Report No. 17(127 ( HA I Ch2ina 020: Development Challen(ges in the Nevv CentU ryv Septernlber 1;, 1997 t 6;\ :)z > ~ <' i , , f m i I w I i( w m I l, > s 1l[ [i it U '>S' l ' ei l I' it 11% Rt J r lq! - Document of the World Bank CURRENCY EQUIVALENTS (as of May 15, 1997) Currency = Renminbi Currency Unit = Yuan (Y) $1.00 = Y8.3 Y.1.00 = $ 0.12 FISCAL YEAR January 1 - December 31 WEIGHTS AND MEASURES Metric System Vice President Jean-Michel Severino, EAP Country Director Yukon Huang, EACCQ Staff Member Richard Newfarmer, Lead Economist, EASPR Contents Acknowtedgments vii Chapter 1 Understanding the Present Swift growth 2 High savings 4 Structural change 6 Pragmatic and incremental reforms 8 Initial conditions 12 Chapter 2 Divining the Future 17 Growth challenges 18 Growth possibilities 19 Chapter 3 Laying the Foundations 23 Restoring and reshaping government finances 24 Making room for markets 28 Making markets work 36 Chapter 4 Shaping a Competitive but Caring Society 43 Making labor markets flexible 44 Protecting the vulnerable s0 . 8<~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Chapter 5 Feeding the People 61 Removing constraints to domestic production 62 Projecting grain balances 67 Using international trade 67 Chapter 6 Protecting the Environment 71 Deteriorating environmental conditions 72 Pollution prospects 74 Formulating policies for a cleaner future 76 Chapter 7 Integrating with the World Economy 83 Deepening trade integration 84 Deepening financial integration 90 Sharing the benefits of China's growth 92 Chapter 8 Setting the Agenda 97 Two visions for 2020 98 China's agenda to 2020 99 The world and China 103 Conclusion 104 Annex 1 Accounting for China's Growth 105 Preliminaries 106 Data deficiencies 106 Differences in technology 106 Structural change and the growth residual 107 Annex 2 Modeling Growth and StructuraL Change 109 Nontechnical overview 110 The model 110 Parameterization 111 Results 113 Annex 3 Projecting Poverty and Inequality 115 Counting the poor 116 Scenarios for reducing poverty 116 Statistical appendix 119 This report uses Hong Kong when referring to the Hong Kong Special Administrative Region, People's Republic of China. vi China 2020: DI)eveloprnent Challenges in the New Century Acknowledgments .~~~~~~~~~~~~. M .00" his report was written by a team led by 91Vikram Nehru and comprising Aart Kraay and Xiaoqing Yu. Consultants to the team were Athar Hussain (London School of Economics, STICERD) and Barry Naughton (University of California, San Diego). The team was helped by summer interns jean Imbs and David Ng. The peer reviewers were Dwight Perkins (Harvard University), Gregory Chow (Princeton University), Peter Harrold, Homi Kharas, and Gene Tidrick. The task assis- tant was Janet Wyse. The team owes Nicholas Hope (former Director of the China and Mongolia Department at the World Bank) a special debt of gratitude for conceiving the study and for unceasing support. Other World Bank staff to whom the team is grateful for their contributions and comments are Halsey Beemer, Natasha Beschorner, Eduard Bos, Pieter Bottelier, Tilly Chang, Dipak Dasgupta, Yuri Dikhanov, Sandra Erb, Joseph Goldberg, Daniel Gunaratnam, Bert vii Hofman, Janet Hohnen, Shaikh Hossain, Gordon Jingping (State Statistical Bureau); Guo Xiaomin, Xiao Hughes, E.C. Hwa, Todd Johnson, Bert Keidel, Kathie Xuezhi (National Environmental Protection Agency); Krumm, Anjali Kumar, Nathalie Lichtenstein, Feng Liu, Liu Peilong (Ministry of Health); Sun Ling (State Kseniya Lvovsky, Tamar Manuelyan-Atinc, Will Education Commission); Wang Donghong (State Martin, Andrew Mason, Hena Mukherjee, Richard Customs Administration); Chi Jianxin (State Newfarmer, Al Nyberg, Alan Piazza, Klaus Rohland, Development Bank); Wang Loulin, Zhang Zhuoyuan, Helen Saxenian, Lyn Squire, Lee Travers, Jagdish Yang Shengming, Pei Changhong, Wang Zhenzhong, Upadhyay, Michael Walton, and Shahid Yusuf. Wang Tongsan, Li Yang, Lu Zheng, Han Jun, Jiang The World Bank team benefited from fruitful discus- Xiaojuan, Chen Zhensheng, Zhao Jingxing, Yu sions with many Chinese government officials and acad- Yongding, Zhang Yuyan, Zheng Yisheng, Yu Dechang, emics who were generous with their time and knowledge. Xu Gengsheng, Li Chenggui, Dong Yisheng (Chinese The mission is especially grateful to Zhu Xian, Ding Academy of Social Sciences); Fan Gang (National Xianjue, Du Jian, Pan Xiaojiang, Wang Zhen, Wang Economic Research Institute); Hu Angang (Chinese Weixin, Wu Jinkang, Liang Shuchun, Shi Yaobin Academy of Sciences); Wang Chuanlun, Tao Xiang (Ministry of Finance); Zheng Xinli, Dai Guiying, Cao (People's University); Yi Gang (Peking University); and Yushu, Liu He, Wang Xiduo, Yang Qingwei, Yao Hong, Andrew Sheng, Chad Leechor, Jim Wong, Lin Shoukang Zhao Shihong, Wang Jianjun, Wu Qiang, Zhao Shijun, (Hong Kong Monetary Authority). The team also bene- Lu Jiaxiang, Yu Peng, Ma Xiaohe, Li Yulin, Hu Chunli, fited from discussions with participants at the State Ning Jizhe, Xu Lin (State Planning Commission); Wang Planning Commission-sponsored seminar on "China: Dayong, Jing Xuecheng, Yang Zaiping, Xie Ping, Yao Striving Toward the Year 2020" held March 19-21, Keping, Pei Chuanzhi, Zhao Xianfeng, Chen Xin, Yang 1997 in Beihai, China. Huisheng, Zheng Yaodong (People's Bank of China); The team would like to express its thanks to the Wang Zixian, Zhu Zhiping, Liu Yajun, Wang Yi, Chen Canadian International Development Agency for a gen- Xin, Deng Li, Zhang Liyong, Liu Tianmin, Zou Xiaomin erous grant to finance three background papers by Hu (Ministry of Foreign Trade and Economic Cooperation); Angang (Tsinghua University), Cai Fang (Chinese Wang Huijong, Li Boxi, Li Shantong, Ding Ningning, Academy of Social Sciences), and the State Science and Zhao Jinping, Ge Yanfeng (Development Research Technology Commission. Center); Li Keping, Wang Haijun, Deng Xianhong, Guo Liu Dusheng (World Bank Resident Mission in Xiangjun, Jiang Xiaoyun, Deng Ran, Chen Yuyu (System China) provided coordination and logistical help, while Reform Commission); Ming Ruifeng, Wang Yadong, Liu Mei Hong, Fan Wenzhong, and Pan Wenxin (World Danhua, Li Jinghu, Lao Yujun, Li Zhengyu, Lu Yulin Bank Department, Ministry of Finance) coordinated (Ministry of Labor); Song Yuzhong, Wei Dong, Qin arrangements on the government side. Yongfa, Wang Xu, Liu Dongsheng, Zhou Shuanghu Rupert Pennant Rea edited the report. Bonita Brindley (State Economic and Trade Commission); Song Tingmin provided editorial guidance. Jennifer Solotaroff helped (Ministry of Internal Trade), Ma Lin, Zheng Hua, Jin with production. Meta de Coquereaumont, Paul Holtz, Dongsheng (State Tax Bureau); Feng Juping, Huang and Glenn McGrath of the American Writing Division of Hongbo (State Administration of Foreign Exchange); Liu Communications Development Incorporated handled Beihua (Ministry of Agriculture); Xuan Zengpei (State production and layout of the report, and Kim Bieler Science and Technology Commission); Ye Zhen, Zheng designed it. viii China 2020: Developmnent Challenges in the New Century A t, ~~~~~- ~ ~ ~ ~ ~ ~ ~ ~ eihrshudChn' 'K"'~~~~~~~~~~~,, emral ~~~~t~~~~~~~~~~~4~ f rg .~~~~~~~~~~~~~~1trt ~~ 'YiA~a&~~~w 'c" ~~' ~t~smn erestIatd . ete shouls:.devChbina' C. to a i~i4&t4bse&t&$g savingsrate, a tron reod of para- t ~~,. purat agricultural soc.iety 'to an ni ~~~~~~ #2T7t ,,.S,gr, 0 ? ? s g., . af . r r .. ,z,,X, s,,,,,,,,, s t ...~~~~~~~~~~~~~~~~~~~.......... e~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~. .... .. . . .....;.... .: . .:. ....... :. -. D ' ''' ' '19 s ? ?5j ' jjjjjjj j ; <; ;t978;; ;; ;jjSf f 2 S....S . ' S ' ;' 'r 1 '" ' ' ""';'~. . . . . . . . i :~~ ~~~ ~~~ ~~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~. .. . . . .W ?, . , , r :f: ? ::. ? ? ....? ? - ,~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.......... .. .... . remained na~ de pe~frately p oor, V rura, adaricltural cnen bu egoah eeiso vie nlsas than $1 a day, tphie intde, rntoapoet tr-iepoicleoom s.Ahug tecatl sptand gard. prvice these fastervenxe thre heltagr atr 9.ofretaer Thie rest, ase they cany, ise hitory deThe intoducionL tof h te rvne lofrdwl.Ide,i hn' agricultural mrefoccrmsewas the ofirst smprink mentg ina lijvi- titnrvnegwr one sidiiuleoois n stng th sobe p arc ternd ecnmy,asurenfrcehing r a e trowt h wnyfsetgoigeooisi h ol proesstate hoias F trnsformed thaper capeofCita. roThe tr-~ bewebe8ad19 oudhv enCiee r.d peroenthate poiet over thanex ~sevend teen byeafrscialpe Thsecntntbe etueiteshr ycialpt tihe Chnsee t ouble) otf thedisrpercpianc iewnc the toeseyti- tr feooi rwh Atog h p n on yaeas, fasteri than aemont hany of nthereyr peiod reen(istr fhn'spsreombsiescylspaeicmai (fi ow signi).4 n sre thite adtheet win thing one GDP growth senduigh Threemeaturen s ofP C~hina'so ra p ed rowthare epocin lly Gra epFradadteutrlRvlto,te not ewiodthy Thel frslt is itsregionadimension Dsit nerhlssavbenwdeouhtcnenpliy ii~~ease~~~ "CMr~~a4ernains comfortably amonstandg g te Preent ....... . . 197 remained a desperately poor, rural, and agricultural concerns about regional diprte,tebenefits of economy. Sixty percent of China's I billion citizens sur- growth have been widely shared among China's coun- vived on less than $1 a day, the international poverty try-size provincial economies. Although the coastal standard. provinces grew faster than average at 9.7 percent a year, The rest, as they say, is history. The introduction of the other provinces also fared well. Indeed, if China's agricultural reforms was the first sprinkling that rejuve- thirty provinces were counted as individual economies, nated the parched economy, launching a growth the twenty fastest-growing economies in the world process that has transformed the face of China. The tor- between 1978 and 1995 would have been Chinese. rid growth rate set over the next seventeen years helped The second notable fe-ature is the sharp cyclical pat- the Chinese double their per capita income every ten tern of economic growth. Although the ups and downs years, faster than almost any country in recent history of China's postreform business cycles pale in compari- (figure 1.2).' son with the wild swings in GDP growth seen during the Three features of China's rapid growth are especially Great Leap Forward and the Cultural Revolution, they noteworthy. The first is its regional dimension. Despite nevertheless have been wide enough to concern policy- UMderstandirig the Presernt 3 makers (figure 1.3). These growth cycles have been But even after these adjustments, the fact remains that accompanied by similar fluctuations in the rate of infla- China's growth has come from much more than the tion, revealing fault lines in macroeconomic manage- mere accumulation of factors of production. ment stemming from partially completed reforms in the China's remarkably rapid growth since 1978 has fiscal, enterprise, and banking systems. been driven by four factors: The third noteworthy feature of China's growth * A high savings rate, which has supported vigorous since 1978 is its reliance on productivity growth. rates of investment and capital accumulation. Relative to other rapidly growing Asian economies, * Structural change, which has been both a cause and China's growth has been less dependent on volume an effect of growth. increases in inputs of capital and labor. Consider, for * Pragmatic reforms, which were well suited to China's example, growth in the stock of physical capital (table unusual circumstances and enjoyed broad support. 1.1). In most countries growth in capital inputs exceeds * Economic conditions in 1978, which were especially GDP growth, often by a substantial margin.5 In China receptive to reform; China's economy could be the reverse occurred, suggesting that factors other than described as a dry prairie, parched by years of planning, capital accumulation have been important determi- awaiting the first sprinklings of market reform. nants of GDP growth. Each of these factors is considered in turn. In fact, a conventional technique to account for the sources of growth in China reveals that growth in capi- High savings tal inputs explains just 37 percent of growth (annex 1). Another 17 percent can be attributed to improvements The most striking feature of China's remarkable perfor- in the quantity and quality of the labor force. Thus mance since 1978 is its savings rate. Savings, as much as nearly half of China's GDP growth-4.3 percentage growth, is China's real economic miracle. According to points a year-is due to other factors. Data deficiencies official statistics, China's savings rate averaged 37 per- along the lines of those discussed in box 1.1 can reduce cent of GDP between 1978 and 1995, although more the absolute size of this residual component of growth conservative estimates place it at 33-34 percent.6 Even slightly, as can differing methodological assumptions. so, this rate is among the highest in the world. 11,111.11'. ~ ~~~No less important, the savings rate was remarkably g991igg9 '>' '-> '~, '> '> '' '' '~' > '~ >high-quality data, with observations in the early 1980s and early 1990s. Source: World Bank staff estimates. Source: Deininger and Squire 1996. 8 China 2020: Development Challenges in the New Century BOX 1.3 _ = th.e o objectives ofre modest. With succes,teybeame ourceCRising grain yields Index of yields W~~~~~9~~~~\ ~ ~ ~ ~ ~ ~ ~ (1978 - 100) ~~hange ~~~~~~ . ~200 Average growth ~~ An ~~~~~~OflQ~~~~~ ~~~ ~~ ~~~te~~~~u ~1.8% called forth developmen of '4a planned i~ecronomy sup Bu5.7%t motn faueo arclua plemenedby anket reguaton."y Bnd 1993t ulthe oalhd rfrna h nrdcino h oshlepni matupredto th cration ofa "scilit markewth ecnm biiysse,.ne9hc cletvl ondln a ~~~& \~~~~~~~~ Ar -# 0 1952 1960 1970 1978 1984 1995 the objectives were modest With success, they became Source: China Stoiusticol Yearbook, various issues. more ambitious. In 1979C for example, the government called for the development of "a planned economy sup- But the most important feature of agricultural plemented by marker regulation. By 1993 the goal had reform was the introduction of the household responsi- matured to the creation of a "socialist market economy bility system, under which collectively owned land was with Chinese characteristics" (box 1.3). assigned to households for up to fifteen years. The cen- These features of China's reforms-decentralization, tral government had banned the system, which trans- incrementalism, and pragmatism-are best illustrated ferred profits and production decisions from communes in four key areas where reforms did much to stimulate to households. But local governments encouraged it, growth: agriculture, rural industry, trade, and state and in late 1981 the central government signaled its enterprises. approval (figure 1.12).14 The household responsibility system went on to become the cornerstone of reforms in Agriculture agriculture and arguably in the whole economy. It is hardly surprising that China's policymakers focused their initial reform efforts on agriculture. In the decade Expansion of the rural household before 1978 they had been repeatedly disappointed by the responsibility system performance of communal agriculture. Grain yields, after Percentage of households participating at year end rising rapidly during the 1960s, had slowed markedly 100 98% 99% despite increased investments in agriculture (figure 1.11). 100 This slowdown, combined with a long tradition of con- 80% cern for food self-sufficiency and social stability in rural 80 areas, made agricultural reforms a natural starting point. 60 Agricultural reforms were launched with large 45% increases in the procurement prices for grains. In addi- 40 tion, farmers were allowed to sell above-quota produc- tion at market prices, a practice that had already started 20 14% in some communes."3 The government lowered grain quotas, increased grain imports, loosened restrictions 0 on private interprovincial trade, and introduced special 1979 1980 1981 1982 1983 1984 Suc:Lin 1992. programs to increase production of cotton. Undlerstanding the Ilreserit 9 Despite their partial and incremental nature, these Individually and privately owned enterprises have steps proved very successful. Growth in agricultural become the driving force for industrial expansion as yields accelerated, and the pattern of production changed government policies toward these types of ownership as regions were able to specialize in crops of their choos- have softened. ing. By one estimate the introduction of the household responsibility system alone contributed nearly half of the The great leap outward growth in agricultural output between 1978 and 1984.1s The decentralization of authority evident in policies Rural industry toward agriculture and rural industry was mirrored in China's economic relations with the world. By 1978 The agricultural reforms initiated in 1978 were closely earning more foreign exchange had become a priority. tied to the boom in rural industry that followed. Before Government foreign exchange reserves were negative, 1978 rural industrialization had been an important fea- and the country faced a foreign exchange crisis."8 It ture of the commune-based system of agricultural needed to import grains and fertilizer to support the development. But commune- and brigade-run enter- agricultural reforms, and plant and equipment to close prises did not produce consumer goods and were not the widening technological gap with its neighbors. geared to market demand. They were often simply China's economy opened to the outside world along workshops for agricultural machinery, designed to sup- three avenues. First was reform of the trade system. The port agricultural production. government abandoned its reliance on a few foreign Agricultural reforms created the conditions for a rural trade corporations, and within a few years thousands of industrial boom that continues to reverberate today. corporations were allowed to trade internationally, First, agricultural price increases and the production many of them sanctioned by local, not central, govern- response that followed increased rural incomes substan- ment. Planning, too, was trimmed back. Until 1979 the tially. As a result higher rural savings could be invested in state plan set procurement targets for 3,000 export rural industries, which generated higher returns than products. By 1985 that number had shrunk to 100 (and farming.16 Second, the reforms boosted agricultural pro- today it is zero). The plan was replaced by import ductivity, which freed surplus labor previously concealed licensing, which was gradually relaxed as the foreign in the commune system and so provided a steady supply exchange constraint eased. Tariffs on imports were of workers for rural industry. Third, higher rural incomes steadily lowered. Nontariff barriers, however, still created a ready market for rural industry. Fourth, these affect a wide range of products, although they too have new commercial activities were legitimized by changes in been reduced in scope and severity. political philosophy and attitudes. Second, to stimulate exports, the heavy hand of gov- Official government support for these changes came ernment in allocating foreign exchange gave way to a only in 1984, six years after rural industrialization had lighter touch. Exporters were allowed to retain a por- begun. The government eased state controls on buying tion of their foreign exchange receipts, and individuals agricultural materials, making them available to rural were gradually given more freedom to hold foreign enterprises for processing. Urban firms were encour- exchange. The right to import was liberalized as foreign aged to subcontract work to rural enterprises. More exchange markets developed with official support. generally, production restrictions were relaxed, taxes Today's sophisticated interbank market for foreign were low, and enterprises were allowed to pursue what- exchange bears little resemblance to its earliest prede- ever activity they chose. cessor-the foreign exchange adjustment centers of The new policies helped maintain the momentum of 1985. Other banks were permitted to erode the Bank of growth of collectively owned enterprises through the China's monopoly on foreign exchange transactions. 1980s. These enterprises accounted for 22 percent of Perhaps most important, the government maintained a industrial output in 1978. Their share reached 30 per- realistic exchange rate policy. It almost halved the cent by 1984, without any overt central support, and exchange rate at the outset of the reforms and devalued climbed to 36 percent by 1988, where it has remained.'7 the currency on four later occasions (figure 1 .13).19 10 China 2020: ID)evelopmrent C.haffleiiges in the Nelw Century * -- / Most of the zones were in coastal provinces and con- Sustained reaL depreciation tributed significantly to the provinces' higher than aver- Sustoryuained reale dpreationage growth rates. One study found that the extra growth US dollr-yuan exchange rate enjoyed by China's coastal cities in the late 198 Os can be explained entirely by the extra foreign investment they were able to attract.2' Foreign companies introduced 100 < \advanced transport and electronics technology and Nominal helped upgrade key services, such as hotels. These new 80 skills, together with China's ability to assimilate them, 60 ea helped improve international competitiveness.22 40 State enterprises 20 The new policies put great pressure on state enterprises, which had been the mainstay of the economic system 1978 1980 1982 1984 1986 1988 1990 1992 1995 before 1978. Fed a diet of state subsidies for decades, Source: World Bank data. many lacked the ability to adapt and innovate. With reforms, their dependence on public subsidies began to increase. The government's desire to contain its budget Third, the government gradually relaxed regulations deficit meant that the state banking system became their on foreign direct investment. It established special eco- main source of financial support. nomic zones that offered foreign investors special fiscal, Beginning in 1980 many enterprises acquired infrastructural, and financial incentives. The first four increasing autonomy over their operations. New free- special economic zones were created in 1980 and a fifth, doms included a slowly rising share of profits that could in Hainan, was added a decade later. The zones' success be retained for wage bonuses and new investment, in attracting foreign investment, stimulating trade, and greater autonomy over production decisions and invigorating growth soon led to demands from other wages, adoption of the "management responsibility towns and provinces for similar arrangements. By 1993 system" (seen as a counterpart to agriculture's house- more than 9,000 economic zones had been established hold responsibility system), and in some cases recruit- throughout China.20 They came in all shapes and ment of new management (table 1.2). Central and local sizes-economic and technological development zones, governments usually negotiated these new freedoms hi-tech development zones, open coastal cities, export firm by firm. As a result the operational environment processing zones, free trade zones, a financial zone, and varied enormously between firms, across regions, and free ports. across sectors. In 1984 the Enterprise Bill of Rights for- TABLE 1.2 Increased autonomy for state enterprises during the 1980s (percent) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 Base retention ratea 7 19 22 30 34 37 39 38 39 39 Marginal retention rateb 11 12 11 14 17 17 19 23 26 27 Autonomy in production decisionsc 7 8 10 14 25 35 40 53 64 67 Wage discretion' 1 1 1 2 5 9 12 20 32 35 Management responsibility systemc 0 0 0 1 2 4 8 42 83 88 New management appointed after 1980' 9 9 15 25 40 40 61 75 85 94 Note: Based on a 1991 retrospective sample survey of state enterprises by the Chinese Academy of Social Sciences. a. Portion of profits that could be retained if profits did not exceed a specified base Level. b. Portion of profits that could be retained if profits exceeded the base level. c. Share of firms in the sample. Source: Xu 1996. U nderstanding the Presenit 11 malized these changes and created an additional that of the Great Leap Forward, had undone many of the impetus for growth. early economic benefits following the founding of the The increased autonomy of state enterprises allowed People's Republic. One study estimates that without the them to benefit from China's dual-track pricing system, Great Leap Forward and the Cultural Revolution, out- also introduced in the early 1980s. Under this system put per capita in 1993 would have been double its actual planners typically set a price for a commodity but level.26 In 1978 real incomes in rural areas had been stag- allowed all above-plan output to be sold at market nant for more than a decade. The country was running prices. Since the volume of planned output barely short of foreign exchange to purchase essential imports. changed, enterprises sold more and more in the open The widening technological gap between China and the market. Thus all growth and development occurred at rest of the world had become too large to ignore. Perhaps market prices, which almost certainly improved resource most important, China's neighbors in East Asia had allocation.23 Because no enterprise was made worse off demonstrated the potential for growth when high-sav- and some were clearly made better off, the reforms ings economies adopted market principles. received enthusiastic support.24 Today more than 95 per- Second, somewhat ironically, China enjoyed the cent of industrial output is sold at market prices. "advantages" of backwardness (box 1.4).27 More than The decentralization of management decisions two-thirds of the population lived in the countryside. boosted the productivity of firms.25 But relative to the They had no income guarantees and, despite rising rest of the economy, state industrial enterprises lan- guished, with slow growth and declining profits. In part this was because state enterprises, unlike their nonstate = i; competitors, were required to provide job security and a range of social services, such as housing, education, at and health care. Yet slackening performance also reflected a deeper malaise rooted in the poor investment decisions of the past and in an "iron rice bowl" system i o that did not penalize low productivity. f- e In the past several years, however, lower subsidies, tighter credit, and growing competition have begun to unmask the poor financial condition of many state f po t enterprises, prompting new approaches to enterprise Ch,,' ''0b l7S-94' reform, especially at the local level. Examples include .. mergers, leases, corporatization, management con- tracts, worker and management buyouts, and bank- ruptcies. At the same time, the center is focusing on reforming and revitalizing 1,000 (from more than . 100,000) state industrial firms that will form the core of China's modern enterprise system. Initial conditions Reforms in China spurred an economic response that continues to astound the world. High savings and struc- tural change were undoubtedly helpful. But several fea- tures of the Chinese economy in 1978 made it particularly ripe for change. First, China was simply ready for reform. The eco- - w Banli A Q i tn nomic disruption of the Cultural Revolution, and before 12 China 2020: Development Challenges in the New C(entury yields, for more than two decades their average incomes labor-intensive industries from Hong Kong and had barely grown. For them, the uncertainties of reform Taiwan, China, to the mainland, helped by a common were less alarming than the difficulties of the present language and a tradition of business through family system. And agriculture's surplus labor meant that rural connections. The Chinese diaspora brought more than industry could achieve rapid, uninterrupted growth for money: it also contributed commercial expertise, almost two decades without facing wage pressures. knowledge of foreign markets, new approaches to man- Third, contrary to popular perception, planning was agement, new ideas on economic policies, and the latest less entrenched in China than it had been in other tran- labor-intensive technologies. sition economies. In the 1970s central government agencies in the Soviet Union physically allocated about Notes 60,000 different commodities through the plan. In China in 1978 the number was about 600, unchanged 1. World Bank (1996). 2. The alternative GDP growth rate derived in box 1.1 is obtained from 1965.28 Not even the most determined planners by redeflating the expenditure components of GDP using alternative could oversee an economy of the size and complexity of deflators, as follows. For consumption, we use the consumer price China's. Even at the height of planning, about 30,000 index (CPI). Although a national CPI was not available until 1986, one can be inferred from data on real and nominal per capita consumption rural markets continued to operate, albeit with restric- growth reported in China Statistical Yearbook 1996, table 9.2. For tions.29 Smuggling was rife. So when commercial activ- investment, we use the price index for building materials in China ities were legalized, Chinese entrepreneurs needed little Statisticai Yearbook 1996, table 8.12. An alternative approach is to examine the deflators for the components of GDP by sector of origin, encouragement to expand. which leads to similar conclusions. For example, Woo (1995) suggests Fourth, China had always had a strong administra- that the factory-gate price of industrial output is a better measure of tive capacity, especially at the provincial level. Over cen- price increases in industry. This approach resuLts in a similar reduc- tion in per capita GDP growth of about 1 percent. Finally, Summers turies China had developed a sophisticated system of and Heston, in their widely used database on per capita incomes at local government to raise revenues and store grain as purchasing power parity, somewhat arbitrarily assume that consump- insurance against famine.30 This tradition of local gov- tion growth is overstated by 30 percent and investment growth by 40 percent, further lowering estimates of per capita GDP growth. ernment became stronger under communist rule. So 3. Maddison (1995). For China since 1950, Maddison uses the when reforms required administrative and financial Summers-Heston GDP estimates, resulting in a GDP growth rate since decentralization, provincial governments were able to 1978 that is substantially lower than official statistics. 4. Only two countries, Japan and Korea, have grown faster in the take on the new responsibility. Moreover, the central post-World War II era. bureaucracy, severely weakened in the throes of the 5. Nehru and Dhareshwar (1994). In only eight of the ninety-three Cultural Revolution, quietly acquiesced to the shift in countries covered in the Nehru-Dhareshwar data set do GDP growth economic ower away from the center. rates exceed capital stock growth rates. economic power away from the center. 6. World Bank (1994). Fifth, China had a skilled and disciplined labor force. 7. See Yusuf (1994). Despite disruptions to education during the Cultural 8. See Chenery and Syrquin (1975) for a classic reference on the Revoluion, iteray washigh y thestandrds o most international experience. Revolution, literacy was high by the standards of most 9. In some areas the predominant outflow of young male migrants developing countries. The average worker had 3.6 years has contributed to a "feminization" of agriculture, lowering the wel- of primary education, almost half a year more than the fare of women who now have to toil on the farm and continue with their household responsibilities (especially child rearing). developing country average of 3.2 years.3" A relatively 10. Recent official statistics on the size of the nonstate, noncol- large portion also had a secondary education. The share lective sector may be somewhat misleading because some corporatized of technicians and engineers in the industrial labor force state enterprises may be classified in this category. 11. Figure 1.8 is constructed as follows: Data on provincial per was higher than in many newly industrializing economies capita GDP and the nonagricultural share of GDP underlying the top of Southeast Asia. figure are drawn from provincial statistical yearbooks. The other two Finally, the Chinese diaspora extended to virtually all figures use data on urban and rural incomes from China's household of the world. Chinse inosurvey, adjusted to correct for vanous deficiencies as discussed in corners of the world. Chmese minorities m several World Bank (1997). First, urban incomes are scaled up by a time-vary- Southeast Asian countries had considerable economic ing factor averaging 1.5, reflecting the value of in-kind incomes as power, and they figured prominently in the explosive estimated by the urban household survey team of the State Statistical Bureau and an estimate that urban costs of living are 15 percent higher growth of foreign direct investment in China. Over the than rural. Since in-kind incomes have an equalizing effect on income past ten years there has been a wholesale movement of distribution (they account for a larger share of the income of poor Understandirng the l'resent 13 households), the urban Theil index is scaled down by a factor of 0.6. Cao, Y.Z., G. Fan, and WT. Woo. 1995. 'Chinese Economic Rural incomes are adjusted by extending the results of Ravattion and Reforms: Past Successes and Future Challenges." Paper pre- Chen (1997) for four provinces to the entire country. Prior to 1990 sented at the meeting of the Asia Foundation Project Economies ruralincomes are scaled up by a factor rising from 1.06 to 1.14, reflect- in Transition, Ho Chi Minh City, Hanoi, Beijing, and Ulan Bator. ing the undervaluation of income from grain produced by rural house- Chenery, H., and M. Syrquin. 1975. Patterns of Development, holds for personal consumption. Since this adjustment also has an 1950-70. New York: Oxford University Press. equalizing effect, the rural Theil index is scaled down by a factor that China State Statistical Bureau. Various years. China Statistical falls from 0.86 to 0.69 in 1989. We assume that changes in the house- Yearbook. Beijing. hold survey since 1990 fully correct for the problems of rural grain Chow, G. 1993. 'Capital Formation and Economic Growth in undervaluation. The inequality measure is the Theil index, which can China." Quarterly Journal of Economics 108(3): 809-42. be decomposed into rural-urban inequality, which captures the varia- Chow, G., and Y. Kwan. 1996. 'Estimating Economic Effects of tion of national average rural and urban per capita incomes around the Political Movements in China." Journal of Comparative the national mean; intraurban inequality, which captures the variation Economics 23(2): 192-208. of per capita incomes within urban areas; and intrarural inequality, Deininger, K., and L. Squire. 1996. "A New Data Set Measuring which captures the variation of per capita incomes within rural areas. Income Inequality." The World Bank Economic Review 12. World Bank (1997). 10(3):565-91. 13. Quota prices for most agricultural products were increased by Lardy, N.L. 1992. Foreign Trade and Economic Reform in China. an average of 17.1 percent. Above-quota procurement commanded a New York: Cambridge University Press. 30-50 percent premium. The weighted average price increase was 22.1 Lau, L., Y. Qian, and G. Roland. 1996. 'Pareto-Improving percent (Lin 1992). Reforms through Dual-Track Liberalization." Stanford 14. This discussion draws heavily on Lin (1992). Lin notes that University, Department of Economics, Stanford, Calif. nearly half of China's agricultural communes had been disbanded by Lin, J.Y. 1992. "Rural Reforms and Agricultural Growth in the time the practice was authorized by the centraL government. China." American Economic Review 82(1):34-51. 15. Lin (1992). Maddison, A. 1995. Monitoring the World Economy. Paris: 16. See Peng (1994) for a discussion of the reliance of township Organisation for Economic Co-operation and Development. enterprises on local rural sources of finance. Naughton, B. 1995. Growing Out of the Plan: Chinese Economic 17. China Statistical Yearbook, various issues. Reform, 1978-93. New York: Cambridge University Press. 18. Wall, Boke, and Yin (1993, table 12.1, p. 102). Nehru, V., and A. Dhareshwar. 1994. "TFP Growth in Industrial 19. Lardy (1992). and Developing Countries." Policy Research Working Paper 20. Wall, Boke, and Yin (1993, p. 5). 1313. World Bank, International Economics Department, 21. Wei (1993). Washington, D.C. 22. Yusuf (1994). Nehru, V., E. Swanson, and A. Dubey. 1995. 'A New Database 23. Naughton (1995, p. 8). on Human Capital Stock: Sources, Methodology and Results." 24. Lau, Qian, and Roland (1996). Journal of Development Economics 46(3):379-401. 25. Xu (1996). Peng, Y. 1994. 'Capital Formation in Rural Enterprises." In C. 26. Chow and Kwan (1996). Findlay, A. Watson, and H. Wu, eds., Rural Enterprises in 27. The figure in box 1.4 plots the partial correlation between ini- China. New York: St. Martin's Press. tial per capita income and subsequent growth based on the following Qian, Y., and C. Xu. 1992. "Why China's Economic Reforms standard cross-country growth regression: Differ: The M-Form Hierarchy and Entry/Expansion of the g - .039 - .0121n(y0) + .0121n(i/y) - .022(n + 6 + x) + .008Ln(sec) Non-State Sector." The Economics of Transition 1(2):135-70. (.037) (.002) (.003) (.014) (.002) Ravallion, M., and S. Chen. 1997. "When Economic Reform Is where g is average annual per capita GDP growth between 1960 and Faster Than Statistical Reform: Measuring and Explaining the 1990, y° is per capita GDP in 1960 (1978 for China), i/y is the period Inequality in Rural China." World Bank, Policy Research average investment/GDP ratio, n is the population growth rate, 6 + x Department, Washington, D.C. is the rate of deprenation plus productivity growth set equal to 0.5, Summers, R., and A. Heston. 1991. 'Penn World Tables (Mark and sec is the secondary school enrollment rate in 1960. Numbers in 5): An Expanded Set of International Comparisons, parentheses are standard errors. The sample covers ninety-two coun- 1950-1988." Quarterly Journal of Economics 106(2): 327-68. tries. China's growth is for 1978-94; initial income is for 1978. Wall, D., J. Boke, and X. Yin. 1993. China's Opening Door. 28. Naughton (1995, p. 42). Qian and Xu (1992) argue that the London: Royal Institute of International Affairs. Soviet Union included 25 million commodities in its economic plans, Wei, S.J. 1993. "Open Door Policy and China's Rapid Growth: while China included about 1,200. Evidence from City Level Data." NBER Working Paper 4602. 29. Naughton (1995, p. 38). National Bureau of Economic Research, Cambridge, Mass. 30. Will and Wong (1991). Will, P., and R.B. Wong. 1991. Nourish the People: The State 31. Nehru, Swanson, and Dubey (1995). Civilian Granary System in China, 1650-1850. Ann Arbor: University of Michigan. Woo, WT. 1995. "Chinese Economic Growth: Sources and References Prospects." University of California at Davis, Department of Economics. Cai, E 1996. "Long-term Urbanization and Key Urban Policy World Bank. 1991. World Development Report 1991: The Issues in China." Background paper prepared for this report, Challenges of Development. New York: Oxford University with financial support from the Canadian International Press. Development Agency. . 1994. "China: GNP Per Capita." Report 13580-CHA. 14 China 2020(: Development C(hallenges in the New Century China and Mongolia Department, Washington, D.C. Flow Rights and Management: A Theoretical and Empirical . 1996. Poverty in China: What Do the Numbers Say? - Analysis of the Chinese Industrial Reforms." World Bank, Washington, D.C. Washington, D.C. . 1997. Sharing Rising Incomes: Disparities in China. Yusuf, S. 1994. "China's Macroeconomic Performance and Washington, D.C. Management During Transition." Journal of Economic Xu, L.C. 1996. "The Productivity Effects of Decentralizing Cash Perspectives 8(2):71-92. I Understanding the l:Present 15 Divining the Future ~~ ~he strength of the Chinese economy over the Vpast to decades does not guarantee that China will continue to grow rapidly in the future. After all, for most countries past growth is a poor predictor of future performance.' Even the Asian "tigers," whose growth has been spectacular for many years, show signs of fading as their economies mature. China has some real advantages, however. Its high sav- ings rate, relative stability, large domestic market, and . W g,~~~~~~~~~~..',....... record of reform bode well for future growth. Even so, the future will be challenging-probably increasingly so. Moreover, rapid economic growth is not the government's sole economic objective nor should it be. Growth must also be sustainable and its benefits must reach the poor and the vulnerable. And growth should protect the envi- ronment for future generations and ensure women their equal place in society. 17 These concerns are reflected in China's Ninth Five- completing the transition. To accomplish this task Year Plan and its Fifteen-Year Perspective Plan (box China needs an effective government, not a large one. 2.1). The two plans focus not just on the future pace of An effective government will create more room for growth but also on the entire direction of development. markets to operate and distinguish between the roles of They differ from previous plans because they focus on the market and those of the state. Indeed, a recurrent strategies, policies, and programs and place less empha- theme in the Ninth Five-Year Plan is the importance of sis on physical and quantifiable targets. Together, the firmly differentiating the basic role of the market (allo- plans lay out the government's approach to achieving cating resources) from that of the state (providing rapid and sustained growth well into the twenty-first macroeconomic control and a policy framework in line century. with China's strategic needs and objectives).2 These twin concerns-the pace and sustainability of Pressing ahead with reforms to complete the transi- China's growth-are also the themes of this chapter and tion to market is an immediate priority for China. This indeed this entire book. This chapter also examines book therefore deals with it first (in chapter 3), laying out China's growth potential over the long term using a the issues and long-term agenda for developing the fiscal, simple model of growth and structural change. It does financial, enterprise, and legal systems that will form the not try to predict China's future, but it does illustrate foundations for a strong market-based economy. what China could achieve if it stays the course. * A deteriorating environment. Achieving ambitious growth targets would be a hollow victory if it were not Growth challenges accompanied by improvements in people's physical environment. Along with the rapid economic growth, The various forces playing on China's growth rate are urbanization, and industrialization of the past two summarized in figure 2.1. The strengths and advantages decades has come a dramatic increase in air and water have already been analyzed; but they are opposed by a pollution. In the future, needs for water and energy will formidable array of risks and challenges. have to be balanced by concerns for the environment. - Incomplete foundations. China is midstream in its Rapid urbanization should be accompanied by pro- transition to a market economy. The government's role grams that ensure clean air and water for city dwellers. in laying the institutional, social, physical, and legal Achieving these objectives will require a complex mix foundations for market development will be crucial in of regulations and market-based incentives. 18 C;hina 20u20: Development C nalletites t ti the New Ceeetturs h5URNG A : China's opposing forces High 'Advantages' of Literate ReLative Administrative Chinese savings backwardness labor force stability strength diaspora Strengths l and I_ _ _ _ _ _ advantages Growth Risks and challenges Incomplete Deteriorating Income Rising Food Trade transition environment insecurity inequaLity security frctions Source: World Bank staff. Income insecurity. China has made great strides in for agricultural production and distribution, closer introducing market forces into the economy. But the integration with world food markets, more rural infra- bracing effects of competition are being accompanied structure, greater efficiency in water use, and better by increased risks, especially to employment and flood control. income. As China grows richer, it will require policies * Trade frictions. Although rapid export growth and institutions that ensure a caring yet competitive sys- worked for many countries in the second half of the tem to help the vulnerable manage these risks and to twentieth century, it may work less well for China in the promote human potential in all dimensions. twenty-first century. China is an enormous country with This will require the creation of entirely new social a potential capacity for more exports. Increasing structures for the twenty-first century. Changing exports, however, will require adjustments by both trade employment patterns and foreseeable shifts in the age competitors and partners. Their governments may be structure of China's population call for a fresh look at more sensitive to trade issues today than they were in the policies and institutions affecting labor markets, the 1950s. But the choice for China remains clear. Greater welfare of the poor, the financial security of the elderly, openness and transparency in its trade regime could and equal access for all (especially girls and women) to enhance domestic production and allocative efficiency, jobs, health care, and education. facilitate the acquisition of new technology, and increase Foodgrain security. China's concerns about food the flow of manufacturing and marketing information. security are as perennial as the harvest. Policymakers, And greater integration of China with the world econ- facing a growing and prospering population and a dif- omy would yield significant benefits for its major trad- ficult international environment, are acutely aware of ing partners in East Asia, Europe, and the Americas. these concerns. Indeed, food security tops the list of five priorities for "promoting sustained, rapid, and sound Growth possibilities development of the national economy" in the Ninth Five-Year Plan and the Fifteen-Year Perspective Plan.3 China's Five-Year Plan for 1996-2000 targets GDP Some of China's food security concerns are the inevi- growth of 8 percent a year. In 1996, the first year of the table consequences of geography. To be agriculturally plan, GDP growth reached 9.5 percent. To achieve the self-sufficient, China must find a way to feed 20 percent plan target by 2000, China will need to grow by an of the world's population using just 7 percent of the average of 7.6 percent a year over the next four years. world's arable land.4 The government is exploring ways By the standards of recent years, such growth does not to achieve this objective-including stronger incentives seem unduly ambitious. I)ivininig the Furure 19 But what about the longer term? Could China keep of growth and structural change to examine China's growing so rapidly, not just for the next four years but growth potential over the next quarter-century.5 for the next twenty-four? In particular, will high savings, Even modest variations in savings and productivity structural change, and policy reform continue to be as growth have powerful effects, resulting in growth rates powerful a combination as they have been since 1978? ranging from 4 percent to 8 percent a year (table 2.1). Projecting long-term growth is not for the fainthearted. The cumulative effect of that gap amounts to more than There is always the possibility of nonlinear change, as key a twofold difference in per capita incomes by 2020. variables start to behave quite differently. For China non- What do these alternative scenarios imply for policy? Iinearities may be especially pronounced, given the rapid The links between the fundamental determinants of changes in the country's structure, the scale of its econ- growth and the policies of government are many and omy, and the underlying complexity of its growth dynam- complex. After all, the bulk of China's savings is the ics. The World Bank has often been accused of result of decisions by households and enterprises, not overestimating the growth potential of its clients. In by the government. Similarly, many efficiency gains China, however, past Bank projections have tended to underpinning growth will be generated by individuals underpredict growth, often substantially (figure 2.2). In and firms pursuing their self-interest in competitive fact, China's GDP in 1995 was nearly double that pre- markets, rather than directly by actions of the state. dicted by the World Bank in 1985, the last time the Bank Even so, the government's actions are not irrelevant to published a long-term study on the Chinese economy. long-term growth. The twin thrusts of the government's Nevertheless, projecting the future can be a useful exer- program-deepened reforms and continued stability- cise, if only to highlight the constraints that a particular will profoundly shape the environment in which house- path of savings and productivity growth place on long- holds and enterprises operate (figure 2.3). Successful term economic growth. The government is well aware of reforms will increase efficiency gains by creating incen- these constraints. Its Ninth Five-Year Plan emphasizes the tives for work and innovation and by establishing the imperative of more intensive growth, recognizing the fun- essential foundations of the rule of law and secure prop- damental importance of further productivity and effi- erty rights. A stable macroeconomic environment and ciency gains for sustained, rapid development. financial system will enable savings to be channeled to Accordingly, this section uses a simple supply-side model their most productive uses. Finally, growth will be accompanied by further dramatic changes, especially in the structure of the labor force, that the government has Trailing in the wind: WorLd Bank projections a responsibility to manage in an orderly way. All this of China's GDP compared with actual points to the importance of the government pressing outcomes ahead with efforts to deepen reforms and maintain sta- GDP level (in logs) bility in a large and rapidly changing economy. 