Chinas Economic Prospects: 2006 – 2020 Li Shantong

Growth Prospects for Areas of uncertainty –International Rise in protectionism Dollar crash Worsening terms of trade (cost of imports v. exports) Financial liberalization leading to volatility –Domestic Savings patterns of aging of population Persistent rural poverty Sluggish employment generation Shortage in strategic resource reserve and environmental capacity will be of increasing constraints to economic growth

Population Growth

Population Growth

The Challenges of Economic Development in the Future

Model Dimension 34 production sectors and 2 representative households – 1 agricultural sectors, 24 industrial sectors, 9 service sectors, – 2 representative households by rural and urban 5 production factors – agricultural land, capital, agricultural labor, production worker, and professionals Emission of Pollutant – SO 2, NO X,TSS, Soot

Recursive Dynamics The benchmark year: 2002 Factor growth and accumulation – Labor and land growth – Capital accumulation Change in productivity

Business-as-Usual Labor moves from agriculture to non- agricultural sectors at the rate of 1.21 percent per year Technological and intermediate input changes continue the trend of recent years Total factor productivity (TFP) growth follows the pattern of past 25 years, at percent

Optimistic Scenario Labor moves from agriculture to non- agricultural sectors at the rate of 1.36 percent per year Technological and intermediate inputs reflect increased demand for service and high technology goods; the rate of value-added increases TFP growth rate of service sectors is 1percent higher than BAU in and 0.5 percent higher in Energy utilization efficiency is percent higher than BAU

Risk Scenario Labor moves from agriculture to non- agricultural sectors at the rate of 0.91 percent per year Household saving rate is lower than BAU TFP growth rate is lower than the level of the past 25 years, at percent

Economic Growth and Structure (% BaU)

Economic Growth and Structure (% Optimistic Scenario)

Economic Growth and Structure (% Risk Scenario)

Growth Prospects for It is still possible for China to maintain its relatively fast economic growth in the next 15 years. Numerous challenges confronting future development The opportunities and challenges in the next 15 years will be not evenly distributed, and the period from 2005 to 2010 will be critical to the reform and development in China

Growth Prospects for Sources of Growth: –In all scenarios, capital accumulation continues to drive growth –Growth in TFP varies according to gains in efficiency –Contribution of labor does not grow in any scenario (demographics)

Growth Prospects for The industrial structure will continue to be adjusted and become more rational thanks to deepening industrialization and urbanization. At the end of the 11th Five-Year Plan, the proportions of the primary, secondary and tertiary industries could be 8.1:46.2:45.7. During the period, the main changes in industrial structure will be higher efficiency and greater proportion of the service industry. The proportions of the primary, secondary and tertiary industries will be 4.8:45.6:49.6

Growth Prospects for The simulation results indicate that if the national economy can post a coordinated and sustainable development, the damage of economic growth to the environment will be much smaller. Take 2020 for example. The discharge of the four major pollutants in the coordinated development scenario will be percent lower than in the baseline scenario China still faces a possible slowdown in economic growth, the negative impact of trade frictions on import and export, the slower rate of capital accumulation and the higher system costs arising from system contradictions could reduce Chinas economic growth rate to about 7 %

Growth Prospects for Returns to labor in 2020 relative to 2002 (percent change) Agricultural workers stand to gain the most but also face greatest losses relative to baseline if risk scenario materializes

Growth Prospects for Projected changes in household income in 2020 relative to 2002 (percent change) Rural households stand to gain the most but also face greatest losses relative to baseline if risk scenario materializes