labor” in the sense that the supply of labor to the modern sector exceeds the demand at the prevailing wage which is determined by the earnings in the rural sector (Lewis, 1954)
    - - Since higher income earners tend to be politically more powerful and have better access to finance, they are more likely to receive the new money first and benefit from inflation.
      - nflation driven by a monetary expansion would redistribute wealth from the poor to the rich, thereby exacerbating inequality
    - - In the long run, education is an important income equalizer because:
        1.low income families can more easily acquire human capital through education than accumulate physical or financial capital through savings or inheritance.
        2.Human capital accumulation is less prone to concentration than the expansion of human capital involves dispersion of knowledge and skills across the wider population (Ahluwalis, 1976)
      - In the short run, however, education may be a source of inequality:
        1.Different education opportunities between rich and poor
        2.Skill-biased technological change increases income difference between educated and uneducated
        3.Brain drain (to cities and coastal areas) worsens regional inequality
  - - - Promote the development of labor-intensive small and medium manufacturing and service enterprises.
      - The bottlenecks to development of SMEs are access to credit and market entry
      - Deepen the reform of large SOEs and eliminate price distortions and administrative monopolies to make the market system operate more efficiently.
      - Introduce competition in monopolistic industries.
      - Encourage the unification of the labor market.
      - Establish a development-oriented, instead of a consumption-oriented, public expenditure structure
      - Invest public resources in education, health, infrastructure
      - Develop social safety nets to provide support for disadvantaged groups that do not have the ability to work
- - - - The 2nd Sino-Japanese War outbroke in 1937
      - The United States strongly supported China starting in 1937 and warned Japan to get out. American financial and military aid began to flow. Claire Lee Chennault commanded the 1st American Volunteer Group (nicknamed Flying Tigers), with American pilots flying American warplanes painted with the Chinese flag to attack the Japanese.
      - The United States cut off Japan's main oil supplies in 1941 to force it to compromise regarding China. Japan attacked American, British and Dutch possessions in the western Pacific – for example, the 1941 Japan attack on Pearl Harbor. The United States declared war on Japan in December 1941
      - Japan surrendered on 15 August 1945
  - - - From Engagements to Confrontations
        
        During Obama administration (2008-2015), the relationship between two countries witnessed mostly positive development in Obama's first term, but gradually became characterized by more complex layers of dynamics and accompanied global-level threats
        
        During this period, Xi Jingping became the general secretary of CPC in 2012 and President of PRC in 2013
        
        Two issues emerged: territorial disputes in the South China Sea and the high level of tension caused by a huge trade deficit in their trade relationship.