5,000 To examine the prospects for growth more closely, consider a scenario in which China's savings rate 4,000 199 declines from around 40 percent to a still-robust 35 per- Actual GDP 3,000 ActL GP 198 TABLE 2.1 1985 GDP growth, 1995-2020: Alternative scenarios (annual percentage growth) 2,000 ^ Total factor productivity growth Savings/GDP ratio 1 1.5 2 1,000 1/-1 983 20 4.2 4.9 5.5 25 4 0 ~~~~~ ~~305~ 1980 1984 1988 1992 1996 2000 2004 40 6.4 7.2 7.9 Source: World Bank staff estimates. Note: Shaded area indicates likely growth rates. I Source: World Bank staff estimates. 20 Chinia 2020: I)evelopment Challenges in the New C'entury 2020 (table 2.2). Three forces are expected to con- policies to growth ~~tribute to this decline. The first is demographics. From polcies to growth Projections indicate that by 2020 the labor force will Efficiency gains essentially have stopped growing as a result of slower (TFP) Growth population growth and a changing age structure. Second, just 10 percent of China's expected capital stock in 2020 is in place today. As capital accumulates, 8% each additional unit can be expected to contribute less 6% to output-the economic law of diminishing returns. Reforms HousehoLds Third, as the economy matures, structural change will aned provide a smaller boost to growth because resources in nterprise Savings the economy will be more efficiently allocated. In par- Xtabiity ticular, China will reap fewer benefits from transferring surplus labor out of agriculture and from one-shot effi- ciency gains. And as China narrows the technology gap with other economies, its impetus for technical progress will ease. Source: World Bank staff. From a sectoral perspective the decline in projected GDP growth is partly a consequence of lower industrial cent over the next ten years, while productivity growth growth (see table 2.2). Here, much will depend on the fades slightly, to a more modest 1.5 percent a year. In pace of reforms. If the government falters in its com- this scenario GDP growth would be 8.4 percent a year mitment to a dynamic nonstate sector (which provided between 1996 and 2000 (comfortably in line with the the foundation for recent growth) and slows reform of Ninth Five-Year Plan target) and would average 6.6 state enterprises, the drop in industrial growth may be percent over the twenty-five years until 2020. By 2020 even steeper. Even so, industry will continue to account per capita incomes in China would be approaching for a much larger share of GDP than is the norm for those of Portugal today but would still be less than half low- and middle-income countries-the legacy of a those in the United States (figure 2.4).6 planning system that emphasized rapid industrial As the numbers suggest, the pace of GDP growth will growth above all else (figure 2.5). slow over time, from 9-10 percent today to S percent in Agriculture is expected to grow at about the same rate as it has in the past. But even keeping up this pace will be a major challenge (see chapter 5). The agricul- tural commitments in the Ninth Five-Year Plan could A long way to go: China's per capita GDP boost the sector's growth in the short term, but some in 2020 slowdown is likely thereafter. Services are expected to be by far the most dynamic 0 10,000 20,000 30,000 sector of the economy. Despite strong growth in the China today _ TABLE 2.2 China 2020 Sectoral underpinnings to GDP growth (percent) Actual Projected U.S. today 1985-95 1996-2000 2001-10 2011-20 1995-2020 GDP 9.8 8.4 6.9 5.5 6.6 Portugal today Agriculture 4.2 3.1 4.2 3.7 3.8 Industry 13.1 9.2 6.6 5.4 6.6 Note: GDP calculated at purchasing power parity. Services 9.8 9.7 8.1 6.0 7.6 Source. World Bank staff estimates. Source: World Bank staff estimates; China Stotistical Yearbook 1996. [)ivining the Future 21 NNWg .. ... .... ........ In human terms this transformation of the labor force Growth wit. beaccompaniedbychanis staggering: for agriculture alone it will fundamentally the structure of GDP and empboyment change the lives of 200 million people. Managing this Percent transition, and the inevitable pressures it will place on GDP urban infrastructure, labor market institutions, and 100 ----. -- social programs, is one of the biggest challenges the gov- 80 0 g Services i | ernment faces. But the transformation should be viewed as an opportunity, not a threat. China's surplus labor is J - W \ 0 | one of its greatest resources. Efficiently handled, it will 60 ~ ~ . A | | provide a powerful impetus to growth. 40 g Industry l These scenarios paint a complex picture of China's -'ge ~~~~~~~~~future. Rapid growth over the next quarter-century is 20 clearly possible. But achieving needed savings rates and 0 _ Agricuttue_ l l l i L productivity growth will require maintaining the China China Typical Lower- Typical upper- momentum of reforms and skilled macroeconomic and 1995 ~~2020 middle-income middle-income country today country today sectoral management. These themes of supportive Employment reform and successful management of change are 00nduAtry 1. Easterly and others (199) 40 l \m2. Li (1996, p. 10 in the English translation). | - \ - _ - ~~~~~~~~~~~3. Li (1996, p. 10). The remaining priorities are adjustments in I _ \ _ ~~~~~~~~~~~~industrial structure, development of regional economies, macroeco- 20 Agniculture nomic stability, and rising living standards. I _ _ _ _ ~~~~~~~~~~~~~~4. China Statistical Yearbookl1996. Arable land figures refer to total 0 cropland in 1995, which was about 95 miLLon hectares, or 7 percent China China Typical lower- Typical upper- of the world's 1,450 million hectares. 1995 2020 middle-income middle-income 5. see annex 2 for a complete description of the model. country today country today 6 hscmaio sbsdo h tnadpatc fapyn Source: World Bank staff estimates. 6 hscmaio sbsdo h tnadpatc fapyn _________________________________________________ real (projected) local currency growth rates to current World Bank esti- mates of per capita GDP at purchasing power parity (pPP). These pro- past decade, the share of services in China's GDP is still jections are subject to the same substantial margins of error as are , . . ~~~~~~~estimates of China's current level of per capia GDP at PPP. well below that of a typical low-income (let alone mid- 7. Hu (1996). die-income) country. This share could change dramati- cally over the next twenty-five years as China acquires References the characteristics of middle-income market economies. A key ingredient in this growth scenario is the trans- China State Statistical Bureau. Various years. China Statistical formation in the composition of the labor force. Yearbook. Beijing. Agriclturl empoymet isexpeced t fallfrommore Easterly, W, M. Krem4s~ L. Pritc-hett, anld L. Summers. 1993. "Good Agriultral mplymen isexpetedto fll rom ore Policy or Good Luck? Country Growvth Performance and than half of total employment today to one-quarter in Temporary Shocks." Journal of Monetary Economics 32:459-83. 2020, a share comparable to that in upper-middle- Hu, A. 1996. "Employment-Number 2 Task of China's incoe eonomes.The corresponding increase in the Development." Background paper prepared for this report, income economies, ~~~~~~~with financial support from the Canadian International nonagricultural labor force will be felt in services, Development Agency. whose share in total employment will rise by 18 per- Li, Peng. 1996. "Report on the Outline of the Ninth Five-Year centage points, as well as in industry, where the contin- Plan for National Economic and Social Development and the ' ~~~~~~~~~~~~Long-Range Objectives to the Year 2010." Speech delivered at ued shift from state to nonstate enterprises will increase teFut eso fteEgt ainlPol' oges the labor intensity of production.7 March 5, Beijing. 22 C.hina 2020: l:evelopment Challenges in the New Century Laying the Foundations 0 > X _ he past eighteen years in China have under- scored the importance of markets for growth and prosperity. But the country's transition from a command to a market economy is incomplete. Many parts of the Chinese economy still have an undesirable blurring of governmental and commercial functions, a holdover from the days of central planning. These poorly defined roles create conflicts of interest within government and ulti- mately could harm the economy. This chapter argues that further separating the roles of government and markets and clarifying rights and responsibilities will help to lay- the foundations for sustained rapid growth and improve the quality of people's lives. Good markets start with good government. This is true because effective governments serve markets rather than make markets serve government. The primary instrument of an effective government is its budget. Strong govern- ment finances anchor macroeconomic stability and fund a 23 range of essential services that markets may fail to Budgetary difficulties have generated inflationary pres- deliver. In China strong government finances are also sures and imposed additional strains on the financial needed in the short term to underwrite costly reforms, sector. This situation cannot continue forever. and in the medium term to build the social, physical, Eventually, weak government finances will debilitate and institutional infrastructure for continued rapid the economy. growth. In the near term achieving these objectives will These fiscal pressures raise four long-term issues. require more government revenue. Over the longer First is the need to set priorities to ensure the best use of term it will require building fiscal institutions that bal- scarce government resources. Second is the imperative ance planners' priorities with people's preferences. of improving tax collection, including a search for new Next, the government must leave more room for types of taxation. Third is the urgency of establishing an markets to operate. Despite nearly two decades of effective mechanism of intergovernmental grants to reform, state and market remain intertwined. For redistribute resources from richer to poorer provinces. example, state enterprises still provide a wide range of Finally, there is a need to develop institutions that will social services to workers and their families. Similarly, make budget formulation more transparent to the pub- the four largest state commercial banks direct their lic and responsive to its needs. lending in support of the government's policy objec- tives. Transforming state enterprises and commercial Reshaping government expenditures banks into vibrant, market-oriented institutions, and so to nurture emerging private economic activity, is prob- Between 1978 and 1995 budgetary revenues tumbled ably the biggest challenge the government faces in the from 35 percent of GDP to 11 percent. Of this 24 per- near term. centage point drop, about 15 percentage points were But a diminishing role for state enterprises and state directly attributable to lower tax contributions from commercial banks does not mean that the government industrial state enterprises (figure 3.1),3 as price reforms should abdicate all responsibility for the development and more intense competition lowered their profits. of markets. On the contrary, it implies a changing role This decline in revenue, combined with the govern- for government as it reorients itself toward key services, ment's desire to keep the budget deficit modest, has sound institutions, and credible policies in support of brought a similar decline in government expenditures markets. These include such fundamentals as establish- as a share of GDP. Today, government expenditures are ing the rule of law, providing the institutional frame- about 12 percent of GDP, well below the developing work that guarantees a stable economic environment, country average of 32 percent.2 Investment has suffered and intervening in areas where markets fail to function the most, falling from 16 percent of GDP in 1978 to less adequately. than 3 percent in 1995 (see figure 3.1). In all three areas-restoring and reshaping govern- At first glance these trends seem consistent with ment finances, making room for markets, and support- China's move to a market economy. But such impres- ing the development of markets-the government is sions are deceptive. The reduction in direct financing of now midway through reforms. The close links between investment has been partly offset by increases in extra- the three make progress slow and often laborious. budgetary spending and government-directed bank Nonetheless, the overwhelming impression is one of credits. Together these off-budget and government- relentless forward movement. directed resources are more than five times as large as the investment financed through the budget (figure 3.2). Restoring and reshaping government Some extrabudgetary spending is financed from finances quasi-tax revenues raised through formal levies, such as those on electricity, vehicles, and railroad freight.3 Some Government finances have been weakening for several is funded by extraordinary levies imposed, sometimes years. The shortage of budgetary revenues has already arbitrarily, by provincial authorities. The rest represent hampered spending on essential services with long- the profits of state-owned enterprises controlled by term benefits for growth and the quality of life. local governments. There are few mechanisms to mon- 24 China 2020: I)eveloprnent (:'hallenges in the New Cenntry Reshaping government expenditures The budget finances a small share of government-controlled investment Budgetary revenues have dwindled ... CentraL County Foreign Percentage of GDP I4% 40/ Bank loans Percentage of CDP ; Revenue from industral state enterprises Extra- 5Distnd/city 39°/ 35 ~ ~ ~~ ~thrbudgetary 7/ 3 Revenues from goods taxes fiscaL 7% 30 B X &" re ,3, resources 2 5 I I s. '''', :Q' ..... ........::'".4%Po]c ~~~~~~~~x ~ ~ ~ ~ ~ 5/ Provinces 20 c B.e :?.o.: 7:8.:S :::.:,:: 10%Oer Budget 15 .>>g&-ffi- ........ > , W : & ~~~~~~~~~0%!! 15% 15% 15~~~~~~~~~~~~~~~~~~~~~~~~~~5/ 5/ Source: China Investment and Construction Yeorbook 1995; World Bank staff 10 estimates. 5 1978 1980 1982 1984 1986 1988 1990 1992 1994 will cost more in the future.5 Nor does it include possi- ble additional expenditures in support of future . . . and expenditures have followed economic reforms-spending on such items as unem- Percentage of GDP ployment benefits, redundancy payments, monetized 40 1 Subsidies housing benefits, or the costs of banking reform. 35 %\\\ Milietment This pattern of public expenditures-too much gov- 30 .Ba& ....* Current ernment-controlled investment in state enterprises and 25 . too little government support for high-priority areas- 20 &2&|SX gg|g !||11111 is inconsistent with China's move to a market economy 15 H U and inimical to sustained, rapid growth. Altering this pattern is essential. Many options are possible, but the s lllllllllllllllll basic features would be the same: devoting additional 01978 1980iI 1982 1984 1986 1988 *990 1992 199resources to social programs and the environment, ade- 1978 1980 1982 1984 1986 1988 1990 1992 1994 quately funding key reforms, and scaling back govern- Source: World Bank staff estimates using Chino Statistical Yeorbook, various issues. ment control of investments. itor these funds or the effectiveness with which they are BOX 3.1 invested. U7aLthy tre,,ds in fh,.S One undesirable result is that the system discrimi- . nates against projects that may be socially and econom- tr* 4ig'ffi; ' ots ically important but financially unprofitable. Thus spending on health, education, poverty alleviation, pen-.fo ~preto O o0 ecn d94~ sions, infrastructure and the environment has not kept S acle S f pace with needs (box 3.1). It is neither a healthy nor a , . : hopeful sign when schools and hospitals are forced to scramble for extrabudgetary funds to pay their bills. E t l E Such conditions inevitably undermine the quality and quantity of public goods and services, with undesirable ~f ~~n implications for rapid, high-quality growth. _e The overall expenditure shortfall in these high-prior- et ity areas has been estimated at 4.6 percent of GDP (table 3.1).4 This is a conservative figure, however, W , because it does not include the possibility that services Laying the FoLuridatioris 25 consistent with China's stage of development and TABLE 3.1 Proposed additional expenditures and financing, potential for growth. 1994 Percentage of Restoring revenues Expenditure G DP After several years of decline, tax revenues as a share of Actual budgetary expenditures 14.1 Extrabudgetary expenditures 3.8 GDP stabilized in 1996, following wide-ranging tax Proposed additional expenditures 4.6 reforms two years earlier. Now the authorities face the Health 1.4 even harder task of reversing the earlier decline. Poverty alleviation 0.2 Achieving this goal will require better tax administra- Environment 0.2 tion, a broad tax base, and new taxes that combine Infrastructure 1.0 Social insurance 1.0 social, economic, and revenue objectives. In the short Total proposed expenditures 22.5 run improving compliance would likely do the most to Financed by boost revenues; phasing out the plethora of tax exemp- Budgetary revenues 12.4 tions for domestic and foreign firms would also help. In Extrabudgetary revenues 4.1 Additional revenue required 6.0 the long run the government could consider further tax Source: World Bank 1996b. policy changes in support of reforms in environmental and social policy and could do a better job of taxing Reducing its role in capital spending will allow the nonstate enterprises. government to focus on a narrower range of interven- Compliance can be improved in three areas in par- tions that would contribute most to economic develop- ticular. First, China has the capacity to raise the com- ment. Outside this narrower range, capital spending pliance rate for the value added tax (VAT), which would be financed through the internal funds of enter- accounts for almost half of government revenues, from prises, the banking system, or capital markets, based on roughly 70 percent today6 to 85 percent by 2000 and to standard commercial criteria. This approach would 90-95 percent by 2010, putting it in the same league as help banks and enterprises commercialize faster, the top tax performers among developing countries. strengthen their financial position, and improve their Second, by 2000 China could double revenues (as a competitiveness in domestic and international markets. share of GDP) from personal income taxes by keeping Over the next several years, however, government- the exemption level constant in nominal terms. Third, directed investments will continue to exceed budgetary the government could merge domestic and foreign resources. Like reforms in other sectors, adjustments corporate income tax rates, a change now under con- may have to be made gradually. As the government sideration. Special rates for foreign enterprises are no redefines its role in the economy, arrangements will be longer needed to attract foreign investors and should be needed to smooth the transition. eliminated. China's policy banks have been created for precisely In the medium term the government could combine this purpose. They are essentially fiscal institutions cre- its reform and revenue objectives. For example, a ated to free the banking system from the yoke of gov- pollution tax would discourage the use of coal and ernment-directed investments. In a year or two the petroleum and encourage the development of pollution- government expects all government-directed invest- reducing technologies. Similarly, some form of social ments outside the budget to be financed through the security contributions will be needed to finance the policy banks. basic pension pillar for (urban) workers. International But this should be just an interim goal. A longer-term experience suggests that payroll contributions for a gen- goal could be to fold all government investments into erally accepted purpose such as pensions tend to meet the budget. This could be achieved by 2010, certainly little taxpayer resistance. by 2020. It will take debate and discipline to restrict Over the long term doing a better job of taxing non- government investments to high-priority areas. It will state enterprises is an extremely high priority. They are, also mean boosting government revenues to levels more after all, the fastest growing segment of the economy. 26 C:hina 2020: I:)eveloprnent C:halleniges in the New C'entmry But many of them keep poor accounts (if they keep ously welcome transfers from the center. But richer them at all), so it will take some innovative approaches ones would also benefit. Transfers would ease pres- to tax them fairly. Other longer-term measures to con- sures for migration from poorer to richer provinces sider include taxpayer self-assessment, efficient audit and strengthen the infrastructure of poorer provinces, procedures, computerized information systems, reorga- which would help open markets in the interior and nization of tax administration, improved incentives for integrate it with the economic mainstream. The same tax collection, close cooperation of national and local benefits would flow from transferring resources to the tax services, improvement in presumptive taxation poorest counties, much as happened with the govern- methods, and implementation of a streamlined system ment's 8-7 Plan, aimed at eliminating poverty by of stiff but fair monetary fines for tax offenses. 2000 (see chapter 4). Together these measures could raise incremental rev- enues equivalent to 6 percent of GDP by 2000 and an Building transparent, responsive fiscal institutions additional 4 percent of GDP by 2020 (table 3.2). These measures would bring total government revenues- The demands and priorities of government finances inclusive of extrabudgetary revenues-to about 24 per- change over time, so it is important that fiscal institu- cent of GDP. But achieving even this relatively modest tions be able to react quickly to new situations. That ratio will require a monumental effort by the tax kind of agility requires institutions that are transparent authorities. and responsive. International experience shows that transparency in Expanding intergovernmental transfers budgetary procedures affects overall fiscal perfor- mance. China's system for setting aggregate spending is There will always be a revenue gap between China's far from transparent. As noted earlier, a significant por- poorer and richer provinces. Without an effective sys- tion of expenditures is financed from extrabudgetary tem for transferring revenues, underlying inequalities sources and through the banking system.7 The one-year will be reinforced by unequal spending on health, edu- planning horizon for public investments encourages cation, environmental protection, and other public services. The current system permits few fiscal transfers Per capita provincial government expenditures from richer to poorer provinces or counties. Each vary with provinciat income region is required to be more or less fiscally indepen- Provincial public expenditure per capita dent, tailoring its public expenditures to the revenues (1994 yuan) it can collect. As a result per capita expenditures vary 2,000 widely across provinces, in line with per capita incomes (figure 3.3). Poorer provinces would obvi- 1,0 _J J_ _ s wSt ~~~~~~~~~~~1,500./ TABLE 3.2 U Estimated increase in revenues by 2000 1,000 from recommended tax measures Additional expected * * revenue in 2000 500 _ . Measure (percentage of GDP) * V Value added tax 1.1 0 1 Personal income tax 0.8 00 5,000 10,000 15,000 20,000 Corporate income tax 1.2 GDP per capita (1994 yuan) Pollution levies 1.0 Social security contribution 0.9 Note: Data on budgetary and extrabudgetary provincial government Improved tax administration 1.0 expenditures are drawn from various provinciaL yearbooks. Extra- budgetary expenditures are estimated as being equaL to nonstate Total 6.0 enterprise-related extrabudgetary revenues. Source: Zhang and Zou 1996; WorLd Bank staff estimates. Source: Wortd Bank 1996b; World Bank staff estimates. Laying the Foundations 27 overinvestment by state-owned units, and banks find it many new financial institutions in recent years, four hard to resist pressures to lend. As a result consolidated large state commercial banks still account for two- government deficits are much larger than the formal thirds of the assets of the entire financial sector. budget deficit.8 Between 1986 and 1994 the consoli- As industrial state enterprises have faced stiff domes- dated deficit may have averaged from 4.9 to 5.7 percent tic competition and liberalized market prices, their of GDP-more than twice the 2.2 percent deficit in the losses have mounted. The government has propped official budget.9 them up with subsidies and cheap credit, and the red ink The government recognizes these problems. It has of state enterprises has seeped into the portfolios of been reviewing all extrabudgetary expenditures and has banks. Sluggish state enterprises erode the credibility of already incorporated quasi-tax revenues from electric- China's reforms and frustrate the development of mar- ity, vehicles, and railroad freight into the 1997 budget.10 kets in industry and finance. Furthermore, the state commercial banks should reduce There is little disagreement in China about the need and eventually eliminate the practice of financing gov- to reform state enterprises and the financial system. The ernment-directed investments. Another important step challenge is to introduce the reforms while maintaining would be for the government to plan its expenditures, rapid growth and economic stability. In the case of state especially investments, within a medium-term eco- enterprises the government is concerned about the con- nomic framework. To discourage overinvestment, sequences of reform for unemployment and social explicit rules could set spending limits and penalize peace. In the financial sector the concern is with pro- agencies that overspend. To make the process more tecting the integrity of financial institutions and pre- transparent, the government could publish figures com- serving depositor confidence while markets are given a paring planned spending limits with actual expendi- bigger role. tures. Another area requiring improvement is the alloca- Reforming enterpnses tion of expenditures among priority uses. More should be done to build consensus on priorities and then to China has 305,000 state enterprises, 118,000 of which stick to them. The government already devotes consid- are industrial. Some are performing well, even in the erable attention to developing a strategic outlook global marketplace. But several indicators point to the through its five-year plans and fifteen-year perspective generally poor performance of state industrial enter- plans. But the links between these plans and annual prises relative to nonstate firms. State firms have lagged expenditure allocations are blurred. in output, employment, and productivity growth. Their To increase clarity, all government spending (includ- return on assets is estimated at just 6.0 percent, com- ing extrabudgetary items) should be incorporated in the pared with 8.4 percent in collectives and 9.9 percent in budget, together with information on project details joint ventures. This share of loss-makers has grown and tradeoffs between projects. It would also be useful from 26 percent of the total in 1992 to 50 percent in to set out the rules for project selection, such as finan- 1996; as a group these weak performers reported oper- cial, economic, and social rates of return. Exposing gov- ating losses in 1996 equivalent to 1 percent of GDP.12 ernment plans to wider public discussion, culminating As a result the role of state enterprises in many indus- in a debate in the National People's Congress, would tries has dwindled to the point where state ownership in help strike a balance between planners' priorities and China today resembles that in France in the 1980s people's preferences. (table 3.3). The agenda for reforming state enterprises is long Making room for markets and difficult. It is still hard to obtain reliable financial information on their performance. They do not have The state still plays a big role in China's economy. State adequate market-based autonomy and risk-reward enterprises account for one-third of industrial output, incentives. The erosion of government authority over two-thirds of urban employment, and more than half of many enterprise decisions has provided opportunities investment in fixed assets.11 And despite the entry of for asset stripping and opportunistic behavior by man- 28 China 2020: Development C(hallenges in the New C.entury agers, workers, and sometimes even government offi- Under the right conditions such insider-dominated cials. Although there have been some recent bankrupt- firms could still be efficient. But as other transition cies, government (especially local government) is economies have found, such firms also harbor many reluctant to shut down enterprises that have little hope risks-asset stripping, poor investment decisions, and of financial viability. Bankruptcy procedures are time- decapitalization through excessive increases in wages consuming and costly, and the government does not and other private benefits (box 3.2). Enterprise assets want to exacerbate urban unemployment. could gradually be siphoned into private pockets, leav- But progress has been slow. These are, after all, com- ing the government to assume the liabilities. plicated reforms. The most crucial is the transfer of pen- Asset stripping and excessive wage compensation are sion, health, and education obligations from state widespread in Chinese state enterprises. A 1994 survey enterprises to government bodies. True, some munici- of 124,000 state enterprises found that asset losses and palities are pooling pension obligations across firms and unaccountable expenses accounted for 11.6 percent of earmarking payroll taxes for pension, unemployment, the assets of the firms sampled.13 One estimate puts the and health benefits. Some local authorities are taking annual loss of state assets at 30-100 billion yuan, or over schools and hospitals previously run by enter- 2-9 percent of annual capital investment by state- prises. And some state enterprises are reducing housing owned units."4 Half of the new limited liability compa- subsidies by raising rents (and wages, to compensate). nies established in Sichuan and Shanghai in the past few But these examples are the exception rather than the years are in the financial sector, which suggests the rule. And they have not fundamentally affected most widespread creation of "shell" companies to drain enterprises. assets. The simple truth is that the authorities have neither This situation presents a dilemma for the Chinese the administrative capacity nor the appropriate infor- authorities. Managers need autonomy to improve effi- mation to effectively oversee the sprawling state enter- ciency, but the government has neither the information prise empire. Absent effective oversight by their nor the administrative capability to ensure that man- "owners," many state enterprises are controlled com- agers are pursuing that objective. So rather than pletely by their managers. Even in corporatized enter- reforming all state enterprises at once, the central prises the same people often serve as senior executives authorities are focusing on 1,000 large state firms and of the firm and members of the board of directors. on plans to invigorate them and make them the core of modern enterprise. About 880 of the firms are in the TABLE 3.3 Sectoral composition of public ownership, China ................._ and France Ihpa4n oe c (percent) ......t.pris..efr.... RpMR.C China France Industry group 1994a 1986b fe h l fteBri at ol1~ieteti Resource extraction 71 32 BUt9a..... . ....edsee ...ons ~t~~'sif 3iai Utilities 65 86 Z_ ws5 t5 Scale intensive four 2:this pero E MetalLurgy 59 67 ChemicaLs 49 31 etpie idiig 4r~'aarsivtd Transport machinery 51 46 Contestablec share of mouted -eSn 9 : .; Food and textiLes 43 1 1 e - w . : ; Electronics 28 43 ein tI &iidSsr 15 Other 22 10 the nonundaorrfri2 All industry 40 29peet fa lns a. State ownership in gross output. b. Public enterprise share of sates. ......Wold.......7a c. Industries in which entry is reLativeLy costtess. Source: China Statistical Yearbook 1995; BLanc and Brute 1993. Laying the F oundations 29 industrial sector, accounting for two-thirds of the assets ernment should consider diversifying ownership so of industrial state enterprises and the majority of their that firm-level changes are based on purely commer- sales, tax receipts, and profits. cial criteria and that risks are spread across many A key element necessary for the invigoration of these shareholders. Since change is inevitable, delays will 1,000 enterprises is an improvement in their gover- only add to costs, force defensive adjustments under nance, especially in two areas: market pressures, and contribute to the bad debts of * Clarity on rights to assets and assignment of liabili- banks. ties among owners (the government), managers, and If the government will be stretched in managing the creditors. This adjustment will require a clear separa- priority 1,000 state enterprises, what of the remaining tion between firms and the government, legally and 304,000? It has stated its intention to loosen controls operationally. over them, implicitly granting them the freedom to * Organizational structures that provide a reasonable organize leases, mergers, sales, and (if all else fails) liq- balance of interests among owners, creditors, and uidations. But it could go further, withdrawing com- managers. pletely from small and medium-size firms. It has already Until passage of the State-Owned Enterprise Law in pulled back a long way: small and medium-size state 1988, distinguishing the rights and obligations of the enterprises contributed only 6 percent of industrial out- government (as owner) from those of the firm, firms put in 1994, down from 36 percent in 1978. In many belonged to the government and were even part of gov- industries state enterprises contribute less than a fifth of ernment departments; their losses were covered gross output (figure 3.4). through budgetary allocations or directed bank loans. Diversifying ownership would not require the gov- The government has begun separating some commer- ernment to sell its entire ownership stake at once. cial activities from government bureaus, though much Initially, it could dilute its holdings and become a remains to be done. In particular, inefficiencies must no minority shareholder, leaving management to the new longer be financed explicitly or implicitly through the nonstate owners. For the government this would be a banking or budgetary systems. win-win solution as it shifts from being the sole owner As for organizational structure, the government has of loss-making enterprises to being part owner of prof- chosen to adopt the modern corporate form, in which itable ones. To maintain credibility, this move should be the owner elects a board of directors to oversee the daily accompanied by a strict policy forbidding new state operation of the firm by professional managers.15 The enterprises in contestable sectors (box 3.3).16 government has also set up an elaborate state asset The government could also proceed faster. In two management system to monitor the performance of counties-Zhucheng in Shandong Province and Shunde state enterprises and ensure that their assets are pre- in Guangdong Province-most state enterprises have served. But progress has tended to lag behind principles. already been transferred to the nonstate sector. Progress The state asset management system is short on qualified elsewhere has varied, with coastal provinces ahead of staff, budget, and motivation. None of its institutions most others. Areas that lag will find that the costs of receives timely, accurate financial information. It is not state ownership grow, eventually corroding the founda- clear whether, even with time, the new arrangements tions and credibility of reforms. will ensure that enterprises are properly managed in an increasingly competitive environment. Transforming the banking system The government has little time to improve the effi- ciency and competitiveness of the 1,000 large enter- Intertwined with state enterprises is China's large finan- prises. Many will be exposed to international cial system (box 3.4). Its core consists of four state com- competition once China joins the World Trade mercial banks that together account for more than 90 Organization (see chapter 7). Still, it is best to make percent of bank assets and two-thirds of financial assets. tough decisions now, while firms still have time to cut The condition of these banks affects the health of the costs, reconfigure their operations, and improve com- entire economy. So it is cause for concern that their petitiveness. Here more than anywhere else, the gov- financial performance is weakening; their accounting, 30 China 2020: Development C'halleniges in the New C'entry PIGURE 34 .*.*.~~~~~ ~ risk management, and credit analysis systems are woe- ''" 'i "§: :' fully inadequate; and the quality of their portfolio is Ubiquitous state enterprises unknown. What is more, their capital-asset ratios are Percentage share of state-owned enterprises in gross output low and declining. If, as the government estimates, their by in7dustrial subsector nonperforming assets are equivalent to about 20 per- 0 20 40 60 80 100 cent of their portfolios,17 their net worth is actually Oil negative. Tobacco Unfortunately, this state of affairs is unlikely to Refining and cooking improve for two reasons. First, despite recent reforms, Water supply state banks are not yet completely free to lend accord- Logging ing to commercial criteria. About a third of their Coal investment lending is allocated to projects selected by Electric power the State Planning Commission, and the rest is subject Gas utilities to considerable informal government influence, espe- Ferrous metallurgy cially in the provinces. As a result the creditworthiness Nonferrous mining of borrowers and the commercial viability of projects Transportation machinery are often not important considerations in lending PharmaceuticaLs decisions. Nonferrous metaLLurgy Second, interest rates are controlled, and the spread ChemicaLs between deposit and lending rates is limited by central Beverages bank decree. Consequently, even according to official Specialized machinery statistics, the rate of return on banks' assets has been Food processing falling and turned negative for the first time in 1996. Food manufacturing This deterioration occurred despite the fact that many Printing banks treat accrued (but often unpaid) interest as paid Textiles income, make negligible provisions for bad debt (based Rubber products on instructions from the Ministry of Finance), and raise Machinery earnings through various unofficial add-on fees and ser- Chemical fibers vice charges. Over time, the result has been a steady Instruments decapitalization of the banks. Ferrous mining Transforming the state banks into genuine com- ELectronics mercial banks is crucial if China is to avoid a major Paper bank insolvency and if market forces are to shape the allocation of financial resources in China. Many of the Nonmetal products Electric equipment necessary steps are incorporated in the government's Nonmetamicuipeng long-term strategy (box 3.5). It calls for a phased Nonmetal mining transfer of government-directed lending to the policy Other banks, whose decisions will hew to government imper- Lumber products atives. Phasing will give state enterprises time to adjust Metal products to the new regime, but it should not extend beyond Education and Sports 2000. Plastic But the most important policy change required is a Leather reduction in government influence over the allocation Garments of loans. This would permit more competition between Furniture banks, creating pressure to improve the quality of loans Source: Chino Statistical Yearbook 1996. and increase the efficiency of intermediation. A nudeus of potential competition already exists in the five LayiTlg the Fourdiatioris 31 42400j42:X::0::-:0'i0.;:'g040.42422222222;222::g:22 20.l''=, ........................ g?''- onsiderableg0twmmeattention has bee 0given to rmi The growiEng-share of? in t her................. iEE-Eindividually owned enrterprises fcreated 6.6 mWn llTEnew jaobs.EEEEEEEERiEEEEEEESELLEEREEREPRE_zz_i_|_ E- |44that the fuzzy wnershki?p?is?truct?ure o0f gol?lectvs approprate????4 for 0 |||?|3 ? iikiith¢Ee early istages ofi r:efijorm, isfiU no longer ?conducve? to-speedyZEESSE . E 3E3|_ | 3 ~ y? gg? Ai4Xentrepreneurs 02in rurXt0gal reswsflho1 init the local overnm_nt tol _ : xsha3re econtrol ringhts. tiIn Sreturn they gain :accs?s to :key :fators of? ? iEliSS:00i0?and' go9?0?vernment ?protectiongg?d?: of prgESSECECESES?operty d l Th.s sh-red - -- -- -- - -w--. - - - .. . . .. . ??.'' ership|00 te?n?d?slL toi0 blr: the? e diiso ofd coto ove th decisionsl an 198 1985 198 <19891q91 199 1995?;g' ?? prpryrgt tnst rd efcec n fledility in Oper24?Sa-E we;i ;RasSjo4ntveinwres ndtoriM gn4t?lde furmsE: ::: S ?-S .St S'' firmi s ?: htaig e"npaF? ?hSg e tl, ii??jiBi Sgiiggg opri.tin,.withot'.any'""gov'lgi'iiggggernentE part.".'?gggicipaioni. ha ';iB r- Al0 though motnof tes firms areg sml San cocntae ing ser iniida farmer ar ow??yteinetr. era etm viglces,tagSrow0ing proportionis ?in manufcturing. isin+X? B,rg g g ice for sen...................................................'?' 'iorB government ?edr to .........nnou..ce............ t S nationwide commercial banks (including the recently __ established Hua Xia Bank and Ming Shen Bank) and Chn' =iaca ytm eight regionally based commercial banks. But the gov- ? '^"" ?B i'i'.?"?0BlS''.B ''"''l''''. ?'?i ''? ernment should consider expanding the field of com- A vait fisittospplt the finnciaset petitors. More new entrants could be licensed, provided ap# is th_epesBn o sals in _94a they satisfy the central bank's strict requirements. The seart cenB?:pt"ralbankresonibl o making Bmontay pl?'? government could also consider splitting the largest and upevisng thefnnia ytrTeeaefour hu?ge sat initially along regional lines. Finally, the government medlbns oto hmethile nteats3er could, over the longer term, gradually permit the entry t e past ........... of foreign banks, but only after the domestic banking system is competitive and working well under its new tionsn nlinths s of ura nra framework of laws and regulations. b s Bs p en s nes a Refo rm of interest rate policy will be an essential but inv es cm ,amg p e Dg petitors. More new entrants could ben licensed, provideindth treacherous feature of China's financial development. Tffices. Comptin-gfinan The government has alr eady taken steps in the right ecae a i w direction by reducing the number of ofeficially deter- hasecuipe trading ceteArs, twop elo scur n min ed interest rates, introducin g t reasury bill auctions adjustin inteetrte m ore ing w ith in ter tes neW and initiating open market operations. 