CHINA: THE WORLD’S LARGEST ECONOMY Economics 1490 THE WORLD ECONOMY: GROWTH OR STAGNATION? with Professor Dale W. Jorgenson Lecture 19. CHINA: THE WORLD’S LARGEST ECONOMY November 2, 2017 Harvard University Department of Economics Fall 2017

THE WORLD ECONOMY: GROWTH OR STAGNATION? A. Comparing Economies B. U.S. Crisis and Recovery C. European Slowdown D. Asian Economic Miracles E. Sustainability of Economic Growth F. World Economic Outlook

D. ASIAN ECONOMIC MIRACLES 16. Is Asia’s Miracle a Myth?  17. Reviving Japanese Economic Growth 18. The Rise of Developing Asia 19. China: The World’s Largest Economy 20. India: The Most Rapidly Growing Economy

SUPPLEMENTARY READING World Bank (2015), China Economic Update, Washington, DC, The World Bank, July 3.  http://www.worldbank.org/content/dam/Worldbank/document/EAP/China/ceu_06_15_en.pdf   National Development and Reform Commission (2016), An Overview of the 13th Five Year Plan, Beijing, China, NDRC, December 7. http://en.ndrc.gov.cn/newsrelease/201612/t20161207_829923.html

CAPITAL MUSEUM Capital Museum

THE DECISION ON MAJOR ISSUES CONCERNING COMPREHENSIVELY DEEPENING REFORMS 1. Reform and opening-up has been a crucial choice that China has made regarding its destiny in modern times. But there can never be an end to the need for the emancipation of individual thought or for continuing reform and opening-up. China must deepen its all-round reform with a new starting point. 2. China must stick to the socialist market economy as the orientation of its reform, must promote social fairness and justice and must seek to advance the well-being of the people. The general purpose of deepening its all-round reform is to develop socialism with Chinese characteristics, to advance modernization in the State governance system and governance capability. The basic economic system should evolve on the decisive role of the market in resource allocation. Political reform must evolve around the leadership of the Communist Party of China and advance the institutionalization of socialist democracy. Cultural reform must evolve around the socialist core value system. Social reform must evolve around the protection and improvement of the people's livelihood and advance fairness and justice. The development of an eco-conscious civilization must evolve around the building of a beautiful China. The reform of Party building must evolve on the effort to raise the level of governance to be scientific, democratic and according to the law. 3. The reform of the economic system is the focus of all the efforts to deepen the all-round reform. 4. The successful experience of the past reform and opening-up must be built upon. Decisive results are to be obtained in key areas in 2020. Adopted at the Third Plenary Session of the 18th Communist Party of China Central Committee. China Daily, November 16, 2013.

CHINESE ECONOMIC GROWTH BEFORE THE CRISIS Growth Averaged Nearly Ten Percent Per Year from 1989-2008. Investment Has Exceeded Forty Percent of GDP Growth Accelerated from 2004-2008, Powered by a Surge in Exports Growth Was Interrupted in the Fourth Quarter of 2008 by the Collapse of Exports, but Growth for the Year was 9.6 Percent.

WEN JIBAO Wen Jibao Promises to Maintain Economic Growth in the Year of the Tiger Despite Turbulence

ZHONGNANHAI COMPOUND South Entrance to Zhongnanhai Compound, Site of November 5, 2008, Meeting of the State Council Convened by Premier Wen Jibao

CENTRAL DOCUMENT NO. 18

CHINA'S RESPONSE TO THE CRISIS Provincial and Local Governments Responded to the Meeting at Zhongnanhai on November 5, 2008, by Proposing Investment Projects Amounting to 80 Percent of the GDP. The Stimulus Package Extended Over Nine Quarters, Beginning with the Fourth Quarter of 2008, and Amounted to Thirteen Percent of the GDP. Projects Were Mainly Financed by the Central Government through Borrowing.

CHINA BEFORE AND AFTER THE CRISIS China's Response to the Global Financial and Economic Crisis Was Extremely Rapid The Stimulus Program Was Focused on Investment. This Has Postponed Efforts to Restore the Role of Private Consumption as a Proportion of the GDP Exports Dipped in 2009, but Rebounded Sharply in 2010. Monetary Policy Became More Restrictive to Avoid the Risk of Overheating.

