China: stylized facts PRESENTATION By Richard Herd Head Asian non-members Unit OECD Economics Department March 2006 OECD Development Centre Conference China, India and Africa

Growth has been very rapid GDP growth at constant prices

Three factors have boosted growth: Reform of the economic environment Capital formation Structural change

Major reforms are very recent

Prices are now market determined Share of price regulated transactions for industrial products

The economy has opened to foreign trade Average of exports and imports as % of GDP

Chinese imports a growing source of demand % of regions GDP China

The number of state firms has fallen rapidly Share of Industrial sector Firms

The private sector output skyrockets …. Constant prices gross output

…… and is more productive … Excess productivity of firm types relative to direct state ownership

….. dominating exports … Note: These industries represent 75% of export value in Source: NBS industrial microdata

… and is now bigger than public sector Private sector value added as per cent of sector GDP

Rapid growth of capital Fixed capital formation has accounted for half of growth Human capital expanding rapidly

The capital stock has grown fast Annual Per cent change in estimated capital stock

Financed by high private sector saving Per Cent of GDP

Fiscal policy has been prudent Budget balance % of GDP Per cent of GDP

With little recourse to public debt Budget balance as Per Cent of GDP

Factors behind the growth in real income Share of growth attributable to each factor

Educational output has surged Primary education almost complete Junior high very good University intake tripled

And is likely to continue growing Source: Ministry of Education Proportion of age group receiving given education level

Third factor: structural change Move from agriculture Source of productivity growth

Significant growth from sectoral change Productivity growth from structural change, five year average Per Cent per year % per year

Important micro-economic structural reforms needed Financial markets Basic economic laws need improvement Labour markets need to be freer

Better basic laws for the private sector needed A new company law is needed A new bankruptcy law A better anti-monopoly law also required Laws to implement Constitutional Amendments

Enforcement of commercial laws needs improving Difficult to obtain and enforce IPR judgements Evidence of local prejudice in judgements Creates barriers to innovation and expansion Move to more central funding of judiciary Separate courts for commercial law

Reducing regional inequalities Urbanisation is a positive factor for development Migration has been restricted Boosts spatial income inequality Complex group of policies needs changing

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