32 T hie 20201: Developnnt a ahtakenges in thc Newr Cig ntury Once the government is satisfied with progress in U RE commercializing state banks, the next logical step is to allow greater flexibility in setting lending (but not deposit) rates. The central bank could allow commer- Percentage of GDP cial banks to set lending rates freely on a small portion 0 10 20 30 40 50 60 of their portfolios, which they could exparnd with time, Argentina 1980-82 or it could gradually widen the bands within which Chile 1981-83 lending rates could fluctuate. Uruguay 1981-84 How the banking system evolves over the next Israel 1977-83 twenty-five years will hinge on the success of these te d'lvoire 1988-91 s 1 s . . . ~~~~~~~~~Venezuela 1994-95 reforms. The rewards for success are high. A recent Senegal 1988-91 study shows that well-functioning financial systems Senina1988-90 tend to stimulate and sustain growth because they help Benin 1988-90 pool savings and allocate them to their most productive Spain 1977-85 Mexico 1995 use, subject to appropriate safeguards.'8 But the gov- Mauritania 1984-93 ernment is also aware that the risks of failure can be Bulgaria 1995-96 high and the costs punishing. A World Bank study has Tanzania 1987-93 identified more than 100 major episodes of bank insol- Hungary 1991-93 vency in ninety developing and transition economies FinLand 1991-93 from the late 1970s to 1996. In twenty-three of the Brazil 1994-95 thirty countries for which data were available, the direct Sweden 1991 losses sustained by governments exceeded 3 percent of Ghana 1982-89 GDP and in one case reached more than 50 percent (fig- Sn Lanka 1989-93 ure 3.5). CoLombia 1982-87 The financial sector has been the soft underbelly of Malaysia 1985-88 China's reforms. It is the sector most vulnerable to Norway 1987-89 shocks. The authorities must be as relentless in their United States 1984-91 BOX 3.5 Source: Caprio and Klingebiel 1996; World Bank 1997d. ~.adis..reenregrm g pursuit of reforms in this area of the economy as they ~ thegovenmen i~oice4 -~aiiog ef~r~ in have been in others. Deepening capital markets ~ '~.>~-~' ~' '~ ~ China's capital markets are subject to the same con- straints and controls as other parts of the financial sec- tor. The credit plan sets quotas on how much equity and ~'~c~w~edtle enty.~*nW.~om e~*s~ securitized debt can be issued in a given year. The pri- ~> ~ ne~indiecttecliiqe% f PlrJeaLY anae~. mary market for equities and corporate bonds is dis- ii~et, ndwln~a moe ti~e~t~t ~~~Y~a4m~ed tributed by region, limiting capital market access in bil~t ~$o 1~~r~er~ ~n~s' ~ penin ~ ~. some regions more than in others. Thus the relatively small role of capital markets (fig- ~~~~~~~~ ~~~~~~ ure 3.6) is not a product of market forces but of admin- ~~V~in~tfWflons a~~ ~ tdn~s istrative decree. The authorities fear that unrestrained captalmaretdevelopment would drai resources ;~~'.:r~./ from the state commercial banks. So for years to come, ~~*~********* ~~the growth of China's capital markets will remain 1,aying the Fouridations 33 China's relatively small capital market, 1995 Frenzied trading at Shanghai and Shenzhen, (Stock of financiat savings) 1994 Percentage of 6DP Ratio of trading volume to market capitalization 600 a Bonds 250 Equity 500 m Bank credits M-11 ~200 400 ' 30015 200 100 100 500 50 Source: Washington Asset Management Limited data. c.,0 ' 0 0'0. ' China Note: If adjusted for the market capitalization of tradable shares, hostage to progress in the development of a sound and the ratios for Shanghai and Shenzen would be 800-1,000 percent. Source: IFC 1996; Xu and Wang 1997. competitive banking System. Administrative constraints tend to affect primary markets more than secondary markets. Even so, sec- sibility for securities markets is splintered functionally, ondary markets have problems of their own. Share institutionally, and regionally and is divided between prices are very volatile in the Shanghai and Shenzhen municipal and central authorities. As a result some reg- stock exchanges, and trading volumes are unusually ulations-for corporate bond trading, securities deal- high relative to the size of market capitalization (figure ers, and institutional participants-are not overseen by 3.7). This is because both markets are young, with an any government institution. underdeveloped legal and institutional infrastructure. Resolving these problems quickly is important, and Like other emerging markets, they suffer from low liq- there is no time to lose. Even if capital markets grow uidity, limited disclosure, bunching of public offerings, at more than twice the rate of projected GDP growth insider trading, and a circumscribed role for competi- (in real terms), by 2020 the value of stocks and bonds tive underwriters and primary dealers. relative to China's economy would only approach Compounding these shortcomings is the limited par- that in India's capital market today (74 percent of ticipation by wholesale and institutional purchasers of GDP). securities. China's contractual savings are equivalent to Capital markets could play a major role in China's about 3 percent of GDP, well below the 18 percent in financial and economic development: the Republic of Korea, 48 percent in Malaysia, and 78 * Through capital markets, investors can monitor and percent in Singapore. The insurance industry has only a control the corporate users of their capital. Such over- short history in China, and pension funds are small sight is an essential element in state enterprise reform because of the preponderance of pay-as-you-go because it helps dilute government ownership and schemes. transfers a portion of the risks from banks to the new Finally, government oversight of the capital market is owners. The example of "red chip" companies in Hong weak. Although securities laws and regulations are Kong also shows how listings on other stock exchanges guided by international principles, several crucial hold state enterprise managers in China to increased aspects of capital markets still require codified rules scrutiny, higher management standards, and greater (table 3.4). To make matters worse, regulatory respon- transparency.'9 34 C.hina 2020: DI)eveloprnent (C.hallenges in the New Century TABLE 3.4 Gaps in China's securities legislation Established securties Insider Securities and exchange Disclosure Listing trading Compensation Takeover Country law commission regulation requirements regulation fund regulation Argentina * 0 40 0 0 0 Brazil * S * i Chile * * * 0 0 Korea, Rep. of C * * * 0 ' Malaysia 0 0 0 * 0 0 Mexico 10 0 * * Thailand 0 0 0 * 0 China 0,a -; a. ELements of a securities Law are covered in other Laws and regulations. Source: World Bank 1997c. Flourishing capital markets would be a significant 0 intermediary for long-term investment, especially for infrastructure. Chapter 4 describes how the introduc- Bonds-the east devetoped segment tion of a new pension system would mobilize massive amounts of investable funds. How efficiently (and Totat bond issues have Lagged behind investment... safely) they are invested will depend largely on the depth, stability, and efficiency of the capital market. Billions of yuan .. markets would provide savers with. .......... 1,200 U Investment by state-owned units Thriving capital markets would provide savers with Capital investment by state-owned units new savings instruments, helping them to diversify risk 1,000 .i All bond issues and boost returns. Such instruments would be an important piece in the mosaic of policies designed to 800 encourage the savings that are so essential for sustain- 600 able growth (see chapter 2). * Well-functioning capital markets would improve the 400 pricing of financial assets, contributing to greater effi- 200 ciency in the allocation of resources. In this regard China's capital markets could be far more valuable than 0 , c 9co9 their relative size would indicate. s s Bonds are the least developed part of China's capital ... and enterprise bond issues have been especially small markets (figure 3.8). Developing the bond market will Billions of yuan be crucial for tapping China's massive domestic savings 350 m Treasury bonds and matching savings to its equally large infrastructure 300 Enterprise bonds needs. Other developing countries-Chile, Malaysia, 250 Thailand-have shown how these goals can be achieved. First and foremost, bond issuers must meet minimum standards of capital structure, financial 150 strength, corporate governance, and management qual- 100 ity. Second, these companies should be rated by rep- utable credit rating agencies. Third, institutional 50 investors should be encouraged to buy bonds, possibly o % \a Sos S;9s Pt s° O;g s s ) by allowing them to invest in blue-chip corporate bonds Km 196 up, to specified limits and certainly by making corporate L.aying the Foursdatioris 35 bonds fully tradable. Fourth, bond issues could be auc- Making markets work tioned, so that financial institutions can become whole- sale buyers. Reforming state enterprises and state commercial China is on the threshold of exciting developments banks involves a gradual government withdrawal from in infrastructure financing. With the help of multilateral direct interventions in product and financial markets. institutions, including the World Bank Group, it is But in no sense should this withdrawal be construed as developing the legal and competitive framework an abdication of responsibility for markets, because the required to issue asset-backed securities. Doing so will government has a new obligation to provide the insti- allow an increasing portion of its infrastructure needs tutional and policy frameworks that help markets to be financed from limited recourse private capital, work. Partnership and complementarity with markets domestic and foreign. The potential is enormous. A need to supplant command and control. recent World Bank study estimates future demand for Four areas are of particular importance. First, estab- infrastructure in China to be as much as $75 billion a lishing a rule of law that is supportive of market insti- year over the next decade-well above the stock of out- tutions and protective of property rights. Second, standing enterprise bonds today of about $2 billion.20 developing the capacity to ensure macroeconomic and To accelerate the growth of project financing, the financial stability, even as potentially destabilizing government should also consider using credit enhance- reforms are implemented. Third, promoting competi- ments, targeted risk and policy guarantees, partial sub- tion in product markets to encourage innovation, effi- sidies, and (occasionally) direct participation. Another cient resource allocation, and financial discipline. And innovation that could be tried is infrastructure develop- fourth, harnessing new technology in ways that work ment funds that purchase securities from a pool of with markets, not against them. infrastructure projects. Pakistan's Private Sector Energy Development Fund and Jamaica's Private Sector Energy Establishing the rule of law Fund are examples. Housing finance also promises to grow rapidly in As the government extricates itself from markets, legal China in the next century. In high-income countries norms and procedures must substitute for direct gov- mortgages are one of the largest segments of capital ernment control over economic decisions. Simply put, markets. China still has little or no mortgage lending. economic reforms have made legal rules matter. Once it has a high-quality primary market for mort- China has made considerable progress in developing gages, secured though legally backed collateral and legal norms that correspond to the needs of a market based on market interest rates, this market could be economy. Indeed, the process has accelerated in recent supplemented by a thriving secondary market. years, with as many laws (152) scheduled for consider- Such a development would bring many benefits. ation in the 1993-98 session of the National People's International experience suggests that specialized hous- Congress as were enacted between 1949 and 1992. At ing finance institutions have weaknesses of their own.21 the same time, there has been a rise in the use of the judi- The risks associated with liquidity and concentrated cial system to resolve disputes, an emergence of a legal portfolios are best dealt with through an efficient sec- profession, and a growing respect for the independence ondary market. Increasingly, countries are creating sec- of the judiciary. ondary mortgage markets to allow banks to offload Yet much remains to be done. It may take decades their mortgages and spread their risks (Australia, for the rule of law to establish a firm foothold in China. Malaysia, and Thailand are examples in the Asia- Doing so will require a legal infrastructure that can Pacific region). Furthermore, the securitization of mort- impartially implement the evolving legal framework, gages helps deepen and develop capital markets by control corruption, and foster a legislative system based matching long-term savings with long-term borrowing. on public participation and consent. In many ways the secondary mortgage system could Ten years ago China's economic laws were few and mirror developments in the pension and insurance sys- the gaps many. Today the maturing of the legal system tems, as both come together to deepen the debt market. is reflected by laws so numerous they defy easy sum- 36 China 2020: DI)eveloprnent Ck'hfllenges in the N'ew Century mary. Yet the system operates poorly. The reason is not BOX 3,6 a lack of laws. It is inadequate enforcement. Enforcing BO .,' the law is the biggest challenge that China's legal system will face in the next century. In key areas of recent leg- ~~Ep Ynze9ftdwdsra ~ pini i islation the law of the land is quite different from the ~ ~ p~ fsepn ~~ ers e law on the ground. moea rdae nbstad acsa zs te.nu One remedy is to develop the legal profession. The tT new Lawyers Law, which went into effect in January W09 Lt n owish o e 1997, could give a strong impetus to growth of the pro- fession. The law aims to promote a better national qual- compete with government in delivering public goods ification and licensing system, continuing legal and services. Such approaches give citizens a choice and education, a self-regulating bar, and rules of ethics. The curb the discretionary power of public officials. most radical change is that lawyers are no longer state * Increasing transparency in government finances. The legal workers in advisory offices. They can now orga- more transparent and streamlined are government pro- nize as state-funded, cooperative, or partnership law cedures, the fewer the opportunities for corruption. firms, law offices, or sole practitioners. A recent count Transparency helps keep government officials account- identified 7,200 firms nationwide, most of them orga- able for their actions. For example, making unaudited, nized as partnerships. unsupervised extrabudgetary funds available to offi- The next big step will be to improve legal education, cials invites misappropriation. The danger can be mini- which was revived in 1978 after more than a decade of mized by better oversight, better information on targets inactivity. Today numerous full-time law faculties and and achievements, and better channels for listening to other institutions provide legal education and training. citizen groups. But a large portion of China's tens of thousands of * Building an honest and competent civil service. lawyers have no formal legal training. Thus training Choosing new recruits carefully based on academic and needs include more extensive legal education, modern- professional qualifications will pay handsome divi- ized curriculums, and practical and ethical training in dends, as will reducing salary differentials between the the actual implementation of laws. civil service and the rest of the economy (box 3.6). It Corruption-the use of public office for private might also be useful to establish an independent statu- gain-is a growing problem in China. In light of inter- tory institution, such as Hong Kong's Independent national evidence that corruption may be as damaging Commission Against Corruption, to act as watchdog. to growth as political instability,22 the government's concern about corruption is entirely appropriate.23 In Ensuring stability 1996 alone 6S,424 people involved in embezzlement and bribes were prosecuted, including many senior offi- To flourish, markets need a background of macroeco- cials in the government and the Party. nomic stability. Since 1978 the government has usually More could be done. The war against corruption will relied on direct, administrative measures to cool the need to be waged on several fronts. One is through economy when it threatened to overheat. Similarly, the criminal prosecution, to increase the risk of detection stability of financial institutions was ensured through and punishment. But China will also have to eliminate direct support by the central bank. In the future, how- or reduce incentives for corrupt practices, including: ever, the government faces the more difficult task of * Reducing the discretionary power of government maintaining macroeconomic and financial stability officials by increasing market competition. Inter- using indirect, market-friendly measures. Success will national experience suggests that countries with heavy depend on the extent to which banks and enterprises government intervention and little competition tend to have become responsive to market signals. be more corrupt.24 Where possible, the government The central bank's ability to control monetary aggre- should use market-friendly, competitive approaches to gates has been enhanced by the Central Bank Law, provide public services. Nonstate companies could which forbids lending and overdrafts to the govern- I aVing the Fonidations 37 ment. In addition, the People's Bank of China has occa- already been made on these fronts, but there is still a sionally recalled loans to financial institutions, refined long way to go. its reserve requirements to suit individual banks' needs, Good supervision will provide the added benefit of opened a rediscount window to refinance strategic pro- ensuring the safety and soundness of the financial sys- jects, and called for special deposits. These develop- tem. Training for supervisors at all levels would make a ments allowed the bank to begin limited open market valuable contribution. The frequency of onsite inspec- operations in April 1996. tions will also need to be increased at the provincial, Improving the central bank's monetary management city, and even county levels. All banks will have to is central to future economic stability. The erosion of implement accounting and auditing standards. the credit plan as an effective instrument of monetary - control means that the central bank will need other Making markets more competitive ways to control monetary aggregates. It already uses reserve ratios, asset-liability ratios, and the rediscount Perhaps the most important reason the Chinese econ- facility to affect the liquidity of the financial system. It omy performs so well is that many goods markets are will also need to make more extensive use of open mar- quite competitive. Some observers have also argued that ket operations. In doing so, it will have to guard against "market-preserving federalism" has encouraged com- sudden and excessive withdrawal of liquidity from the petition between provinces by motivating local govern- financial system. To increase the availability of securi- ments to foster local prosperity.25 tized assets for sale, the central bank could consider Still, more could be done to intensify competition. securitizing its large stock of loans to the government Provincial governments could phase out remaining bar- and selling these on the market. Doing so may have riers to interprovincial trade-especially in agriculture, budgetary consequences if government interest pay- where state enterprises control the bulk of distribution ments have to rise. and sales (see chapter 5). Similarly, provincial govern- The introduction of open market operations and uni- ments could remove any restrictions requiring local fication of the interbank market are already producing state enterprises to buy from other local enterprises. greater flexibility in short-term interest rates. The gains from extra interprovincial trade could be Controlling aggregate demand more effectively will comparable to the benefits of additional international require these interest rate changes to ripple through the trade. maturity spectrum of bank assets and liabilities. In addi- The benefits of competition are readily apparent in tion, enterprises must be motivated to keep costs sectors with low barriers to entry and exit. Their down-which means they must not receive subsidies if growth rates have been uniformly higher than in indus- they operate at a loss. tries dominated by state firms. The government could As the financial system changes, there is always the take steps to encourage the entry of nonstate compa- danger that risky activity by banks and nonbank finan- nies, domestic and foreign, into manufacturing and cial institutions will generate systemic shocks. The infrastructure. Phasing out the tax advantages that for- collapse of the Shanghai International Securities Cor- eign investors enjoy, especially in special economic poration and, more recently, the China Agricultural zones near the coast, would level the playing field for Development Trust and Investment Corporation were domestic and foreign investors and encourage invest- warning signs. To improve the health of banks and non- ments in the interior, western provinces. Similarly, elim- bank financial institutions, their managers and their inating the setting of interest rates by class of ownership official supervisors must pay more attention to pruden- would remove one of the advantages enjoyed by state tial norms and less to traditional compliance with key enterprises at the expense of nonstate firms. targets and ratios. This shift in emphasis will require China's current industrial policy emphasizes support modern accounting systems and new financial reporting for "pillar" industries (box 3.7). However, it is often methods, a uniform risk-based loan portfolio classifica- difficult to say what this policy really means. The gov- tion system, and a focus on the overall risk borne by ernment uses many instruments to influence the pattern individual financial institutions. Some progress has of industrial production: controlled interest rates, pro- 38 China 2020Q: D:)evelopmnent Chafleiges in the New Century BOX 3.7 This is not a setting in which activist, wide-ranging industrial policies are likely to be successful. Indeed, in a fast-changing international environment such policies A newndus~ia1 an ii *rat~K ~ epha- could do more harm than good. China has discovered ~iz~ . ~he e operitof plllf ~n 'El~nese,, that when the ambition of industrial policies outstrips anive 4 te defnitin o~ il~a duste~ ~ ~ ~ government capability, the results can be costly and diffi- nd duStIahzatlo abn~ th hues ~cult to undo. In the one area in which it has aggressively the fi~st.stage of md striati~ation,, basic hea~j pursued an industrial policy-automobiles-China has ffce~i& and pi:ar industries the hfrd. ; - found itself burdened with significant excess capacity Th th in v iaand large numbers of small, inefficient plants. Having iiney, laerorirs pe~ mcals aumti~itsc nd on- been burnt, it is reassessing its approach toward indus- ~lou~ These iudustd~s W~f~ Ch~5~ b~C~ theY ~ trial development. The focus appears to be shifting toward policies with a lighter touch-especially policies r ~~~~~~~ ~~~~~ ~that are inexpensive and that support nonstate develop- t~~it~~ ~~tt ~~ ~~i~t ~~ ment. These include regulatory policies that create a level hope ii thaE they will eventually account i~r ~ percent ~f ~ playing field for all firms and the provision of intraindus- ;tOpercentofindust*ia output...i.crease the. in.i.te.-. try public goods such as information, infrastructure, national markets, reach nternatlanat qualit# staardsquality standards, and industry associations. These .nd beco.e p actions, if implemented, would be steps in the right direc- tion, and their benefits should not be underestimated. tection against import competition, tax and price poli- cies, rules on procurement, and even unofficial levies. Harnessing new technology The combined effect of these measures is difficult to assess, but it is quite likely that they work at cross-pur- Apart from measures to intensify competition, industrial poses and in unintended ways that distort development. policy can help develop and harness technology. In the Government officials recognize that China may not long term rapid growth will depend heavily on China's be able to follow the role models of Japan and the ability to acquire, adapt, and master new technology. Republic of Korea for industrial policy. For one, entry China's Ninth Five-Year Plan and Fifteen-Year into the World Trade Organization will constrain their Perspective Plan emphasize the importance of intensive freedom to direct credit or budgetary subsidies to spe- growth, which involves increasing productivity, lowering cific industries, and protection from import competition costs, and introducing higher-quality products. Chinese can only be very limited. Trading partners today are con- planners recognize the power of technology in sustaining siderably less tolerant of such practices than they were in growth over the long term and the importance of gov- the 1950s and 1960s. For another, China possesses nei- ernment's role in ensuring that the promise of technology ther the capabilities nor the conditions that Japan and Korea enjoyed. China's government structure, for exam- TABLE 3.5 ple, is complex and compartmentalized, discouraging Lawsuits on intellectual property rights in China, communication across ministries and complicating 1991-95 coordination across tiers of government. Administrative decentralization has rekindled an earlier bias toward Patent 3,083 2,737 provincial self-sufficiency, so provincial goals often con- Copyright 2,600 2,429 flict with national goals. Procedures and instruments of Trademark 907 789 indirect management have not yet fully replaced those of TechnoLogy transfer 6,812 6,805 CommerciaL know-how 2,141 2,100 direct management. The fiscal position is fragile, and the Criminal offenses' 1,690 1,676 banking system is delicate. The tender shoots of a gen- Foreign relatedb 192 170 uine private sector, although sprouting in increasing a. Cases where criminal action or violence was a factor. b. Cases where one of the parties was a foreign entity. numbers, have yet to take hold and mature. Source: Supreme Court of China, Inteltectual Property Rights Office. Lax irig the Iounrdatioris 39 is fulfilled by developing a market for ideas and support- make their ideas available. Some ideas have long gesta- ing it when it fails to operate effectively. tion periods, and their benefits are not readily apparent Firms and individuals will make less of a technolog- for many years. Government intervention may be ical effort than is desirable if they are unable to reap the needed to ensure that there is an appropriate supply of benefits. Thus protecting intellectual property rights is new ideas and technologies. of prime importance. China has enacted and revised To remedy such market deficiencies, China's govern- laws on patents, trademarks, and copyright, and has ment has focused on basic research. Its "climbing" pro- done much to enforce them. The number of lawsuits gram for fundamental research is designed to keep pace and prosecutions under these laws has grown substan- with world advances in key areas of information tech- tially (table 3.5), and there are now specialized intellec- nology, life sciences, and genetic engineering. Policy- tual property courts throughout the country. makers have invited high-technology firms to locate in The government has also acted to create a market for more than 100 science and technology parks that pro- ideas, "plunging the scientific community into the sea of vide infrastructure, priority access to finance and markets."26 Before reforms, the administrative appara- imports, and tax privileges. Today more than 13,000 tus transmitted findings from research units free of enterprises are located in such parks, employing over 1 charge. But technology has now been redefined as a million people. In addition, in 1995 the government .commodity" in China. To establish markets for this established sixty-nine national engineering centers as a commodity, the government has encouraged technol- link in commercializing research findings. These centers ogy trade fairs at which producers of research and are funded by the public sector, but the intention is development can sell their wares to potential buyers. In eventually to make them commercially independent. 1995 the country held 939 such fairs at which 14,686 contracts were signed for a value of 5.8 billion yuan. Notes Of course, the market for ideas does not stop at - China's borders. In many cases it will be more econom- 1. Strictly speaking, the reference here is only to in-budget indus- ical to acqw,re new commercial,technology from trial enterprises. ical to acquire new commercial technology from 2. Comparative data are from Levin (1991), who used a sample of abroad than to develop it at home. Much of this tech- eighteen industrial countries and twenty-two developing countries for nology is embodied in capital equipment, such as which data on general government expenditures are available in the International Monetary Fund's (IMF) International Finonce Statistics. turnkey projects or imported capital goods. In other Data are averages over three years ending in 1987 or 1988. instances it is packaged along with equipment finance 3. As mentioned later in this chapter, the three quasi-tax revenues and management, as in foreign direct investment. And were incorporated into the budget in 1997. 4 World Bank (1996b). in others technology comes "unbundled," through 5. The relative price of services tends to rise with higher real per technical assistance or technology licenses. capita incomes. The government should ensure that the costs of 6. This estimate was provided by the State Tax Administration and was based on the 1992 input-output table. acquiring foreign technology are as low as possible and 7. Extrabudgetary expenditures are recorded in data published by that the technology is disseminated domestically as effi- the State Statistical Bureau. But other government expenditures ciently as possible. Lower barriers to importing capital escape recording and quantification altogether, at both the national and provincial levels. goods would help by encouraging equipment invest- 8. The consolidated government deficit is defined as the sum of ment and technology imports, which in other countries the budget deficit and the volume of lending by the centraL bank tend to be associated with faster growth.27 More trans- specifically to finance government-directed investments. The author- ities have indicated that this deficit can range from 60 to 80 percent parent and streamlined foreign investment procedures of total lending by the centraL bank to the banking system. would also encourage new foreign investors. And more 9. Hofman (forthcoming). liberal rules on technology licensing agreements would 10. Some extrabudgetary expenditures-such as hospital expendi- tures financed from cost recovery-need not be incorporated into the encourage closer links between technology suppliers budget. abroad and producers at home. 11. These figures refer to atl state enterprises, not just industrial In many cases, though, the market for ideas func- state enterprises. tion , imperfectly. The owners of ideas may not be com- be 12. World Bank (1996a). Only part of this increase in losses can tions imperfectly. lTne owners of idleas may not be com- be explained by the adoption of a new accounting system. pensated for the goods they provide, so are reluctant to 13. Jiang (1995). 40 C.hina 2020: [)eveloprnent Challenges in the New (:enmtry 14. Qian and Weingast (1997) Kumar, A. 1996. "China's Domestic Bond Market and 15. World Bank (1997a). Infrastructure Investment." Paper presented at the seminar on 16. As noted earlier, a contestable sector is one in which there is Mobilizing Domestic Resources for Infrastructure Financing, relatively costless entry and exit. Although most Chinese industries Government of China and the World Bank, November 12, are contestable, the government initially may want to focus on such Beijing. industries as specialized machinery, printing, rubber products, Levin, J. 1991. "Measuring the Role of Subnational machinery, chemical fibers, instruments, electronics, paper, nonmetal Governments." IMF Working Paper 91-8. International products, electric equipment, lumber products, metaL products, edu- Monetary Fund, Washington, D.C. cational and sports products, pLastic products, leather, garments, and Li, Peng. 1996. "Report on the Outline of the Ninth Five-Year furniture. Plan for National Economic and Social Development and the 17. According to People's Bank of China Governor Dai Xianglong, Long-Range Objectives to the Year 2010." Speech delivered at 8 percent of outstanding Loans at state banks are more than three the Fourth Session of the Eighth National People's Congress, years overdue and another 12 percent are less than three years over- March 5, Beijing. due (Faison 1996). Mauro, P. 1995. "Corruption and Growth." QuarterlyJournal of 18. King and Levine (1993). Economics (August):681-712. 19. 'Red chip' companies are mainland Chinese state enterprises Mody,A.,andK.Tilmaz. 1991. "CostReductionthroughlmports registered in Hong Kong and listed on the Hong Kong stock exchange. of Capital Goods." World Bank, Industry and Energy 20. WorLd Bank (1996c). Department, Washington, D.C. 21. WorLd Bank (1997d). Qian, Y. 1995. "Enterprise Reform in China: Agency Problems 22. Mauro (1995). and Political Control." Stanford University, Department of 23. Li (1996). Economics, Stanford, Calif. 24. World Bank (1997e). Qian, Y., and B. Weingast. 1997. "Institutions, State Activism, 25. Qian and Weingast (1997). and Economic Development: A Comparison of State-Owned 26. China State Science and Technology Commission (1996). vs. Township-Village Enterprises in China." In M. Aoki, H-K 27. Mody and Tilmaz (1991). Kim, and M. Okuno-Fujiwara, eds., The Role of Government in East Asian Economic Development: Comparative Institutional Analysis. New York: Oxford University Press. References World Bank. 1996a. "China: Reform of State-Owned Enterprises." Report 14924-CHA. China and Mongolia Blanc, J., and C. Brule. 1993. Les nationalisations fran,aises en Department, Washington, D.C. 1982. Paris: La Documentation Francaise. . 1996b. The Chinese Economy: Fighting Inflation, Caprio G. Jr., and D. Klingebiel. 1996. "Bank Insolvency: Bad Luck, Deepening Reforms. A World Bank Country Study. Washington, Bad Policy, or Bad Banking?" In M. Bruno and B. Pleskovic, eds., D.C. Annual World Bank Conference on Development Economics . 1996c. Infrastructure Development in East Asia and 1996. Washington, D.C.: World Bank. Pacific: Toward a New Public-Private Partnership. Washington, Chenery, H., and M. Syrquin. 1975. Patterns of Development, D.C. 1950-70. New York: Oxford University Press. . 1997a. China's Management of Enterprise Assets: The China State Science and Technology Commission. 1996. State as Shareholder. A World Bank Country Study. Washington, "Technology Policy in China." Background paper prepared for D.C. the World Bank. Washington, D.C. . 1997b. Financing Health Care: Issues and Options for De Long, J. B., and L. H. Summers. 1991. "Equipment Investment China. Washington, D.C. and Economic Growth." Quarterly Journal of Economics 106 . 1997c. The Road to Financial Integration: Private Capital (2): 445-502. Flows to Developing Countries. A World Bank Policy Research Faison, S. 1996. "Inflation Curbed but not Growth, China Report. New York: Oxford University Press. Asserts." New York Times, July 16. - . 1997d. "Strategic Framework for the World Bank Group Hofman, B. Forthcoming. "Fiscal Decline and Quasi-Fiscal for the Financial Sector." Presented to the World Bank Response: China's Fiscal Policy and Fiscal System, 1978-94." Executive Directors by the Financial Sector Department, April In OECD/CEPII/CEPR, Different Approaches to Market 21, Washington, D.C. Reforms: A Comparison Between China and the CEECs. Paris. . 1997e. World Development Report 1997: The State in a IFC (International Finance Corporation). 1996. Emerging Stock Changing World. New York: Oxford University Press. Markets Factbook. Washington, D.C. Xu, X., and Y. Wang. 1997. "Ownership Structure, Corporate Jiang, Q. 1995. "State Asset Management Reform: Clarified Governance, and Corporate Performance: The Case of Chinese Property Rights and Responsibilities." In H. Broadman, ed., Stock Companies." World Bank Policy Research Working Policy Options for Reform of State-Owned Enterprises. Paper 1794. World Bank, Economic Development Institute, Washington, D.C.: World Bank. Washington, D.C. King, R.G., and R. Levine. 1993. "Finance, Entrepreneurship, and Zhang, T., and H. Zou. 1996. "Determinants of Provincial Growth." Journal of Monetary Economics 32:513-42. Income Growth in China." World Bank, Washington, D.C. Laying the Foundations 41 Shaping a Competitive but Caring Society haping a competitive economy requires market MWN forces. Shaping a caring society requires govern- ment leadership. Striking the right balance between com- petition and compassion depends largely on a country's circumstances, traditions, and culture. In China economic reforms have led to impressive growth in incomes. But they have also led to steep increases in social and income inequality, with limited improvements in living standards for the poor. Looking ahead, China will need market forces to ensure that resources and people combine in ways that support continued and sustainable improve- ments in income and welfare. It will also need an active government to help its people manage the increased risks and uncertainties generated by the market, and to build support mechanisms for the most vulnerable. The next twenty-five years will bring tumultuous change to China. If growth runs at the government's pro- jected average of 6-7 percent a year, the economy will 43 expand sevenfold. Thus China would experience in * Financial security for the elderly. Because state enter- twenty-five years an economic transformation similar prises are finding it increasingly difficult to meet their to that in Latin America over the past sixty-five years pension obligations, families are doing more to support and in OECD countries over the past eighty. their elderly members. But these informal arrangements Such big changes, compressed into so short a time, are becoming a financial strain. The one-child policy will stretch China's social fabric to the limit. Hundreds means that a working couple usually has to support of millions of people will move in search of better jobs four retired parents, one child, and sometimes grand- from agricultural to nonagricultural occupations and parents-an extraordinary burden, especially when from rural to urban areas. Urban labor markets will people have to move in search of jobs. Without more also have to handle huge structural change within formal arrangements, China may not be able to main- industries, especially shifts between state and nonstate tain its traditional reverence for the old. firms. By 2020 a typical worker in China will not be a * Access to affordable health care. Public health facili- self-employed farmer but a wage employee on a ter- ties are being squeezed by budgetary pressures, and the minable contract in either industry or services. Flexible cost of health care is rising rapidly. Almost all health rural labor markets and efficient rural-urban migration insurance is for urban residents, especially government will be essential, particularly since growth of the labor and state enterprise employees. Rural areas are force will be slowing considerably. neglected, with the old, the young, and the poor suffer- Greater mobility between jobs, sectors, and occupa- ing the most. tions will also require greater flexibility in education. * Biases against women. By international standards, Upgrading skills by increasing investments in general the status of women in China's labor market is rela- education and on-the-job training will ease structural tively favorable. But international experience also change. And greater access to education in rural areas shows that market reforms tend to hurt women dispro- (especially for girls) will be central to reducing poverty portionately. This may be occurring in China as well. and bringing the untapped potential of the poorest peo- * High and prolonged unemployment. As the "iron ple into the economic mainstream. rice bowl" of a job for life in state firms crumbles in the The speed and size of these employment changes will face of market reforms, structural unemployment will foster both hope and uncertainty. Hope-of better jobs increase and strain the unemployment insurance and rising incomes-is already real and palpable. But system. unemployment, migration, old age, and illness will pre- sent new challenges for China's people. Those who Making Labor markets flexible were most protected in the past-mainly urban work- ers in state-owned units-will find it especially difficult There have been few formal reforms of the market for to adjust to the new reality. labor. But structural change and competition are pro- As they grow richer, all societies demand formal foundly affecting the way labor markets work in China, mechanisms to manage such risks. In China this especially in rural areas. The rapid growth of jobs in demand will grow very quickly, and will probably township and village enterprises during the 1980s was center on five issues where government action is forged largely by market forces and with little govern- needed: ment oversight. Similar pressures are now playing an a The living standards of the absolute poor. There has increasing role in urban markets, but the difficulties of been a remarkable reduction in the number of poor state enterprises have made the transition more people since reforms started. But eliminating poverty is difficult. becoming increasingly difficult. The absolute poor are Thus it is unlikely that China's labor market will usually entire communities that live in isolated, upland become much more flexible unless a determined effort regions of interior provinces with few if any natural is made to change policies and institutions. The market resources. Bringing them into the mainstream of eco- could even become more segmented, with widening nomic development will require new approaches and income inequalities across skills, regions, genders, and better targeting. firms. But if policies and institutions are designed to cre- 44 China 2020: I)evelopment C.hallenges in the New Century ate a flexible and integrated labor market, the outcome time, it may lose its allocated land. Another reason to will be good for growth and for workers. remain on the farm is to fulfill the annual grain quota set by the authorities (although purchases from the Easing restrictions on rural-urban migration open grain market are increasingly accepted in lieu of own production). One good indication of how labor markets function in Despite these barriers to mobility, the stream of China is the estimated 120-140 million "surplus" rural-urban migrants in the 1980s has turned into a workers in agriculture-roughly 35 to 40 percent of the flood. Recent estimates put the number of migrants in agricultural workforce. These workers could earn sig- urban areas at around 80 million,' although genuinely nificantly more in nonagricultural activities (box 4.1), long-term migrants are nearer to 44 million.2 A tempo- but for various reasons are constrained from doing so. rary migrant typically stays in the city for about 200 Perhaps the main factor inhibiting migration to days and then goes home.3 Among longer-term towns and cities is the urban welfare system. Migrants migrants, peasant women in the Pearl River Delta work find it difficult to qualify for health, education, and for as much as three to five years before returning per- housing facilities, which (like other benefits in urban manently to their villages. areas) are tied to state enterprise employment. For About two-thirds of all migrants, temporary or per- example, state enterprises and government agencies manent, work in the same province as their home vil- control almost 80 percent of the urban housing stock lage.4 Three-quarters are rural-urban migrants; the rest and allocate almost all of that to their employees. are rural-rural. Large, prosperous coastal cities- Migrants are also acutely aware that their legal sta- Beijing, Shanghai, and Tianjin-attract the largest share tus is ambiguous. As a result they often do not report of immigrants, while provinces with low land-popula- unsafe conditions or illegal practices at work. Their tion ratios and high concentrations of state enterprises inner-city townships are occasionally torn down, have the highest emigration rates. More than half of all adding even greater uncertainty to their already precar- migrants came from farms of less than 0.33 hectares ious existence. They face great difficulty in formally reg- (table 4.1). istering as urban residents, although some cities are Labor migration lubricates the rasping process of beginning to issue "blue cards" or temporary permits. China's structural change. It is one of several human Once these expire, however, the prospect of eking out a dimensions in the transition from an agricultural to an marginal existence in the city often encourages migrants industrial economy and from a rural to an urban soci- to return to their villages. ety. It is also an essential element in the economy's con- Would-be migrants are also deterred from moving by tinued rapid growth. For example, the steady flow of conditions at home. For example, under the household skilled workers to urban industry keeps real wages low responsibility system local authorities periodically real- even as growth remains strong, supporting China's con- locate land among households. If a family is away at the tinued competitiveness in international markets. - Migrant workers earn 70 to 80 percent of what their BOX 4.1 5PW5335335,3;,,Bsm,,> ,TT M1W T'C5!¢t35 TABLE 4.1 Migrant workers usuaLly come from smaLl farms Leav gthe land -=n be attractive, A recent4tudy~f$handog SShare of rural migrant labor by farm size of migrant househotd, 1994 -~t~vince's -ot~ping :Runty found thae gPin9 wage ii nonai-: :.