HIGH-SPEED RAIL AND THE STIMULUS PROGRAM As China upgrades and expands its rail system, it creates the economies of large-scale production for another big export industry. “The sheer volume of equipment that they will require, and the technology that will have to be developed, will simply catapult them into a leadership position,“ said Stephen Gardner, Amtrak’s vice president for policy and development [...] Officials drafted a plan to move much of the nation’s passenger traffic onto high-speed routes by 2020, freeing existing tracks for more freight. Then the global financial crisis hit in late 2008. Faced with mass layoffs at export factories, China ordered that the new rail system be completed by 2012 instead of 2020, throwing more than $100 billion in stimulus at the projects. Administrators mobilized armies of laborers ­ 110,000 just for the 820-mile route from Beijing to Shanghai, which cut travel time to five hours, from 12, when it was opened in June 30, 2011.

TRAVEL IN THE YEAR OF THE TIGER (2010) The world’s largest human migration ­ the annual crush of Chinese traveling home to celebrate the Lunar New Year ­ is going a little faster this time thanks to a new high-speed rail line. The Chinese bullet train, which has the world’s fastest average speed, connects Guangzhou, the southern coastal manufacturing center, to Wuhan, deep in the interior. In a little more than three hours, it travels 664 miles, comparable to the distance from Boston to southern Virginia. That is less time than Amtrak’s fastest train, the Acela, takes to go from Boston just to New York. Even more impressive, the Guangzhou to Wuhan train is just one of 42 high- speed lines recently opened in China. By comparison, the United States hopes to build its first high-speed rail line by 2014, an 84-mile route linking Tampa and Orlando, Fla.

TUESDAY, OCTOBER 26, 2010 China on Tuesday unveiled the world's fastest bullet train, which will connect two of the country's industrial hubs travelling at an average speed of 245 miles per hour or over 350 kilometers per hour. During trials, the train set the world speed record traveling at over 420 kilometers per hour.   The home-built CRH380 bullet train represents a large step forward for the Chinese high-speed rail program as previous trains had used shared technology from Europe and Japan. The CRH380 train, operating on the Beijing-Shanghai High Speed Railway, can reach an operational speed of 380 km/h (240 mph), but runs at 300 km/h. The rail link Shanghai and Hangzhou, covers the 200-km distance in only 45 minutes, reducing the travelling time from 78 minutes. On 23 July 2011, two high-speed trains collided in the Lucheng District of Wenzhou, Zhejiang Province, China. Several carriages of each were derailed. State-run Chinese media confirmed 40 deaths, and at least 192 people were hospitalized, including 12 who were severely injured. The Chinese government formed a commission to investigate the accident with a directive to report its findings in September 2011. On August 10, 2011, the Chinese government announced that it was suspending approvals of any new high-speed rail lines pending the outcome of the investigation.

THE CHINESE HOME-BUILT CRH380A

CHINA HIGH-SPEED RAIL NETWORK, 2020

CHINA’S RESPONSE TO THE CRISIS: SUMMARY First paragraph should read: The Stimulus Program Put in Place on November 5, 2008, Was Focused on Investment. The 12th Five-Year Plan, Inaugurated in 2011, Was Intended to Rebalance the Chinese Economy Away from Investment and Exports and Toward Private Consumption. Investment in High-Speed Rail and Other Major Infrastructure Projects Will Continue. China Plans to Spend $300 Billion to Build a 25,000 Km (16,000 Mi) High-Speed Rail Network by 2020.

CHINA’S IMPRESSIVE ECONOMIC PERFORMANCE

CHINA OVERTAKES JAPAN

THE WORLD’S LARGEST EXPORTER

THE WORLD’S LARGEST MANUFACTURER

CHINA’S PROJECTED GROWTH PATTERN

HIGH SAVINGS

SAVINGS IN CHINA COMPARED TO OTHER ECONOMIES

CONSUMPTION

INVESTMENT

INEQUALITY

TIME LINE FOR CHINESE ECONOMY POLICY 2012: Xi Jinping and Li Keqiang Assume Office. 2013: Third Plenum of the Central Committee of the Communist Party of China. 2015: Guiding Opinions on Deepening Reform of State-Owned Enterprise. 2016-2010: Thirteenth Five-Year Plan

ENVIRONMENTAL COSTS

CHINA’S ‘NEW NORMAL’ Faster Urbanization Poverty Relief Child Policy Change Household Registration System Balanced, Sustainable Growth in 2016-2020. Wider Opening Up Financial Reforms ‘Green’ Development

SUPPLY SIDE STRUCTURAL REFORM 1. Cut excess [industrial] capacity 2. Cut down excess stocks [of unsold housing] 3. Cut leverage (i.e., reduce debt) 4. Reduce costs 5. Fill in weak spots