(percent) gricul5turaL adtvtiSes w.as seven .times wha:tfamir eamrn In six: viUages of Ziayu ow( n nHenan Pninie e returns terk- Farm size ing r5iXeuituiY :iere t ,Q ,t ) t 4 ,t 4 ) Q 0 ° None Primary Lower Upper Higher Birth cohort (0-6 middLe middle (12+ Source: China Population Yearbook 1995. years) years) Educational attainment Upper-middle schools are not only restricted to a Source: World Bank staff estimates based on data from the China Stotistical small portion of children, but are also heavily biased Yearbook 1996. toward vocational and technical education. The emphasis on vocational and technical education in gest that a science curriculum that stresses experimenta- China is driven by three concerns: keeping unemploy- tion and scientific inquiry and a mathematics curriculum ment among school leavers low through a closer fit that encourages problem-solving make school leavers between supply and demand, expanding secondary more receptive to on-the-job training. China could ben- schooling without increasing pressure on the tertiary efit from a more flexible approach to curriculum devel- level, and upgrading the technical skills of the labor opment, with the State Education Commission force. involving employers and ministries in its plans.. These concerns are less compelling in a market sys- As far as higher education is concerned, the echoes of tem where demand for skills and occupational cate- the Cultural Revolution will continue to be heard for gories is changing rapidly. The new concern is not some time. During that period most universities were whether school leavers can slot into a job immediately, closed and the number of graduates declined (figure but whether they can adapt to changes in job require- 4.6). Students who did graduate had received a poor ments throughout their working lives. A better balance education. Today, more than a quarter of China's grad- between vocational and technical education and gen- uates between the ages of 25 and 64 are older than 50 eral education has merits that are underscored by inter- and will have retired by 2010. Merely replacing them in national experience. Vocational and technical the workforce will require substantial increases in education enrollments in the Republic of Korea, higher education enrollments. There is some evidence Malaysia, and Thailand are declining as employers and that this has been happening, especially since 1991 (fig- students recognize that general education equips people ure 4.7). Even so, by 1994 only 2.4 percent of the uni- for the demands of a modern economy integrated with versity age cohort (18-22 years old) was enrolled in the world trading system. higher education.9 That compares with 9 percent in As the emphasis changes, general education pro- Thailand, 10 percent in Indonesia, 20 percent in Hong grams in secondary schools need to emphasize quality Kong, 39 percent in Taiwan, China, and 51 percent in and creativity. The experiences of other countries sug- Korea.10 Shaping a (Competitive but Caring Society 49 EducationaL echoes of the Cultural Revolution Enrollment in higher education has grown Number of people with higher edcuation for every 1,000 sharply in recent years in their age cohort 1985 -1.0 30 1.5 25 1.4 1.3 20 1.2 15 1.1 10 1.0 s _______ ~~~~~~~~~~~~~0.9 0.8 ~~.,u ag oB a, a, a, o8 Source: China Statistical Yearbook 1996. Years when 20-24 years old Source: China Population Yearbook 1995. Protecting the vulnerable Inside China's higher education institutions there is a A caring society has formal mechanisms that help vul- strong bias toward engineering, which accounts for 39 nerable people cope with structural change and market percent of all enrollments. This emphasis can lead to reforms. Although there are many such people in high unit costs. China's public spending per student in China, here we focus on five groups who are particu- higher education is 175 percent of GDP per capita; the larly vulnerable to the effects of markets. average in other East Asian economies is 98 percent. Yet evidence suggests that a significant portion of engineer- The poor ing students eventually work in occupations that do not require engineering training. A key challenge for the Rapid growth has helped lift 200 million Chinese out of future is to design a flexible education system that sup- poverty since 1978. But most of the reduction occurred plies skills in line with changing needs and shifting in the first six years, when agricultural incomes soared employment patterns. For example, the government following the introduction of the household responsi- could place more emphasis on science, mathematics, bility system. Progress stalled in the mid-1980s, but has and hamanities programs to supply more qualified picked up since 1992. In 1996 about 6 percent of the graduates to the growing services sector. population-some 70 million people-were living Although the case for new and additional expendi- below the government's absolute poverty line. Against tures on education is compelling, it is equally important the World Bank's international poverty line of $1 a day, to consider where these resources will come from. The however, the poor make up 22 percent of China's pop- government (including local government) already foots ulation (figure 4.8).1l 87 percent of education expenditures; most of the rest In most cases the poorest people are entire commu- comes from state enterprises or tuition fees. The gov- nities living in isolated, upland regions of the interior ernment's budget will remain under pressure, and state with few if any natural resources. Although they have enterprises are going to shed their social obligations. So rights to land, the land is usually so poor that it is the main source of extra revenues for education will impossible to produce enough food to survive. Thus, have to be a combination of higher tuition fees, student unlike most farmers in China, these groups are net pur- loans, and financial aid programs (box 4.3). chasers of food, and so are hurt whenever the relative 50 China 2020: Developrnent (halihenges in the CNew C-entury BOX, 4,3 have become the target for coordinated poverty reduc- d1diti6naL,x ,... ."' d'-t .'>':tion programs by government agencies. i :Fman~~png adloa epniure.sim .ee Finandn addit ional expeniture<>s in highr As the numbers of the poor have dwindled, further education ; ;----; - s-i-; s--- i - Sz reductions have been increasingly difficult to achieve. Aeerding t. .n ...nad~ explirej 1yteW4 Continued progress will require more careful targeting, pediurs 11N*fi ~cUk1b"'du ~ ~ 1t perhaps concentrating on individual townships and vil- year (in real terms) until Z~2O~ ThiS ~S~SOfl th~ lages. That approach will help the government to atrstong assumption ahtuntos anhsiifctl reduced (thrbugh higher staff-student ratios more efdent include in its programs people who do not live in the ue' 9, Ilbutdigs) leven as the quatity f''ed ;,i, . designated poor counties but who account for about ~de ths ariQ the sharc e m. half of the poverty total. Careful targeting will also 'turesfalls 7 mean differentiating between the chronic and the tran- iwtiwsh p4 stu der*tf~e#s nise&:rm~preit t l~ in or About 40 percent of poor people live in te _ households that are not poor on average, but that have 18 percnt b suffered a temporary decline in incomes.12 Programs to Source: WOrW 4'':Bank,+7A 19....... ,';,^,-X:.help these households would differ significantly from those designed for the chronically poor. price of food rises. Moreover, the poor tend to be less Apart from better targeting, poverty programs may educated, less healthy, and have more dependents for need other changes of emphasis. Many poor people each working-age person. In several of the poorest vil- undoubtedly benefit from investments to improve rural lages at least half the boys and almost all the girls do not infrastructure, agricultural productivity, and off-farm attend school and are unlikely ever to be literate. employment. But the returns from such investments will Most of China's poor households lack the physical decline once the bulk of the poor are in remote areas with and human assets to benefit much from the mainstream few natural resources. These people will benefit from a forces of growth. For this reason, in 1986 the govern- renewed emphasis on basic health and education, com- ment established a Leading Group for Poverty bined with assistance to find employment elsewhere. Reduction to develop coherent policies for the poor. By 1996 the group had identified 592 poor counties (on the The eLderly basis of average per capita incomes in 1992), and they China is going through a profound demographic tran- sition. A stringent birth control policy has brought an -GUR ~ extraordinarily steep decline in the fertility rate. This Sharp drop in poverty drop has transformed the age structure of the popula- Incidence of poverty tion, which is now somewhere between the patterns of (percent) high-income and low-income economies (figure 4.9). 70 One major consequence of this change is that the 60 elderly account for an increasing portion of the popula- tion. Today, their share is over 6 percent, but by 2020 it 50 is expected almost to double to 11 percent (table 4.2). 40 Higher In today's high-income economies a similar aging took poverty tine more than a century. Even by the standards of other 30 developing economies, China's population will age very 20 A quickly. By 2020 the share of the elderly in China's pop- poverty Line ulation will be half as much again as in, say, India, 10 _Indonesia, Malaysia, or Vietnam. 9 Ensuring the financial security of the elderly will be a 1981 1983 1985 1987 1989 1991 1993 1995 major challenge because labor force growth is slowing. Source: World Bank 1997c. Indeed, by 2030 the total workforce is projected to start Shapirig a Cornpetitive but Caring Society 51 TABLE 4.2 China's age pyramid is a mix of . . . China's demographic profile, 1995 and 2020 China, 1995 Indicator 1995 2020 Age Poputation (thousands) 1,200,241 1,425,288 bracket Labor force (thousands) 811,402 987,778 No 75+ Fertility rate (percent) 1.95 2.00 s 70-74 Life expectancy (years) 69 73 6-69 Female 60-64 Male ChiLdren/population 26.0 19.9 B 55aF .. 55-59 ~ Elderly/population 6.4 10.8 50-54 4549 Dependency ratioa (percent) 47.9 40.9 7 mmilam 40-44 a. Ratio of nonworking-age population to working-age popuLation. '<*'\"~, ~ 35-39 Source: World Bank data. bSX . wBg5:::f' 30-34 i _ 25-29 - lo520-24 declining in absolute numbers. Today there are ten peo- 15-19 10-14 ple of working age for every pensioner.'3 By 2020 there 5-9 0-4 will be six, and by 2050 only three. 70 60 50 40 30 20 10 0 Mions0 10 20 30 40 50 60 70 More immediately, China is already facing a pension crisis in its state enterprises. Although employment in ... that of high-income economies ... those enterprises is growing slowly, the number of their High-income countries, 1995 pensioners is rising rapidly. Some enterprises have more Age pensioners than workers. With these firms in a weak bracket financial position, managers occasionally have been .-"7 Lr 5 7 745+ forced to stop pension payments. Female 099W b 60-64 Male The problem lies in the pension system inherited z 50-54 _ from the era of central planning. It is a pay as you go 450-549 4044 5_49 system with defined benefits that cover mainly the 35-39 retired employees of state firms in urban areas. In non- 30-34 25-29 l state firms coverage is spotty, ranging from 20 percent , > . ~~~~20-124 15-24 to 90 percent (depending on the locality). By interna- 10-14 105-9 tional standards the elderly receive a small portion of 35 30 25 20 15 10 5 0 0 5 10 15 20 25 30 35 their income from pensions (figure 4.10). Millions In the past enterprises were responsible for paying . . . and tow-income economies their own pensioners. But in some places this responsi- bility has recently shifted to local governments, who Low-income countries (excluding Chino), 1995 pay pensions from pooled funds that are replenished Age regularly by enterprise contributions. Today some 110 br75k+et million workers are covered by this pooling arrange- Female 65-649 Mae ment, which has helped spread risks and is especially 1 60-64 useful for firms with large pension bills. O 50-54 Even so, the system is untenable. Firms with more .045-49 5 40-44 pensioners still make a larger contribution to the pen- >~35-39 30-34 sion pool and are still responsible for most of the pay- ME7 25-29 5':5 20-24 ments administration and the health and housing needs O., 10-14 of pensioners. This arrangement makes it difficult to liq- 5-9 __________ _ 0-4 uidate bankrupt firms. Moreover, viable firms in places 120 100 80 60 40 20 0 0 20 40 60 80 100 120 with a large concentration of pensioners could find their Millions Source: World Bank staff data, competitiveness eroded because of their larger contri- butions to the pool. 52 Chinia 2020: Developynent Challenges in the New Centtury retirees above the poverty line, with the same basic pen- China's elderly receive a smaLl share sof their sion graded only by length of service. After forty years income from pensions of service, for example, retiring workers would obtain 24 percent of their last wage packet. A contribution rate Percent of about 9 percent of enterprises' wage bill would be 100 sufficient to finance these payments. The second pillar would comprise mandatory, fully 80 funded individual accounts paid for by an 8 percent Work contribution rate split equally between workers and 60 enterprises. Assuming that the rate of return on pension Family funds equals the rate of growth in wages, the pensions 40 from these accounts would be equivalent to 35 percent MM ~~~of workers' final wages. 20 Pension The third pillar would be a supplementary pension, l&~. l | flS1Ofl l which employers could choose to provide or individu- 0 als could choose to save for. Pension funds and insur- ance companies would offer these accounts, much as O Ze v,a g FU they do in other market economies. -~ :r _This scheme reduces the pension burden in three Note: Data for China refer to eLderly population in both rural and urban ways. First, it assumes that the retirement age is gradu- areas; in urban areas work income for elderly is much lower. Source: World Bank 1994. ally mcreased to a umfied 65 years (from 60 for men and 55 for women). Second, it indexes pensions to prices, not wages. Third, the first two pillars together result in a Most important, the pooling system fails to make wage replacement rate of about 60 percent.'5 Although pension benefits portable from one locality to another, lower than the current wage replacement rate of more hampering labor mobility and impeding state enterprise than 80 percent, this level is much closer to replacement reform. Individual accounts are only notional, not real. rates in most other countries (40-60 percent). Worker contributions are used to pay existing pension- Even if all these reforms are adopted, finance is still ers, rather than accumulating in workers' individual needed for the implicit pension debt of state enter- accounts. Unless this system is reformed, the contribu- prises-that is, pensions already being paid plus the tion rate will have to rise steadily. By 2035 the average accumulated pension rights of workers under the old rate would pass 40 percent, making most enterprises system. This debt is about 50 percent of GDP, much less financially nonviable. than in many other developing countries. There are In 19,95 the government introduced a master plan many options for financing it, including an additional that aims at four "unifications" by 2000: a unified sys- contribution from state employees (who comprise tem that treats all enterprises and workers equally, with almost all the beneficiaries), bonds issued by the gov- unified standards, unified management, and unified use ernment, and sale of state enterprise assets. Each option of funds. However, the government proposed two mod- has its own constraints and advantages, and some com- els-one emphasizing individual accounts and the other bination of all three could be used. a larger social component-and allowed local authori- Whichever reform is chosen, it will be more effective ties to introduce schemes using any combination of fea- if it is begun soon. Today's rapid growth and high sav- tures of the two plans. The result is hundreds of ings will make it easier to absorb the incremental costs incompatible schemes across the country. of reform. Reforms will get harder over time as more The World Bank, working with government experts, workers move from agricultural to nonagricultural has since proposed a three-pillared system that com- activities. Equally, pension reform is a necessary ele- bines social pooling with funded individual accounts.14 ment in reforming state enterprises: delaying one will The first pillar would provide a basic pension to keep inevitably delay the other. And more positively, the Shaping a Comrpetitive but Caring Society 53 development of a savings-based pension system will The sick stimulate the rapid growth of capital markets. Still, these reforms do carry risks, with much depend- Health care spending has been growing steadily in ing on the rate of return earned on the accumulating China and is expected to rise even faster over the next funds. For the first pillar, for example, each percentage twenty-five years. Today China spends only 3.8 percent point reduction in the return on invested balances of GDP on health, so it will still take years to catch up would require the contribution rate from enterprises to with Thailand (5.3 percent), Korea (5.4 percent), Chile be an extra 0.6 percent of wages. If the future real return (6.5 percent), Colombia (7.4 percent), and industrial on invested balances were no higher than the real return market economies (9.2 percent).16 on deposits over the past five years (0.4 percent as But personal spending on health has grown rapidly opposed to the 4.0 percent assumed by the simulations), since reforms began (table 4.3). In rural areas the health the contribution rate would have to be about 2.2 per- insurance implicit in the commune system has crumbled centage points higher (figure 4.11). The higher is the (see chapters 1 and 3). In urban areas state enterprises contribution rate, the greater is the probability of eva- are withdrawing from providing lifelong subsidized sion, especially by nonstate firms. medical care to workers and their families. In a recent Achieving high returns on pension funds will require survey of urban workers, concern about mounting a new approach in China, since the experiences of other health care costs ranked ahead of fears of unemploy- countries show that privately managed funds earn better ment and insecurity in old-age pensions. But the ramifi- returns than publicly managed ones (figure 4.12). How cations go beyond personal anxiety, because many such arrangements are put in place requires careful con- cross-country studies confirm a positive link between sideration, because the funds will be managing huge public spending on health and labor productivity. sums. By 2030 their accumulated surplus could reach 13 The government could have compensated for these trillion yuan, or $1.6 trillion (in 1994 prices). As a share reform-induced reductions in public health services by of GDP this would comfortably exceed the 1991 pen- sion assets of Germany and Japan. Annual inflows of pj9jg 4> new money could reach 500 billion yuan ($60 billion; Privately managed pension funds tend figure 4.13), so China's pension funds will be a major to do better force in international capital markets (figure 4.14). Rate of return, 1980-90 (percent) FtGUW 4.11 Chile A tower return on invested balances will XUnited Kingdom require a higher contribution rate Privately United States managedNthlad Contribution rate (percent) Nether ands 12 United States' Malaysia Publicly managed Singapore India 10 Kenya Ecuador Average real deposit rate, Egypt 8 1990-95 Venezuela Average rate assumed in Zambia I i simulations Turkey 6 l Peru -2 -1 1 3 4 S -40 -30 -20 -10 0 10 Average retumn .........a. Old-Age and Survivors' Insurance. Source: World Bank 1996a. Source: World Bank 1994. 54 C;hina 2020: I)eveloprnent Challenges in the New Century Growing surpluses in China's pension funds China's pension fund surpluses will be an Billions of yuan Percent important world source of long-term finance 600 30 Pension fund assets Size of _ #z9 . (billions of 1994 U.S. dollars) 500 pension funds 25 1000n1991 (percentage of GDP) 21 . 2030 400 Annual yuan 20 \ < . / surpLus in 8,000 300 pension funds S 6,000 X 200 ~~~~~~~10 ' 100 Annuat surpLus as percentage . 5 4,000 of national savings 0. ~~~~~~~~~~~~0 1995 2000 2005 2010 2015 2020 2025 2033 Z,000 Source: World Bank 1996a; World Bank staff estimates. increasing its own spending. Instead, its share of health o a ct spending has declined significantly, and what little extra , , e it has spent has been mostly on family planning and ; e civil servants. Moreover, since 96 percent of current Source: World Bank 1994; World Bank staff estimates; Suzuki 1987. health expenditures comes from local governments, the distribution of spending varies enormously across found that in rural areas stunting among children provinces and between urban and rural areas. For every (low height for age) increased between 1987 and 1,000 people, there are 75 percent fewer hospital beds 1992. in rural than in urban areas, 75 percent fewer doctors, Thus improving the health care system is an urgent and 80 percent fewer nurses. Per person, rural areas challenge. There are four priorities for government receive a fifth of what urban areas get in health subsi- action. First, target health spending to where it will dies. Since rural areas are barely covered by health bring the most benefits. There would be no better start insurance schemes, most services there are fee-based. than to focus on the 592 counties designated as poor by The sick often must buy medical treatment at the cost of the Leading Group on Poverty. Beyond that, public slipping into poverty-or, worse, forgo treatment but financing of the epidemic prevention service should be pay the price in ill health or death. Although China's health indicators are above the TABLE 4.3 norm for countries at its level of development (figure Share of total health expenditures covered by insurance or government budget, 1978 and 1993 4.15), recent trends have not been encouraging. (percent) Surveys and censuses indicate that the under-5 mor- tality rate stopped falling after 1985 and may have Coverage 1978 1993 risen since.1'7 China has one of the world's highest Government budget' 28 14 Urban insurance schemesb 30 36 incidences of viral hepatitis. A 1990 survey of seven Rural insurance schemes 20 2 provinces found that 7 in 1,000 people in rural areas Out of pocket' 20 42 suffered from pulmonary tuberculosis. Predictably, Other2 6 the poor are particularly at risk. A study of thirty Memo item the poo aeariclalyatrik.A tuy fhity HeaLth expenditure (percent of GDP) 3.0 3.8 poor counties found that infant mortality rose from a. Excludes insurance expenses for government empLoyees. about 50 per 1,000 live births in the late 1970s to 72 b. IncLudes insurance expenses for government and urban Labor. c. Includes user fees, copayment, and fee for service. per 1,000 in the late 1980Os. A survey of nine provinces Source: WorWd Bank 1997b. Shaping a Competitive buit Caring Society 55 HeaLth indicators in China are better than international norms Infant mortality ~~*c~~#tvs~a (deaths per 1,000 Live births) m /o 150 Ch i n rnl sets t h pitial dicases be Bhutan eosted the prie of heh dianst ser- 120 ncoers{n aepetdt o vic~~~~~~~~~~~~~oes . above cort wie then StateO PharmaeutclAec NepaL and r ail thel aresult h ealth c p es he 90 Laos, orr BangLadesh f (which han sy Sn Lanmar Thalandapubeaoverhauled withgrda iftin of cotols in uan India New Gui'nea ). ienm PhiLippines 30 Chia arently sets the price of essential medical services below SVieanka cost and the price of high-technology diagnostic ser- 65 Mongolida< PP free rral market fr health sevices. I 0 /5001,0001,500 2,000esia v hicabove cost, while the State Pharmaceutical Agency 0 500 GN per0 capita (U00.S50 3,000 3,500 allows a 15 percent markup on drugs at the wholesale GNP6er0apia (.S.dollars) and retail levels. As a result health care providers have Life expectancy at birth large incentives to buy and use high-technology equip- (years) ment, overprescribe d , require Iempayens 75 for essential health services. The pricing system should Thailand Mataysia be overhauled, with gradual lifting of controls in urban 70 areas. In the countryside controlling prices is difficult Ven M 500 1,000 1,500 2,000Z,5003,0003,500 Piecemeanyway, so the government should formally recognize a 65 *mIndia hirippine free rural market for health services. MongoLia Indonesia WorThird, as the Health Policy Conference in 1996 con- 60 cluded, health insurance programs need to be o iangLadesh Papua revamped. Two kinds currently exist-enterprise-based fl byepat New Guinea health care and the scheme for government employees. Lots The enterprise-based system is springing leaks and sink- sc ing slowly, with many enterprises delaying reimburse- IBhutan ments of health costs or lowering their contributions. 45juies 500 1,000 1,500 2,000 2,500 3,000 3,500 Piecemeal reforms in several cities have included selec- GNP per capita (U.S. dollars) tive pooling of major medical costs across enterprises, Source. World Bank staff estimates based on data from World Bank 1997d. tasfrin risks to ben ies, andlecha- nisms for containing costs. The governent has accu- restored; it has stayed flat in nominal terms since 1986, mulated enough experience to consider expanding falling by 60 percent as a share of GDP. Immunization urban insurance reform to fifty-seven cities. against infectious and parasitic diseases also deserves Comprehensive reforms in these cities should aim to special attention. Finally, much could be achieved delink service provision from financing and contain through campaigns on noncommunicable diseases and costs. This calls for the introduction of individual med- injuries, with a special emphasis on tobacco control ical savings accounts to pay for low-cost health prob- (box 4.4). lems, while focusing insurance on coverage of Second, align the price structure of health services catastrophic risks and broadening the collective risk more closely with costs. The Price Commission cur- pool across enterprises and work units. 56 Chinia 2020: Developrnent C"halleniges in the New C,entury Fourth, rural health insurance programs need to be can be explained only partly by differences in such fac- rebuilt. The Sichuan Rural Health Experiment, orga- tors as schooling, on-the-job experience, and firm nized in 1989-90, is a possible guide. It covers twenty- tenure. The main element is usually unobserved fac- six villages and incorporates various innovations: tors-which probably means discrimination.19 premiums set at 1.5 percent of average income, volun- Moreover, the gap between the wages of men and tary participation, varying reimbursement rates for women could grow for two reasons. First, the expan- inpatient and outpatient care, and low administrative sion of nonstate employment would boost the average costs. In most poor rural areas, however, government wage differential. Second, reforms tend to heighten the subsidies may be needed. Subsidies would be justified, importance of education; since men are better educated, provided the schemes incorporate lessons from the their wages are likely to rise faster than women's. Thus Sichuan model and others that have since improved on reforms and growth, while raising the average standard its design. of living for everybody, may not be good for the relative position of Chinese women.20 However, much will Women depend on the pattern of development, the demand for women workers, and the nature of government policies. Mao observed that "women hold up half the sky." For example, if foreign investment is concentrated in Particularly in urban areas, women in China have an labor-intensive exporting industries (which employ economic and social status seldom seen in other devel- many women), the wage differential could even narrow. oping countries. The female labor force participation If women's relative earnings do deteriorate, it could rate is 80 percent, well above the (unweighted) average have profound long-term repercussions for growth. It of 50 percent for all of East Asia. On average Chinese will inevitably lead to less female participation in the women earn between 80 and 90 percent of what men labor force and reduce investment in girls' schooling. earn, much higher than the worldwide average of 60 to This would be serious because the education level of 70 percent. mothers has a stronger positive impact on the education Chinese women are, however, vulnerable to discrim- of children than the education of fathers. Similarly, ination and unfair treatment in the workplace. money in the hands of mothers is more likely to be spent Numerous accounts suggest that they may be dispro- on the health and welfare of children than money con- portionately affected by the restructuring of state enter- trolled by fathers.2' prises-a trend that is likely to accelerate as enterprises Yet mandating equal pay for women could have the withdraw support services such as child and health opposite effect of what was intended: it could encour- care. Eastern Europe's experience lends support to this age noncompliance and bias employers against hiring view; participation rates for women declined rapidly women. Instead, the government could use general rev- there after market reforms were introduced. enues to reimburse firms that offer maternity and child Some labor market policies also place women at a care benefits, treat these costs as tax deductible for disadvantage.'8 The most glaring is that their retirement ___ age (55) is lower than men's (60). Some women are even TABLE 4.4 required to bequeath their jobs to their children to help Women's earnings as a share of men's earnings in manufacturing reduce youth unemployment. Other regulations unin- (percent) tentionally lead to discrimination in the workplace, especially in state enterprises. For example, the legal Economy 1980s 1990s China ~~ ~~~~85 86 requirement to grant women maternity leave and child China care benefits makes them more expensive to employ, so Singapore 62 71 Taiwan, China 66 61 firms turn them away. Korea, Rep. of 46 54 Although wage differences between men and women Malaysia 73 are small relative to differentials in other countries Phiippines 62 Thailand 70 (table 4.4), they are remarkably durable (and tend to be Japan 53 50 higher in nonstate firms than state enterprises). They Source: Meng 1996. Shapitng a Cornpetitive but Caring Society 57 firms, or develop mechanisms for women that would be raised to 65 years for both men and women. The allow them to pay for these benefits either in the form government could also offer redundancy payments to of reduced benefits in other areas or lower wages. help enterprises that restructure their operations. It could afford to do so, provided the program is stag- The unemptoyed gered over the next five years. The key ingredients are that unskilled workers are covered and that there are Unlike the pension scheme and health insurance, the built-in incentives for people to retrain and seek new unemployment insurance scheme has no major design employment. flaws. Introduced in 1986, it is still mostly confined to employees of state-owned enterprises.22 All firms in the Notes scheme pay a maximum of 1 percent of their wage bill into an unemployment insurance fund, which in every 1. Cook (1996). 2. Naughton (1996). case until recently has been in surplus. Benefits go to 3. Hare (1996). those laid off because of bankruptcy, restructuring, or 4. Li (1995). the expiration of their contracts. Earlier, few workers 5. Yang and Zhou (1996). In addition, WorLd Bank missions review- ing the World Bank-financed South West Poverty Alleviation Project were laid off because of bankruptcies and restructuring, have observed migrant remittances averaging 1,200 yuan and often so the scheme involved mainly contract workers, who reaching 2,500 yuan a year. now account for a quarter of the workforce in state and 6. Oxford Analytica Asio Pacific Doily brief, December 20, 1996, urban collective enterprises. But with the sharp rise in 7. By the end of 1996 there were 5.5 milLion workers officially unemployment since 1993, the contribution rate is no unemployed, an estimated 9 million furloughed, and 11 million with longer adequate and will be raised shortly. wage arrears. 8. World Bank (1997c). Unemployment benefits range from S0 to 75 percent 9. It should be noted, however, that almost as many students enter of the average basic wage in the last two years of adult education and professional education institutions. employment. Benefits last for a maximum of two years. 10. World Bank (1997a). 11. The government calculates the absolute poverty Line based on Recipients continue to receive health benefits, but on a an intake of 2,150 calories a day and an approximation of the cost of cost-sharing basis, and they are allowed to remain in nonfood subsistence items based on their share in Low-income house- their homes. The scheme is run by provincial and hold budgets. The higher poverty line is based on the World Banks definition of $1 a day in 1985 prices adjusted for purchasing power municipal governments, not enterprises. These schemes parity. For more detaiLs, see World Bank (1996c). In 1990 Chinese also offer job placement and training and facilitate household surveys introduced a more accurate pricing convention, rural-urban migration. resulting in a discontinuous series. 12. Such transient poverty constitutes about half of the mean The scheme is not an answer to the problem of sur- squared poverty gap. The poverty gap measures the income transfer plus labor in state enterprises (see chapter 3). Most of needed to raise the income of a poor person exactly to the poverty these workers are permanent employees recruited Line. The mean squared poverty gap is the mean of the sum of the squares of the poverty gap for all poor individuaLs. before 1986, when the labor contracting system was 13. PeopLe of working age are considered those between the ages introduced. Many are relatively old and unskilled, so of 15 and 64. they have limited prospects of finding comparable 14. World Bank (1996a). remuner n e. T15. The "replacement rate" is the ratio of the payable pension to remuneration elsewhere. They are more likely to join the worker's wage in the final years of employment. the ranks of the long-term unemployed, for whom 16. World Bank (1997d). unemployment schemes in general can do little. 17. This assessment is based on a report commissioned by the World Bank (1997b). Chinese researchers, however, question the reliability of Solving the problem of disguised unemployment the estimates in this report, which is based on census and fertility sur- will require a combination of measures. The govern- veys, and consider death registration data more reliable. But it should ment has already adopted two-expanding retraining be noted that international demographers do not commonLy use death registration data to estimate child mortality in developing countries, schemes for the unemployed and lowering the retire- preferring instead to derive estimates from censuses and surveys. Based ment age. The latter reduces the burden of surplus on death registration data, the under-5 mortality rate declined in the labor borne by enterprises and exchanges it for the 19iOs-from 61 per 1,000 in 1991 to 51 per 1,000 in 1995. smaller expense of pensions. But it has complicated 18. According to the All-China Federation of Trade Unions, a sur- vey of 1,175 enterprises in 1993 found that 60 percent of all laid-off pension reforms; if anything, the retirement age should workers were women (Li and Hong 1996). A 1995 survey by the 58 China 2020: I)evelopa}ent (Challenges in the New C'entury Women's Research Institute of the Chinese Academy of Management Li, Q. and D. Hong. 1996. "Urban Poverty Issues and Options in Science found that women constituted 70 percent of persons fired or China." Population Research 20(5): 39-42. likely to be fired as a result of restructuring unprofitable enterprises. Li, S. 1995. "Population Mobility and Urban and Rural 19. Bauer, Feng, Riley, and Zhou (1992); Meng and Miller (1995); Development in Mainland China." Issues and Studies: A Yang and Zax (1996). Journal of Chinese Studies and International Affairs 31 20. Yang and Zax (1996). (September):37-54. 21. Agrawat and Watton (1996). Meng, X. 1996. "The Economic Position of Women in Asia." 22. In some places, such as Shanghai, unemployment insurance Asian Pacific Economic Literature 10(May): 23-41. schemes also cover coltectiveLy owned firms and foreign joint ventures. Meng, X., and P. Miller. 1995. "Occupational Segregation and Its Impact on Gender Wage Discrimination in China's Rural Industrial Sector." Oxford Economic Papers 47(1):136-55. References Naughton, B. 1996. "Cities." Background paper for this report. World Bank, China and Mongolia Department, Washington, Agrawal, N., and M. Walton. 1996. "Women at Work in East D.C. Asia: Does Stellar Growth Meet the Needs of Women? Should Suzuki, Y. 1987. The Japanese Financial System. New York: Governments Do More?" World Bank, Washington D.C. Oxford University Press. Asian Development Bank. 1996. Country Economic Review; World Bank. 1994. Averting the Old Age Crisis: Policies to People's Republic of China. Manila. Protect the Old and Promote Growth. New York: Oxford Bauer, J., W Feng, N. E. Riley, and X. Zhou. 1992. "Gender University Press. Inequality in Urban China: Education and Employment." . 1996a. "China: Pension System Reform." Report 15121- Modern China 18(3):333-370 CHA. China and Mongolia Department, Washington D.C. China State Statistical Bureau. 1995. China Population Yearbook . 1996b. "Poverty in China: What Do the Numbers Say?" 1995. Beijing. China and Mongolia Department, Washington, D.C. -. 1996. China Statistical Yearbook 1996. Beijing. - . 1996c. World Development Report 1996: From Plan to Chinese Academy of Social Sciences. 1997. "Trend Analysis: Market. New York: Oxford University Press. Studies of Labor Mobility in 100 Chinese Villages." Study . 1997a. China: Higher Education Reform. A World Bank financed by the Ford Foundation. Beijing. Country Study. Washington D.C. Cook, S. 1996. "Surplus Labor and Productivity in Chinese . 1997b. Financing Health Care: Issues and Options for Agriculture: Evidence from Household Survey Data." Institute China. Washington, D.C. of Development Studies, Sussex. . 1997c. Sharing Rising Incomes: Disparities in China. Hare, D. 1996."Efficiency Considerations of Out-Migration Washington, D.C. From Rural China." Australian National University, Canberra. . 1997d. World Development Indicators 1997. Hare, D., and Z. Shukai. 1996. "Labor Migration as a Rural Washington D.C. Development Strategy: A View from the Migration Origin." Yang, D.T., and H. Zhou. 1996. "Rural-Urban Disparity and Presented at the International Conference on Rural Labor, June Sectoral Labor Allocation in China." Duke University, 25-27, Beijing. Department of Economics, Durham, N.C. Knight, J. and L. Song. 1995. "Towards a Labor Market in Yang, L., and J. S. Zax. 1996. "Compensation for Holding up China." Background paper for World Development Report Half the Sky: Gender-linked Income Differences in Urban 1995: Workers in an Integrating World. World Bank, World China." University of Colorado, Department of Economics, Development Report Office, Washington, D.C. Boulder. Shaping a Competitive but Caring Society 59 Feeding the People On recent years there has been much concern about 10 China's future grain supplies and its ability to feed itself.' Some analysis projects dependence on grain imports to rise at an alarmingly fast rate.2 At the other extreme, China is viewed as capable of supplying most of the grain it needs through the next quarter-century.3 Which assessment is correct? The answer is clearly crucial, and not just for China. China accounts for a large share of global grain production and consumption. Changes in its net trade could move markets and grain prices every- where. Until recently the availability of grain was not a major concern. China's capacity to increase production in line with rapid growth in demand reflected its investments in agricultural research in the 1960s and 1970s, more fertil- izer production, and more irrigation. But in all these areas progress has slowed in the past two decades. At the same time, the productivity surge following the initial 61 agricultural reforms of 1978-81 has abated as further anything is possible). Even if China were to import 90 reforms have slowed. Although grain procurement million tons of foodgrain by 2020, these imports would prices recently have been raised closer to international rise only gradually, allowing time for world supplies to levels, this move was not accompanied by reforms in adjust and world prices to rise only marginally. For grain marketing and distribution. China those imports would require only 1-2 percent of The government's Ninth Five-Year Plan and the export earnings in 2020 (at constant prices). Fifteen-Year Perspective Plan place a high priority on developing agriculture in general and grain production Removing constraints to domestic in particular. Three reasons motivate its concern. First, production despite significant structural change, agriculture will remain an important part of the economy. Rapid eco- For four decades, apart from a brief period in the nomic growth will be difficult unless it is underpinned 1950s, China's grain production has kept ahead of pop- by sustainable increases in agricultural output. Second, ulation growth (figure 5.1). Between 1978 and 1984 agricultural growth will improve conditions for the growth was significantly above trend, due largely to the poor in rural areas, and so will have big implications for introduction of the household responsibility system. income distribution. And third, the Chinese authorities Since then, however, growth has slowed because of are determined to avoid heavy dependence on imported shortcomings in five main areas: reforms in the market grain. They fear that imports could be disrupted by for foodgrains, institutional change in the market for uncertainty and volatility in world markets, and the fertilizer, investment in agricultural research, invest- possibility of trade friction with large grain exporters. ment in irrigation, and land reclamation and develop- The government is right to give agriculture high pri- ment. Each is considered in turn. ority. But there are two routes it could take. One is to pursue grain self-sufficiency even if it means taxing Encouraging the market for foodgrains farmers (through production quotas and low procure- ment prices) or consumers (through import protection), Although the government has freed many markets, it or some combination of both. In the long run this route still controls foodgrains. It does so to hold large grain would be costly and unsustainable, inhibiting structural reserves (considered important for low and stable food change and dampening competition and innovation. prices) and to maintain 95 percent self-sufficiency in The other route would emphasize China's compara- grain.5 To maintain its reserves, the government buys tive advantage, using trade in agricultural products as a disciplinary device to encourage efficient domestic pro- duction. This path is more likely to lead to adequate China's grain production has kept ahead of grain supplies and sustainable agricultural develop- population growth ment, without sacrificing growth or structural change. ment,~~~~~~~~~~~~~~~~~~~~~~ wit Millions (tog scale) Kilogroms Concerns about import dependency and volatility in Milion Pr scale) Kinrgrams international markets can be addressed using innova- , (right pction 400 tive, market-friendly solutions. Average annua 350 To illustrate the possibilities, the World Bank has 300 constructed a model that shows demand for foodgrain PopuLation (left scale) 250 constructed Average annual growth - 1.8% rising to almost 700 million tons in 2020, up from 437 1,000 200 million tons in 1996.4 Domestic production of food- 150 grain could range from about 600 million to 670 mil- - . X 100 lion tons, depending on the success of market reforms - Grain production (tons, left scale) 50 and public investments. Thus imports will range from 100 Average annual growth - 2.9% 0 about 30 million to 90 million tons. 1952 1960 1968 1976 1984 1992 These projections suggest that doomsday scenarios Note: Dotted tines are long-term trends. about Chinese agriculture are not probable (although 62 China 2020: Development (Challenges iri the New C'entury about three-quarters of all marketed grain at well below reserves have not been especially effective at stabilizing the free market price (figure 5.2). In 1996 provinces prices: witness the rise in food prices in 1993-94.9 Such were allowed to buy their own grain under the new increases occur because grain bureaus have little incen- "governors responsibility system." Provinces with sur- tive to increase efficiency and release grain promptly plus grain are required to hold a three-month supply of when prices rise.1I In any event, if the purpose is to keep grain, and provinces with a deficit, a six-month supply. prices stable, targets of 40 million tons in reserves and Government bodies that buy and distribute grain are 90 million tons in total stocks with local and provincial expected to operate profitably, but are subsidized authorities appear excessive. through the budget and the banking system.6 In most developing countries private traders help sta- These policies are designed to hold down the cost of bilize prices automatically by using price signals to sell grain to consumers, most of whom live in urban areas. and buy grain."I In addition, importing grain can often Taken together, they cost 85 billion yuan a year-more be cheaper than buying and storing it. Between 1990 than five times the amount spent on poverty alleviation and 1996, for example, China could have saved $35 for under the National 8-7 Poverty Reduction Plan.7 On each ton of grain it procured and stored by importing it their own the below-market procurement prices are instead. equivalent to a 3 percent income tax on every man, These considerations suggest two important long- woman, and child in rural areas. term reforms of China's grain policies. First, the need to The proportion of urban consumers frequenting inject competition into procurement and distribution, state grain stores has been shrinking in recent years similar in style and purpose to the government's support because better grain is available in the open market. for nonstate firms entering industry in the 1980s. The Some observers have suggested that the state grain government could aim at gradually reducing its grain enterprises are buying grain at low procurement prices, purchases from today's 75 percent of the marketed total selling it in the open market, and pocketing the differ- to 25 percent by 2020, leaving room for nonstate trading ence.' Rather than urban consumers, these bodies could companies to expand purchasing and retail networks. well be the main beneficiaries of the government's costly Second, the government could steadily remove barri- grain policies. ers to the import and export of grain. Doing so would Advocates of the current system argue that large not lead to an unhealthy dependence on imports (see the grain reserves are needed to keep prices stable. But the section below on international trade), and it would give China access to foodgrains at prices significantly below its own marginal costs of production (box 5.1). Procurement prices have been significantLy Reforming grain policies would also mean disman- below market prices tling the quota system for grain production. This move Yuan per ton, 1995 would enable farmers to use some of their land for 3,000 crops that offer bigger returns, accelerating a process P Market price BOX 5A 2,500 Negotiated price ...r .r........ 2,000 6&n~*i4Iftpieib£~~ t wdet tra Quota B 1,500 price rnme~at plans t~3 pr~cirn 11197 quotas tre ple 6. therby ubsdizng rai rdings th.ode.t Pople.6 that has already begun (figure 5.3). Since many of At the same time, the marginal effect of fertilizer on China's poor tend to be grain farmers, the opportunity yields has been declining in China. This is not happen- to diversify would lead to significant welfare gains. ing because the potential for yield increases is limited, but because farmers overuse nitrogen and phosphatic Reforming the market for fertilizer fertilizer and underuse potash (which helps plants absorb nitrogen and phosphate). A more balanced use Fertilizer use in China has quadrupled since 1978, of these fertilizers could increase yields by another spurred by plantings of new crops that respond well to 12-15 percent. fertilizers. Yet the average application rate-155 kilo- Why is potash underused in China, especially since grams per hectare-is below the average for East Asian the benefits of a balanced mix of fertilizers are well developing countries and far below rates in Japan and known? One possible explanation could be that Korea, where yields are higher. whereas nitrogen and phosphates are produced locally, potash has to be imported. Since fertilizer imports are .................. .......controlled by the state monopoly Sinochem (under the Going against the grain Ministry of Foreign Trade and Economic Cooperation), imports of potash are restricted. China's production of nitrogen and phosphate fertil- Lower returns to farmers for grain .. . izer using local technologies has been a remarkable feat. Net output value But some fertilizer factories are inefficient and pollut- (yuan per unit of labor) 250 ing, and produce low-grade fertilizer. For example, the domestically produced nitrogen fertilizer, ammonium 200 bicarbonate, can be a serious pollutant and tends to decompose in storage. When it is applied to irrigated 150 fields, about half the fertilizer evaporates. The phos- phate fertilizer, a single superphosphate, is produced 100 from low-grade rock and has a low nutrient content. It will take time for China to develop a modern fertil- 50 izer industry. However, it already has sufficient feedstock wf 9f > oAto manufacture large amounts of urea, a nitrogen fertil- . . . have meant a growing share of land attocated to izer. It now needs to offer incentives for international nongrain crops joint ventures in raw material mining and develop all the Share of cultivated land downstream elements of a modern fertilizer industry. 1978 Vegetables Orchards Other Improving agricultural research and extension Cotton 2% 2%/ 4% ___Grain o0i o --67r90i n79% Research and extension have done much to boost seeds China's agricultural productivity. The internal rate of return to investment in agricultural research is esti- 1995 mated at 94 percent.'2 Yet spending on agricultural Orchards Other research relative to agricultural output has declined Vegetables 6% 7% steadily over the past fifteen years.'3 Moreover, new Cotton Grain technologies require increasingly expensive research 4% ;_ 69% (genetics and biotechnology being two good exam- Oil-_ ples)-yet budgetary funds per active research scientist seeds 8% have dwindled (figure 5.4). Source: China Statistical Yearbook 1996; AustraLia 197 This budgetary squeeze has encouraged research institutes to seek income from commercial activities. 64 China 2020: Developynent Challenges iTI. the New C'entury Ideally, the institutes would be licensing the technology average, only about a third is exploitable, and most of they develop, but they are deterred from doing so by this is geographically concentrated. The area south of weak protection for intellectual property rights. So they the Yangtze River has 7.5 times more water per square have instead turned to business undertakings, including kilometer than the area north of the river (figure 5.5). In manufacturing, restaurants, hotels, and trade. Only the south 450 million people-a third of the popula- about 15 percent of net revenues from these activities is tion-live under threat of flood; in the north 300 coun- allocated to research. Although there is insufficient evi- ties and 479 cities are short of water. dence to conclude that research productivity is declin- Partly because of this uneven distribution, only 60 ing, it would be surprising if it were not. percent of exploitable water is actually used. Increasing Nor do the problems end there. Researchers have this share is important not just for food security but also great difficulty transferring technology from lab to land for domestic and industrial use. In agriculture alone the because of a shortage of trained and motivated exten- shortage of water is estimated to be about 30 billion sion workers. Researchers estimate that only a third of cubic meters (equal to total use in the Philippines and to their research results ever reach farmers' fields; the rest about 5 percent of China's total available water). The stay "on the shelf." shortage will double if China increases irrigated farm- These serious shortcomings must be tackled by big land area as planned. Groundwater is being tapped to increases in budgetary funding for agricultural research make up the difference, and evidence abounds of over- and extension, and partly by better use of available exploitation (subsidence, seawater intrusion, drying up funds. For example, the growing demand for feedgrains of shallow aquifers, falling water tables). suggests that research should be switched to developing Despite the shortage of water, its use continues to be corn varieties that are suited to rice-growing areas. In wasteful (figure 5.6). Most of the irrigation and addition, a research system organized along agro-eco- drainage schemes constructed in the 1950s and 1960s logical zones (rather than administrative boundaries) were hastily designed, poorly built, and often left unfin- would make for better use of resources. ished. Today these systems are badly run and main- tained because of fragmented responsibility among Expanding irrigation levels of government, no direct participation by farmers in decisionmaking, inadequate budgets, and water Much more than land, water is the biggest constraint on charges that are too low to cover maintenance costs. China's agriculture. Water runoff is below the world More public investment and new pricing policies are essential. The investments with the highest return g g g g E include constructing flood warning and management KRIsystems, rehabilitating dams to improve safety, and Declining expenditures on agricultural research strengthening containment dikes. These investments Annual average expenditures per scientist would save lives and property and reduce the loss of (thousands of 1990yuan) 75 W_ 65 Unevenly distributed water resources Percentage shares 55 _ Northern China Southern China 45 64% Arable land 35 E l Population 25 1965-69 1970-74 1975-79 1980-84 1985-89 1990-94 W Source: Fan and Pardey forthcoming. Source: China Ministry of Water Resources 1994. Feeding the People 65 Where does the water go? retures Grand as.ea Irrigation systems. coursh aterways'h b oci ' tosses w raised at the same time 150/ Fietd Water well. And m c d g d r i application effectiveLy losses used by water shortages in the it the south- Cnl 25% transfer crops m rank as r prli investoent Farm distribution i t sevent c t Losses ring w on the seme's eaen d ic oa iri- Hle~ ~ ~~~5 rohte will coftabot 04 yan er ubi meer f te r iresource 4evetopment prQj ects g00002g:000 Source: FAO 1994. hsaeeae-~r ao a~ eecntutdi hn crops to floods. High social returns could also be d obtained from rehabilitating older irnrgation systems. degredato alleits wtrmshortexempin sore 3m Indeed, if user charges were raised at the same time,l an are l e n these investments could yield handsome financial s Wetern Tu rop ectuwier fromtruct ane ind er returns as well. And much could be gained by relining Ea2h ler lout e.tendineter f topsoil eserodr Highe chares wil encurageconsevatio and aise rom he13 million hecdares fmuntine te oaind rolln canals and using low-pressure pipelines on existing t hPlain, thiro et 250 millio- systems. where th wilc of irriatio a hae sopltlve To alleviate water shortages in the north, the south- The nd reaso rcining tiv ab atr north transfer scheme must rank as a public investment 198 190,00 hectares of farmland hat reet ta priority (box S.2).14 Prefeasibility studies indicate that over ehar.iAt an e sal t a 2 transferring water along the scheme's eastern and mid- dle routes will cost about 0.4 yuan per cubic meter of .t.. ..oe r q . . water. With estimated average returns to water use of 67 yuan per cubic meter in industry and 2-4 yuan in reduced by two trends. The first is environmental agriculture, the project's viability is abundantly clear degradation in all its forms. For example, some 3.7 mil- (table . .1). " lion square kilometers of land-an area larger than A crucial complement to increased investment is Western Europe-suffer from water and wind erosion. the pricing of water at its long-run marginal cost. Each year about 0.5 centimeter of topsoil is eroded Higher charges will encourage conservation and raise from the 13 million hectares of mountains and rolling the necessary resources for public investments. In the hills in the North China Plain, where some 250 million few places where the price of irrigation water has people live. been raised, the demand for water has declined with- The second reason for declining cultivable acreage is out affecting yields. And proper pricing will help pro- construction-of houses, factories, and roads. Since duce a more efficient spread of industry and 1988, 190,000 hectares of farmland have been taken agriculture across the country. Other things being over each year. At the same time, about 245,000 equal, and over the long term, water-intensive agri- hectares of land a year have been reclaimed for farming, culture and enterprises will tend to develop south of but it is of poorer quality and therefore less productive. the Yangtze Basin and less water-intensive activity There is still considerable scope for reclamation: per- will shift to the north. haps a total of 18 million hectares of barren, tidal, and waste lands. Since reclamation will cost between 15,000 Reclaiming and developing Land and 150,000 yuan a hectare, the government could save itself some money by boosting private involvement Although land is not the main constraint on agricul- through extended leases or outright ownership, and par- ture, the amount available for cultivation has been allel development of land for nonagricultural uses. 66 China 2020: Development C_hallenges ini the New (::enttiry TABLE 5.1 TABLE 5.2 High returns to water transfer Alternative scenarios for future grain supply (yuan per cubic meter) (millions of tons of unmilled grain) Marginal return 2020 (projected) Sector to water use High Base Low Agriculture 3.1 Measure 1996 case case case Electicity 25.7 Production 416 667 636 606 Metals 66.2 Rice 185 313 298 283 Other indust 82.3 Wheat 102 151 144 137 Coal 163.4 Coarse grain 129 203 194 186 Consumption 437 695 695 695 Memo item Rc 8 9 9 9 Cost of water transfer 0.4 Wheat 114 298 298 298 Source: WorLd Bank 1997b Coarse grain 136 235 235 235 Imports -21 -28 -59 -89 Such measures would encourage more private invest- Rice -2 14 0 -16 ment in agriculture in general. But it will take time to Wheat -12 -11 -18 -25 develop a legal framework and institutions that under- Coarse grain -7 -32 -41 -49 develop~~~~~~~~ a lea.rmwr n nsiuin htudr Source: World Bank 1997a- China Statistical Yearbook 1996. pin the rights and responsibilities of tenants and lease- holders on the one hand and lessors and renters on the viewed with considerable caution. Caution is even more other. Meanwhile, the government could consider necessary for estimates of imports, which are the small extending the minimum term of tenure from fifteen to difference between two large numbers: if base case thirty years and ensure that this extension is enforced demand is underestimated by 5 percent and production and respected by village authorities. overestimated by 5 percent, imports would be 212 per- cent larger than is projected here. Projecting grain balances The growth rates projected for production and con- sumption under the base case scenario are near the top The future of foodgrain production in China will of the range of estimates made by other researchers depend on the government's progress on the five chal- (table 5.3), though end-year imports are broadly similar. lenges described above. In scenarios explored by the World Bank, the difference between success (the high Using international trade case) and business-as-usual (the low case) could be as much as 60 million tons in 2020, or 13-15 percent of A key message of these projections is that China will today's grain consumption (table 5.2).16 need to deepen its engagement with world grain mar- The most likely scenario-labeled the base case in kets if it wants its agriculture to be efficient. The alter- table 5.2-shows China being able to produce 636 mil- native-self-sufficiency behind trade barriers-would lion tons of grain in 2020.17 This scenario assumes rea- lock the economy into high subsidies for agriculture sonably liberal trade policies consistent with entry into and jeopardize rapid, sustainable growth. As Japan and the World Trade Organization, completion of two Europe have learned, subsidies are difficult to withdraw south-north water transfer routes, balanced fertilizer and can inhibit structural change and adjustment. application, and adequate investments in water and research. Dealing with world grain markets Projecting demand is equally (perhaps more) diffi- cult. China's enormous population means that small The government is concerned that increasing grain changes in per capita consumption, income growth, or imports could make China vulnerable to volatile world demand elasticities for foodgrains and meat can result prices and unreliable suppliers. While these concerns in large changes in total demand. Although the esti- are valid, they can be diminished and should be weighed mates in the three scenarios for 2020 are based on plau- against the risks associated with relying solely on sible assumptions of these parameters, they should be domestic production. [;eeding the Pleople 67 TABLE 5.3 Comparing projections (percentage average annual growth) Projection Growth in Growth in End-year imports period grain production grain demand (millions of tons) World Bank 1997a 1992-2020 1.8-2.2 2.6 28-89 Rosegrant and others 1995 1990-2020 1.5 1.5 22.0 Brown 1995 1990-2030 -0.6 0.8-1.6 207-369 USDA/ERS 1994 1994-2006 1.1 1.2 20.0 Garnaut and Ma 1992 1990-2000 1.1 1.9-2.7 50-90 World Bank 1993 1990-2000 1.6 2.4 11.3 2000-2010 1.6 1.8 21.6 China currently imports about 5 percent of the grain Improving trade infrastructure it needs. By 2020 grain imports could be as low as 4 per- cent and as high as 14 percent. Since world trade in Although more imports are unlikely to make China vul- grain is only about 200 million tons a year and unlikely nerable to international markets, they will strain its to grow rapidly, China could by then be a large presence infrastructure. About 98 percent of the grain trade in the international market. flows through fourteen ports, and only three are spe- But this change would occur gradually, so foreign cialized in grain handling. Bulk loading facilities are suppliers would have time to adjust. The main grain generally lacking, and there are no intermodal bulk exporters have been highly responsive to global transfer systems, except between Beijing and Tianjin. demand, partly because their excess capacity is grow- Off-loading is slow, which raises costs by about $15 a ing.'8 Stagnant world demand over the past two ton; were China to import 60 million tons by 2020, this decades has pulled down prices, especially for wheat extra cost alone would be $900 million a year at today's and rice (figure 5.7), so Western exporters have with- prices. Over the next twenty years China will need ten drawn an estimated 34.5 million hectares from grain new deepwater bulk grain berths, each with a capacity production. With the right incentives this idle capacity of 4-5 million tons. It will also need more high-volume (of 115 million tons of grain) could be returned to pro- rail corridors using bulk rail wagons and bulk loading duction quickly. The same is probably true of the for- and unloading facilities at railheads. Similarly, transit mer Soviet Union (where production declined by 86 million tons between 1990 and 1995) and Argentina. If China were to increase its imports of grain gradually Declining world prices for wheat and rice and consistently, it could develop long-term contractual . . . . ,, . . . . ~~~~~~~~~~Price relative to manufactures unit vaLue index relationships with different suppliers. This has never been (1950 _1.0) tried before, so China and its trading partners would need 2.0 to be pioneers, perhaps under the aegis of the World Trade Organization. Both sides would certainly benefit-China from increased certainty of supplies, and exporters from 1.5 reduced risks. Even so, China would still have to rely on spot mar- 1.0 kets for some of its grain imports. Futures and forward markets for grain are so thin for longer-dated maturities that they provide little comfort for a large importer. 0.5 Thus China will have to absorb the cost of this volatil- ity, although with a flexible system of private trading 0 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 and adequate strategic reserves, domestic prices are ... . . ~~~~~~~~~~~~~~~~~~~Source: Worl Bank staff estimates. unlikely to be any more volatile than they are already. 68 China 2020: Development C'hallenges in the New Century storage will have to cope with high throughput not just 16. For a detailed discussion of these projections and the analyt- of imported grain, but also of domestic grain for domes- ical model used to arrive at these conclusions, see World Bank 1997a. 17. This estimate uses the unmiLLed equivalent (paddy) for rice. tic and foreign markets. 18. The major grain exporters are the United States (42 percent of the world market), European Union (22 percent), Canada (11 per- cent), AustraLia (7 percent), Argentina (6 percent), and Thailand (2 Notes percent). 1. This chapter draws heavily on World Bank (1997a). 2. Brown (1995). References 3. Rosegrant, Agcaoili-Sombilla, and Perez (1995). 4. For consistency in consumption, production, and import data, Australia, Department of Foreign Affairs and Trade, East Asia and to remain consistent with Chinese production data, weight mea- Analytical Unit. 1997. China Embraces the Market: sures for rice are actually for paddy (which is roughly 43 percent Achievements, Constraints, and Opportunities. Canberra. heavier). Brown, L.R. 1995. Who Will Feed China? Wake-Up Call for a 5. This strategy is explained in a government White Paper, "The Small Planet. New York: W.W. Norton. Grain Issue in China" (October 1996), avaiLable from the Information China Ministry of Water Resources. 1994. "China's Water Office of the State Council. Resources." Beijing. 6. Annual consumption subsidies for grain and edible oils averaged Fan, S. 1996. "Research Investment, Input Quality, and the 20 billion yuan during 1992-96, while annual debts of grain enter- Economic Returns to Chinese Agriculture." Paper presented at prises grew by 25 billion yuan in 1996. the post-conference workshop on Agricultural Productivity and 7. The impLicit tax imposed by below-procurement prices equaLs Research and Development Policy in China, August 29, 40 billion yuan. The total subsidy to grain enterprises equaLs 45 bil- Melbourne, Australia. lion yuan (see note 6). The total comes to 85 biLLion yuan. This 85 Fan, S., and P. Pardey. Forthcoming. "Research Productivity and biLlion yuan is equal to 6 percent of total rural per capita income in Output Growth in Chinese Agriculture." Journal of 1995 (860 million ruraL inhabitants with an average per capita Development Economics. income of 1,578 yuan). Annual 8-7 PLan spending increased from FAO (Food and Agriculture Organization). 1994. Water Is Life. about 10 biLlion yuan in 1994-96 to 15 billion yuan in 1997. So, for Rome. 1995 the 85 billion yuan was eight times 8-7 Plan spending. Garnaut, R., and G. Ma. 1992. Grain in China: A Report. Beginning in 1997 it was almost six times that amount. (The objec- Australia Department of Foreign Affairs and Trade, East Asian tive of the 8-7 Plan, announced in 1993, is to reduce the number of Analytical Unit, Canberra, Australia. absolute poor in China from the 1993 leveL of 80 milLion to zero over LeMoigne, Guy. 1990. "Keynote Address." Made to Senior Policy the 1994-2000 period). Seminar on Policies for Multipurpose River Basin Development 8. AustraLia (1997). in China, March 31-April 21, Nanjing, China. 9. Analysis suggests that the sudden rise in food prices during this Rosegrant, M.W, M. Agcaoili-Sombilla, and N.D. Perez. 1995. period had little to do with the decLine in grain output. Global Food Implications to 2020: Implications for Investment. 10. In fact, grain enterprises are paid for storing grain, and so are Food, Agriculture, and the Enviromnent Discussion Paper 5. reLuctant to release it when they are required to do so. Washington D.C.: International Food Policy Research Institute. 11. Indonesia, for exampLe, relies heaviLy (though not exclusiveLy) USDAIERS (U.S. Department of Agriculture, Economic Research on private traders. BULOG, the governments procurement agency, has Service). 1994. Cited in J. Huang, S. Rozelle, and M.W. onLy a modest market role, purchasing Less than a quarter of rice pro- Rosegrant, eds., Supply, Demand, and China's Future Grain duction and hoLding carryover stocks of about 1 miLLion tons. Deficit. Food, Agriculture and the Environment Discussion Paper. 12. Fan (1996). Washington D.C.: International Food Policy Research Institute. 13. It is worth noting that whiLe this ratio is higher than in most World Bank. 1993. "The World Food Outlook." International deveLoping countries, it is a quarter of the ratio in industriaL countries. Economics Department, Washington D.C. 14. See Chinese Environment and Development, summer 1994, for . 1997a. At China's Table: Food Security Options a review of technical and environmental issues in the South-North Washington, D.C. Water Transfer Project. See the People's Daily, January 7, 1995, for an . 1997b. "China: Wanjiazhai Water Transfer Project." Staff announcement of the approvaL of the project. Appraisal Report 15999-CHA. China and Mongolia 15. WorLd Bank (1997b). Department, Washington, D.C. Feeding the P'eople 69 Protectzng the .S...~~~~~~~~~ Environment .c- hina's growth has brought dramatic improve- ments in living standards and serious damage to its environment. But future growth need not be pur- chased at the cost of higher pollution. With policies that harness markets, encourage alternatives, and provide an appropriate regulatory framework, Chia can grow both richer and cleaner.1 China's air and water, particularly in urban areas, are among the most polluted in the world. Ambient concen- trations of most pollutants exceed international standards several times over, burdening China with vast human and economic costs. As many as 289,000 deaths a year could ......--.. be avoided if air pollution alone were reduced to comply with Chinese government standards. Overall, the eco- nomic costs of China's air and water pollution have been estimated at 3-8 percent of GDP a year. Two forces are responsible for much of China's envi- ronmental degradation and will remain crucial well into 71 the next century. The first is China's extreme depen- Air pollution dence on coal. Today coal satisfies nearly 80 percent of China's burgeoning demand for energy, making China Although particulate emissions have remained roughly the world's largest coal consumer. Abundant coal constant since the 1980s (no mean feat, considering reserves, combined with an understandable reluctance that coal consumption has more than doubled), sulfur to rely on imports of cleaner oil and natural gas, ensure dioxide emissions have soared. Ambient levels of par- that coal will be China's main source of energy for years ticulates and sulfur dioxide are now among the highest to come. The second factor is China's booming cities. in the world (figure 6.1).5 Although systematic data are Between 1978 and 1995 their population swelled by scarce, ambient lead levels also appear to be rising: 180 million residents, plus some 50 million unregistered recent evidence suggests that as many as half the chil- migrants from the countryside. Rising urbanization has dren in parts of Shanghai suffer from elevated levels of not only been accompanied by increased automobile lead in their blood. use and largely untreated emissions of municipal waste, Three culprits are responsible for the bulk of China's it has also increased the portion of the population urban air pollution. First, small and relatively inefficient exposed to the greater pollution found in urban areas. coal-fired industrial boilers, which often vent their The government recognizes the environmental chal- emissions from low stacks, account for between one- lenges confronting the country and over the past decade third and one-half of ground-level particulates and sul- has introduced a comprehensive legal framework to fur dioxide. Second is residential use of coal. Although protect the environment.2 These efforts can claim some residential use accounts for just 15 percent of total coal successes: for example, pollution intensities-emissions use, it is responsible for a further one-third of particu- per unit of output-have fallen in recent years.3 Still, lates and sulfur dioxides. It also affects the quality of much remains to be done. In the words of Premier Li indoor air, causing a health hazard roughly as serious as Peng, "We clearly are aware that the situation of the smoking. Third, in major cities the number of cars is environment in our country is still quite severe. ._._. Environmental pollution in cities is worsening and FXGU0 64 extending into rural areas, and the scope of ecological Air pollution in China's cities is high, even damage is increasing."4 This chapter lays out China's by developing country standards environmental challenges and discusses policy alterna- Micrograms per cubic meter tives for the next twenty-five years. WHO standard so, TSP Deteriorating environmental conditions Taiyuan * . DeLhi _ Over the past two decades urbanization, industrializa- e tion, and motorization have seriously damaged air and Jinan _ water quality. Moreover, increasingly intensive agricul- Cacutta _ _L tural practices have produced a new generation of envi- ' L ronmental threats. Runoff from fertilized fields has Beijing contributed to water pollution, and heavy and often Chongqing SuLfur dioxide (SO2 inefficient irrigation has exacerbated water shortages Total suspended and salinized large tracts of land. Efforts to bring mar- Guangzhou p *T_ ginal lands under cultivation have worsened soil ero- Kuala Lumpur sion and desertification and threatened China's fragile wetlands and grasslands. In the face of these many chal- Bangkok lenges, setting priorities for a cleaner future is difficult. New York City But, particularly for air and water pollution, the bene- 0 100 200 300 400 500 600 fits of abatement so clearly outweigh the costs that they Source: World Bank 1997. justify action under any circumstances. 72 (hinia 202(0: Developrnent C haflenges irs the New CentDwry growing by 10 percent a year. This contributes the bal- Water pollution ance of particulate and sulfur dioxide emissions, and is also a rising source of lead in the urban atmosphere.6 Industrial and municipal waste and chemical and The damage is aggravated by slow average driving organic fertilizer runoff are the main sources of water speeds and low vehicular emissions standards. As a pollution in China. Reported discharges of effluent have result, although Beijing has only one-tenth the number increased moderately since the early 1980s, with of automobiles of Los Angeles, its automotive emissions municipal waste accounting for a rising share of total are almost as great. discharges (figure 6.2). But the total increase is proba- All this pollution is bad for health. Mortality rates bly much larger, since sources in the rapidly growing from chronic obstructive pulmonary disease, the lead- nonstate sector are monitored only sporadically. The ing cause of death in China, are five times those in the rising share of municipal waste is of particular concern, United States. This is not simply due to China's much since less than 20 percent receives any form of treat- higher rates of smoking and poorer health care. ment (compared with nearly three-quarters of indus- Epidemiological studies indicate that the difference in trial waste). particulate and sulfur dioxide concentrations between Although water pollution is linked with many dis- Beijing and New York City (about 300 and 50 micro- eases, its health impact in China has generally been con- grams per cubic meter, respectively) is associated with tained by widespread access to safe drinking water and 130 percent higher mortality rates from chronic sanitation. Common water-related diseases account for obstructive pulmonary disease.7 Reducing outdoor air only a small fraction of total morbidity and disease.9 pollution to target levels set by the Chinese government Still, increasing pollution has raised the costs of provid- would save 178,000 lives a year. Doing the same for ing drinking water. For example, pollution caused by indoor air pollution would save another 110,000. untreated discharges into the Huangpu River has forced But the costs of air pollution go well beyond this the municipality of Shanghai to move its drinking water tragic-and needless-loss of life. They also include an sources upstream, at a cost of $300 million. In many estimated 566,000 additional hospital admissions and cities households must boil their water before drinking nearly 11 million emergency room visits directly attrib- it, which is far more costly than centralized chlorination. utable to air pollution that exceeds China's standards. The more serious concern about water pollution is This extra burden strains China's health care system that it aggravates China's water shortage (see chapter and results in lost working time equivalent to 7.4 mil- 5). Water pollution exacerbates water shortages in cities lion person-years each year.8 Numerous studies in China and elsewhere have also documented the damage . to children of lead exposure, from stunted growth to Cities account for a rising share of neurobiological disorders and intelligence quotient (IQ) wastewater discharge deficiencies. Billions of tons Acid rain is another costly byproduct of China's air 40 pollution. Emissions of sulfur dioxide and nitrous oxide 35 react with atmospheric water and oxygen to form sul- furic acid and nitric acid, which can return to earth 2 nearby or even thousands of miles away from the 25 source of air pollution. Acid rain causes crop damage, 20 deforestation, structural damage to buildings, and 1 harm to human health. These consequences have been -* - particularly severe in southern China, where high-sul- fur coal is burned in large quantities. A study by the 5 Municipal Chongqing Environmental Protection Bureau found 0 that nearly one-quarter of the vegetable crops in the 1981 1983 1985 1987 1989 1991 1993 1995 Chongqing area were damaged by acid rain in 1993. Source: World Bank 1997. Protecting the Fnvironment 73 and towns, and increased water supply and consump- mous costs that would ensue were the momentum of tion tend to result in greater water pollution unless environmental policy reforms to falter. Under this "fal- effluent treatment is provided. In 1993 about 8 percent tering reforms" scenario both the energy intensity and of agricultural lands received water so polluted that it emissions intensity of GDP will fall. Even without new was unfit for use, leading to an estimated loss in grain incentives, rapid growth will ensure that outdated and production of 1 million tons. If wastewater treatment pollution-intensive technologies are replaced swiftly. By were improved from the current 20 percent to 50 per- 2020 less than 10 percent of China's current capital cent, total grain production could increase by 24 mil- stock will still be in service. Although emission intensi- lion tons by 2020.10 ties decline, however, overall pollution will rise sharply (figure 6.4). As a result particulate emissions will Pollution prospects increase by 30 percent and sulfur dioxide emissions by 60 percent, with serious consequences for air quality China is one of the most polluted countries in the and acid rain. The number of deaths attributable to out- world. If past trends continue, its environmental future door urban air pollution alone will rise dramatically, will be bleak. But China can also grow cleaner. Policies from 180,000 a year now to as many as 600,000 in that encourage improvements in energy efficiency and 2020. However, improvements in the quality of the cap- energy conservation, combined with substitution away ital stock should reduce emissions of major water pol- from coal, widespread adoption of technologies for lutants in absolute terms. combating air and water pollution, and reliance on public transit rather than automobiles, would consider- ~. ably brighten China's environmental prospects. Two aspects of continued economic development will Drving into the future? particularly affect China's environmental prospects. The Automobiles per 1,000 people (log scale) first is energy demand. Although energy intensity- 1,000 energy consumption per unit of GDP-will probably fall from its current high levels, total energy consumption will rise sharply over the next twenty-five years. In the ZiJpan absence of affordable alternatives, much of this demand will be met by coal (box 6.1).11 Since coal is the main source of urban air pollution, this presents a major envi- Korea, Rep. of Sgapore ronmental challenge. 100 Second, if other countries' experiences and China's past are any guide, rising incomes will be accompanied by increased urbanization and rapid growth in auto- mobile use (figure 6.3). Since automobiles contribute the bulk of ambient lead concentrations and are a rising Indo- source of other forms of air pollution, this too will nesia shape environmental prospects over the next twenty- 10 five years. Against this background, consider two alternative China scenarios: * The first scenario assumes no significant changes to current environmental policies or their enforcement. This is by no means the most plausible scenario. China's 1 past progress in designing and implementing environ- 1,000 10,000 200,000 mental policy reforms makes a scenario with no further Per capita GDP (1994 U.S. dollars; log scale) improvements unlikely. But it does highlight the enor- Source: World Bank data. 74 China 2020: I1)evelopyrieit Challenges iTI the New C | £~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.. . . . . . . thre t.sCeEens of coal n sed gmworldwide nin uc5 ,,Coal accoent for milo osu? ozO0.ihicesd uooieue i *: nearlyn w0 ercen to prieat orrenli energy usabe an hydoc poer - deman i, ::el :6 Biewa ?7se thnoeale ceto e entia ueup,trog rothin en?rergy? detmmand ver te deand -o oity-,t dl9# imprt ely r, e c ,,,,,, ,ilio ,,,s ,, ,, : next twnty~fIv year ? cobie wit a dert o' afoda ' in '00 Alhog n' triia2 .h cos ...semor~ massve sle1&h~ 1rese 'Tture exprt ernigs o $70thelion A1= ddyuoS"? ,,,,,,,,,,,,,,, ... ,,,. ,,. .. - ,, ,,,,,,,,,,,,, C;~~~~~~~~~~~~~~~~~~~~~~~~~~~~......... g I j,? ,, ?,,?,? , ' t ? i ( ' ,.... .... ............. ' ., '''''''' '', s O .",.,?.::':-.'.:'::. ' ; ' ' ": ' ' ' ' : . '::.: . E . . , ,: .~~~~~~~~~~~~~~~~~~~~.. .. .. . ~. ......'. . .. ,~~ut current high energy intensities hold the promise of future end 2dacLines. Over the one{ tenbty~flve years energy intensities @?? noarevO*B2? . ...... ........... e erydm d urisn by te .5 perct a yer,o ou a 0 ~~~~~o-s;a ?............. . ...... ............... : '':''re ''f '' ' ''especially' at't.e.'ubse. oran and product le-vels. ..........Protecting..h..nv. ... ..5 ~~of 4.5 percent, total energy consumption wilt triple over the nextmeflt 7 shows that pollution initially tends to rise with per 6.1). Water pollution costs a further 1 percent of GDP, capita incomes, and begins to fall only as countries get and possibly much more, given the difficulties in quan- much richer (figure 6.5).12 China's per capita income tifying the economic damage it causes. Policies that today is well below the "turning points" for most major bring about reductions in air and water pollution will pollutants. The policies that will help to bring about the yield significant dividends for future generations. unprecedented prospect of a steady decline in pollution An agenda for action for the next twenty-five years beginning immediately are the subject of the rest of this rests on three pillars: harnessing market forces, creating chapter. incentives for investment in cleaner production, and developing effective regulation. Formulating policies for a cleaner future Harnessing markets The magnitude of China's environmental challenges is Market forces have provided the foundations for the clear. Moreover, as the widely varying outcomes under economic growth of the past eighteen years. Properly alternative scenarios illustrate, the stakes for environ- harnessed, they will be crucial allies in the fight for a mental policy are high. But China is a poor and grow- cleaner future. Deeper reliance on market forces ing country with many competing claims on public and means that prices-modified to reflect social costs- private resources. Reconciling these claims and priori- become powerful tools for altering consumer and tizing environmental policies require careful analysis of producer behavior in ways that benefit the environ- the economic costs of environmental degradation. This ment. Despite recent reforms in natural resource pric- need is reflected in the government's commitment to ing and taxation, however, these tools have not been eventually develop comprehensive environmental deployed to full effect. Most prices now reflect pro- national accounts."3 duction costs, but they are far from reflecting social In the interim, partial analysis of the costs of pollu- costs. tion can provide a useful guide for policy. Analysis Consider coal. Over the past decade coal prices in done for this report suggests that the current annual coastal provinces have risen close to world levels.'4 But costs of pollution are substantial. Air pollution alone administered prices do not yet adequately reflect the costs the economy 2-6 percent of GDP per year (table wide variation in the sulfur and ash content of domes- tic coal, despite the much higher pollution costs of high- Projected polLutant emissions in 2020 1995 - 100 Across countries, pollution tends to 200 rise, then decline with income * "Faltering reforms" scenario Particulates (micrograms per cubic meter) 'Deepening reforms" scenario * | | ~~~~~~~~~~~~~~300jO fattering rejformsa 150~ ~ ~ ~ ~ ~~~~~~~~~~5 100 200 2000 010 50~~~~~~~~~~~~~~~~~ Suspended Sulfur Lead Biological Suspended 2,000 4,000 6,000 8,000 10,000 particulates dioxide oxygen solids Per capita income (1985 demand purchasing power parity dollars) Source: World Bank 1997. Source: World Bank 1997; Grossman and Krueger 1995. 76 China 2020: I:)eveloprnent (Challenges in the New Century TABLE 6.1 Costly contaminants: Costs of major forms of pollution, 1995 Conservative estimate Moderate estimate Billions of Percentage Billions of Percentage Type of pollution U.S. dollars share U.S. dollars share Urban air pollution 11.3 48 32.3 61 Indoor air pollution 3.7 16 10.6 20 Lead exposure 0.3 1 1.6 3 Water poLLution 3.9 17 3.9 7 Acid rain 4.4 19 4.4 9 Total 24 100 53 100 Percentage of GDP 3.5 7.7 Note: The conservative and moderate estimates differ in their economic valuation of human life. The conservative estimate uses forgone wages to value human life. The moderate estimate values human life based on conservative estimates of what individuals are willing to pay to avoid risks to life. Source: World Bank 1997. sulfur and unwashed coal. Coal prices in interior ferences between state and nonstate enterprises, with provinces are generally much lower because of lower abatement costs about five times higher in state enter- transportation costs, which account for as much as 70 prises. percent of the delivered price in coastal areas. But this These contrasts highlight the importance of targeted differential means that interior provinces have little measures such as emission levies. In addition to provid- incentive to adopt conservation measures or coal wash- ing potent incentives, levies can be tailored to reflect dif- ing technologies that are economical only at higher ferences in abatement costs across sectors, firms, and prices. regions, and, importantly, the speed of abatement. The As administered prices give way to market-deter- National Environmental Protection Agency's recent mined prices, the government could consider phasing in recommendation of a tenfold increase in the air pollu- coal taxes-based on sulfur and ash content-that tion levy is particularly welcome, given that in several more closely reflect social costs. The gradual and pre- provinces effective air and water pollution levies have announced implementation of such a tax would pro- actually fallen in real terms since 1987 (figure 6.7). vide incentives to invest in coal-washing capacity and Consistent enforcement of this levy, especially in the higher-efficiency boilers. Moreover, such a tax would nonstate sector (where abatement costs are substan- immediately affect the behavior of millions of small tially lower because of low abatement rates among industrial and residential users of coal. Similar arguments apply to gasoline and diesel fuels. Pump prices are low by international standards, and Costs of abatement vary widely diesel for agricultural use remains heavily subsidized. A Marginal cost of halving particulate emissions liter of gasoline costs $0.87 in the Republic of Korea and $1.13 in Japan, but just $0.28 in China. Narrowing Large state'_ that gap will encourage consumers to economize, and entlerptst the best way is through phased increases in fuel taxes. enterpSl se Although price-based incentives can be effective, Large nonstate they are not selective: they do not recognize that the enterponse - costs of conservation and abatement vary widely Small nonstate across firms. Plant-level data reveal that the marginal enterprise cost of reducing particulate emissions is as much as I 10 100 1,000 twenty times higher in small firms than in large ones, U.S. dollars per 100 tons of emissions because of the high fixed costs of abatement tech- (log scale) nologies (figure 6.6). There are also substantial dif- Source: World Bank 1997. Protecting the Environment 77 are very high indeed. In fact, the optimal levy in Real a Zhengzhou-the levy at which the cost to firms of abate- falien ment equals the social benefit of cleaner air-is estimated Yuan per tan to be nearly fifty times the current level. The potential effectiveness of price-based incentives Air pollution levies 30 depends largely on the government's success in deepen- 1988 ing market reforms. Trade liberalization and state enter- 25 prise reform are particularly relevant. Removing the 20 1 1 remaining obstacles to domestic and international trade 1993 would encourage increased specialization, allowing the 15 realization of scale economies in both production and 10 pollution abatement. Liberalizing international trade would also boost access to state-of-the-art capital goods 5 ~~~~~~~~~~~~imports with higher standards of energy efficiency and o W W a 3g lg g pollutant generation than their domestically produced Beijing Shanghai Guangdong Liaoning Sichuan counterparts. Finally, further state enterprise reforms Water pollution levies will help make market-based incentives effective. 0.25 Without hardened budget constraints, these enterprises will be no more responsive to environment-friendly 0.20 incentives than to any other price signals. 1988 0.15 1993 Investing in alternatives 0.10 Investment in alternative energy sources is an essential 0.05 complement to a pricing system that reflects the social 0 * * * * | * costs of pollution. Without such investment, consumers Beijing Shanghai Guangdong Liaoning Sichuan will be stuck with the worst of both worlds-high prices and continued heavy pollution. Of course, by them- Source: World Bank 1997.... selves price-based policies will create strong incentives for investment in a range of energy conservation and these firms), would generate large reductions in emis- emissions abatement technologies with large private sions at relatively low cost. and social returns. For example, raising the energy effi- Consistent application of the principle that the "pol- ciency of industrial energy consumers to OECD stan- luter pays" could have extremely high returns. This is dards could reduce coal use by 250 million tons, or illustrated by Zhengzhou, the capital of Hunan province, one-sixth of current consumption (figure 6.8). where air pollution is typical of China as a whole.15 Investments in public infrastructure would also yield Zhengzhou's industries pour 45,000 tons of sulfur diox- large environmental dividends. Examples include ide into the air every year, contributing to ambient con- boosting natural gas availability for urban residents, centrations of 90 micrograms per cubic meter-about public transit, and treatment facilities for industrial and two times the World Health Organization standard. At municipal wastewater. current low rates of abatement, the incremental cost of * Boosting the availability of gas for households would reducing sulfur dioxide emissions by 1 ton is only $1.70, dramatically reduce indoor and outdoor particulate and and would save 0.63 percent of a "statistical life." This sulfur dioxide concentrations as gas replaced coal for means that pollution levies in Zhengzhou implicitly value cooking and heating. Moreover, gas is up to five times as a human life at only $270 ($1.70/.0062S). Since this is efficient as coal and is much preferred by households. less than even the starkest valuation of human life, the Thus gas provision would likely be highly profitable returns to higher pollution levies and better enforcement with even moderate increases in taxes on alternatives 78 China 2020: Development Challenges in the New Centiirv such as coal. This suggests that there is ample scope for tendering in early 1997 of China's first municipal build- private and foreign participation in the construction of operate-transfer (BOT) water project, the Chengdu No. gas infrastructure for urban distribution. 6 Water Plant, is a step in this direction. * Better public transport would do much to improve the quality of urban life. International experience shows Planning and regulating effectively that China cannot build its way out of congestion through more roads. Rather, transport investments Effective regulation and far-sighted planning can also pro- should focus on establishing fixed-link services in high- mote a cleaner and healthier future for China. The main traffic corridors where high demand will ensure cost- regulatory imperative is to phase out lead in gasoline. effectiveness, and investing in integrated bus systems Beyond that, standards for vehicular emissions are still that provide an attractive alternative to automobiles. well below those in industrial countries, and should be * Investing in water supply and treatment will pay raised. An automobile operating in China emits thirty to large dividends. Dalian's experience is llustrative. forty times as much carbon monoxide and forty to sixty Nearly half of Dalian's municipal water supplies are times as many hydrocarbons as a car in the United States. consumed by industry, and several large factories used Second, far-sighted planning for urban land use could to close for up to two months during the dry season. In do much to shape a cleaner future for China's cities. 1992 a new wastewater treatment facility enabled the High urban densities and low automobile ownership city to provide treated water at one-third the cost of provide a unique window of opportunity for developing new industrial tap water. It also reduced emissions of efficient and environmentally sustainable cities. To wastewater, and factories no longer had to close. Over achieve this goal, urban planners will have to use a full the long term the profit implicit in these projects should range of instruments, from time-of-day tolls to parking stimulate heavy private and foreign participation. The restrictions. These efforts could be complemented by a policy that progressively relocates urban industries to suburban industrial parks, reducing pressures on city Much room for improvement in energy centers. The long-term effectiveness of such an approach efficiency has been demonstrated by Curitiba, Brazil, which began Potential energy savings if efficiency were raised to OECD its now-famous urban planning twenty years ago. The standards (OECD = 100) city's gasoline consumption per capita is now 30 percent Total energy savings per year less than in many other Brazilian cities. (250 million tons coal equivalent) A third priority is to broaden the framework for reg- ulation and monitoring. At present, the National Environmental Protection Agency monitors the emis- Current average efficiency sions of only 70,000 firms, representing only a small 100 fraction of the hundreds of thousands of industrial enterprises in China. The authorities find it difficult to 80 effectively regulate millions of small township and vil- _ N M g g lage enterprises, and in certain sectors such as coking, 60 - - - g H metallurgy, and coal mining these enterprises have 40 _ - - - g X become major polluters. The recent decision of the State Council to close 60,000 highly polluting small town- 20 ship enterprises is a promising step. A final priority is to reconsider the investment plan- 20 g g g e e mning system, which currently does unintended environ- IndustriaL Coal- Steel- Cement Fans and Electric mental harm. At present, provinces face caps on the size boilers fired making kilns pumps motors power of investment projects that can be undertaken without plants central government approval, so they tend to invest in Source: World Bank . inefficiently small power plants. About 80 percent of fProtecting the lnviroriment 79 TABLE 6.2 Many power plants are too small Pollution abatement is a good investment (returns to investment in pollution abatement technologies under Distribution of installed capacity, 1995 the 'deepening reforms" scenario) Percent Capacity Ratio of benefits to costs 100 .- .,g~(percent) 90 Conservative Moderate <100 Required expenditures estimate of cost estimate of cost 80 megawatts (percent of GDP) of pollution of pollution 70 Air pollution 60 100-200 (excluding Lead) 2.1 236 236 megawatts Water pollution 1.1236 2 50 ~~~~~~~~~~~~~~~~AlLI forms 50 ~~~~~~~~~~~~~~of pollution 3.1 114 285 40 / / l_ 200-300 Note: Required expenditures refer to the annuaLized costs of investments in poltu- megawatts tion abatement, incLuding operating costs. 30 4 megawatts Source: World Bank staff estimates. 20 ~~~~~30Notes 10 megawatts 1. This chapter draws heavily on World Bank (1997). Number of Power 2. National environmentaL policies and regulations are formuLated plants generated by the State EnvironmentaL Protection Commission, which reports Source: Beijing Economic Research Institute of Water Resources and Electric directly to the State Council. The commission is supported by the inde- Power. pendent National Environmental Protection Agency, which disseminates environmental policy and reguLations, collects environmentaL data, pro- vides training and support to local environmentaL protection bureaus, China's power plants have a capacity below 100 and advises the commission on environmental policy. Pollution controL megawatts, with lower energy efficiency and higher pol- policies are built on three fundamental principles: prevention first, then prevention with control; polluters pay; and a strong regulatory frame- lution abatement costs than larger plants (figure 6.9). work. These principles are given voice through a range of reguLatory Community participation could help improve the policies, incLuding environmental impact assessments, polLution levies regulatory process and reduce pollution. International and discharge permits, and mandatory polLution control programs. regulatory process and reduce pollution. International 3 ol ak(97 hpe ) - * ~~~~~~~~~~~~~~~~3. World Bank (1997, chapter 5). experience shows that community pressures can be a 4. China National Environmental Protection Agency (1996, pp. 7-23). powerful force for reducing pollution, even in the 5. The WorLd Health Organization (WHO) recently eliminated its absence of formal environmental regulation.16 standard for total suspended particulate emissions because there is no identifiable threshold below which health impacts are negligible. Community participation does have two potential 6. Data on the relative contributions of various sources of Lead in drawbacks, however. Community pressures tend to rise air, soil, and water are not available for China. In addition to auto- mobiles, mining, and lead smelting, the production and recycLing of with incomes, which may encourage pollution-inten- batteries and cables are believed to be the primary sources. sive industries to relocate to poorer areas with less 7. These estimates are drawn from a study in Chongqing that drew opposition. And community pressures tend to focus on on cross-sectional data on health and air quality in different zones of the city. An increase of 100 micrograms per cubic meter of particu- visible and prominent cases of pollution and may ignore lates was associated with a 40 percent increase in mortality rates from less visible but equally harmful pollutants. 17 chronic obstructive pulmonary disease, while an increase of 100 micro- In sunnary, a cleaner future is well within China's grams per cubic meter of sulfur dioxide lead to a 23 percent increase in mortality. See World Bank (1997). reach. Well-designed policies that harness market 8. World Bank (1997). forces, encourage investment in alternatives, and use 9. In 1990 four water-related diseases (diarrhea, hepatitis, tra- choma, and intestinaL worms) accounted for 1.5 percent of total China's strong administrative and regulatory capacity deaths. These diseases cost 0.01 disability-adjusted life-year per will produce a cleaner environment for future genera- capita in China, compared with 0.02 in Latin America, 0.04 in India, tions. As with all reforms, these efforts will involve both and 0.06 in Sub-Saharan Africa (World Bank 1993). 10. World Bank (1997). public and private adjustment costs in the short term. 11. Box 6.1 provides estimates of the costs of various sources of But these costs pale in comparison with both the costs power, including wind power. Somewhat more optimistic estimates of of inaction and the improvements in the quality of life the economic viability of wind power may be found in World Bank (1996). ALso see Johnson and others (1996, pp. 28-30). that a cleaner environment brings (table 6.2).18 12. Grossman and Krueger (1995). 80 C:hina 2)020: i)eveloprnent C,hallenges in the New (Century 13. China State Council (1994, chapter 4). Environmental national China State Council. 1994. China's Agenda 21: White Paper on accounts are intended to augment standard national accounts by China's Population, Environment and Development in the 21st deducting the costs of environmental degradation from measures of Century. Adopted at the 16th executive meeting of the State national income and the depletion of nonrenewable natural resources Council. Beijing. from measures of national wealth. Dasgupta, S., and D. Wheeler. 1997. "Citizen Complaints as 14. In 1995 steam coal delivered to noncoal-producing coastaL Environmental Indicators: Evidence from China." Policy cities (inclusive of the value added tax) cost about $40 a ton at mar- Research Working Paper 1704. World Bank, Policy Research ket exchange rates. The spot price of Australian coal exports fluctu- Department, Washington, D.C. ated between $38 and $48 a ton. Grossman, G., and A. Krueger. 1995. "Economic Growth and the 15. World Bank (1997). Environment." Quarterly Journal of Economics 110(2): 16. Hartman, Huq, and Wheeler (1997). 379-406. 17. Dasgupta and Wheeler (1997). Hartman, R., M. Huq, and D. Wheeler. 1997. 'Why Paper Mills 18. The returns to investment in pollution abatement presented in Clean Up: Determinants of Pollution Abatement in Four Asian table 6.2 represent conservative estimates, as they do not take into Countries. " Policy Research Working Paper 1710. World Bank, account the effect of future relative price changes on the valuation of Policy Research Department, Washington, D.C. costs and benefits. If these are taken into account, the returns are Johnson, T., J. Li, Z. Jiang, and R.P. Taylor, eds. 1996. China: substantially higher. Issues and Options in Greenhouse Gas Emissions Control. World Bank Discussion Paper 330. Washington, D.C. World Bank. 1993. World Development Report 1993: Investing Refelrences in Health. New York: Oxford University Press. . 1996. -China: Renewable Energy for Electric Power." China National Environmental Protection Agency. 1996. Selected Report 15592-CHA. China and Mongolia Department. Documents from the Fourth National Environmental . 1997. Clear Water, Blue Skies: China's Environment in Conference. Beijing: Environmental Science Press. the New Century. Washington, D.C. Protecting the Environment 81 Integrating with the World Economy he opening of China's economy was an itegral part of its economic reforms and a cen- tral element in its growth. Between 1978 and 1995 the value of exports and imports as a share of GDP tripled and China became the world's second-largest recipient of for- eign direct investment (FDI) after the United States. The links between trade, FDI, and China's high savings rates have been a key factor in its rapid growth.' These links will also be crucial for future growth. Deepening integration with the world trading system will bring further benefits of China's comparative advantages and provide clearer domestic signals on where to allocate resources. Increasing integration with the international financial system will help lower the cost of capital and deepen domestic financial markets. Sustaining FDI will bring new management know-how, the latest technologies embodied in capital equipment, and the most recent tech- ............niques in international marketing. 83 Accelerating the virtuous circle of trade and growth lowest ratios in the world. Since then China's trade has will require a firm timetable for reducing trade restric- surged to more than 30 percent of GDP (figure 7.1).2 In tions to acceptable international levels, supplemented U.S. dollar terms, trade increased nearly tenfold by better procedures for resolving trade disputes. It will between 1978 and 199S, from $36 billion to $300 bil- also require further improvements in the climate for lion. As a result China is now the world's tenth-largest FDI and observing international legal norms on the pro- trading nation, accounting for 4 percent of world trade. tection of property rights. There are four noteworthy features of this change. The government has committed itself to this path in the First, China has merely caught up with global norms Ninth Five-Year Plan and Fifteen-Year Perspective Plan. following a long period of autarky (figure 7.2). Large At the same time, the authorities recognize that further countries naturally trade less across their borders than trade liberalization will require difficult and costly adjust- smaller countries, precisely because they contain a ments in parts of domestic industry: steel, machinery, wider diversity of resources offering opportunities for chemicals, automobiles, and consumer electronics-all trade within their borders. industries that tend to be dominated by state enterprises. These adjustments could temporarily increase unemploy- ment. They may also weaken the banking system. Outward and upward Serious though such consequences would be, they can be planned for and dealt with, and should not deter (Trade-GOP ratios in 1987 prices) the authorities from continued trade liberalization. The China s openness to trade has caught up with other long-term growth benefits of a more liberal trading sys- large developing countries ... tem far outweigh the short-term costs of adjustment Percent justment 50 (which, as other countries have learned, are usually 50 lower than was initially thought). Chinese industries 40 deeLoping countries will improve their international competitiveness signif- icantly if they gain access to high-quality imports, espe- 30 cially capital equipment. Closer links with international 2 China partners and competitors will also be vital to long-term 20 success in export markets. And the pressure of world 10 competition will encourage Chinese firms to adopt best practices and capture scale economies. 0 China's international integration is important to the 1965 1970 1975 1980 1985 1990 1995 rest of the world too. Its trading partners will benefit from ... although its performance has been unremarkable exporting to its vast and largely untapped markets. More compared with the rest of East Asia intensive trade will benefit all, just as a rising tide raises all Percent ships. Moreover, foreign investors will be interested in 80 China's sea of skilled and disciplined workers. Over the next several decades industrial countries will likely have 60 East Asia unprecedented surpluses of long-term private capital seeking a safe and productive haven. Marrying this sur- 40 plus capital to China's surplus labor could unleash pro- ductive power of enormous significance in the twenty-first 20 .. China century, to the mutual benefit of China and the world. Deepening trade integration 1965 1970 1975 1980 1985 1990 1995 Note: Other large devetoping countries (apart from China) are Brazil. India, Indonesia, and Russia. During the late 1970s China's imports and exports Source: WorLd Bank staff estimates. accounted for about 13 percent of GDP-one of the 84 China 2020: O)evelopment Challenges in the New Century Second, these indicators of openness are somewhat Protecting domestic industry from imports deceptive. Roughly half of China's trade is imports processed into exports (usually by foreign-financed The Chinese authorities regulate imports through tar- firms) and has little effect on the domestic economy; for iffs, quotas, and licensing. Tariff rates are comparable example, it exerts few competitive pressures on state to those imposed by several other large developing enterprises that sell their output in the domestic market. countries (figure 7.4). At the November 1995 meeting If the figures on trade are adjusted to exclude process- of the Asia-Pacific Economic Cooperation (APEC), ing trade, then China is much less open than the global China announced that it would lower tariffs on a num- norm, even for a country of its size. ber of goods, including coal and gas, textiles, apparel, Third, China's external trade has been relatively leather, and other light and heavy manufactures. The diversified, in terms of both the commodities it trades net effect in 1996 was to reduce the simple unweighted and in its trading partners (figure 7.3). Exports are average tariff from 36 percent to 23.4 percent and the dominated by a wide variety of labor-intensive manu- weighted tariff from 28.1 percent to 19.8 percent. At factures, with primary products accounting for only a the November 1996 APEC meeting the authorities modest share of the total. As a result China has not announced further cuts. There are still many tariff con- experienced the vagaries of volatile commodity prices. cessions and exemptions, however: exemptions for Fourth, Hong Kong has played a crucial role as export processing covered 44 percent of merchandise China's window to the world. Since reforms started in imports in 1995 and 45 percent in 1996. the late 1970s, Hong Kong has done much to channel Turning to nontariff barriers, thirteen commodities goods and capital in and out of China. As a result the are subject to import quotas. These commodities were two economies were closely integrated well before their selected on the grounds that excessive imports could political unification (box 7.1). hinder the development of domestic industry or China's integration with the rest of the world has threaten the balance of payments. In addition, the been remarkably swift. But the process has left China Machinery and Electronics Import and Export Office with a complex set of trade and foreign investment poli- cies administered by a range of occasionally overlap- .. 1XX ping ministries and agencies (box 7.2). China's trade has been diversified Exports and imports by economy of destination and origin, 1995 (percent) Exports After rapid growth, China's trade ratio has Other Hong Kong reached large-country norms 28% 24/ Trade volume as a percentage Taiwan, China IZILŽ of GDP, average 1978-94 20/ 200 Singapore 2 180 Germanya 040/0 Korea, United 19% 160 Rep. of States 140 0 4% 17% 120 . Imports 100 *Hong 1°8°o ~ *++ . . Other Kong Japan 80 ~~~~~~ ~~~~~ ~~~~~~~~~~~~310/ 70/%aa 40 * * * China 0 *0 * ~~~~~~(1995) 20 * hina * tt ed 30 34 9784 50 Taiwan ted 30 35 40 45 50 Ch na Singapore Germ~~~Chiany Korea, Size (in GDP*poputation) 11% 3% 6% Rep. of 120/. Note: Figure plots the cross-country relationship between country size and 80% o trade ratios for a sample of 104 developing countries. Source: World Bank staff estimates. Source: China Statistical Yeorbook 1996. Integrating with the World E.corioniy 85 HonW . . g~ Kg and mainlandCina: T0ies. .a . in = and a brain d:ogGhrain, a som .ehdfare d, Hono Kongcoti es2 to2 center for intentoa trade andE* f rinancial s ervices ..flo.ish with anet influx of i .T in i d for 7 perent. ... ........... . .. . ........... . . . ..of .an........ foreign .r.d JaintDeclratin and thf e BasWicL aw pe r 4dei" a uni'St e" on:.."''e.-,'..o,'.."'',,',, in I9 a:2 whiR5le :P Hong K 'o2gR aconR f2r 42 pecn of hia' -- Hong lKong and Chin' compei enai stegh h2v knite 2hina, providing vi2 transportat i , stoage Rnua e pa2c2 2 - i.Ei0The eEBasic Ltaw xpassed by ithe ational People's C gresin19 riRnel throughHsonxg Kong Aot 0per ercentof syndicated iSLoaness |00..........R .SR ......RRg ........ . R00R2 2 2 iR . stfipulafts thatHongKogwillrttht remre ytmfo o h anadaearne i ogKn.~ h n f1 itiiififtiy years after unification. According toii this. the Hong : .ong Hoi Eng Kong's banking ystem owed $3.i..o. to bnks in C . 2 Special iAdmininstrative 0iRegion wtill:. a d had cladijms onChinesebans a8nd nan..ent.ties.of.... p;iS0riRses, and foreigninvestmentsi *000000000200t& Ch < ina<^ 3 isa &theg seoi hre"orin ' ainvesto in 2 Hon Kong .* M03a anage t0inrdtlependenXt pulic f inac.eat -itsow ax la[ws, By30|;the end of1g hn' netet in og]32Fe Ko.g totaled; B maintaiin e'clusiveue of its finncal eeue4'n strive to@ imoreta 1 ilo~Mr e than ifty gmailndcmanii ies a M e«a3intain an au:gtonomousg:t:ig monetary ' '"",:: system, and safeguarda te adheirmare cpialzai n - ona Hongu. Kog' stoc exhngeB:' *ggg Retgg gain the Hong ongdlaras lgaltn der,enuare fullcm dmtc stock marketEEEiiiEELii (8 ahaea an on'l the'E'''lRREigfniiRRBiRRREEEE Hong ongStoc 86 bly Ch nd manage t:)evelo hrngen ('ndaindpenes en th ly Centu(ryhrs)icese h innilinertono h * Pursu free tade polca aitainthesau fafe pr toeoo is The two monetary systems an4.authorities will be mutually~~~~~~~~~~~~~~~~~Amomp independenL rhe Hong Kong dollar will remain.[.nked.to.th...S dollar at a fixed exchange rate~~~~~~~....... * Bth conmis wll ret te ~he's inacil istiutonsas hia ad KngKon hae lo toofer.ac.ote......c rein. Manad...ca ..t.t....r.. n nHogKn sco omntsHogKn'scnm~ conin o 4 e:n must abie by Hon Kong's awsA&ilanciatdamsandliaili-. ofG.P.a.d.mploy.......ercnt.of.th.labor.f..e.... tie ewe h anadad)ogKn.il edaI ihi ogKn a ihyet entrnpr n elcm uiain acodnc.ih.nenainll.c...dr.l*.ndpatie, sytm. t ee .e hroan eertasprsstmma The...... Pepes.n-fCia ~ ~ crec tcnspotCie' rd n.netaas ILVEM11,1=16 rdp ...... nc.a..dev.. stabilty bu willnot drw on oit.. Hong.. Kong..s e .cang ...e.tote.i.adsoestece. nrsrctr.H fund.... une.ay......... og....e sufrsfon aorad ln cnlait, hc * Shangha and Hon~KongiAitll eve....make.it.......u .e. .........an ....n.......-so .nandal centers. -. ~~~~~~~~......t.................................e..perti........ .... .... . . . .. ... .... ... .... ... . .......... *~ 1nncArde~d.ubich............ hsthtChnasoel ff UsIg-mll e e: ........... T.14-Mal~~~~~~~~~~~A~. ... ...... ........ . ................. ...... .....is.h me.t....b ank............, 33 The ec mies~ofChfr a' and Ho. Kon. .. .......t............tI............nt.dai.y.t..ov...............ex.h... ... ..... i. ........s...........ps n l .o ta t. .....................th.n.te.wo.d, and.........i...fit .. . . . . .. . . . ... . . . . . . . . . . . . . .. . . . . . . . . . . . . . 86. China.. .0(:D veom n .......e . ..h.. Ne.....t.r BOX 7.1, continued ~~tong K ChngandC~a istb~~P* ROX~ ~ ~ ~ ~ ~ ~~~~... ....2 ......... ....... ........... ............. .. ................. . ...... applies quotas to fifteen machiner-y and electronic prod- ing monopolies. Although automatic import registra- ucts, such as automobiles and refrigerators.' tion is not intended as a nontariff barrier, it risks having Automatic import registration covers a wide range of the same effect. Importers must demonstrate a market imports, including oil, nonferrous metals, polyester, and need for the goods and prove that they can pay for them. cotton. Some of these imports are subject to quotas and But since firms would not attempt to import unless they licenses, and some can be traded only through state trad- had decided that imports would meet their needs better lntegrating with the World Econoniy 87 than domestic supplies, it is not clear why a government to the rest of the world could be twice as great (table department is better qualified to make this judgment 7.1). Lowering trade barriers will create new opportu- than the managers of the importing firm. The financing nities for increased specialization and gains from trade. requirement appears similarly redundant-if the firm Reducing the variability of tariffs across sectors will does not have the finance, it will not import. ease distortions-their standard deviation will fall from Of course, effective rates of protection differ signifi- 23 percent in 1995 to 12 percent in 2005. Furthermore, cantly from nominal tariffs. The difference is particularly greater transparency in trade rules will reduce distor- pronounced for machinery and equipment (figure 7.5).4 tions and eliminate unproductive rent seeking. At the same time, however, the authorities need to Reducing protection anticipate the domestic consequences of further import liberalization, which are likely to be concentrated in China's eventual accession to the World Trade capital-intensive, scale-sensitive industries where prof- Organization (WTO) will result in further reductions in its are high (figure 7.7).6 Such industries include steel, tariffs. If its current formal WTO offer is implemented, automobiles, machinery, electronics, and heavy chemi- weighted average tariffs will fall from 19.8 percent cals. Many of these industries are concentrated in today to 16.2 percent by 2005.5 These reductions will regions where unemployment is already high. particularly benefit manufactures exporters such as Moreover, any financial difficulties they may have Japan, Korea, and the European Union, which as recently as 1995 faced tariffs ranging from 30 to 40 per- pfi cent. Raw material exporters to China will gain less, Nominal and effective rates primarily because the tariffs they face are already lower. pr marl ~~~~~~~~~~~~~~Nominal rates of protection ... WTO accession will also involve big reductions in Percent nontariff barriers for China, eliminating almost all Processed rice except those on food and certain other primary prod- Oil ucts (figure 7.6). Wheat If China implements its WTO offer and industrial Nonferrous metals countries, in turn, abolish quotas under the Multi-Fibre Chemicals, rubber, and plastics Arrangement (MFA), the welfare gains to China by Petroleum and coaL products 2005 could reach $116 billion a year, and the benefits machinery an deu ts Machinery and equipment >19095 Fabricated metal products #"URE?A li 80 ...~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~...... . . . . ... . EModeling Growth and Structural Change y ,--his annex describes the economic model developed for this report and used in chapter 2 to lay out China's long-term growth possibilities. The objective of the model is to provide as simple a frame- work as possible with which to highlight the changing role of the fundamental determinants of growth in China: productivity growth, savings, and structural change. The next section provides a nontechnical overview, followed by a more detailed presentation of the equations of the model. The following section dis- cusses how the model's parameters are obtained. The final section presents some additional results that sup- plement the discussion in the text. 109 Nontechnical overview and level of productivity inherited from the previous period, firms demand labor and intermediates in order The model presented here is a simple multisector ver- to produce output. Households supply their labor, sion of the Solow growth model. The Solow model con-. demand goods for consumption, and turn their savings sists of the following essential elements: over to a capital goods sector, which uses them to pur- * A production function that relates output to primary chase goods used to construct capital goods for invest- inputs of capital and labor ment purposes. Prices adjust to clear the market for * A consumption-savings rule that determines how goods and labor. At the end of the period firms in each much of output is available for investment sector purchase capital goods, which they use to * An accumulation equation that describes the growth increase their capital stocks. The labor force and tech- of the capital stock as a function of investment and nology increase exogenously, and the next period depreciation. begins. With these three elements in hand, it is possible to In order to provide a more realistic picture of the describe the trajectory of output growth given an initial Chinese economy, frictions are introduced into the point. model that prevent labor and capital from being opti- In the long run there are only two sources of growth mally allocated across sectors. This is meant to capture, in the Solow model: growth in the labor force and labor- in a simple way, the effects of real-world barriers to augmenting technical progress.' Along the transition to labor mobility, which have kept a substantial portion of this long-run growth rate, however, GDP growth is ini- the agricultural labor force underemployed, and distor- tially higher than its long-run value; it declines over time tions in the investment system, which bias investment as diminishing returns set in with the accumulation of toward industry at the expense of agriculture and ser- capital. During the transition the savings rate emerges as vices. As these frictions diminish over time, improve- an additional factor influencing the growth rate. Holding ments in the efficiency of factor allocation provides an constant initial conditions, the higher the savings rate, additional, albeit modest, source of growth. the higher the eventual long-run level of per capita GDP The structure of the model was deliberately kept very and the faster the economy grows along the transition simple in order to focus on growth fundamentals, such path in order to reach its long-run level of development. as savings, productivity growth, and factor realloca- The model presented here shares these features of the tion. Keeping the model simple necessarily meant that basic Solow model and is complicated -only by the important factors, including trade and government, had assumption of a slightly more elaborate production to be ignored. By assuming that the economy is closed, structure. Instead of a single good, there are N sectors the model cannot capture the (poorly understood) effect in the economy, each producing a different good. The N of trade on growth or the contribution of foreign sav- goods are produced using primary factors of land, labor ings to domestic capital accumulation. The effects of and capital, and intermediates. These goods in turn are China's growth on world trade are analyzed in a sepa- used as intermediates in the production of other goods, rate, complementary exercise (chapter 7). The model for final consumption, and for investment. also ignores the fact that government has a crucial role In the model it is useful to think of the economy as to play in shaping the environment in which households populated by households and firms. Firms demand fac- and firms operate. Since modeling these complex inter- tors of production, which they use to produce the N actions in a convincing manner is difficult, these issues goods available in the economy. Households supply are addressed outside of the formal model. labor to firms and receive wages and the profits of firms (value added) as income. An exogenously given fraction The model of this income is consumed, and the remainder is used to purchase goods that are turned into capital goods At the beginning of each period the representative firm used for investment purposes.2 in sector j produces gross output (Q,) using a constant In each period the following events occur. Given elasticity of substitution (CES) production technology input and output prices and given their capital stock of the form: 110 China 2020: Development Challenges in. the New CCntur1y household income. Since households receive labor income Qj = [(3,) (F, i ) + (I3K,) (K/i') + (0,Ll) (A,L1)X' + as well as the profits of firms, Y is equal to value added. The elasticity of substitution between goods in consump- (pMj) (M7 A)] tion is (. Optimal behavior by households results in a set wherej = 1. ...., N indexes the sectors of the economy. of N demands for goods for consumption purposes. F. is a fixed factor of production, K. is the capital stock The representative firm in the capital goods sector uses inherited from the previous period, L. is labor input, households' savings to purchase goods from the N sec- and M. is a CES aggregate of the intermediate goods tors of the economy, hjD, in order to produce a homoge- (that is, neous capital good using the following CES technology Mj = [ thij (xt,j )], I= B JI where X.. is the intermediate use of good i by a firm in The elasticity of substitution between investment goods sector j). The elasticity of substitution between F,, Ke L, at the sectoral level is 1T. Optimal behavior by the capi- and M. is given by ji, while e is the elasticity of substitu- tal goods firm results in additional N demands for tion between intermediates. The parameters PFP PK1, PiU goods for investment purposes. PMp and 4ij vary across sectors. A, represents the level of Markets clear in two stages, as discussed above. the labor-augmenting state of technology, and the First, goods prices adjust to clear the goods and labor growth in A1 corresponds to productivity growth. Given markets (the wage is the numeraire). Markets clear K. and A,, at the beginning of each period the firm when the sum of the N labor demands is equal to the demands labor and intermediates in order to maximize exogenously given labor supply and the sum of the profits. Optimal behavior by firms results in a labor intermediate, final consumption, and investment use demand function and set of N intermediate demands demands for each of the N goods in the economy is for each of the N firms in the economy. equal to the corresponding supply. Dropping one of the In the absence of frictions, optimal firm behavior redundant market-clearing conditions yields a nonlin- implies that labor and intermediates will be efficiently ear system of N equations in N prices that can be solved allocated across sectors. Since this is an unrealistic numerically for the market-clearing price vector.3 approximation for China today, we introduce frictions Next, firms demand investment goods subject to into the labor market by multiplying each firm's labor convex adjustment costs and given the price of capital demand by a scalar that is greater than one in sectors in goods. Optimal behavior by firms results in a set of N which more labor than what would be optimal according first-order conditions equating the value of the marginal to the model is observed and smaller than one in sectors product of an additional unit of capital with the price of in which less labor than would be optimal is observed. capital goods: This scalar creates a wedge between marginal products of I 1 labor across sectors. As discussed in more detail below in P iQi' A3Ki ,1'l) sK + 1' - g'(/K,) = PK' the section on parameterization, the initial values of these scalars were chosen to match the observed distribution of where 8 is depreciation of capital and gi(I/lK,) = af(I/K1)2 is employment in China in the base period; these differen- the adjustment cost function. These N equations can also tials are allowed to erode exogenously over time. be solved numerically for the optimal distribution of The representative household allocates its consump- investment. Finally, capital stocks accumulate according tion over the N goods available in the economy so as to to the investment decisions of firms, productivity and the maximize labor force grow exogenously, and the next period begins. c = [iai ci Parameterization subject to the constraint that total consumption expendi- In order to implement the model described above, four ture is equal to (1-s)Y, where s is the savings rate and Y is types of information are required: Nlodelirng Girowth and Structural Change 111 * Values for all the parameters of the production across sectors is the same as the distribution of factor functions and household preferences payments to capital across sectors. Fixing the level of * Information on the initial allocation of factors of the capital stock in 1992 at 6,000 billion 1992 yuan, production in a particular base year this yields a measure of capital input for each sector.4 * Values for the parameters that capture the frictions in The assumptions that permit the parameters of the the labor and capital market production side of the economy to be identified cannot * Reasonable assumptions on the path of savings rates be taken as literally characterizing the Chinese economy and productivity growth. in 1992. However, the parameters obtained are roughly These requirements are taken up in turn below. in line with the available microeconomic evidence. In the model, there are N=3 sectors: agriculture, Moreover, the broad picture that emerges from the pro- industry (including construction), and services. The jections is relatively insensitive to minor variations in parameters describing the production side of the model the parameters obtained. are derived directly from the 1992 input-output (IO) To parameterize the consumption side of the econ- table for China in the following manner. First, the 1992 omy, a unit elasticity of substitution in consumption is 10 table is aggregated into agriculture, industry, and assumed, and the as are identified as the expenditure services. Next, under the assumption of constant shares from the appropriate consumption column of returns to scale in production and a unit elasticity of the 10 table. This yields expenditui-e shares of .25 on substitution between factors and between intermedi- agriculture, .35 on industry, and .40 on services. Since ates, the output elasticities of labor, capital, and inter- tastes are likely to shift toward services over the course mediate goods are given by the parameters 13L' PK' and of development, the expenditure share on agriculture is PM' while 0j is the elasticity of the intermediate goods assumed to decline to .20, while that of services is aggregate in sector j with respect to intermediate good assumed to increase by the same amount over the i. Under the further assumption of perfect competition, twenty-five-year projection period.5 these parameters can be identified by the corresponding Finally, the capital goods technology is also assumed shares of factor payments in value added, which can be to have a unit elasticity of substitution, and the corre- obtained directly from the 10 table. In particular, sponding elements of the investment column of the 10 wL. PM/. M, PX,M table are used to determine the expenditure shares for L= , PM. =M i, Q andX = Oi investment. Using the appropriate entries from the pi -di' Pi QX , PMI PiQj investment column of the IO table as inputs and total Since there are constant returns to scale, PiK; = 1-PL-DfM;. investment, the scale parameter, B, of the investment To complete the parameterization of the production technology is obtained as a residual. side of the economy, values for the initial level of the Table A2.1 summarizes the parameters of the productivity parameters, Ap, are needed. Since there is a model. Overall the parameters obtained in this manner measure of gross output for each sector (Q1) and all the appear to be plausible and in line with available micro other parameters of the production function are avail- evidence. In a few cases, as indicated in the table, the able, given information on the inputs of capital, labor, parameters obtained from the IO table were modified and intermediates in each sector, the As can be com- slightly so that they were more consistent with our puted as residuals. Estimates of the labor force and its priors. sectoral allocation are readily available, and since the Next we turn to the problem of obtaining parame- wage is the numeraire, there is a measure of real labor ters that describe the rigidities that prevent labor and input for each sector. In the case of intermediates, no capital from being optimally allocated across sectors. information on the allocation of intermediates across For the labor market, the observed distribution of sectors other than the 10 table is available. Accordingly, employment in 1992 and the production functions esti- the actual values of intermediate uses reported in the JO mated from the IO table were used to compute differ- table was used as a measure of intermediates, valued at ences in the marginal product of labor across sectors. 1992 prices. For capital, under the assumption that the The labor demands of firms were then scaled by con- returns to capital are equalized, the allocation of capital stants reflecting these differences. 112 Chiria 2020: Ievelopment Challeiiges in the New Century TABLE A2.1 TABLE A2.2 Model parameters Parameterizing frictions in labor and capital markets Agriculture Industry Services 0=1) (j-2) (=3) Agficulture Industry Services Output elasticities of: 6=1) (=2) (=3) Capital (PK,) .20a .20 .27b Labor market frictions Labor (P0.) .348 .09 .24b MPL scaled by 1.92 .59 .50 Interme1dates (.M) .36 .71 .49 ImpLied MPL relative 1.00 3.27 3.87 Fixed factor (lands (pj9) .1a 0 0 to agriculture Intermediate elasticity of: Capital market frctions Agrculture (4Ij) .39 .10 .30 Parameter a in g(I/K)=oWK)2 400 0 300 Industry (2i) .44 .72 .56 Implied MPK relative 1.00 0.33 0.37 Services (03)) .17 .19 .42 to agriculture Source: World Bank staff estimates. Investment shares (X) .04 .88 .08 Consumption shares (a1)c .25 .35 .40 growth declines from 5 percent in 1995 to its long-run a. 10 table yields values of 5,,-.10 and P,,=.54 and provides no information on 0,. value of 3.75 percent by 2000 and remains at this value b. 10 table yields values of 0 -.31 and P,-.20. c. a, declines to .20 over projection period, while a3 increases to .45. until 2020. Since the production function is Cobb- Source: World Bank staff estimates. Douglas given our unit elasticity assumption and since The same procedure cannot be used to estimate dif- the aggregate labor share in value added is about 0.4, ferences in the marginal product of capital, because the total factor productivity growth is 1.5 percent between distribution of the capital stock was obtained from the 2000 and 2020. Given China's experience with savings IO table, rather than from an independent source. As a rates and productivity growth (see chapter 1), these two result, the marginal products of capital are equalized assumptions represent fairly conservative extrapolations across sectors by construction. Since some information of past trends. Variations in these assumptions, of course, on the distribution of investment in 1992 is available, the lead to large variations in the growth rate over the next initial values of the parameters of the adjustment cost twenty-five years, as indicated in table 2.1. function were chosen so that the model approximately matches the observed distribution of investment. As a Results result, although the initial capital stock is optimally allo- cated across sectors, increments to the capital stock are The model's projections of long-run growth and struc- not optimally allocated in the sense that their pre-adjust- tural change are presented in the second half of chapter ment cost marginal productivities differ across sectors. 2. Here we briefly supplement these results with a dis- These calculations are summarized in table A2.2. The cussion of the contribution of factor reallocation to first row shows the actual values of the scalars multiply- growth as distortions in the labor and capital market ing the marginal products of labor; the second row shows decline in importance over the next twenty-five years. the implied differences in marginal products of labor As discussed in chapter 1 and annex 1, the process of across sectors. The third and fourth rows show the adjust- structural change has contributed to growth in China ment costs in the capital goods market. The third row since 1978, since it has resulted in the reallocation of shows the actual value of the parameter of the adjustment factors out of sectors in which their marginal produc- cost function; the fourth row shows the implied marginal tivity was low into sectors in which productivity was products of capital relative to agriculture. higher. Simple back-of-the-envelope calculations sug- The final input into the model is a set of assumptions gest that labor reallocation alone has contributed 1-1.5 on the future path of the savings rate and of productivity percentage points of growth between 1985 and 1994. growth. The savings rate is assumed to decline linearly Figure A2.1 summarizes the contribution of reallo- from 40 percent of GDP in 1995 to its long-run value of cation effects to growth over the projection period, 35 percent in 2005 and to remain there for the remainder decomposing the total factor reallocation effect into a of the projection period. Labor-augmenting productivity labor and a capital reallocation effect. Labor realloca- Modeling Growtl an(d Structtiral (C.hange 113 are substantial costs in terms of forgone growth associ- ated with policies that bias the investment system Factor reallocathon and growth, 1995-2020 twr nuty Contribution to growth (percentage points of annual average growth) 1.0 Notes 0.8 Labor 1. In economic jargon the very long run is referred to as the 0.6 <. reallocation "steady-state" of the model, in which the capital stock per effective worker is constant. For this steady state to exist, technicaL progress reallocation must be Labor augmenting. 0.2 X.Xv >.>>.C 2. Three key assumptions here keep the structure of the modeL sim- O / = ple, aLbeit at the cost of some realism. First, the labor supply is assumed to be exogenously determined, and hence the modeL cannot -0.2 account for the cyclical varations in employment that lie at the heart -0.4 reaLlocation of economic fluctuations. However, since the modeL is concerned only with China's long-term growth possibilities, the omission is not an important one. Second, savings are assumed to be exogenous, which -0.8 e prevents the (poorly understood) feedback from growth to savings -1.0 from being modeled. This structure does, however, capture the effect 1995 2000 2005 2010 2015 2020 of savings on growth, as described in the text, and, moreover, has the Source: World Bank staff estimates. advantage of greatly simplifying the solution of the model. Third, firms are assumed to be pureLy passive agents, so that the savings/invest- ment decisions of firms are identical to those of househoLds: that is, households "pierce the corporate veil." tion continues to provide a modest boost to growth of 3. The model is programmed in Gauss, a matrx programming tan- slightly more than 0.5 percentage points initially. guage for personaL computers. However, this contribution to growth dwindles as the 4. Both the leveL and the distribution of the initiaL capital stock are important ingredients for the model. The level of the capitaL stock barriers to the efficient allocation of labor diminish over matters because it determines how far China is from its steady state. time. The estimate of 6,000 billion yuan is based on Nehru and Dhareshwar More iy c(1993). Chow (1993) provides independent estimates of the sectoral More interestingly, capital reallocation effects ml distrbution of the capital stock, albeit only through 1985. tially provide a substantial negative contribution to Surprisingly, Chow finds a distribution of the capital stock across the growth, because the barriers to investment (modeled as three sectors of 9 percent for agriculture, 62 percent for industry, and 29 percent for services. The distribution implied by the IO table is sim- adjustment costs) result in incremental units of capital ilar, at 6 percent, 58 percent, and 36 percent. being inefficiently allocated to industry rather than to 5. Because of the unit elasticity of substitution in production and agriculture or services, where their marginal productiv- consumption, these Engel effects have minimal effects on the pattern of production measured in constant prices. ity is higher. Eventually, this negative contribution to growth also dwindles as barriers to the efficient alloca- References tion of investment decline over time. Although overall reallocation effects are fairly small Chow, G. 1993. "Capital Formation and Economic Growth in (ranging from -0.2 to 0.3 percentage points of annual China." Quarterly Journal of Economics 108(3): 809-42. growth), they point to the importance of a policy envi- Nehru, V., Eric Swanson, and Ashutosh Dubey. 1995. "A New Database on Human Capital Stock in Developing and ronment that facilitates the efficient allocation of fac- Industrial Countries: Sources, Methodology and Results." tors of production. In particular, they suggest that there Journal of Development Economics 46(2): 379-401. 114 China 2020: Development C(hallenges in the New Century Projecting Poverty and Inequality his annex describes the methodology gr employed in chapter 8 to project poverty and inequality. The projection framework is very simple and embodies no behavioral relationships. Rather, it consists of a set of assumptions on population and income growth that yield projections of average per capita income in rural and urban areas for China's thirty provinces, and a set of assumptions on the future distribution of per capita income in each region. Given these assumptions it is pos- sible to estimate the number of people falling below a specified poverty line in each region in order to arrive at a national projected poverty headcount, and to construct an estimate of overall income inequality. Although the frame- work is rudimentary, it dramatizes the importance of reducing regional and rural-urban growth disparities if China is to achieve its target of eradicating poverty and stemming increases in inequality. 15 The next section introduces notation and describes where F(P,T,) is the cumulative lognormal distribution the structure of the assumptions. The last section pre- distribution function with parameters sents four alternative scenarios. (Y 12 = 2 t..# Counting the poor v,, = ln(yv1/) - (1/2) aj72 The first step in projecting regional poverty is to obtain Summing over all provinces yields an estimate of the projections of population and per capita incomes in number of people living below the poverty line in the rural and urban areas in China's thirty provinces. specified year. Define These projections can also be used to construct an estimate of future income inequality. First, the identity N, = population of province j that relates the national mean log deviation of per y= per capita income in province j capita incomes (t*) to the projected regional average per capita incomes and regional mean log deviations is Assume that overall population (per capita income) used: grows at the rate of g. (gy). Let rN, (ryj) denote popula- tion (per capita income) growth relative to overall t = Ep, ln(Y-) + lp ln(2yiL) + Ypgit growth of that variable in provincej (j=1,...,30). That is, provincial population (per capita income) growth is where i=u,r, j=1,...,30 provinces, y is the national average gN, = gNrNj (gy, = gy(ry;). per capita income, Yu (YR) are urban (rural) average per To separate urban and rural projected provincial capita incomes, PU (PR) are the shares of the population populations and per capita incomes, define the overall living in urban (rural) areas, p,1 is the share of the popu- share of the population living in urban areas as u*, and lation living in region ij, and t.I is the mean log deviation let r,C denote the urbanization rate of province j relative of per capita incomes in region ij. The resulting national to overall urbanization. The projected urban (rural) mean log deviation of per capita incomes is then trans- populations of province j, NW.* (Nrj*) are then given by lated into a Gini coefficient that can be used in interna- tional comparisons.' Clearly, the estimates of income NUja u *# r. N. inequality arrived at in this manner will represent upper Nr= (1-u* rn,) N. bounds, since the projection framework does not capture the effects that interprovincial and rural-urban migration Let d.* denote future urban/rural relative incomes in will have on regional income differentials. province j. Then, predicted urban (rural) per capita incomes y,Uj (yrj*) are given by Scenarios for reducing poverty Yuj* = Yj* N1'/(NUJ + Nldj#*) The key components of the above projection framework yri* = yj* Nl*I(NUI di* + Nr1) are the initial values for population, per capita income, and the distribution of income in rural and urban areas Assumptions on the distribution of income around in China's thirty provinces and the assumptions that these average levels are required to arrive at the number yield the future values of these variables. The base year of people living below a specified poverty line P. The for the projections is 1995, the most recent year for distribution of income in each region is assumed to be which comprehensive data on rural and urban per capita lognormal and the mean log deviation of per capita income for China's thirty provinces are available. In all incomes is assumed to be t * for i=u,r and j=1,..,30 scenarios we maintain the following assumptions. provinces. Hence, the number of poor in region ij is * National population grows at an average rate of 1 given by percent a year and real per capita income grows at an average rate of 5.5 percent a year, consistent with the NPoori,* = N-q* F(P4,1pY-_) projections in chapter 2. 116 China 2020: i:)eveiopnMeit C:hallenges in the New Century * Relative to national population growth provincial FIkEA3A population growth rates remain constant and equal to Growing apart? Projected income inequality their historical values over the period 1978-95. under alternative scenarios * The urban share of the population grows at an aver- Gini coefficient age rate of 1.5 percent a year. 0.6 * Rural and urban income inequality in each province, Brazil, 1989 as summarized by the the mean log deviation of per capita continue incomes, remains unchanged from its current level.2 Mexico, Regional growth * The poverty line in 1995 yuan is 561 yuan.3 1992 0.5 gaps eliminated Given these basic assumptions, we consider four Rural-urban alternative scenarios. ...,- eLiminated 0.4.Both gaps are * Past trends continue. Provincial relative per capita United States, eLiminated income growth rates are assumed to remain at their his- 1992 torical values over the 1978-9S period. Urban income India, 1992 growth is assumed to exceed rural income growth by 0.1985 1995 2005 2015 2025 3.5 percent, as it has over the 1981-95 period (that is, Source: World Bank staff estimates; Deininger and Squire 1996. d,* grows at 3.5 percent a year from its 1995 base level). * Regional growth disparities are eliminated. Provincial intervals (figure A3.1). Although by assumption within- per capita incomes are assumed to grow at the same rate group inequality remains unchanged, overall inequality (r Y=1 for all provinces). Urban-rural relative income changes markedly as regional and rural-urban per growth rates are assumed to continue to differ, as in the capita incomes diverge under the various scenarios. first scenario. * Urban-rural growth disparities are eliminated. Notes Urban-rural relative incomes are assumed to remain at their 1995 levels (that is, d.* is constant and equal to its 1. This translation is facilitated by the additional assumption that I the aggregate distribution of per capita incomes is lognormal. value in 1995), but regional growth disparities are 2. The most recent year for which a fulL set of rural and urban assumed to persist at their historical levels. income distributions by province is availabLe is 1992 (see World Bank * Regional and urban-rural growth disparities are 1997). We assume that the mean log deviation of rural and urban incomes in each province in 1995 is equal to its level in 1992, scaled eliminated. All provinces are assumed to grow at the up by a factor of 1.15 to capture the growth of inequality due to fac- same rate, and urban-rural relative incomes are tors other than ruraL-urban and regionaL growth disparities over the assumed to remain at their current levels, period 1992-95. The factor of 1.15 was chosen to ensure that the over- all poverty level in 1995 obtained by summing the rural and urban For each scenario the year in which the poverty rate poverty headcounts in each province was roughly equal to poverty fig- in each province [(NPooriR* + NPooriu*)/Ni,*] falls ures based on the available national poverty figures. Evidently, the below 5 percent of the population is calculated. These assumption that within-group inequality does not change is optimistic below pe nohp liin Light of past trends. Yet, as discussed in chapters 1 and 4, the main figures are plotted in figure 8.2. for the twelve provinces source of the increase in overall income inequality has been differ- in which the incidence of poverty exceeds 5 percent of ences in provincial, and especially rural-urban income, growth rates. the population today. The 5 percent threshold is used 3. This figure is based on the Chinese absolute poverty line of 318 (1990) yuan, extrapolated to 1995 using the rural CPI. See World Bank because the key element in these projections is the rate at (1992). which the area in the tail of the lognormal distribution 4. Deininger and Squire (1996). declines as the mean of the distribution shifts upward. This elasticity becomes very large as the area in the tail References of the distribution becomes small, rendering the pro- Deininger, K. and L. Squire. 1996. "A New Data Set Measuring jected poverty rate at low levels very sensitive to changes Income Inequality." The World Bank Economic Review 10(3): in mean income. The somewhat arbitrary threshold of 5 565-91. percent is used to minimize this source of sensitivity. World Bank. 1992. Strategies for Reducing Poverty in the 1 990s. In addition, the implied Gini coefficient associated Washington, D.C.: World Bank. . 1997. Sharing Rising Incomes: Disparities in China. with each of these scenarios is computed, at five year Washington, D.C.: World Bank. Projectinig Poverty and Inequality 117 Statistical Appendix National Accounts Table 1: National accounts: in current prices 121 Table 2: National accounts: in constant 1990 prices 122 Table 3: National accounts: implicit price deflators 1990=100 123 Table 4: National accounts: real growth rates 124 Balance of Payments Table 5: Balance of payments 125 Table 6: Services 126 Table 7: Transfers 127 Table 8: International reserves 128 Trade Table 9: Commodity composition of merchandise exports 129 Table 10: Imports 130 External and Domestic Debt Table 1 1: External debt: disbursements and repayments 131 Table 12: External debt: interest and debt outstanding 132 Table 13: Domestic debt 133 Money and Credit Table 14: Monetary survey 134 Table 15: Operations of the People's Bank 135 Table 16: Banking survey 136 119 Table 17: Balance sheets of rural credit cooperatives 137 Table 18: Balance sheets of rural credit cooperatives 138 Fiscal Accounts Table 19: Consolidated government revenue 139 Table 20: Structure of consolidated government revenue 140 Table 21: Structure of government revenue (percentage of GNP) 141 Table 22: Structure of government expenditure 142 Table 23: Budget and its financing 143 Agriculture Table 24: Production of major crops 144 Table 25: Yield of major crops 145 Industry Table 26: Gross output value of industry 146 Table 27: Output of major industrial products 147 Wages Table 28: Total wage bill of staff and workers by employment category 148 Table 29: Average annual wage by sector and employment category 149 Employment Table 30: Social labor force by sector 150 Table 31: Social labor force by employment category 151 Prices Table 32: General price indices 152 Table 33: Annual rates of inflation by month 153 Investment Table 34: Total investment in fixed assets 154 Table 35: Investment in fixed sssets by state-owned enterprises 155 Table 36: Investment in capital construction of state-owned enterprises by sector 156 Table 37: Foreign direct investment inflows 157 Energy Table 38: Production and consumption of energy 158 Transport Table 39: Freight traffic 159 Table 40: Passenger traffic 160 Table 41: Average shipping distance 161 120 China 2020: L)evelopmenlt (:hallenges in the New Century Table 1: National Accounts (billions of yuan, in current prices) 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 GD)P at market prices 896.4 1,020.2 1,196.3 1,492.8 1,690.9 1,854.8 2,161.8 2,663.8 3,463.4 4,662.2 5826.1 (iGDI at factor cost Agriculture 254.2 276.4 320.4 383.1 422.8 501.7 528.9 580.0 688.2 945.7 1199.3 Industry 386.7 449.3 525.2 658.7 727.8 771.7 910.2 1,170.0 1,642.9 2,237.2 2817.3 Mining and quarrying 10.9 13.9 15.0 18.4 22.2 24.7 28.0 33.6 45.8 62.3 81.5 Manufacturing 317.5 362.4 419.8 532.6 594.5 623.4 734.6 938.3 1,288.9 1,754.7 2193.4 Services 255.6 294.6 350.7 451.0 540.3 581.4 722.7 913.9 1,132.4 1,479.3 1809.4 Imports of goods & non-factor scrvices 125.8 149.8 161.4 205.5 220.0 223.4 289.0 407.1 566.7 961.6 1130.3 Exports oflgoods& non-factor services 89.1 124.3 162.6 190.4 201.4 274.5 350.7 434.7 498.7 1,025.0 1220.7 Resource balance -36.7 -25.5 1.2 -15.1 -18.6 51.1 61.7 27.6 -68.0 63.4 90.4 'I'otal expenditures 933.1 1,045.7 1,195.1 1,507.9 1,709.5 1,803.7 2,100.1 2,636.2 3,531.4 4,598.8 5735.7 l'otal consumption 594.5 661.1 762.9 958.4 1,100.0 1,159.3 1,348.4 1,672.6 2,031.6 2,739.6 3377.0 General govemment 118.4 136.7 149.0 172.7 203.3 225.2 283.0 349.2 450.0 598.6 712.3 Non-govemment 476.1 524.4 613.9 785.7 896.7 934.2 1,065.3 1,323.4 1,581.6 2,141.0 2664.7 Statistical discrepancy 17.2 6.9 17.8 22.4 44.3 22.8 33.7 77.4 13.4 18.0 -119.2 Gross domestic investment 338.6 384.6 432.2 549.5 609.5 644.4 751.7 963.6 1,499.8 1,859.2 2358.7 Gross domestic fixed investment 264.1 309.8 374.2 462.4 433.9 473.2 594.0 831.7 1,298.0 1,685.6 2055.4 Nonfinancial public sector 168.1 197.9 229.8 276.3 253.5 291.9 362.8 527.4 765.8 961.6 1089.8 Non-State sector 96.0 112.0 144.4 186.1 180.4 181.3 231.2 304.3 532.2 724.0 965.6 Changes in stocks - 74.5 74.8 58.0 87.1 175.6 171.2 157.7 131.9 201.8 173.6 303.3 Gross domestic saving 301.9 359.1 433.4 534.4 591.0 695.5 813.4 991.2 1,431.8 1,922.6 2449.1 Net factor income 2.5 -0.1 -0.8 -0.6 0.9 5.0 4.5 1.4 -7.4 -8.9 -98.3 Net current transfers 0.5 0.9 0.9 1.5 0.9 1.1 2.4 4.4 5.1 7.2 11.7 Gross national saving 304.9 359.9 433.5 535.3 592.7 701.6 820.2 997.0 1,429.5 1,920.9 2362.4 Net indirect taxes 94.2 93.2 93.4 104.9 125.5 133.1 161.3 187.9 295.9 362.0 446.2 Indirect taxes 144.9 151.4 160.4 181.2 222.8 229.1 249.6 264.6 367.0 430.0 517.4 Subsidies 50.7 58.2 67.0 76.3 97.3 96.0 88.3 76.7 71.1 68.0 71.2 Gross national product 898.9 1,020.1 1,195.5 1,492.2 1,691.8 1,859.8 2,166.3 2,665.2 3,456.1 4,653.3 5727.7 Nominal official exchange rate (annual average) 2.94 3.45 3.72 3.72 3.77 4.78 5.32 5.51 5.76 8.62 8.35 GDP at market price (current million US$) 304,912 295,716 268,217 307,167 342,291 354,644 376,617 418,181 431,797 540,944 697614 Source: China Statistical Yearbook 9196, pp.42,46 Table 2: National Accounts (billions of yuan, in constant 1990) prices) 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 GDP at market prices 1,270.2 1,381.9 1,542.2 1,716.5 1,786.9 1,854.8 2,025.4 2,313.0 2,625.3 2,956.1 3266.5 Net indirect taxes 133.5 126.2 120.4 120.6 132.6 133.1 151.1 163.2 224.3 229.5 250.2 GDP at tactor cost .. . .. .. . .. .. Agrictilture 409.1 422.6 442.4 453.5 467.6 501.7 513.7 537.9 563.2 585.7 615.0 Industry 502.2 553.4 629.2 720.4 747.8 771.7 879.0 1,065.4 1,277.4 1,512.4 1725.7 Mining and quarrying 14.1 17.1 18.0 20.1 22.8 24.7 27.1 30.6 35.6 42.1 49.9 Manufacturing 412.3 446.4 503.0 582.5 610.9 623.4 709.4 854.4 1,002.2 1,186.2 1343.5 Services, etc. 358.9 406.0 470.6 542.6 571.5 581.4 632.7 709.8 784.8 858.0 925.8 Importsofgoods&non-factorservices 252.1 218.5 199.8 238.5 256.4 223.4 258.9 332.2 433.6 473.9 497.4 Exportsofgoods&non-factorservices 156.3 182.5 202.8 228.3 244.5 274.5 316.7 365.3 399.0 510.9 559.9 Resource balance -95.8 -36.0 3.0 -10.2 -11.9 51.1 57.8 33.1 -34.6 37.0 62.5 T'otal expenditures 1,366.0 1,417.9 1,539.2 1,726.7 1,798.8 1,803.7 1,967.7 2,280.0 2,659.9 2,919.1 3204.0 'I'otal consumption, etc. 886.2 896.9 982.0 1,094.9 1,154.7 1,159.3 1,263.4 1,489.6 1,673.8 1,829.0 1905.5 General government 181.7 187.5 196.4 202.6 222.9 225.1 271.6 326.2 373.3 402.4 388.7 Non-govemnment 704.5 709.5 785.6 892.3 931.8 934.2 991.7 1,163.4 1,300.5 1,426.6 1516.8 Gross domestic investment /a 479.8 521.0 557.2 631.8 644.1 644.4 704.3 790.4 986.1 1,090.1 1298.5 Gross domestic fixed investment /a 374.2 419.6 482.4 531.7 458.5 473.2 556.5 675.8 833.1 980.0 1128.4 Nonfinancial public sector/a 237.8 267.7 295.8 317.1 267.5 291.9 339.8 458.1 580.2 609.3 611.5 Non-State sector/a 136.4 151.9 186.6 214.5 191.0 181.3 216.7 217.7 252.9 370.7 516.9 Changes in stocks 105.6 101.3 74.8 100.2 185.6 171.2 147.8 114.5 153.0 110.1 170.0 Net factor income 2.0 -1.6 -3.2 -3.6 -2.0 5.0 3.7 2.1 -6.8 -7.7 -52.7 Netcurrenttransfers 0.7 1.2 1.2 1.8 0.9 1.1 2.2 3.8 3.8 4.6 6.5 Grossnationalproduct 1,272.2 1,380.3 1,539.0 1,712.9 1,784.9 1,859.8 2,029.1 2,315.2 2,618.5 2,948.4 3213.8 Grossdomesticsaving '406.2 483.7 558.6 614.3 622.5 695.5 759.6 812.9 934.1 1,121.3 1338.2 Gross national saving 409.0 483.3 556.6 612.5 621.4 701.6 765.4 818.9 931.1 1,118.2 1292.0 Capacity to import 178.6 181.3 201.2 221.0 234.8 274.5 314.2 354.7 381.5 505.2 537.2 l'ermsoftradeadjustment 22.3 -1.3 -1.6 -7.3 -9.7 0.0 -2.5 -10.6 -17.4 -5.8 -22.7 Gross domestic income 1,292.4 1,380.7 1,540.7 1,709.2 1,777.2 1,854.8 2,022.9 2,302.5 2,607.9 2,950.3 3243.7 Gross national income 1,294.4 1,379.0 1,537.4 1,705.6 1,775.1 1,859.8 2,026.6 2,304.6 2,601.0 2,942.6 3191.0 /a In the absence of an official fixed investment deflator, the real investment numbers are derived by employing the GDP deflator until 1991. Ihercalter the lixed investment deflalor is employed (China Statistical Yearbook, p 272) Source: China Statisrical Yearbook 1996, pp42.46 Table 3: National Accounts (implicit price deflators, 1990=100) 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 GDPat market prices 70.6 73.8 77.6 87.0 94.6 100.0 106.7 115.2 131.9 157.7 178.4 Net indirect taxes 70.6 73.8 77.6 87.0 94.6 100.0 106.7 115.2 131.9 157.7 178.4 GDP at factor cost Agriculture 62.1 65.4 72.4 84.5 90.4 100.0 102.9 107.8 122.2 161.5 195.0 Industry 77.0 81.2 83.5 91.4 97.3 100.0 103.6 109.8 128.6 147.9 163.3 Mining and quarrying 77.0 81.2 83.5 91.4 97.3 100.0 103.6 109.8 128.6 147.9 163.3 Manufacturing 77.0 81.2 83.5 91.4 97.3 100.0 103.6 109.8 128.6 147.9 163.3 Services, etc. 71.2 72.6 74.5 83.1 94.5 100.0 114.2 128.8 144.3 172.4 195.4 Imports of goods & non-factor services 49.9 68.6 80.8 86.2 85.8 100.0 111.6 122.5 130.7 202.9 227.2 Exports of goods& non-factor services 57.0 68.1 80.2 83.4 82.4 100.0 110.7 119.0 125.0 200.6 218.0 Terms oftrade (Px/Pm) 114.2 99.3 99.2 96.8 96.0 100.0 99.2 97.1 95.6 98.9 95.9 Iotal expenditures 68.3 73.8 77.6 87.3 95.0 100.0 106.7 115.6 132.8 157.5 179.0 Total consumption, etc. 67.1 73.7 77.7 87.5 95.3 100.0 106.7 112.3 121.4 149.8 177.2 General government 65.2 72.9 75.9 85.3 91.2 100.0 104.2 107.1 120.6 148.8 183.2 Non-government 67.6 73.9 78.1 88.1 96.2 100.0 107.4 113.8 121.6 150.1 175.7 Gross domestic investment 70.6 73.8 77.6 87.0 94.6 100.0 106.7 121.9 152.1 170.6 181.7 Gross domestic fixed investment /a 70.6 73.8 77.6 87.0 94.6 100.0 106.7 123.1 155.8 172.0 182.1 Nonfinancial public sector 70.7 73.9 77.7 87.1 94.8 100.0 106.8 115.1 132.0 157.8 178.2 Non-State sector 70.4 73.7 77.4 86.8 94.4 100.0 106.7 139.8 210.4 195.3 186.8 Changes in stocks 70.6 73.8 77.6 87.0 94.6 100.0 106.7 115.2 131.9 157.7 178.4 Net factor income 123.7 4.9 24.9 16.8 42.7 100.0 122.3 64.3 108.3 116.3 186.5 Netcurrenttransfers 68.3 73.8 77.6 87.3 95.0 100.0 106.7 115.6 132.8 157.5 179.0 Gross national product 70.7 73.9 77.7 87.1 94.8 100.0 106.8 115.1 132.0 157.8 178.2 Gross domestic saving 74.3 74.2 77.6 87.0 94.9 100.0 107.1 121.9 153.3 171.5 183.0 Gross national saving 74.6 74.5 77.9 87.4 95.4 100.0 107.2 121.8 153.5 171.8 182.8 /a In the absence of an official fixed investment deflator, thereal investment numbers are derived by employing the GDP deflator until 1991. Thereafter the fixed investment deflator is employed. ( China Statistical Yearbook, p. 272) Source: Table I divided by Table 2 Table 4: National Accounts (percentage growth rates in constant 1990 prices) 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 GDP at market prices 13.5 8.8 11.6 11.3 4.1 3.8 9.2 14.2 13.5 12.6 10,5 Net indirect taxes .. .. .. .. .. .. .. (iGID at factor cost Agriculture 1.8 3.3 4.7 2.5 3.1 7.3 2.4 4.7 4.7 4.0 5.0 Industry 18.6 10.2 13.7 14.5 3.8 3.2 13.9 21.2 19.9 18.4 14.1 Mining and quarrying 13.9 21.2 5.1 11.7 13.4 8.4 9.7 13.2 16.3 Manufacturing 18.1 8.3 12.7 15.8 4.9 2.0 13.8 20.4 17.3 18.4 13.3 Services, etc. 22.2 13.1 15.9 15.3 5.3 1.7 8.8 12.2 10.6 9.3 7.9 Importsofgoods& non-factorservices 53.7 -13.3 -8.6 19.4 7.5 -12.9 15.9 28.3 30.5 9.3 5.0 Exports ofgoods& non-factor services 7.6 16.8 11.1 12.6 7.1. 12.3 15.4 15.3 9.2 28.1 9.6 Resource balance .. .. .. .. .. .. .. .. Total expenditures 20.0 3.8 8.6 12.2 4.2 0.3 9.1 15.9 16.7 9.7 9.8 Iotal consumption, etc. 17.7 1.2 9.5 11.5 5.5 0.4 9.0 17.9 12.4 9.3 4.2 General government 11.2 3.2 4.8 3.1 10.0 1.0 20.7 20.1 14.4 7.8 -3.4 Non-government 19.6 0.7 10.7 13.6 4.4 0.3 6.2 17.3 11.8 9.7 6.3 Gross domestic investment 24.5 8.6 7.0 13.4 1.9 0.0 9.3 12.2 24.8 10.5 19.1 (iross domestic fixed investment 12.8 12.1 15.0 10.2 -13.8 3.2 17.6 21.4 23.3 17.6 15.1 Nonfinancial public sector 28.6 12.6 10.5 7.2 -15.7 9.1 16.4 34.8 26.7 5.0 0.4 Non-State sector -7.1 11.4 22.8 15.0 -11.0 -5.1 19.5 0.5 16.2 46.6 39.4 Changes in stocks 97.2 4.0 -26.2 33.9 85.3 -7.7 -13.7 -22.5 33.6 -28.0 54.5 Net factor income .. .. .. .. .. .. .. .. .. Net current transfers .. .. .. .. .. .. .. .. .. Gross national product 13.2 8.5 11.5 11.3 4.2 4.2 9.1 14.1 13.1 12.6 9.0 Grossdomesticsaving 5.4 19.1 15.5 10.0 1.3 11.7 9.2 7.0 14.9 20.0 19.3 Gross national saving 4.5 18.2 15.2 10.0 1.5 12.9 9.1 7.0 13.7 20.1 15.5 Capacity to import .. .. .. .. .. .. .. .. .. .. Terms of trade adjustment .. .. .. .. .. .. .. .. .. .. Gross domestic income 13.5 6.8 11.6 10.9 4.0 4.4 9.1 13.8 13.3 13.1 9.9 Gross national income 13.3 6.5 1 I.5 10.9 4.1 4.8 9.0 13.7 12.9 13.1 8.4 Source: 'rable 2 Table 5: Balance of Payments (billions of US dollars) 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 Exportsofgoodsandnon-factorservices 28.2 296 391 459 47.8 573 658 788 865 1188 1472 1537 Merchandise (fob) 25.1 25 8 34.7 41 1 43 2 515 58 9 69 6 75 7 102.6 1281 128 5 Non-factorservices 31 38 44 4.8 46 58 69 9.2 109 163 19.1 25.2 Importsofgoodsand non-factorservices 41 1 375 389 500 527 466 543 738 98.3 1115 1353 1413 Merchandise(fob) 382 349 364 464 488 424 502 644 863 95.3 1101 1146 Non-factorservices 29 26 25 36 39 43 41 94 120 162 25.2 26.7 Resource balance -13 0 -7 9 02 -4 1 -5 0 10 7 11 5 5 0 -11.8 7 3 12 0 12 4 Netfactor income 09 02 -02 -0.1 03 10 09 03 -13 -10 -118 -10.4 Factorreceipts 15 1 1 10 I5 19 31 38 57 44 59 52 74 Factorpayments 05 09 12 16 17 21 2.9 54 57 69 170 178 TIotal interest due 1 2 11 1 8 2.2 3 2 31 3 7 3.4 3 4 4 8 6.0 Other lactor payments & disc -0 6 -01 -0 6 -0 6 -I 5 -I I -0 8 2 0 2 3 21 11 0 17 8 Net current transfers 02 03 0.2 04 02 02 04 08 0.9 0.8 08 16 Current receipts 0.2 0.3 0.3 04 02 0.2 0.5 0 8 09 1.1 1 2 Workersremittances 02 02 0.2 0.1 01 01 0.2 0.2 01 04 0.4 Other current transfers 0 0 01 01 0.3 02 01 03 0 6 0 8 0 7 0 8 Current payments 0.0 00 0 0 0.0 00 0.0 0 0 0 0 0 0 0.3 0.4 Current account balance before official grants -11 9 -7 5 03 -3.8 -4 5 119 12 9 6 1 -12 2 7 2 1 0 3 6 CurrentaccountbalanceasashareofGDP(percent) -3.9 -2.5 01 -12 -13 34 3.4 14 -28 1.3 01 0.5 Official capitalgrants 0 1 01 0.0 00 01 01 04 0.4 0.3 0.5 0.6 0.3 Current account balance afler official grants -11 8 -7 3 03 -3.8 -4 3 12 0 13 3 6.4 -11 9 7 7 1.6 3.9 Longtermcapital inflows 50 63 7.8 91 87 90 8.0 184 359 416 467 399 Directinvestmnent 10 14 17 23 2.6 27 35 72 23.1 318 338 388 Netlongtefnborrowing 40 49 6.1 6.8 61 63 45 11.3 128 98 12.9 1 1 Disbursements 53 67 80 91 8.4 97 87 165 19.6 162 220 Repayments due 1 3 1.9 2.0 23 24 33 4.1 5 2 6 7 6 3 91 I otal other items (net) 4 4 -1 0 -3 3 -2 9 -4 9 -9 0 -6 7 -26.9 -22.3 -18.8 -25 9 -12 2 Netshon-termcapital 23 -23 02 0.1 -15 -32 04 -0.9 -39 -31 04 0.1 Capital flows not elsewhere included 0.0 00 00 00 00 -2.6 -0 3 -17.8 -8.5 -5.8 -8 5 2.4 Errors and omissions 2 1 1 3 -3 5 -3 0 -3 3 -3 2 -6 8 -8 2 -9 8 -9 8 -17 8 -14.7 Changes in net reserves 2 4 20 -4.8 -2.4 05 -12 0 -14 5 2.1 -1 8 -30.5 -22.5 -31 6 Net credit from IMF 0.0 0 7 01 0 0 00 -0 4 -0 4 0.0 0 0 0 0 00 0.0 Reserve changes not elsewhere sncluded 2.4 1.3 -4.9 -2 3 05 -11 6 -14 1 2 1 -1.8 -30.5 -22.5 -31 6 Escrow account 0 0 00 0.0 00 00 00 00 0.0 00 00 0.0 0.0 Grossreserves(excludinggold)/a .127 11.5 16.3 185 18.0 296 437 206 224 52.9 754 1077 Gross reserves (includtnggold) /b 16.9 164 225 23.8 23.1 345 483 25.0 27.0 57.8 80.3 Exchange rates. Nominal official exchange rate (average) 2 9 35 3 7 3 7 38 48 5 3 5.5 5.8 8.6 84 8.3 Nominal official exchange rate (end-of-year) 3.2 3.7 3 7 3 7 4.7 5 2 5.4 5.8 5.8 8 4 8.3 8.3 Manufactures Unit Value Index (% change) 0 8 179 9.8 7.3 -07 78 2.2 4 3 -0.3 3.7 8.3 -2.5 Real effective exchange rate tndex 636 463 402 437 50.7 373 324 31.3 30.7 33.5 35.3 370 /4 Since Aoigant 1992 die aritionties have defii.ed gross uaernational reserves a. tIh seao aloy saale roreegn exchange reserves (not total reservsa). gold, reserve mrosato le, a. d and Sl)R holdingsM /b Gold valued ai London prices (Sonree IFS) Sour.e World Bank. ME IMSernasanalFinancia.Siest Table 6: Services (millions of US dollars) 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 A. Shipment of freight Credit 671 705 904 1,308 1,061 1,937 1,179 1,294 1,391 2,065 2,478 Debit 1,224 850 1,186 1,387 2,382 2,139 2,193 3,876 5,134 6,926 8,727 B1 Insurance Credit 196 229 252 345 332 227 342 486 452 1,700 1,852 Ikbit 69 82 142 214 187 84 214 274 362 1.880 4,273 C Other transportation Credit 271 304 152 169 153 480 494 0 0 0 0 Debit 0 0 0 0 0 0 0 0 0 0 0 1) I'ort expenses Credit 360 306 289 304 300 289 338 368 245 760 874 910 Debit 300 670 456 889 370 1,106 314 449 345 695 799 910 E Travel receipts Credit 979 1,227 1,693 2,078 1,707 1,738 2,346 3,530 4,683 7,323 8,730 10,200 Debit 314 308 387 633 429 470 511 2,512 2,797 3,036 3,688 4,430 F Profits Credit 6 0 10 0 6 0 0 0 0 0 1 0 Debit 14 15 2 8 7 46 10 21 231 400 9,965 10,960 G. Interest Credit 484 216 177 427 247 667 747 610 535 928 1,104 1,870 Debit 68 298 457 644 394 480 870 1,890 2,079 2,506 3,150 2,940 H. Bank interest and charges Credit 897 685 789 1,042 1,641 2,350 2,972 4,985 3,855 4,809 4,086 5,560 Debit 464 611 732 978 1,264 1,536 1,999 3,436 3,364 3,868 3,850 3,900 1. Posts Credit 13 15 12 24 118 159 221 349 471 706 756 Debit 7 15 14 11 16 13 15 72 85 146 217 J Interofficial Credit 130 215 204 137 151 107 115 141 201 266 700 Debit 263 251 150 277 337 239 184 227 473 518 588 K l.abor income Credit 91 199 51 35 53 52 74 60 47 117 Dcbit 0 0 0 0 0 0 0 20 22 98 1. Other services Credit 435 940 8S0 45S 727 866 1,870 2,604 3,409 3,429 3,740 Debit 347 100 150 193 189 291 689 2,004 2,818 3,000 6,931 M Total services Net 1,069 1,427 1,737 1,094 923 2,558 3,697 63 -2,421 -969 -17,868 -11,880 Credit 4,533 4,927 5,413 6,327 6,497 8,872 10,697 14,844 15,289 22,104 24,321 32,630 Debit 3,464 3,500 3,676 5,233 5,574 6,314 7,000 14,781 17,710 23,073 42,189 44,510 N factor Services (F+G+II+K) Net 932 176 -164 -126 282 1,007 914 288 -1,259 -1,018 -11,774 -10,370 Receipts (credit) 1,478 1,100 1,027 1,504 1,947 3,069 3,793 5,655 4,437 5,854 5,191 7.430 Payments (debit) 546 924 1,191 1,630 1,665 2,062 2,879 5,367 5,696 6,872 16,965 17,800 0. Non-factor services (A+B+C+D+E+1+L) Nct 137 1,251 1,901 1,220 641 1,551 2,783 .225 -1,162 49 -6,094 -1,510 Receipts (credit) 3,055 3,827 4,386 4,823 4,550 5,803 6,904 9,i89 10,852 16,250 19,130 25,200 Payments (debit) 2,918 2,576 2,485 3,603 3,909 4,252 4,121 9,414 12,014 16,201 25,224 26,710 So.,,r Word Bank; tF Il frio-i .al FiaF,diilSfafi,tlk, Table 7: Transfers (millions of US dollars) 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 Private unrequited transfers Net 171 255 249 416 238 222 444 804 883 836 810 1,580 Credit 180 266 260 428 247 233 484 821 901 1,095 1,170 Debit 9 11 11 12 9 11 40 17. 18 259 360 Nonresidential remittances Net 177 205 163 125 73 119 189 213 93 376 350 Credit 180 208 166 129 76 124 207 228 108 395 350 Debit 3 3 3 4 3 5 18 15 15 19 0 Migrants' transfers Net -6 50 86 291 165 103 255 591 790 460 460 Credit 0 58 94 299 171 109 277 593 793 700 820 Debit 6 8 8 8 6 6 22 2 3 240 360 Public unrequited transfers Net 73 124 -25 3 143 52 387 351 289 501 625 300 Credit 260 250 129 140 230 143 406 385 389 674 657 Debit 187 126 154 137 87 91 19 34 100 173 32 International organizations Net 21 96 24 42 82 69 183 139 127 121 154 Credit 63 140 58 61 120 84 192 173 160 144 186 Dcbit 42 44 34 19 38 15 9 34 33 23 32 Grants and aid Net 52 28 49 -39 61 -17 204 212 162 380 471 Credit 197 110 71 79 110 59 214 212 229 530 471 Debit 145 82 120 118 49 76 10 0 67 150 0 Total transfers Net 243 379 224 419 381 274 831 1,155 1,172 1,337 1,435 1,880 Credit 439 516 389 568 477 376 890 1,206 1,290 1,769 1,827 Debit 196 137 165 149 96 102 59 51 118 432 392. Source: World Bank, IMF: International Finan,ial Stahshcs Table 8: International Reserves (millions of US dollars) 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 lotal reserves (minus gold) 12,728 11,453 16,305 18,541 17,960 29,586 43,674 20,620 22,387 52,914 75,377 107,652 S)R's 483 569 640 586 540 562 577 419 484 539 582 614 Reserve position with Fund 332 370 429 407 398 430 433 758 704 755 1,216 1,396 Foreign exchange reserves 11,913 10,514 15,236 17,548 17,022 28,594 42,664 19,443 21,199 51,620 73,579 10,500 Gold Gold(millionfinetroyounces) 13 13 13 13 13 13 13 13 13 13 13 Gold (National valuation) /a 486 541 629 594 587 623 634 610 612 646 660 637 London gold price(US$ per oz) /b 327 391 484 410 401 384 362 343 360 384 384 388 Gold at London price (US$ million) 4,153 4,964 6,148 5,210 5,093 4,871 4,600 4,361 4,569 4,880 4,879 Total reserves including gold 13,214 11,994 16,934 19,135 18,547 30,209 44,308 21,230 22,999 53,560 76,037 108,289 (National valulation) 'Iotal reserves including Gold 16,881 16,417 22,453 23,751 23,053 34,457 48,274 24,981 26,956 57,794 80,256 (London price) /a From August 1992 onwards the authorities have defined gross intemational reserves as the sum of only state foreign exchange rescrves (not total reserves), gold, reserve position with the Fund and SDR holdings. /b Gold valued at SDR 35 per fine ounce. Source: World Bank, M.F: Intenational Financial Statistics. Table 9: Commodity Composition of Merchandise Exports (millions of US dollars, customs basis) 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 IPRIMARY (()Ol)S 13,828 11,272 13,231 14,406 15,078 15,886 16,145 17,004 16,666 19,708 21,487 FO(X)) 3,803 4,448 4,781 5,890 6,145 6,609 7,226 8,309 8,399 10,015 9,954 Live animals chiefly for food 304 338 348 386 395 430 439 479 453 468 503 Meat and meat products 448 483 520 585 657 791 906 770 950 909 1,371 Fishes, shell-fish, molluscsetc. 283 491 721 969 1,039 1,370 1,181 1,366 1,254 2,320 2,853 Grain and grain products 1,065 898 579 681 719 614 1,169 1,692 1,660 1,687 285 Vegetables and fruits 825 1,092 1,290 1,617 1,623 1,742 1,946 2,023 2,163 2,889 3,342 Coffee, tea, cocoa etc. 435 466 488 524 568 534 491 499 510 484 516 NON-FOOD 2,653 2,908 3,650 4,257 4,212 3,537 3,486 3,143 3,052 4,127 4,375 Oil seeds and oil-containing fruits 487 580 674 684 645 619 741 867 793 666 522 Textile fibers etc. 1,145 1,160 1,508 1,672 1,546 1,095 1,125 4,224 4,179 1,093 753 Animal and vegetable raw materials 398 486 645 724 845 809 705 606 617 1,136 1,351 MINERAL FUELS 7,132 3,683 4,544 3,950 4,321 5,237 4,754 4,693 4,109 4,069 5,335 Coal, coke and briquettes 349 455 536 594 680 755 829 .. .. 1,054 1,695 Petroleum, petroleum products etc. 6,777 3,224 4,003 3,350 3,633 4,460 3,975 .. .. 2,789 3,243 ()1III:R 240 233 256 309 400 503 679 859 1,106 1,497 1,823 MANUFACIURED GOODS 13,522 19,670 26,206 33,110 37,460 46,205 55,698 67,936 75,078 101,298 127,283 CHEMnICALS AND RELATED PRODUCTS 1,358 1,733 2,235 2,897 3,201 3,730 3,818 4,348 4,623 6,236 9,094 Organic 309 411 500 575 690 838 911 1,403 1,541 1,602 2,285 Inorganic 287 379 553 762 791 842 913 1,050 1,145 1,350 2,225 I.IGI I' INDUSTRY 4,493 5,886 8,570 10,489 10,897 12,576 14,456 16,135 16,392 23,218 32,243 Yam, fabrics, manufactured goods etc. 3,243 4,220 5,790 6,456 6,994 6,999 7,734 .. 11,818 13,919 Non-metallic minerals 227 317 439 579 792 1,316 1,668 .. . 2,521 3,425 Metal products 426 553 797 1,006 1,210 1,283 1,669 .. .. 1,654 5,225 MACIINERY AND)'RANSPORT EQUIPMENT 772 1,094 1,741 2,769 3,874 5,588 7,149 13,219 15,282 21,895 31,391 O'ITHER 3,486 4,948 6,273 8,268 10,755 12,686 16,620 34,234 38,781 49,937 54,548 Clothing and garments 2,050 2,913 3,749 4,872 6,130 6,848 8,998 16,883 18,325 23,732 24,049 PROD)UCTS NOr CLASSIFIED ELSEWHERE 3,413 6,009 7,387 8,687 8,733 11,625 13,655 .. 12 7 lTOAL. 27,350 30,942 39,437 47,516 52,538 62,091 71,843 84,940 91,744 121,006 148,770 Noie Data from 1985-91 awe based on Standard Industrial Trade Classificaton (SITC); 1992-95 categories are based on the Hamfonized System (HS) From 1992, Customs Statistics use new commodity catagones; products not otherwise classified have beeii included ua different categones ofcommodities. Source China Srate,ncl Y earbook 1996, p 581. Table 10: Imports (millions of US dollars, customs basis) 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 FOOD 1,881 2,002 3,055 4,191 5,269 4,474 3,718 3,907 2,953 5,014 9,126 Food 1,553 1,625 2,443 3,476 4,192 3,335 2,799 3,143 2,206 3,137 6,131 13cvcrages 206 172 263 346 202 157 200 239 245 68 394 Animal fat 122 205 349 369 875 982 719 525 502 1,809 2,601 PETROLEUM (Mineral fuels) 172 504 539 787 1,650 1,272 2,113 3,570 5,819 4,035 5,127 IN'I'ERMEDIAI'E 19,175 17,552 16,769 23,391 23,415 18,325 23,189 34,237 40,042 43,955 52,066 Chemicals and related products 4,469 3,771 5,008 9,139 7,556 6,648 9,277 11,157 9,704 12,130 17,300 Crude materials (non-food) 3,236 3,143 3,321 5,090 4,835 4,107 5,003 5,775 5,438 7,437 10,158 Leather and Cork 770 851 728 842 747 938 1,267 1,626 1,859 2,943 3,020 Leather .. .. 184 224 280 374 642 206 263 1,902 1,993 Cork .. 544 618 467 564 625 1,420 1,596 1,041 1,027 I'cxtile yarn (yarn, fabrics etc.) 1,607 1,632 1,848 2,388 2,845 2,748 3,689 3,690 3,145 9,347 10,914 Non metallic minerals 325 363 342 430 520 453 443 4,519 3,776 1,001 1,113 Iron and steel 7,120 6,741 4,787 4,624 5,797 2,852 2,694 5,051 13,896 9,438 6,878 Non-ferrous metals 1,648 1,051 735 878 1,114 579 816 2,420 2,224 1,659 2,683 CONSUJMER GOODS 2,330 2,431 1,743 1,757 1,866 2,051 2,506 7,949 8,666 6,987 8,277 Paper (paper and related products) 428 554 727 610 634 745 969 1,771 1,741 1,923 2,157 Rubber 1,902 1,877 45 51 50 50 76 555 598 186 224 Furniture .. .. 42 61 68 72 49 178 218 111 90 Travel goods .. . 3 8 6 6 7 302 327 50 42 Clothing .. .. 17 28 38 48 61 437 543 622 969 Footwear . .. 1 2 3 9 11 506 513 325 341 Photo supplies .. .. 432 365 398 361 441 2,024 2,320 1,656 1,861 Miscellaneous .. .. 476 .632 669 759 892 2,177 2,407 2,114 2,592 MANUFACIIURED 18,694 20,415 21,110 25,150 26,940 27,223 32,264 30,922 46,479 55,624 57,481 Total 42,252 42,904 43,216 55,275 59,140 53,345 63,791 80,585 103,959 115,614 132,078 Note Data from 1985-91 are based on Standard Industrial Trade Classification (SITC), 1992-95 categories are based on the Harmonized System (HS). Source China Statistical Yearbook 1996, p. 581 Table 11: External Debt: Disbursements and Repayments (millions of US dollars) 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 DIS13tJRSEMENTS Public & publicly guaranted long-tern debt 5,280 6,732 8,044 9,065 8,442 9,665 8,659 16,308 19,229 16,151 21,411 Official creditors 1,166 1,444 1,123 1,847 2,761 2,578 2,649 3,103 5,501 4,200 8,373 Multilateral 599 620 717 1,124 1,169 1,158 1,455 1,523 2,252 2,558 2,838 of which ]DA 212 282 399 557 507 507 612 778 869 680 812 of which ]BRD 354 324 303 553 604 591 668 552 977 1,380 1,457 Bilateral 567 824 405 724 1,592 1,420 1,194 1,580 3,248 1,642 5,535 Private creditors 4,114 5,288 6,921 7,218 5,681 7,087 6,010 13,204 13,729 11,951 13,038 Bonds 971 1,333 1,064 782 450 277 260 894 2,737 3,337 1,224 Commnercial banks 700 1,782 4,605 4,470 2,016 3,247 2,623 5,062 5,624 2,380 4,977 Other private 2,443 2,172 1,252 1,967 3,206 3,564 3,127 7,248 5,368 6,234 6,837 Private non-guaranteed long-term 0 0 0 0 0 0 0 198 332 0 544 Total long-tecrn disbursements 5,280 6,732 8,044 9,065 8,442 9,665 8,659 16,505 19,561 16,151 21,955 IMF purchases 0 701 0 0 0 0 0 0 0 0 0 Net short-term capital Total disbursements 5,280 6,732 8,044 9,065 8,442 9,665 8,659 16,505 19,561 16,151 21,955 REPAYMEINT DUE Public & publicly guaranteed long-term debt 1,297 1,874 1,956 2,285 2,365 3,319 4,123 5,213 6,729 6,343 9,070 Official creditors 49 279 496 492 485 851 605 760 886 1,083 1,171 Multilateral 0 2 99 41 63 220 141 215 272 359 420 of which DA 0 0 0 0 0 0 1 2 4 9 14 of whichlBRD 0 0 97 39 62 216 130 196 245 315 350 Bilateral 49 277 397 451 421 632 464 545 614 725 761 l'rivate creditors 1,248 1,595 1,460 1,793 1,880 2,468 3,517 4,453 5,843 5,260 7,899 13onds 0 0 0 11 33 325 236 1,095 831 461 1,451 (Commercial banks 77 331 466 754 867 808 2,010 2,046 2,895 1,803 2,645 Other private 1,171 1,264 993 1,028 980 1,335 1,272 1,311 2,117 2,996 3,803 Private non-guranteed long-term debt 0 0 0 0 0 0 0 0 0 0 0 Total long-term repayments due 1,297 1,874 1,956 2,285 2,365 3,319 4,123 5,213 6,729 6,343 9,070 IMF repurchases 0 36 81 83 79 490 451 0 0 0 0 Total long-term repayment & IMF repurchase 1,297 1,910 2,037 2,368 2,444 3,809 4,574 5,213 6,729 6,343 9,070 NET FLOWS Official creditors 1,117 1,165 626 1,355 2,277 1,727 2,044 2,343 4,615 3,117 7,202 ofwhich IDA 212 282 399 557 507 507 611 777 865 671 798 of which 1BRD 354 324 206 514 542 376 538 357 732 1,065 1,107 COMII'MENTS IBRD commitments 660 672 692 868 1,221 75 1,312 1,253 1,445 2,930 2,495 of which fast disbursing 0 0 0 200 0 0 0 0 0 0 0 ODA commitments 433 448 613 594 539 878 1,310 612 870 1,090 355 of which fast disbursing 0 0 0 97 0 0 0 0 0 0 0 Sour-e World H.1k WorldDabTbl-s Tablc 12: External Debt: Interest and Debt Outstanding ( millions of US dollars) 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 INI'EREST DUE PubEc & publicly guaranteed long-term debt 586 645 1,125 1,611 2,511 2,534 2,953 2,708 2,618 3,818 4,623 Oflicial creditors 172 262 402 434 457 531 635 678 827 1,131 1,288 Multdateral 30 76 126 143 179 226 263 319 376 480 619 of whichlDA 4 8 12 15 14 19 23 29 34 41 49 of which IBRO) 26 66 111 126 161 200 227 264 299 364 460 Bilateral 142 187 276 290 278 305 372 358 450 651 669 Private creditors 414 382 723 1,178 2,054 2,003 2,319 2,030 1,792 2,687 3,336 Bonds 20 91 213 289 347 367 356 337 286 363 594 Commercial banks 50 67 137 457 1,062 959 1,071 776 738 1,034 1,333 Other private 343 225 373 432 646 677 891 918 767 1,289 1,408 Private non-guaranteed long-term debt 0 0 0 0 0 0 0 0 12 26 33 Interest arrears 0 0 0 0 0 0 0 0 0 0 0 Reduction in afears(-) 0 0 0 0 0 0 0 0 0 0 0 'rotal long-term interest due 586 645 1,125 1,611 2,511 2,534 2,953 2,708 2,630 3,844 4,657 IMF servce charges 2 2 50 51 67 65 24 0 0 0 0 Interest on short-term debt 594 417 640 534 628 547 707 697 809 948 1,340 Iotal interest due 1,181 1,064 1,815 2,197 3,206 3,146 3,684 3,405 3,439 4,792 5,997 DEBT IOUT STANDING AND DISBURSED (DOD) Publc & publicly guaranteed long-term debt 9,937 16,571 25,963 32,620 37,118 45,515 49,479 58,463 70,076 82,391 94,674 Official creditors 4,724 7,028 9,496 10,536 12,039 14,514 17,073 19,105 24,339 28,973 36,282 Multilateral 983 1,810 2,852 3,753 4,783 6,111 7,576 8,614 10,690 13,588 16,302 ofwhich IDA 431 774 1,330 1,819 2,296 3,016 3,672 4,286 5,160 6,097 7,038 of which IBRD 498 965 1,427 1,831 2,330 2,865 3,494 3,752 4,549 5,933 7,209 Bilateral 3,741 5,218 6,644 6,783 7,257 8,403 9,497 10,491 13,650 15,385 19,980 'rivate creditors 5,213 9,544 16,467 22,085 25,079 31,001 32,406 39,358 45,737 53,418 58,393 Bonds 1,234 2,811 4,498 5,182 5,228 5,425 5,660 5,449 7,715 11,087 10,684 Conmuercial banks 776 1,780 6,087 10,393 11,432 14,520 14,963 17,913 20,678 21,475 23,869 Other private 3,203 4,953 5,882 6,509 8,419 11,055 11,783 15,995 17,344 20,856 23,840 Private non-guaranteed long-tenm 0 0 0 0 0 0 0 200 556 583 1,090 lotal long-term DOD 9,937 16,571 25,963 32,620 37,118 45,515 49,479 58,663 70,632 82,974 95,764 Use of MI; credit 340 1,072 1,155 1,013 908 469 0 0 0 0 0 Short-term debt 6,419 6,076 8,221 8,806 6,907 9,317 10,780 13,765 15,296 17,483 22,325 lotal cxternal debt 16,696 23,719 35,340 42,439 44,932 55,301 60,259 72,428 85,928 100,457 118,089 MEMORANDUM Tl'EMS %Debt on concessional terms 25 22 20 19 21 21 21 20 19 19 18 % Debt at variable interest rates 24 25 34 39 38 36 33 28 29 28 30 % Bdateral debt on concessional terms 12 12 11 10 12 13 11 10 12 12 11 % Multilateral debt on concessional tlers 3 3 4 4 5 6 6 6 8 8 S Preferred creditor debt service 2 5 11 8 8 17 12 7 7 8 8 Sowrce: Wortd Bank, WorA1 DbA &ablei. Table 13: Domestic Debt (billions of yuan) Ycar Type suued Amount .nud to issued 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 1902 I'rcasury bond, Enwcrprises 2 40 0 48 0 48 0 48 048 Izossozy bolid. liowohold. 2 00 0 39 0.39 0 39 0 39 1983 'Ircasury bond, Einterpnes 2 10 0.42 042 042 042 0.42 'Ieesury bonds Howeholda 210 0.42 042 042 042 042 1984 Trea.ury bonds tnlerpnses 2 00 0 40 0 40 0 40 0.40 0 40 'Ieasury bond. Households 2 20 0.44 0.44 0.44 0 44 0 44 1985 Tinasury bond. Enteorine. 2.20 2 18 'Ilreasuny bond. Houeholds 3 80 3.75 1986 Treasuny bond. Entenpri.e. 2 30 2.29 Trs..ury bond. tiouseholds 4 00 3.96 1987 Treosury bond. Enteqns.e. 2.30 2 26 Treasury bonds Households 4.00 4 00 Key constructon bonds louseliolds 0 0 0 50 Key con.teucton bonds Enterp-ce 4 90 4.90 1988 Tie.s.uy bond. Ulterpnie. 3.50 3 47 Treauruy bond. louehold. 5 70 5 73 Key cons-runboi bonds llow.ehold. 3 10 305 Focral bonds Financial uosubtonon 6 60 6 60 1989 '-casury bonds Iloznbhold, 5.60 5 60 I'nc-ulde.xd bon d. lonu,hrolds 12 50 12 50 Sp-cial state bonds Interpnse, 4 30 4 28 199)0 Ireans-y bond, tlonbchold& 9 30 9 28 Special state bonds Entnrpn.e. 3 20 3.20 Fiscal bonid. Ftancial unt,bstubns 7 10 7 11 Convemon bonds Enterpnme. 9 40 9.40 1991 Tre.oswy bond, Howeholds 19 94 19 94 Special state bond. Enterprise, 2.00 2.00 Fiscal bond. Fnancial mutitution 7 00 7.00 1992 Treasury bonds 1tnunehold. 1490 1490 Treaoury bonds Households 24 70 24 70 1993 TrFawury bond, Ilonseholds 22 64 22.64 'Irea.suy bonds Households 884 884 Fucal bonds Fntancral intintuion. 7 00 7 00 1994 Treaury bond. En.trpnrc. 2 00 2.00 T,es,ury bond. llousehold 8.24 8.24 Twanury bond. Hloseholds 28 50 28 50 'Ireasury bond. ttowheold, 70.00 7000 1995 Spoc-al wtao bonds Frarciaal nstbtunions 3 00 3.00 'Ircasuy bonkds Finsrc-al wlitutoon, 25 00 25 rresnury bond, llouseholds 105 88 105 68 T,casury bonds IlIuiehold, 6 00 600 TIcas.-y bonds lurancial -wntnnt'or,s 11 89 11.89 'I 'l Al, AMO,l;N IMAI7WIRING1 47463 087 1 71 255 2353 1800 2604 10 12 2422 52.65 10067 8490 145.52 200 300 'tro-srybonds lloWnsobolds 039 081 1 25 5.00 1055 1046 972 19.94 24.70 22.64 1490 8.84 0.00 0.00 Treasury bonds Entcr.pmne 0 48 0.90 1 30 3 48 6.58 3 08 0.40 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Key conriu,cbon bonds Enteipri.e. 000 0.00 0 00 4 90 0.00 000 0.00 0 00 000 0.00 0.00 0 00 0 00 0 00 Kcy cnsricton bonds lion,ehold, 0 00 0 00 0 00 3 55 000 000 0 00 0°00 0.0 0.00 0 00 0.00 000 000 Special state bonds lnlrpcs 0 00 0.00 0 00 0 00 0 00 0 00 0 00 4 28 3.20 2 00 0 00 0 00 0.00 0.00 Fiscal boad. Financial inatuanon, 0 00 0 00 0 00 6.60 0 00 0 00 0.00 0 00 7.11 7.00 0.00 6 00 0.00 0 00 Con-cr.on bond, Eolrpeises 0 00 0 00 0 00 0 00 0.00 000 0 00 0.00 9 40 0.00 000 0.00 0 00 0.00 P'rce-inlencd Wbonds lo,neb.old. 000 000 000 000 000 1250 000 000 0.00 000 0.00 000 0.00 0.00 r,/, Mseanvts, W nc- Table 14: Monetary Survey la /b 1993 1994 1995 1996 March June Sept. Dec. March June Sept. Dec. (billions of yuan, end of period) Net lorcign assets 222 506 508 503 541 637 729 801 871 951 Net domestic assets 3,107 3,976 4,290 4,566 4,882 5,188 5495 5,777 6,084 6,410 Domestic credit 3,301 4,160 4,310 4,410 4,642 5,098 5,265 5,650 5,979 6,195 Loans to enterprises and individuals 3,158 3,937 4,081 4,239 4,449 4,871 5011 5,357 5,510 5,889 Net credit to government 118 131 129 77 100 131 173 212 201 216 Claims on nonmonetary financial instit 25 91 100 94 93 96 81 82 86 89 Otheritems(net) -194 -183 -20 156 240 91 230 126 287 215 Money plus quasi-money (broad money) 3,330 4,483 4,797 5,069 5,423 5,825 6,224 6.577 6,955 7,361 Money 1,628 2,054 .2,103 2,142 2,248 2,399 2,391 2,462 2,634 2,851 Currency 586 729 727 700 737 789 817 767 841 880 Demand deposits 1,042 1,325 1,376 1,442 1,511 1,610 1,574 1,695 1,793 1,971 llousehold demand deposits .. .. .. .. .. .. .. Enterprise deposits .. .. .. .. .. .. .. Official institutions .. .. .. .. .. .. .. Quasi-money 1,702 2,429 2,695 2,927 3,175 3,426 3,833 4,115 4,321 4,510 (twelve-month percentage change) Net domestic assets 26.4 28.0 34.6 29.6 31.0 30.5 28.1 26.5 24.6 23.5 of which Domestic credit 22.6 26.0 23.5 19.9 19.9 22.5 22.2 28.1 24.9 21.5 L.oans to enterprises and individuals .. .. .. .. .. .. .. Money and quasi-money (broad money) 24.0 34.6 35.4 32.4 30.6 29.9 29.7 29.8 28.2 26.4 of which: currency 35.2 24.3 24.6 21.1 14.9 8.2 12.4 9.8 14.1 11.6 /a Covers the operations of the Pcople's Bank, specialized and universal banks, rural and urban credit cooperatives, and the Agricultural Development Bank, /b I .evel data from March 1993 have been revised on the basis of a new statistical methodology that includes an improved accounting system and expanded coverage. Growth rates from 1994 are based on these new statistics. Source IMNJ. Table 15: Operations of the People's Bank /a (billions of yuan, end of period) 1993 1994 1995 1996 March June Sept. Dec. March June Sept. Dec. Net foreign assets 155 445 499 532 602 667 733 841 873 956 Gold and international financial institutions 12 19 15 13 17 16 15 18 19 23 International reserves converted at exchange rate/b 123 434 487 520 579 611 671 719 792 872 Other 20 -7 -3 -1 5 40 46 105 62 62 Net domcstic assets 1,160 1,277 1,260 1,197 1,269 1,409 1418 1,294 1,378 1,733 Domestic credit 1,165 1,230 1,202 1,102 1,160 1,298 1293 1,218 1,214 1,565 Claimsondepositmoneybanks 961 1,045 1,030 999 1,037 1,151 1145 1,094 1,117 1,452 Claims on other financial institutions 25 27 31 20 18 18 17 12 12 12 Claims on central government (net) III 85 67 8 35 61 62 45 18 36 Claims on nonfinancial sectors 68 73 74 74 70 68 68 67 67 66 Other items (net) -6 46 58 96 109 111 126 76 164 167 Reserve money 1,315 1,722 1,759 1,730 1,871 2,076 2,151 2,135 2,251 2,689 Annual change, in percentvc 35.5 31.1 29.2 22.3 23.1 20.6 22.3 23.4 20.3 29.5 Liabilities to banks 558 745 789 767 835 932 1013 1,029 1,050 1,384 Required deposits 275 383 413 441 478 511 549 592 633 654 Other deposits 229 303 321 266 298 352 396 369 344 666 Cash in vault 54 60 56 59 59 69 68 68 73 63 Iiabilities to nonbanks 766 976 970 963 1,035 1,144 1139 1,106 1,201 1,305 Currency in circulation 586 729 727 700 737 789 817 767 841 880 I)cposits of financial institutions 50 61 50 59 74 104 60 65 66 115 othcr than deposit-money banks l)eposits of nonfinancial institutions 129 187 193 204 225 251 262 274 294 310 Memorandum Items: Money multiplier /d 2.65 2.73 2.86 3.07 3.04 2.93 3.00 3.19 3.20 2.83 Ratio of excess reserves to deposits (%) /c 9.43 9.15 8.74 7.05 7.23 7.97 8.24 7.23 6.55 10.83 /a Data from March 1993 have been revised on the basis of a new statistical methodology that includes an improved accounting system and expanded coverage. 'b Reserves convened at official rate prior to 1994 /c In November 1996, a strengthening in the enforcement of reserve requirements over rural credit cooperatives was accomodated by an expansion in reserve money. The growth rate of reserve money excluding this operation was just over 20 percent for the year as a whole /d Ratio of broad money, as reported in the banking survey, to reserve money /c Ratio of banks excess reserves to deposits reported in the banking survey Source. IMF Table 16: Banking Survey, 1993-96/1 (billions of yuan, end of period) 1993 1994 1995 1996 Mar, June Sep. Dec. Mar. June Sep. Dec. Net foreign assets 222 506 508 503 542 637 682 753 837 921 Net domestic assets 3,266 4,186 4,522 4,812 5,140 5,438 5,769 6,061 6,367 6,688 Domestic credit 3,481 4,310 4,484 4,604 4,844 5,294 5,612 6,049 6,205 6,641 Claimson Government (net) 118 133 131 79 102 132 175 214 203 218 Claims on nonfinancial sectors 3,363 4,177 4,353 4,525 4,742 5,161 5,437 5,835 6,003 6,423 Other items, net -215 -125 38 208 295 144 157 12 162 47 Broad money 3,488 4,692 5,030 5,315 5,681 6,075 6,451 6,813 7,204 7,609 Narrow money 1,628 2,054 2,103 2,142 2,249 2,399 2,391 2,462 2,634 2,851 Currency in circulation 586 728 727 700 737 789 817 767 841 880 Demand deposits 1,042 1,325 1,376 1,442 1,512 1,610 1,574 1,695 1,793 1,971 Quasi-money 1,860 2,638 2,927 3,173 3,432 3,676 4,060 4,351 4,571 4,758 Time deposits 125 194 220 265 310 332 372 430 467 504 Savings deposits 1,520 2,152 2,376 2,557 2,757 2,966 3,330 3,546 3,708 3,852 Other deposits 215 292 331 351 365 378 358 375 395 402 (Twelve-moith change, in percent) Memoranidum items: /2 Net domestic assets ... 28.2 35.2 30.2 30.9 29.9 27.6 25.9 23.9 23.0 Domestic credit ... 23.8 22.5 19.0 18.8 22.8 25.1 31.4 28.1 25.5 Broad money . 34.5 35.9 32.7 30.6 29.5 28.3 28.2 26.8 25.3 Narrow money ... 26.2 27.9 21.2 18.3 16.8 13.7 14.9 17.1 18.9 Quasi-money ... 41.8 42.3 41.9 40.1 39.3 38.7 37.1 33.2 29.4 Currency in circulation 35.2 24.3 24.6 21.1 14.9 8.2 12.4 9.4 14.1 11.6 /I Includes the operations of the People's Bank of China, the deposit money banks, and other banks (or specific depository institutions). Data for March 1996 and later include, in addition, operations of two policy banks (the Export-limport Bank and the State Development Bank) /2 Owing to a break in the series in 1993, growth rates for that year are not available. Source Data provided by the Chinese authorities Table 17: Balance Sheets of Urban Credit Cooperatives (billions of yuan, end of period) 1993 1994 1995 1996 March June Sept. Dee. March June Sept. Dec. Foreign assets (net) 0 0 0 0 0 0 0 0 0 0 Reserve assets 33 50 51 53 54 68 62 60 62 78 Required reserves 13 23 25 28 31 33 36 35 37 39 Deposits vvith the l'BC 18 21 20 19 17 28 21 20 19 34 Cash in vault 2 3 4 4 4 5 5 5 6 4 Central bank bonds 0 2 2 2 2 2 0 0 0 0 Claims on central government 7 7 9 11 10 10 12 9 9 10 Claims on other sectors 78 144 162 174 187 207 218 224 241 263 Claims on nonmonetary financial institutions 0 14 15 17 18 19 19 20 21 24 Liabilities to nonfinancial sector 134 235 253 275 295 336 340 341 362 400 Demand deposits 62 100 99 103 105 117 107 99 103 117 Time deposits 7 20 25 30 36 41 41 42 44 47 Savings deposits 38 73 86 97 109 126 144 157 168 183 Other deposits 27 42 42 44 45 52 47 44 47 52 Liabilities to central bank 2 3 4 3 3 3 3 3 3 3 Liabilities to nonmonetary financial institutions 0 4 5 5 5 6 6 8 10 18 Bonds 0 0 0 0 0 0 0 0 0 0 Owners' equity 8 16 18 18 19 20 22 20 20 21 Paid-in capital 8 11 13 13 13 14 16 15 15 16 Other items (net)/a -27 45 42 45 -52 -61 -61 -58 -62 -67 a In kecping with the authoritis' presentatjon, "other items, net" is shown as a negative entry on the liabilities side, rather than a positive entiy on the assets side and does not net out bonds and owners' equity. Source tMF Table 18: Balance Sheets of Rural Credit Cooperatives (billions of yuan, end of period) 1993 1994 1995 1996 March June Sept. I)ec. March June Sept. Dec. Foreign assets (net) 0 0 0 0 0 0 0 0 0 0 Reserve assets 61 88 91 103 106 122 120 124 129 194 Required reserves 51 67 74 79 83 88 92 98 102 71 Deposits with the l'BC 1 9 7 12 11 19 15 12 13 107 Cash in vault 9 12 11 12 12 16 14 14 15 16 Central bank bonds 0 0 0 0 0 0 0 0 0 0 Claims on central government 0 0 0 0 0 0 0 39 40 41 Claims on other sectors 314 417 464 477 502 523 564 595 628 636 Claims on nonmonetary financial institutions 0 0 0 0 0 0 0 0 0 0 Liabilities to nontinancial sector 430 568 616 649 678 717 773 816 843 879 D)emand deposits 68 81 75 77 81 89 79 85 89 101 T'ime deposits 4 6 6 7 9 9 9 11 11 12 Savings deposits 358 482 535 564 589 620 685 720 743 767 Other deposits 0 0 0 0 0 0 0 0 0 0 Liabilities to central bank 0 0 0 0 0 0 0 0 0 0 Liabilities to nonmonetary financial institutions 0 0 0 0 0 0 0 0 0 0 Bonds 0 0 0 0 0 0 0 0 0 0 Owners' equity 41 62 62 64 64 63 56 55 56 55 Paid-in capital 41 69 37 36 36 38 38 38 38 40 Other items (net) /a -96 -124 -123 -133 -134 -135 -145 -112 -101 -63 ia In keeping with the authorities presentation, other items, net is shown as a negative entry on the liabilities side rather than a positive entry on the assets side atnd does not net out bonds and owners' equity. Table 19: Consolidated Government Revenue /a lb (billions of yuan) 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 'I'otal revenue 228.3 244.6 257.6 280.3 326.4 355.0 367.2 392.8 475.9 558.4 654.1 771.9 Tax revenue 218.8 224.8 232.1 257.6 301.7 313.8 331.7 345.7 447.5 524.0 605.6 691.6 Taxeson incomeandprofits /c 73.9 73.4 71.7 76.4 78.9 84.7 82.1 81.1 80.5 94.0 111.0 129.6 Enterprises income tax 69.7 68.9 66.5 68.2 69.4 74.5 73.1 72.1 67.9 70.9 83.3 92.7 State enterprises 59.6 59.6 56.3 57.1 58.3 60.4 62.7 62.5 58.3 61.0 67.8 77.9 Collectives 10.1 9.3 10.2 10.5 10.5 13.3 10.4 9.6 9.6 9.9 15.5 14.8 Joint ventures , 0.6 0.6 0.8 .. .. .. .. .. 19.4 I'ersonal income tax (other) 0.8 1.0 1.4 .. .. .. .. 36.7 Agricultural income tax 4.2 4.5 5.2 7.4 8.5 8.8 9.0 9.0 12.6 23.1 27.7 36.9 'I'axesongoodsandscrvices 96.3 106.7 111.9 130.8 158.2 164.0 175.5 206.6 287.8 346.5 399.0 461.8 (ieneralsalestaxes 95.3 104.0 109.5 126.3 144.8 149.7 159.9 205.8 286.8 346.5 399.0 461.8 Product tax 59.4 54.7 53.9 48.1 53.0 58.1 62.9 69.3 82.1 48.7 54.0 61.6 Valueaddedtax 14.8 23.2 25.4 38.4 43.1 40.0 40.6 70.6 108.1 230.8 258.6 295.9 Business tax 21.1 26.1 30.2 39.8 48.7 51.6 56.4 65.9 96.6 67.0 86.4 104.3 Urban maintenance and development tax 8.6 9.2 10.0 .. .. Real estate tax 2.2 2.6 3.2 3.8 .. .. Special tax on oil 1.6 1.5 1.4 1.2 1.1 1.0 .. 0.2 Salt tax 1.0 1.1 0.9 0.9 1.0 0.8 0.8 0.8 0.8 Customs tax 20.5 15.2 14.2 15.5 18.2 15.9 18.7 21.3 25.6 27.3 28.7 30.2 Othertaxes 28.1 29.5 34.3 34.9 46.4 49.2 55.4 36.7 53.6 56.2 66.9 70.0 otwhichconstructiontax 2.3 2.4 3.0 2.6 2.8 3.8 3.1 3.2 3.8 4.3 5.3 6.3 Nontax revenue 9.5 19.8 25.5 22.7 24.7 41.2 35.5 47.1 28.4 34.4 48.5 80.3 Gross profit remittances from state owned enterprises /d 4.4 4.2 4.3 5.1 6.4 7.8 7.5 6.0 4.9 Dcpreciation funds Other 5.1 15.6 21.2 17.6 18.3 33.4 28.0 41.1 23.5 34.4 48.5 80.3 of which foreign grants (net) 0.2 0.4 -0.1 0.0 0.5 0.2 2.1 1.9 1.7 4.3 5.0 2.5 Memorandum item: Gross profit remittances from state owned enterprises 4.4 4.2 4.3 5.1 6.4 7.8 7.5 6.0 4.9 (iNI' in current prices 898.9 1,020.1 1,195.5 1,492.2 1,691.8 1,859.8 2,166.3 2,665.2 3,456.1 4,653.3 5,727.7 6,693.4 /N According to the defuintion contatned n tMF, Mantal on Government Finance Slanslws (GFS), 1986 /b Thu includes all goverrnenit revenue, with the exception of extrabudgetary receipts of the various levels of governieit. sc Beginning with 1985, piofi taxes on state enterprises are included uinder tax revenue. Ld As of l988 only banks and tiiaiic,al istitutiois are subject to reliittiance Source rn Table 20: Structure of Consolidated Government Revenue (percentage of total revenue) 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 Total revenue 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Tax revenue 95.8 91.9 90.1 91.9 92.4 88.4 90.3 88.0 94.0 93.8 92.6 89.6 Taxes on income and profits 32.4 30.0 27.8 27.3 24.2 23.9 22.4 20.6 16.9 16.8 17.0 16.8 Enterprises income tax 30.5 28.2 25.8 24.3 21.3 21.0 19.9 18.4 14.3 12.7 12.7 12.0 State enterprises 26.1 24.4 21.9 20.4 17.9 17.0 17.1 15.9 12.3 10.9 10.4 10.1 Collectives 4.4 3.8 4.0 3.7 3.2 3.7 2.X 2.4 2.0 1.8 2.4 1.9 Joint ventures .. .. 0.2 0.2 0.2 .. .. .. .. .. 2.5 Personal income tax (other) .. .. .. 0.3 0.3 0.4 .. .. .. .. .. 4.8 Agricultural income tax 1.8 1.8 2.0 2.6 2.6 2.5 2.5 2.3 2.6 4.1 4.2 4.8 Iaxes on goods and services 42.2 43.6 43.4 46.7 48.5 46.2 47.8 52.6 60.5 62.1 61.0 59.8 General sales taxes 41.7 42.5 42.5 45.1 44.4 42.2 43.5 52.4 60.3 62.1 61.0 59.8 Product tax 26.0 22.4 20.9 17.2 16.2 16.4 17.1 17.6 17.3 8.7 8.3 8.0 Value added tax 6.5 9.5 9.9 13.7 13.2 11.3 11.1 18.0 22.7 41.3 39.5 38.3 Business tax 9.2 10.7 11.7 14.2 14.9 14.5 15.4 16.8 20.3 12.0 13.2 13.5 Urban maintenance and development tax .. .. .. .. 2.6 2.6 2.7 .. .. Real estate tax . .. .. 0.8 0.8 0.9 1.0 .. .. Special tax on oil .. 0.7 0.6 0.5 0.4 0.3 0.3 .. .. Salt tax 0.4 0.4 0.3 0.3 0.3 0.2 0.2 0.2 0.2 Customs tax 9.0 6.2 5.5 5.5 5.6 4.5 5.1 5.4 5.4 4.9 4.4 3.9 Othertaxes 12.3 12.1 13.3 12.5 14.2 13.9 15.1 9.3 11.3 10.1 10.2 9.1 of which: Construction tax 1.0 1.0 1.2 0.9 0.9 1.1 0.8 0.8 0.8 0.8 0.8 0.8 Nontax revenue 4.2 8.1 9.9 8.1 7.6 11.6 9.7 12.0 6.0 6.2 7.4 10.4 Gross profit remittances Irom state entcrprises 1.9 1.7 1.7 1.8 2.0 2.2 2.0 1.5 1.0 0.0 0.0 0.0 D)cpreciation funds .. .. .. .. .. .. .. .. .. Other 2.2 6.4 8.2 6.3 5.6 9.4 7.6 10.5 4.9 6.2 7.4 10.4 of which foreign grants (net) 0.1 0.2 0.0 0.0 0.2 0.1 0.6 0.5 0.3 0.8 0.8 0.3 Memorandum item: Gross profit remittances from state owned enterprises 1.9 1.7 1.7 1.8 2.0 2.2 2.0 1.5 1.0 .. Source: Iabie 19 Table 21: Structure of Government Revenue (percentage of GNP) 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 l'otal revenue 25.4 24.0 21.5 18.8 19.3 19.1 17.0 14.7 13.8 12.0 11.4 11.5 Iax revenue 24.3 22.0 19.4 17.3 17.8 16.9 15.3 13.0 12.9 11.3 10.6 10.3 I'axes on income and profits 8.2 7.2 6.0 5.1 4.7 4.6 3.8 3.0 2.3 2.0 1.9 1.9 I.nterprises income tax 7.8 6.8 5.6 4.6 4.1 4.0 3.4 2.7 2.0 1.5 1.5 1.4 State enterprises 6.6 5.8 4.7 3.8 3.4 3.2 2.9 2.3 1.7 1.3 1.2 1.2 Collectives 1.1 0.9 0.9 0.7 0.6 0.7 0.5 0.4 0.3 0.2 0.3 0.2 Joint ventures .. .. .. . .. .. .. .. .. .. .. 0.3 IPersonal income tax (other) .. .. 0.1 0.1 0.1 .. .. .. .. .. 0.5 Agricultural income tax 0.5 0.4 0.4 0.5 0.5 0.5 0.4 0.3 0.4 0.5 0.5 0.6 J'axes on goods and services 10.7 10.5 9.4 8.8 9.4 8.8 8.1 7.8 8.3 7.4 7.0 6.9 General sales taxes 10.6 10.2 9.2 8.5 8.6 8.0 7.4 7.7 8.3 7.4 7.0 6.9 Product tax 6.6 5.4 4.5 3.2 3.1 3.1 2.9 2.6 2.4 1.0 0.9 0.9 Value added tax 1.6 2.3 2.1 2.6 2.5 2.2 1.9 2.6 3.1 5.0 4.5 4.4 Business tax 2.3 2.6 2.5 2.7 2.9 2.8 2.6 2.5 2.8 1.4 1.5 1.6 lJrban maintenance and development tax .. .. .. .. 0.5 0.5 0.5 .. .. Real estate tax 0.1 0.2 0.2 0.2 .. .. Special tax on oil - 0.2 0.1 0.1 0.1 0.1 .. .. .. Salt tax 0.1 0.1 0.1 0.1 0.1 .. .. .. .. .. Customs tax 2.3 1.5 1.2 1.0 1.1 0.9 0.9 0.8 0.7 0.6 0.5 0.5 Other taxes 3.1 2.9 2.9 2.3 2.7 2.6 2.6 1.4 1.6 1.2 1.2 1.0 of which: Construction tax 0.3 0.2 0.3 0.2 0.2 0.2 0.1 0.1 0.1 0.1 0.1 0.1 Nontax revenue 1.1 1.9 2.1 1.5 1.5 2.2 1.6 1.8 0.8 0.7 0.8 1.2 Gross profit remittances from state owned enterprises 0.5 0.4 0.4 0.3 0.4 0.4 0.3 0.2 0.1 0.0 0.0 0.0 Depreciation funds Other 0.6 1.5 1.8 1.2 1.1 1.8 1.3 1.5 0.7 0.7 0.8 1.2 of which loreign grants (net) 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.0 0.1 0.1 Memorandum item: (iross prolit remittances fromii state owned enterprises 0.5 0.4 0 4 0.3 0.4 (1.4 0.3 0.2 0.1 .. .. Sou,ce Ilble 19 Table 22: Structure of Govcrnment Expenditure 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 (billions of yuan) Iotal expenditure and net lending 232.4 262.7 282.7 313.7 363.8 391.7 415.2 453.9 545.9 632.5 751.8 875.7 Current expenditure 168.1 187.5 207.1 237.6 288.2 306.9 328.5 364.0 424.3 538.4 624.0 734.1 Administration 14.4 18.2 19.5 23.9 28.5 33.3 34.3 42.5 53.6 72.9 87.2 105.5 Defense 19.2 20.1 21.0 21.8 25.1 29.0 33.0 37.8 42.6 55.1 63.7 72.0 Culture, education, public health, science & broadcasting 31.7 38.0 40.3 48.6 55.3 61.7 70.8 79.3 95.8 127.8 146.6 170.5 of which: education 18.4 21.4 22.7 27.9 31.6 35.3 41.0 45.3 55.8 Economic services 22.4 25.2 26.0 28.9 34.6 37.9 46.0 47.8 57.4 57.8 55.0 63.0 Geological survey 3.0 3.1 3.0 3.3 3.3 3.6 7.8 4.4 4.9 6.4 6.6 6.9 Agriculture 10.1 12.4 13.4 15.4 19.7 22.2 24.4 26,9 32.3 40.0 44.9 51.8 Operating expenditure for industry, communication & commerce 3.5 3.7 3.3 3.9 4.5 4.7 5.2 6.5 7.6 Developmentofnewproducts 4.4 5.0 5.1 5.3 5.9 6.3 7.3 8.9 10.7 11.4 0.0 0.0 Working capital for state owned enterprises 1.4 1.0 1.2 1.0 1.2 1.1 1.3 1.1 1.9 .. 3.5 4.3 Social welfare relief .. 3.6 3.7 4.1 5.0 5.5 6.7 6.6 7.5 9.5 11.5 15.2 Subsidies 50.7 58.2 67.0 76.3 97.3 96.0 88.3 76.7 71.0 68.0 71.7 79.4 Daily living necessities 31.4 25.7 29.5 31.7 37.4 38.1 37.3 32.2 29.9 31.4 36.4 44.1 Agricultural inputs 1.3 .. .. .. .. .. .. .. .. Operating losses ofstateowned enterprises 18.0 32.5 37.5 44.6 59.9 57.9 51.0 44.5 41.1 36.6 35.3 35.3 Interest payments .. 1.9 2.8 3.0 2.8 4.4 7.8 14.2 9.7 16.7 35.6 48.9 Other 29.7 22.3 26.7 31.0 39.6 39.1 41.6 59.1 86.7 130.6 152.7 179.6 Capital expenditure 64.3 75.2 75.6 76.1 75.6 84.8 86.7 89.9 121.6 94.1 127.8 141.6 Capital construction 58.4 67.2 68.2 66.4 66.9 75.8 76.0 76.5 90.1 64.0 79.4 88.6 Development of the productive capacity of existing enterprises 5.9 8.0 7.4 9.7 8.7 9.0 10.7 13.4 31.5 30.1 48.4 53.0 (percentage of GNP) Memorandum items: Current expenditure 18.7 18.4 17.3 15.9 17.0 16.5 15.2 13.7 12.3 13.4 12.8 11.0 Subsidies 4 5.6 5.7 5.6 5.1 5.8 5.2 4.1 2.9 2.1 1.5 1.3 1.2 D)aily living necessities 3.5 2.5 2.5 2.1 2.2 2.0 1.7 1.2 0.9 0.7 0.6 0.7 Operating losses of state owned entcrprises 2.0 3.2 3.1 3.0 3.5 3.1 2.4 1.7 1.2 0.8 0.6 0.5 Capital expenditure 7.2 7.4 6.3 5.1 4.5 4.6 4.0 3.4 3.5 2.0 2.2 2.1 (as a percentage of total expenditure) Subsidies 21.8 22.2 23.7 24.3 26.7 24.5 21.3 16.9 13.0 10.8 9.5 9.1 Capital expcnditure 27.7 28.6 26.7 24.3 20.8 21.6 20.9 19.8 22.3 14.9 17.0 16.2 Source: IMF Table 23: Budget and Its Financing 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 (billions of yuan) Revenue 228.3 244.6 257.6 280.3 326.4 355.0 367.2 392.8 475.9 558.4 654.1 771.9 Expenditure 232.4 262.7 282.7 313.7 363.8 391.7 415.2 453.9 545.9 632.4 751.8 875.6 Deficit -4.1 -18.1 -25.1 -33.4 -37.4 -36.7 -48.0 -61.1 -70.0 -74.2 -97.7 -103.7 Financing 4.1 18.1 25.1 33.4 37.3 36.8 48.0 61.2 70.0 74.2 97.7 103.7 Domestic 10.1 12.8 18.3 22.0 26.0 23.7 38.0 46.1 41.9 67.0 101.0 103.7 Banking system 4.0 12.8 7.9 22.0 26.0 23.7 16.1 88.9 -31.6 14.9 -0.9 85.7 Nonbank 6.1 0.0 10.4 0.0 0.0 0.0 21.9 -42.8 73.5 52.2 101.9 18.0 Foreign -6.0 5.3 6.8 11.4 11.3 13.1 10.0 15.1 28.1 7.1 -3.3 0.0 Gross foreign borrowing .. 7.6 10.6 13.9 14.4 17.8 18.0 20.9 35.8 14.7 1.1 11.6 Amortization .. -2.3 -3.8 -2.5 -3.1 -4.7 -8.0 -5.8 -7.7 -7.6 4.4 -11.6 (percentage of GNP) Revenue 25.4 24.0 21.5 18.8 19.3 19.1 17.0 14.7 13.8 12.0 11.4 11.5 Expenditure 25.9 25.7 23.6 21.0 21.5 21.1 19.2 17.0 15.8 13.6 13.1 13.1 Deficit -0.5 -1.8 -2.1 -2.2 -2.2 -2.0 -2.2 -2.3 -2.0 -1.6 -1.7 -1.6 Financing 0.5 1.8 2.1 2.2 2.2 2.0 2.2 2.3 2.0 1.6 1.7 1.6 Domestic 1.1 1.3 1.5 1.5 1.5 1.3 1.8 1.7 1.2 1.4 1.8 1.6 Banking system 0.4 1.3 0.7 1.5 1.5 1.3 0.7 3.3 -0.9 0.3 0.0 1.3 Nonbank 0.7 0.0 0.9 0.0 0.0 0.0 1.0 -1.6 2.1 1.1 1.8 0.3 Foreign -0.7 0.5 0.6 0.8 0.7 0.7 0.5 0.6 0.8 0.2 -0.1 0.0 Gross lbrcign borrowing .. 0.7 0.9 0.9 0.9 1.0 0.8 0.8 1.0 0.3 0.0 0.2 Amortization .. -0.2 -0.3 -0.2 -0.2 -0.3 -0.4 -0.2 -0.2 -0.2 -0.1 -0.2 (percentage of total deficit) Financing 100.0 100.2 100.4 99.7 99.8 100.3 100.0 100.2 100.0 100.0 100.0 100.0 Domestic 246.4 70.9 73.1 65.8 69.5 64.6 79.2 75.5 59.9 90.5 103.4 100.0 Banking system 97.6 70.9 31.5 65.8 69.5 64.6 33.5 145.5 45.2 20.1 -0.9 82.6 Nonbank 148.8 0.0 41.5 0.0 0.0 0.0 45.6 -70.0 105.0 70.4 104.3 17.4 Foreign -146.4 29.3 27.3 34.0 30.3 35.7 20.8 24.7 40.2 9.6 -3.4 0.0 (iross loreign borrowinig 42.1 42.5 41.4 38.5 48.5 37.5 34.2 51.2 19.8 1.1 11.2 Amortization .. -12.7 -15.2 -7.5 -8.2 -12.8 -16.7 -9.5 -11.0 -10.3 -4.5 -11.2 Source: IMI. Table 24: Production of Major Crops 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 (millions of tons) Iotal food grains 379.11 391.51 402.98 394.08 407.45 446.24 435.29 442.66 456.49 445.10 466.62 Rice 168.57 172.22 174.26 169.11 180.13 189.33 183.81 186.22 177.70 175.93 185.23 Wheat 85.81 90.04 85.90 85.43 90.81 98.23 95.95 101.59 106.39 99.30 102.21 Corn 63.88 70.86 79.24 77.35 78.93 96.82 98.77 95.38 102.70 99.28 111.99 TIuber 26.04 25.34 28.20 26.97 27.30 27.43 27.16 28.44 31.81 30.25 32.63 Total oil seeds 15.78 14.74 15.28 13.20 12.91 16.13 16.38 16.41 18.04 19.90 22.50 of which: Peanuts 6.66 5.88 6.17 5.69 5.36 6.37 6.30 5.95 8.42 9.68 10.24 Rapeseed 5.61 5.88 6.61 5.04 5.44 6.96 7.44 7.65 6.94 7.49 9.78 Cotton 4.15 3.54 4.25 4.15 3.79 4.51 5.68 4.51 3.74 4.34 4.77 Sugarcane 51.55 50.22 47.36 49.06 48.57 57.62 67.90 73.01 64.19 60.93 65.42 Beetroots 8.92 8.31 8.14 12.81 9.36 14.53 16.29 15.07 12.05 12.53 13.98 Cured tobacco 2.08 1.37 1.64 2.34 2.41 2.26 2.67 3.12 3.01 1.94 2.07 (millions of tons) F:ruits 11.64 13.48 16.68 16.66 18.37 18.74 21.76 24.40 30.11 35.00 42.15 Apples 3.61 3.34 4.26 4.34 4.50 4.32 4.54 6.56 9.07 11.13 14.01 Citrus 1.81 2.55 3.22 2.56 4.56 4.86 6.33 5.16 6.56 6.81 8.22 Pears 2.14 2.35 2.49 2.72 2.57 2.35 2.50 2.85 3.22 4.04 4.94 13ananas 0.63 1.25 2.03 1.83 1.40 1.46 1.98 2.45 2.70 2.90 3.13 Source: China Statistical Yearbook 1996, pp. 371. Table 25: Yield of Major Crops (by sown area, kg/hectare) 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 Total food grains 3,480 3,525 3,615 3,585 3,630 3,930 3,870 4,004 Rice 5,250 5,340 5,415 5,280 5,505 5,730 5,640 5,803 Wheat 2,940 3,045 2,985 2,970 3,045 3,195 3,105 3,331 Corn 3,600 3,705 3,915 3,930 3,885 4,530 4,575 4,533 Soybeans 1,365 1,395 1,470 1,440 1,275 1,455 1,380 1,427 Tuber 3,030 2,910 3,180 2,985 3,000 3,015 2,985 3,141 Peanuts 2,010 1,815 2,040 1,905 1,815 2,190 2,190 2,000 2,492 2,564 2,687 Rapeseed 1,245 1,200 1,260 1,020 1,095 1,260 1,215 1,281 1,309 1,296 1,416 Cotton 810 825 870 750 735 810 870 660 750 785 879 Sugarcaine 53,430 52,860 55,140 53,115 50,850 57,120 58,350 58,605 59,012 57,671 58,136 13eetroots 15,915 15,960 16,350 17,190 16,245 21,660 20,790 22,832 20,124 17,936 20,132 Ctured tobacco 1,920 1,530 1,785 1,800 1,605 1,680 1,710 1,687 1,654 1,491 1,584 Suurce: China Statistical Yearbook 1996, pp. 374. Table 26: Gross Output Value of Industry 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 ( billions of yuan) Total 971.6 1,119.4 1,381.3 1,822.5 2,201.7 2,392.4 2,662.5 3,459.9 4,840.2 7,017.6 9,189.5 BY TYPIE' Ol: OWNEIRSHIP State-owned 630.2 697.1 825.0 1,035.1 1,234.3 1,306.4 1,495.5 1,782.4 2,272.5 2,620.1 3,122.0 Collective-owned 311.7 375.2 478.2 658.7 785.8 852.3 878.3 1,213.5 1,646.4 2,647.2 3,362.3 Iownship 76.1 98.1 128.4 184.7 219.4 .244.1 240.1 353.4 537.4 810.2 1,193.2 Village 66.3 83.8 116.5 170.4 211.8 239.4 234.7 363.2 516.3 965.8 1,184.7 Joint urban-rural 15.2 24.8 31.6 43.9 49.6 53.9 56.9 87.0 132.2 261.1 213.4 Joint urban 0.0 2.1 3.0 3.9 5.0 5.5 6.9 10.2 15.6 33.8 Joint rural 15.2 22.7 28.6 40.0 44.6 48.4 50.0 76.8 116.6 227.3 Individual-owned 18.0 30.9 50.2 79.0 105.8 129.0 128.7 200.6 386.1 708.2 1,182.1 Urban 3.3 2.9 5.0 6.8 9.0 10.7 12.9 19.5 39.6 86.7 Rural 14.6 27.9 45.2 72.2 96.8 118.3 .. .. Other 11.7 16.3 27.9 49.5 75.8 104.8 163.1 268.8 517.4 901.8 1,523.1 BY TYPE OF INDUSTRY Light 457.5 533.0 665.6 897.9 1,076.1 1,181.3 1,380.1 1,749.2 2,318.4 2,167.1 2,349.1 lieavy 514.1 586.4 715.7 924.5 1,125.6 1,211.3 1,444.7 1,957.4 2,950.8 2,968.2 3,145.6 (percentage of total) BY TYPE OF OWNERSHIP State-owned 64.9 62.3 59.7 56.8 56.1 54.6 56.2 51.5 46.9 37.3 34.0 Collective-owned 32.1 33.5 34.6 36.1 35.7 35.6 33.0 35.1 34.0 37.7 36.6 Iownship 7.8 8.8 9.3 10.1 10.0 10.2 9.0 10.2 11.1 11.5 13.0 Village 6.8 7.5 8.4 9.3 9.6 10.0 8.8 10.5 10.7 13.8 12.9 Joint urban-rural 1.6 2.2 2.3 2.4 2.3 2.3 2.1 2.5 2.7 3.7 2.3 Joint urban 0.0 0.2 0.2 0.2 0.2 0.2 0.3 0.3 0.3 0.5 Joint rural 1.6 2.0 2.1 2.2 2.0 2.0 1.9 2.2 2.4 3.2 Individual-owned 1.8 2.8 3.6 4.3 4.8 5.4 4.8 5.8 8.0 10.1 12.9 Urban 0.3 0.3 0.4 0.4 0.4 0.4 0.5 0.6 0.8 1.2 Rural 1.5 2.5 3.3 4.0 4.4 4.9 .. .. .. Other 1.2 1.5 2.0 2.7 3.4 4.4 6.1 7.8 10.7 12.9 16.6 BY TYPE OF INDUSTRY Light 47.1 47.6 48.2 49.3 48.9 49.4 51.8 50.6 47.9 30.9 25.6 Heavy 52.9 52.4 51.8 50.7 51.1 50.6 54.3 56.6 61.0 42.3 34.2 Notc: For 1991-1994 different categories do not add up to total. Source: China Statistical Yearbook 1996, pp. 401. Table 27: Output of Major Industrial Products Product 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 Coal(milliontons) 872 894 928 980 1,054 1,080 1,087 1,116 1,150 1,240 1,361 Crudeoiln(milliontons) 125 131 134 137 137 138 141 142 145 146 150 Natural gas(billioncu m) 13 14 14 14 15 15 16 16 17 18 18 Electricity (billion kWh) 411 450 497 545 585 621 678 754 840 928 1,008 Hydropower 92 95 100 109 118 127 125 131 152 167 191 Steel (million tons) 47 52 56 59 62 66 71 81 90 93 95 Rolled steel (million tons) 37 41 44 47 49 52 56 67 77 84 90 Cemcnt(milliontons) 146 166 186 210 210 210 253 308 368 421 476 Timber (million cu m) 63 65 64 62 58 56 58 62 64 66 60 Fertilizers (million tons) 13 14 17 17 18 19 20 20 20 23 26 ( growth rates) Coal 10.5 2.5 3.8 5.6 7.6 2.5 0.6 2.7 3.0 7.8 9.8 Crude oil 9.0 4.6 2.6 2.0 0.1 1.0 1.9 0.8 2.2 0.6 2.7 Natural gas 4.0 6.4 0.9 2.7 5.5 1.7 5.1 -1.8 6.2 4.7 2.2 Electricity 8.9 9.4 10.6 9.6 7.3 6.2 9.1 11.3 11.4 10.6 8.6 Hydro power 6.5 2.5 5.6 9.2 8.3 7.1 -1.6 4.8 16.1 10.3 13.8 Steel 7.6 11.6 7.8 5.6 3.6 7.7 7.0 14.0 10.6 3.4 3.0 Rolled steel 9.5 9.9 8.1 7.1 3.6 5.9 9.4 18.8 15.2 9.2 6.5 Cement 18.6 13.8 12.2 12.8 0.1 -0.3 20.5 22.0 19.4 14.5 13.0 Timber -1.0 2.8 -1.4 -3.0 -6.6 -4.0 4.2 6.3 3.5 3.5 -8.6 Fertilizers -9.5 2.8 23.0 4.1 4.6 3.3 5.3 3.5 -4.5 16.2 12.5 Source: China Statistical Yearbook 1996, pp. 433. Table 28: Total Wage Bill of Staff and Workers by Employment Category 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 (billions of yuan) Totalwagebill 138.3 166.0 188.1 231.6 261.9 295.1 332.4 393.9 491.6 665.6 810.0 State-owned 106.5 128.9 145.9 180.7 205.0 232.4 259.5 309.0 381.3 517.7 608.0 Urbancollectives 31.2 36.3 40.9 48.8 53.4 58.1 65.9 74.3 85.0 102.3 118.2 Other 0.6 0.8 1.3 2.2 3.4 4.6 7.0 10.6 25.4 45.6 63.8 Totalwagebill 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 97.5 State-owned 77.0 77.6 77.6 78.0 78.3 78.8 78.1 78.5 77.6 77.8 75.1 Urban collectives 22.6 21.9 21.7 21.1 20.4 19.7 19.8 18.9 17.3 15.4 14.6 Other 0.4 0.5 0.7 0.9 1.3 1.6 2.1 2.7 5.2 6.8 7.9 (growth rates) Total wagebill 22.0 20.0 13.3 23.1 13.1 12.7 12.6 18.5 24.8 35.4 21.7 State-owned 21.6 21.0 13.3 23.8 13.5 13.4 11.7 19.1 23.4 35.8 17.4 Urban collectives 23.0 16.2 12.8 19.2 9.6 8.7 13.4 12.8 14.4 20.4 15.5 Otther 63.9 42.4 50.0 70.6 57.7 35.7 53.0 50.0 140.2 79.7 40.0 Percentage share ofwage bill inGDP 15.4 16.3 15.7 15.5 15.5 15.9 15.4 14.8 14.2 14.3 13.9 Soturce: China Statistial Yearbook 1996, pp. 11S. Table 29: Average Annual Wage by Sector and Employment Category (yuan in current prices) Sector 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 Staff and workers Total 1,148 1,329 1,459 1,747 1,935 2,140 2,340 2,711 3,371 4,538 5,500 Farming&forestry, etc 878 1,048 1,143 1,280 1,389 1,541 1,652 1,828 2,042 2,819 3,522 Excavation 1,324 1,569 1,663 1,964 2,378 2,718 2,942 3,209 3,711 4,679 5,757 Manufactwuing 1,112 1,275 1,418 1,710 1,900 2,073 2,289 2,635 3,348 4,283 5,169 I-lectnc power, gas,aid watcr 1,239 1,497 1,677 1,971 2,241 2,656 2,922 3,392 4,319 6,155 7,843 Geiologtcal survey 1,406 1,604 1,768 2,025 2,199 2,465 2,707 3,222 3,717 5,450 5,962 C(onstrutctoii 1,362 1,536 1,684 1,959 2,166 2,384 2,649 3,066 3,779 4,894 5,785 Transport &cominwucataons 1,275 1,476 1,621 1,941 2,197 2,426 2,686 3,114 4,273 5,690 6,948 Ciommerce&services etc. 1,007 1,148 1,270 1,556 1,660 1,818 1,981 2,204 2,679 3,537 4,248 Real estate 1,028 1,216 1,327 1,715 1,925 2,243 2,507 3,106 4,320 6,288 7,330 Social services 777 980 1,085 1,719 1,926 2,170 2,431 2,844 3,588 5,026 5,982 Health care, sports & welfare 1,124 1,343 1,446 1,752 1,959 2,209 2,370 2,812 3,413 5,126 5,860 Education, cultwre&arts etc 1,166 1,330 1,409 1,747 1,883 2,117 2,243 2,715 3,278 4,923 5,435 Scientific research 1,272 1,492 1,620 1,931 2,118 2,403 2,573 3,115 3,904 6,162 6,846 Bankiangandinsurance 1,154 1,353 1,458 1,739 1,867 2,097 2,255 2,829 3,740 6,712 7,376 Govemment agencies 1,127 1,356 1.468 1,707 1,874 2,113 2,275 2,768 3,505 4,962 5,526 Othters 3,371 5,213 6,295 Staff and workers at state-owned enterpnses Total 1,213 1,414 1,546 1,853 2,055 2,284 2,477 2,878 3,532 4,797 5,625 Fauming&forestry, etc 892 1,062 1,154 1,291 1,401 1,559 1,665 1,845 2,043 2,821 3,527 Excavation 1,384 1,638 1,734 2,038 2,449 2,763 2,982 3,239 3,856 4,863 5,944 Manufactwnng 1,190 1,382 1,543 1,872 2,081 2,289 2,505 2,889 3,562 4,508 5.352 Electnc power, gas,and water 1,272 1,518 1,692 1,994 2,248 2,648 2,883 3,354 4,317 6,124 7,734 Geological survey 1,408 1,607 1,773 2,025 2,199 2,463 2,718 3,235 3,729 5,476 5,987 Construction 1,532 1,731 1,882 2,192 2,419 2,667 2,924 3,406 4,182 5,498 6,512 Transport &commnuucations 1,383 1,610 1,773 2,140 2,423 2,697 2,967 3,452 4,604 6.212 7,572 Commerce & services etc 1,087 1,268 1,398 1,737 1,851 2,028 2,201 2,478 2,933 3,856 4,568 Real estate 1,170 1,364 1,500 1,750 1,992 2,247 2,476 3,082 4,278 5,997 6,884 Social services 1,208 1,417 1,545 1,842 2,028 2,307 2,547 3,008 3,661 5,098 5,949 Health care, sports & welfare 1,164 1,376 1,481 1,793 1,999 2,263 2,417 2,883 3,494 5,267 6,009 Education, ctuture & ars etc. 1,184 1,344 1,422 1,764 1,899 2,134 2,257 2,732 3,292 4,944 5,457 Scientific research 1,268 1,494 1,624 1,935 2,123 2,411 2,580 3,130 3,898 6,212 6,835 Banking and insurance 1,234 1,427 1.540 1,842 1,960 2,200 2,355 2,967 3,885 7,017 7,595 Government agencies 1,133 1,361 1,472 1,709 1,875 2,115 2,277 2,774 3,512 4.967 5,528 Others 3,793 5,744 6,854 Staff and workers in urban colective-owned enterprises Total 967 1,092 1,207 1,426 1,557 1,681 1,866 2,109 2,592 3,245 3,931 Farming& forestry,etc 725 875 979 1,111 1,178 1,238 1,366 1,487 1,887 2,510 2,927 Excavation 852 945 1,016 1,208 1,433 1,844 1,960 2,000 2,327 2,793 3,680 Manufacturing 963 1,075 1,180 1,388 1,523 1,622 1,798 2,017 2,469 3,076 3,717 Electnc powcer gas,ard water 667 875 1,250 1,294 1,625 2,133 2,588 2,737 3,539 5,734 7,461 Geological survey 900 1,286 1,333 1,500 1,000 1,212 1,765 2,188 2,843 3,692 4,294 Constbuction 1,101 1,232 1,380 1,597 1,763 1,935 2,216 2,554 3,182 3,936 4,677 Transport &comiutcations 1,009 1,139 1,236 1,409 1,575 1,661 1,854 2,070 2,711 3,110 3,584 Cotnmerce&servucesetc 912 1,008 1,118 1,335 1,417 1,548 1,691 1,827 2,213 2.823 3,449 Real estate 1,050 1,238 1,130 1,602 1,967 1,969 2,432 2,763 4,006 5.290 6,706 Social sevces 806 1,057 1,167 1,333 1,521 1,638 1,905 2,082 2,727 3,754 4,707 Health care, sports & welfare 975 1,212 1,296 1,570 1,774 1,956 2,135 2,416 2,935 4,238 4,890 Education, culture &arts etc 779 945 1,033 1,202 1.352 1,533 1,689 1,987 2,539 3.548 4,291 Scienlificresearch 1,052 1,286 1,319 1,636 1,710 1,997 2,120 2,392 3,474 4,719 6,046 Banking and insurance 945 1,150 1,235 1,450 1,597 1,806 1,965 2,428 3,182 5,625 6,407 Goverunient agencies 1,046 1,227 1,368 1,648 1,860 2,042 2,206 2,565 3,071 4,411 5,314 Others 2,547 4,067 4,935 S.-t e Ch-,, SrI-tI-c,j Y,.,&,ok 1996, pp 117-124 Table 30: Social Labor Force by Sector (millions of workers) 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 Farmingforestry,animalhusbandry,fishery&waterconservan 311.3 312.5 316.6 322.5 332.3 341.2 349.6 348.0 339.7 333.9 330.2 Excavation 8.0 8.1 8.2 8.3 8.4 8.8 9.1 9.0 9.3 9.2 9.3 Manufacturing 74.1 80.2 83.6 86.5 85.5 86.2 88.4 91.1 93.0 96.1 98.0 Electric power, gas and water 1.4 1.5 1.6 1.8 1.8 1.9 2.0 2.2 2.4 2.5 2.6 Geological survey & exploration 2.0 2.0 2.0 2.0 2.0 2.0 . 2.0 2.0 1.4 1.4 1.4 Construction 20.4 22.4 23.8 24.9 24.1 24.2 24.8 26.6 30.5 31.9 33.2 Transportation,posts&telecommuniications 12.8 13.8 14.5 15.2 15.2 15.7 16.2 16.7 16.9 18.6 19.4 Commerce, catering trade, supply & 23.1 24.1 25.8 27.4 27.7 28.4 30.0 32.1 34.6 39.2 42.9 marketing of materials and warehouses Real estate 0.4 0.4 0.4 0.4 0.4 0.4 0.5 0.5 0.7 0.7 0.8 Social services 4.0 4.7 5.0 5.3 5.5 5.9 6.0 6.4 5.4 6.3 7.0 Public health,sportsandsocial welfare 4.7 4.8 5.0 5.1 5.2 5.4 5.5 5.7 4.2 4.3 4.4 Education, culture, art,radio and 12.7 13.2 13.8 14.0 14.3 14.6 15.0 15.2 12.1 14.4 14.8 television broadcasting Scientific research, technical service 1.4 1.5 1.6 1.6 1.7 1.7 1.8 1.8 1.7 1.8 1.8 Banking and insurance 1.4 1.5 1.7 1.9 2.1 2.2 2.3 2.5 2.7 2.6 2.8 Governnents, parties and organizations 8.0 8.7 9.3 9.7 10.2 10.8 11.4 11.5 10.3 10.3 10.4 Others 13.2 13.4 15.0 16.6 17.1 18.0 19.1 23.1 37.4 41.6 44.9 TOTA1L 498.7 512.8 527.8 543.4 553.3 567.4 583.6 594.3 602.2 614.7 623.9 Agriculture 311.3 312.5 316.6 322.5 332.3 341.2 349.6 348.0 339.7 333.9 330.2 Industry 103.8 112.2 117.3 121.5 119.8 121.2 124.3 128.8 135.2 139.6 143.2 Service 83.6 88.1 93.9 99.4 101.3 105.0 109.8 117.6 127.4 141.2 150.6 Note: Agriculture consists of fanrming, forestry, animal husbandry, fishery and water conservancy, services are residual. Source: China Statistical Yearbook 1996, pp. 92. Table 31: Social Labor Force by Employment Category 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 (millions of workers) Total 498.7 512.8 527.8 543.4 553.3 567.4 583.6 594.3 602.2 614.7 623.9 583.6 Staffand workers 123.6 128.1 132.1 136.1 137.4 140.6 145.1 147.9 148.5 152.6 153.0 State-owned 89.9 93.3 96.5 99.8 101.1 103.5 106.6 108.9 109.2 112.1 112.6 Urban collective-owned 33.2 34.2 34.9 35.3 35.0 35.5 36.3 36.2 33.9 32.9 31.5 Other ownership 0.4 0.6 0.7 1.0 1.3 1.6 2.2 2.8 5.4 7.6 8.9 Urban individual laborers 4.5 4.8 5.7 6.6 6.5 6.7 7.6 8.4 11.2 15.6 20.5 Rural laborers 370.7 379.9 390.0 400.7 409.4 420.1 430.9 438.0 442.6 446.5 450.4 (percentage of total) Staff and workers 24.8 25.0 25.0 25.0 24.8 24.8 24.9 24.9 24.7 24.8 24.5 State-owned 18.0 18.2 18.3 18.4 18.3 18.2 18.3 18.3 18.1 18.2 18.0 Urban collective-owned 6.7 6.7 6.6 6.5 6.3 6.3 6.2 6.1 5.6 5.3 5.0 Other ownership 0.1 0.1 0.1 0.2 0.2 0.3 0.4 0.5 0.9 1.2 1.4 Urban individual laborers 0.9 0.9 1.1 1.2 1.2 1.2 1.3 1.4 1.9 2.5 3.3 Rural laborers 74.3 74.1 73.9 73.7 74.0 74.0 73.8 73.7 73.5 72.6 72.2 (growth rates) Total 3.5 2.8 2.9 2.9 1.8 2.5 2.9 1.8 1.3 2.1 1.5 Staffand workers 3.9 3.6 3.2 3.0 1.0 2.3 3.2 2.0 0.4 2.8 0.3 State-owned 4.1 3.8 3.4 3.4 1.3 2.3 3.1 2.1 0.3 2.7 0.4 Urban collective-owned 3.4 2.9 2.0 1.1 -0.7 1.3 2.2 -0.2 -6.3 -3.2 -4.2 Other ownership 18.9 25.0 30.9 34.7 36.1 24.2 31.7 30.6 91.5 40.7 17.6 Urban individual laborers 32.7 7.3 17.8 15.8 -1.7 3.4 13.4 10.5 33.3 39.3 31.4 Rural laborers 3.0 2.5 2.7 2.7 2.2 2.6 2.6 1.7 1.0 0.9 0.9 Source: China Statistical Yearbook 1996, p. 90. Table 32: General Price Indices (annual growth rates) 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 Overall Retail Price 8.8 6.0 7.3 18.5 17.8 2.1 2.9 5.4 13.2 21.7 14.8 6.2 Overall Retail Price Index 1990=100 61.7 65.4 70.2 83.1 97.9 100.0 102.9 108.5 122.8 149.4 171.5 182.1 Overall Consumer Price 9.3 6.5 7.3 18.8 18.0 3.1 3.4 6.4 14.7 24.1 17.1 8.3 of which Urban 11.9 7.0 8.8 20.7 16.3 1.3 5.1 8.6 16.1 25.0 16.8 8.8 Rural 7.6 6.1 6.2 17.5 19.3 4.5 2.3 4.7 13.7 23.4 17.5 7.9 Overall Farm and Sideline 8.6 6.4 12.0 23.0 15.0 -2.6 -2.0 3.4 13.4 39.9 19.9 Purchasing Price Overall Industrial Products Rural 3.2 3.2 4.8 15.2 18.7 4.6 3.0 3.1 11.8 17.2 14.7 Retail Price Overall Industrial and Agricultural -5.0 -3.0 -6.4 -6.3 3.2 7.4 5.1 -0.3 -1.4 -16.2 -4.4 Products Price Parity Source: China Slalistiwal Yearbook J 996, p 255; China Monthly Statistics. Table 33: Annual Rates of Inflation by Month (percentage change in the index over the previous 12 months) JAN FEB MAR APR MAY JUN JUL AU)G SEP OCT NOV DEC Overall Retail Price indcx 1987 5.0 5.1 5.5 6.5 7.6 7.8 8.0 8.4 7.9 7.6 8.5 9.1 1988 9.5 11.2 11.6 12.6 14.7 16.5 19.3 23.2 25.4 26.1 26.0 26.7 1989 27.0 27.9 26.3 25.8 24.3 21.5 19.0 15.2 11.4 8.7 7.1 6.4 1990 4.1 4.1 3.3 3.1 2.6 3.0 0.7 0.4 0.8 1.1 1.6 2.2 1991 1.4 1.0 0.9 0.6 3.1 3.8 4.2 4.0 4.3 4.0 4.4 4.0 1992 5.1 4.9 5.0 6.2 4.1 4.2 4.3 4.7 5.7 6.4 6.6 6.7 1993 8.4 8.7 10.2 10.9 12.5 13.9 14.9 15.1 14.5 14.6 15.1 17.6 1994 18.8 20.9 20.2 19.5 18.9 19.6 21.4 23.5 24.6 25.2 25.0 23.3 1995 21.2 19.7 18.7 18.0 17.6 16.0 14.6 12.3 11.4 10.3 9.2 8.3 1996 7.6 7.7 7.7 7.4 6.5 5.9 5.8 5.8 5.0 4.7 4.6 6.1 1997 3.3 2.9 Cost of l.iving Index 1987 5.0 5.3 5.6 6.6 7.7 7.9 8.0 8.4 7.8 7.6 8.5 9.2 1988 9.7 10.7 11.6 12.6 14.5 16.7 19.8 24.1 26.4 27.0 26.8 27.7 1989 27.4 28.4 27.0 26.5 24.7 22.5 18.9 14.8 10.8 7.7 6.4 5.5 1990 3.5 3.5 2.7 2.5 2.0 2.4 0.2 -0.1 0.5 0.9 1.4 2.1 1991 1.5 1.0 0.8 0.4 3.0 3.8 4.3 4.1 4.4 4.0 4.6 4.0 1992 5.1 4.9 5.2 6.9 4.3 4.3 4.7 5.1 5.9 6.7 6.8 7.0 1993 8.6 .8.9 10.2 10.4 11.9 13.3 14.3 14.6 14.1 14.4 15.2 17.9 1994 21.1 23.2 22.4 21.7 21.3 22.6 24.0 25.8 27.4 27.7 27.5 25.5 1995 24.1 22.4 21.3 20.7 20.3 18.2 16.7 14.5 13.2 12.1 11.2 10.1 1996 9.0 9.3 9.8 9.7 8.9 8.6 8.3 8.1 7.4 7.0 6.9 7.0 1997 5.9 5.6 I:rec market Pricc index of Consumer Goods 1987 22.0 7.9 7.4 14.2 15.6 20.1 16.9 20.0 16.5 19.9 22.6 20.8 1988 20.0 27.9 28.8 23.1 21.5 22.4 27.7 33.2 37.3 36.5 34.8 30.6 1989 27.5 26.9 19.2 21.0 20.1 15.0 14.9 9.1 3.3 0.9 -6.4 -6.6 1990 -5. 1 -6.6 -5.1 -2.0 -5.7 -5.3 -7.3 -7.5 4.4 -4.3 -3.8 -0.5 1991 -2.3 -0.8 -5.2 -6.9 -5.5 0.3 1.8 0.6 -0.2 1.7 1.0 0.8 1992 3.7 -0.3 2.0 1.6 2.5 -1.5 -0.2 2.5 3.1 6.5 3.7 3.1 1993 6.7 4.1 4.6 8.0 10.0 14.4 16.0 14.8 14.4 11.8 16.7 23.6 Source: China Monthly Statistics. Table 34: Total Investment in Fixed Assets 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 (billions of yuan) Total fixed investment 254.3 302.0 364.1 449.7 413.8 444.9 550.9 785.5 1,245.8 1,704.3 2,001.9 State-owned 168.1 197.9 229.8 276.3 253.5 273.3 337.8 476.8 765.8 961.6 1,089.8 Collective-owned 32.7 39.2 54.7 71.2 57.0 52.9 69.8 135.9 223.1 275.9 328.9 Individual-owned 53.5 64.9 79.6 102.2 103.2 100.1 118.3 122.2 147.6 197.1 256.0 Other 0.0 0.0 0.0 0.0 0.0 18.6 25.0 50.6 109.2 269.8 327.1 Fixed investment by CENTER & LOCAL CENTER .. .. .. 105.8 116.8 128.0 150.5 184.7 LOCAL .. .. .. 170.5 136.7 145.3 187.3 277.5 (percentage of total) Total fixed investment 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 State-owned 66.1 65.5 63.1 61.4 61.3 61.4 61.3 60.7 61.5 56.4 54.4 Collective-owncd 12.9 13.0 15.0 15.8 13.8 11.9 12.7 17.3 17.9 16.2 16.4 Individual-owned 21.0 21.5 21.9 22.7 24.9 22.5 21.5 15.6 11.8 11.6 12.8 "ther 0.0 0.0 0.0 0.0 0.0 4.2 4.5 6.4 8.8 15.8 16.3 Fixed investment by CENTER & LOCAL CENTER .. .. .. 38.3 46.1 46.8 44.5 38.7 LOCAL .. .. .. 61.7 53.9 53.2 55.5 58.2 Total fixed investment/GDP (%) 28.4 29.6 30.4 30.1 24.5 24.0 25.5 29.5 36.0 36.6 34.4 Source: China Statistical Yearbook 1996, p. 140 for 1995; previous issues for ealier years. Table 35: Investment in Fixed Assets by State Owned Enterprises 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 (billions of yuan) Fixed Investment 168.1 197.9 229.8 276.3 253.5 273.3 337.8 476.8 765.7 961.5 1089.8 Capital Construction 107.4 117.6 134.3 157.4 155.2 170.4 211.6 301.3 461.6 643.7 740.4 'I'echnical Upgdating 44.9 61.9 75.9 98.1 78.9 83.0 102.3 146.1 219.6 291.9 329.9 Other 15.7 18.3 19.6 20.8 19.5 19.9 23.9 29.4 84.6 26.0 19.5 Fixed Investmcnt by Sector 168.1 197.9 229.8 276.3 253.5 273.3 337.8 476.8 765.7 961.5 1089.8 of which Raw materials .. .. .. 69.5 64.0 71.8 85.9 68.8 Energy .. .. .. 64.5 70.6 82.4 95.7 114.9 Transport and communications .. .. .. 28.5 22.9 26.9 40.7 75.7 Construction incl. geography .. .. .. 2.8 2.2 1.8 2.1 3.9 Real Estate .. .. .. 18.8 14.8 11.3 16.7 26.5 (percentage of total) Fixed Investment 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Capital Construction 63.9 59.4 58.4 57.0 61.2 62.3 62.6 63.2 60.3 66.9 67.9 'I'echnical Upgdating 26.7 31.3 33.0 35.5 31.1 30.4 30.3 30.6 28.7 30.4 30.3 Other 9.3 9.3 8.5 7.5 7.7 7.3 7.1 6.2 11.0 2.7 1.8 F:ixed Investment by Sector 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 of which Raw materials .. .. .. 25.2 25.2 26.3 25.4 14.4 - Energy . .. .. 23.3 27.8 30.1 28.3 24.1 ... ... 'I'ransport and communications .. .. .. 10.3 9.0 9.8 12.1 15.9 Construction inel. geography .. .. .. 1.0 0.8 0.7 0.6 0.8 Real Estate ,. .. ,, 6.8 5.9 4.1 4.9 5.6 Source: China Statistical Yearbook 1996, p 148 for 1985-95 Table 36: Investment in Capital Constuection of State-Owned Enterprises by Sector 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 (billions of yuan) All Sectors 107.4 117.6 134.3 157.4 155.2 170.4 211.6 301.3 461.6 643.7 740.4 Agriculture 1.7 1.6 2.0 2.3 2.0 2.6 3.3 4.4 4.6 5.7 7.7 Industry 44.6 53.2 68.3 81.3 82.2 95.3 114.7 145.8 200.4 276.2 323.6 Geology 2.6 2.6 3.0 2.9 3.6 4.6 5.9 8.2 9.8 12.1 16.6 Construction 2.2 1.9 1.5 1.5 1.4 1.0 1.3 2.3 11.5 13.8 14.6 TFransport 17.8 18.8 19.5 21.6 17.0 21.1 34.0 45.8 90.1 137.3 158.8 Commerce 4.0 3.5 4.2 5.0 4.2 3.9 6.4 13.7 20.3 25.5 24.9 Real Estate & Social Services 11.8 11.0 9.3 13.4 11.2 8.2 12.2 21.0 44.3 73.4 67.3 Educaiton, Health, & Culture etc. 10.1 11.6 12.6 13.2 12.9 13.8 15.2 19.7 27.1 35.5 45.8 Research 2.1 2.5 2.6 2.3 2.2 2.1 2.3 3.2 4.9 5.3 6.8 Banking & Insurance 0.7 0.8 1.3 1.9 1.6 1.5 1.9 3.0 6.7 9.6 12.6 Government Agencies & (ther 9.8 10.1 10.0 12.0 17.0 16.3 14.4 34.3 41.8 49.4 61.8 (percentage ol'total) All Sectors 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Agriculture 1.6 1.3 1.5 1.5 1.3 1.5 1.6 1.4 1.0 0.9 1.0 Industry 41.6 45.2 50.8 51.6 53.0 55.9 54.2 48.4 43.4 42.9 43.7 (Gcology 2.5 2.2 2.3 1.8 2.3 2.7 2.8 2.7 2.1 1.9 2.2 Construction 2.0 1.6 1.1 1.0 0.9 0.6 0.6 0.8 2.5 2.1 2.0 Transport 16.6 16.0 14.5 13.7 11.0 12.4 16.1 15.2 19.5 21.3 21.4 Commerce 3.7 2.9 3.1 3.2 2.7 2.3 3.0 4.5 4.4 4.0 3.4 RealEstate&SocialServices 11.0 9.4 6.9 8.5 7.2 4.8 5.8 7.0 9.6 11.4 9.1 Educaiton, Health, & Culture etc. 9.4 9.9 9.3 8.4 8.3 8.1 7.2 6.5 5.9 5.5 6.2 Research 1.9 2.2 2.0 1.5 1.4 1.2 1.1 1.0 1.1 0.8 0.9 1lankirig & Inisurance 0.7 0.7 1.0 1.2 E0 0.9 0.9 1.0 1.4 1.5 1.7 GovemmentAgencies&Other 9.1 8.6 7.5 7.6 10.9 9.6 6.8 11.4 9.1 7.7 8.3 S.urI: Chm. SlasIt.ril Yearbhook 1996 p1.148 Table 37: Foreign Direct Investment Inflows (millions of US dollars) 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 TO1AL 1,958.7 2,243.7 2,646.6 3,739.7 3,773.5 3,754.9 4,666.6 11,291.6 27,770.9 33,945.8 37,805.7 of which, from Hong Kong & Macao 955.7 1,328.7 1,809.1 2,428.1 2,341.8 2,118.5 2,661.8 7,908.9 18,032.5 20,332.1 20,624.9 Japan 315.1 263.4 266.6 598.4 407.7 520.5 609.5 748.3 1,361.4 2,086.2 3,212.5 Korea .. .. . . . .. 674.8 381.5 726.1 1,047.1 Taiwan (China) .. .. .. .. .. .. 471.9 1,053.4 3,139.1 3,391.3 3,165.2 United Kingdom 71.4 35.3 13.8 46.6 29.0 19.9 37.9 38.5 220.5 688.8 915.2 France 32.5 43.6 17.3 31.6 11.6 23.4 11.7 46.9 141.4 193.4 287.0 Italy 19.4 29.4 21.5 36.2 34.2 8.1 41.3 26.7 99.9 206.2 270.2 United States 357.2 326.2 271.3 244.4 288.2 461.2 330.7 519.4 2,067.9 2,490.8 3,083.7 RECEIVED BY PROVINCES Regional Total 1,320.6 1,741.7 1,782.7 3,149.7 3,437.3 3,436.4 4,425.8 11,003.3 27,341.7 33,267.7 37,215.5 Beijing 88.8 149.7 105.8 503.2 320.2 279.0 245.0 349.9 666.9 1,371.6 1,080.0 Tianjin 63.8 134.8 133.1 61.2 31A4 36.9 132.6 107.8 613.7 1,015.0 1,520.9 Ilebei 55.9 51.4 10.3 19.1 43.7 44.5 56.6 113.1 396.5 523.4 546.7 Shanxi 0.5 0.2 4.9 6.5 9.8 3.4 3.8 53.8 86.4 31.7 63.8 Inner Mongolia 2.6 7.5 5.1 6.4 4.4 10.6 1.7 5.2 85.3 40.1 57.8 Liaoning 25.8 48.2 90.8 130.6 126.1 257.3 362.4 516.4 1,279.1 1,440.1 1,424.6 Jilin 4.9 24.2 7.4 9.7 99.9 17.6 31.6 75.3 275.3 241.9 408.0 Heilongjiang 4.0 24.5 14.0 69.3 57.4 28.4 20.9 72.2 232.3 347.6 516.9 Shanghai 108.8 148.9 214.0 233.2 422.1 174.0 145.2 493.6 3,160.3 2,473.1 2,892.6 Jiangsu 51.1 45.6 86.4 125.5 126.9 134,0 219.2 1,463.2 2,843.7 3,763.2 5,190.8 Zhejiang 26.6 24.8 36.3 43.8 54.0 49.1 92.3 239.8 1,031.8 1,150.3 1,258.1 Anhui 3.0 35.2 3.2 27.9 8.8 13.5 10.7 54.7 257.6 370.0 482.6 Fujian 118.6 62.5 55.4 145.5 348.0 319.9 471.2 1,423.6 2,874.4 3,713.2 4,043.9 Jiangxi 10.5 9.1 5.4 8.9 9,2 7.5 19.5 99.7 208.2 261.7 288.9 Shandong 35.6 65.7 65.0 89.7 163.3 185.7 216.4 1,003.4 1,874.1 2,552.4 2,689.0 Henan 8.3 10.7 13.5 64.2 46.1 11.4 38.0 53.2 304.9 386.7 478.6 Ilubei 8.0 12.4 26.0 22.3 28.6 31.8 46.6 203.1 540.5 601.9 625.1 llunan 31.0 28.5 2.9 12.9 23.3 14.2 25.4 132.7 437.5 331.1 507.7 Guangdong 651.3 862.7 736.9 1,251.1 1,323.2 1,582.3 1,942.9 3,701.1 7,555.8 9,463.4 10,260.1 Guangxi 30.9 49.2 45.1 20.9 53.0 35.6 31.9 182.0 884.6 836.3 672.6 Hainan .. .. 117.4 95.0 103.0 176.7 452.6 707.1 918.1 1,062.1 Sichuan 28.7 31.8 24.3 40.3 13.1 24.4 80.9 112.1 571.4 921.7 541.6 Ciuizhou 9.8 12.2 13.8 13.9 11.1 16.3 19.8 42.9 63.6 57.0 Yunnan 1.6 3.8 6.3 8.3 7.9 7.4 3.5 28.8 97.0 65.0 97.7 TFibet , .. .. .. .. .. Shaanxi 15.6 37.2 72.9 111.7 97.2 47.3 31.8 45.5 234.3 238.8 324.1 Gansu 0.6 1.3 0.2 2.4 0.0 1.2 4.8 0.4 12.0 87.8 63.9 Qinghai 0.2 0.0 0.0 2.7 0.0 0.0 0.0 0.7 3.2 2.4 1.6 Ningxia 0.3 0.1 0.0 0.3 1.1 0.3 0.2 0.4 11.9 7.3 3.9 Xinjiang 10.9 14.0 17.7 5.0 0.9 5.4 0.2 0.0 53.0 48.3 54.9 So.u,c- Ch- Smnast-,dl Karbook 1996, pp. 598-600 for 1994-95; previous issues for earlher years. Table 38: Production and Consumption of Energy 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 PRODUCTION 855.5 881.2 912.7 958.0 1,016.4 1,039.2 1,048.4 1,072.6 1,110.6 1,187.3 1,287.3 (millions of tons of coal equivalent) (percentage of total) Coal 72.8 72.4 72.6 73.1 74.1 74.2 74.1 74.3 74.0 74.6 75.5 Crudeoil 20.9 21.2 21.0 20.4 19.3 19.0 19.2 18.9 18.7 17.6 16.7 Natural gas 2.0 2.1 2.0 2.0 2.0 2.0 2.0 2.0 2.0 1.9 1.8 HIydro power 4.3 4.3 4.4 4.5 4.6 4.8 4.7 4.8 5.3 5.9 6.0 CONSUMPTION 766.8 808.5 866.3 930.0 969.3 987.0 1,037.8 1,091.7 1,159.9 1,227.4 1,290.0 (percentage of total) Coal 75.8 75.8 76.2 76.2 76.0 76.2 76.1 75.7 74.7 75.0 75.0 Crude oil 17.1 17.2 17.0 17.0 17.2 16.6 17.1 17.5 18.2 17.4 17.3 Natural gas 2.2 2.3 2.1 2.1 2.0 2.1 2.0 1.9 1.9 1.9 1.8 llydro power 4.9 4.7 4.7 4.7 4.9 5.1 4.8 4.9 5.2 5.7 5.9 GDP (billion of yuan, constant 1990 price) 1,136.7 1,255.7 1,421.8 1,595.9 1,654.3 1,721.7 1,874.3 2,149.9 2,401.0 2,726.6 3,016.3 Energy consumption 0.7 0.6 0.6 0.6 0.6 0.6 0.6 0.5 0.5 0.5 0.4 (million ton per billion yuan) Notes: Excluding bio-energy, solar, geothermal and nuclear energy. All fuels are converted into standard fuel with thennal equivalent of 7,000 kilocalories per kilogran. The conversion is I kg of coal (5,000 kcal) - 0.714 kg of standard fuel. I kg of crude oil (10,000 kcal) 1 1.43 kg of standard fuel. I cubic meter of natural gas (9,310 kcal) = 1 33 kg. of standard fuel. The conversion of hydropower into standard fuel is calculated on the basis of the consumption quota of standard coal for thermal power gencration for the year. Source: China Statistical Yearbook 1996, p 203. Table 39: Freight Traffic 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 (billion ton/km) Rail 812.6 876.5 947.1 987.8 1,039.4 1,062.2 1,097.2 1,157.6 1,195.5 1,245.8 1,287.0 Road 190.3 211.8 266.0 322.0 337.5 335.8 342.8 375.5 407.1 448.6 469.5 Domestic waterways 240.0 270.0 288.9 310.4 349.8 345.1 396.5 422.2 472.7 1,568.7 1,755.2 Pipelines 60.3 61.2 62.5 65.0 62.9 62.7 62.1 61.7 60.8 61.2 59.0 Civil aviation 0.4 0.5 0.7 0.7 0.7 0.8 1.0 1.3 1.7 1.9 2.2 OVERALL 1,303.7 1,420.0 1,565.2 1,686.0 1,790.3 1,806.6 1,899.7 2,018.4 2,137.7 3,326.1 3,573.0 Ocean shipping 532.9 594.8 657.6 696.6 768.9 814.1 899.0 903.4 913.4 (percentagc of total) Rail 62.3 61.7 60.5 58.6 58.1 58.8 57.8 57.4 55.9 37.5 36.0 Road 14.6 14.9 17.0 19.1 18.9 18.6 18.0 18.6 19.0 13.5 13.1 Domestic waterways 18.4 19.0 18.5 18.4 19.5 19.1 20.9 20.9 22.1 47.2 49.1 Pipelines 4.6 4.3 4.0 3.9 3.5 3.5 3.3 3.1 2.8 1.8 1.7 Civil aviation 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.1 0.1 (growth rates) Rail 12.1 7.9 8.1 4.3 5.2 2.2 3.3 5.5 3.3 4.2 3.3 Road 23.9 11.3 25.6 21.0 4.8 -0.5 2.1 9.6 8.4 10.2 4.6 D)omestic waterways 22.4 12.5 7.0 7.5 12.7 -1.3 14.9 6.5 12.0 231.9 11.9 Pipelines 5.4 1.5 2.1 4.0 -3.2 -0.3 -1.0 -0.6 -1.5 0.7 -3.6 Civil aviation 33.4 15.9 35.1 12.3 -5.5 18.8 23.2 32.9 23.8 11.9 20.0 OVERALL 15.2 8.9 10.2 7.7 6.2 0.9 5.1 6.3 5.9 55.6 7.4 Ocean shipping 21.8 11.6 10.6 5.9 10.4 5.9 10.4 0.5 1.1 .. Source: China Statistical Yearbook 1996, p. 504. Table 40: Passenger Traffic 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 (billion passenger/kmi) Rail 241.6 258.7 284.3 326.0 303.7 261.3 282.8 315.2 348.3 363.6 354.6 Road 172.5 198.2 219.0 252.8 266.2 262.0 287.2 319.3 370.1 422.0 460.3 Domestic waterways 17.9 18.2 19.6 20.4 18.8 16.5 17.7 19.8 19.6 18.4 17.2 Civil aviation 11.7 14.6 18.2 21.7 18.7 23.0 30.1 40.6 47.8 55.2 68.1 OVERAILL 443.6 489.7 541.1 620.9 607.5 562.8 617.8 694.9 785.8 859.1 900.2 (as a percentage of total) Rail 54.5 52.8 52.5 52.5 50.0 46.4 45.8 45.4 44.3 42.3 39.4 Road 38.9 40.5 40.5 40.7 43.8 46.6 46.5 45.9 47.1 49.1 51.1 I)omestic waterways 4.0 3.7 3.6 3.3 3.1 2.9 2.9 2.9 2.5 2.1 1.9 Civil aviation 2.6 3.0 3.4 3.5 3.1 4.1 4.9 5.8 6.1 6.4 7.6 OVERALL 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 (growth rates) Rail 18.1 7.1 9.9 14.7 -6.8 -14.0 8.2 11.5 10.5 4.4 -2.5 Road 29.0 14.9 10.5 15.4 5.3 -1.6 9.6 11.2 15.9 14.0 9.1 Domestic waterways 16.4 1.9 7.6 4.1 -7.7 -12.4 7.5 11.9 -1.0 -6.6 -6.4 Civil aviation 39.8 25.4 24.4 19.2 -13.9 23.4 30.7 34.8 17.6 15.5 23.5 OVEIRA,LL 22.5 10.4 10.5 14.7 -2.2 -7.3 9.8 12.5 13.1 9.3 4.8 Source: China Statshcal rearbook 1996, p. 503. Table 41: Average Shipping Distance 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 (kilometers) Rail 636 646 673 681 686 705 718 734 735 791 807 Road 31 34 37 44 46 46 46 48 48 50 50 Waterways 1,216 1,042 1,174 1,128 1,281 1,447 1,554 1,433 1,415 1,465 1,551 I'ipelilnes 442 413 413 416 402 398 399 417 409 406 386 Civil aviation 2,128 2,143 2,183 2,226 2,226 2,218 2,234 2,330 2,393 2,241 2,206 OVERALI 243 236 234 243 258 270 284 279 274 282 289 (growth rates) Rail 8.9 1.6 4.2 1.2 0.7 2.8 1.8 2.2 0.1 7.6 2.0 Road 40.9 9.7 8.8 18.9 4.5 0.0 0.0 4.3 0.0 4.2 0.0 Waterways -10.0 -14.3 12.7 -3.9 13.6 13.0 7.4 -7.8 -1.3 3.5 5.9 Pipelines -3.1 -6.6 0.0 0.7 -3.4 -1.0 0.3 4.5 -1.9 -0.7 4.9 Civil aviation 2.6 0.7 1.9 2.0 0.0 -0.4 0.7 4.3 2.7 -6.4 -1.6 OVERALL. 11.0 -2.9 -0.8 3.8 6.2 4.7 5.2 -1.8 -1.8 2.9 2.5 Source: China Statistical Yearbook 1996, p 505 IMAGING 51.- .... Report No.: 17027 CHA m Tvne- SR