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Event Report

The webinar was held by NIICE, Nepal on the economic growth engine of China, presented by Professor Lu Ming. Professor Lu Ming is a professor of economics at Shanghai Jiao Tong University, Shanghai, China. Through the webinar, he tries to explain the trend and the spatial dimensions of the Chinese economy. He begins the webinar by telling us about how the geography of China plays an important role in driving its economy. Prof. Ming tells us the reason why the Chinese growth rate has been declining since 2010.

According to Prof. Ming GDP growth is based on 2 factors: 1. Inputs - Labour, Capital and Savings, and Land; 2. Productivity - Education, Innovation, and Allocative Efficiency

Labour: Labour depends a lot upon the average age of the population. According to figures, the population of China has 18.7% people of 60 years and above, and 13.5% people of 65 years and above which means the dividend has already been exhausted. The working age population of China which is 16-60 years old has already been declining since 2011. Therefore, the growth of labour in terms of quality is already shrinking. To top it, China also has a low fertility rate of about 1.3% in 2020. Thus, the growth of labour is also a problem. Prof. Ming also gives us some solutions to this Chinese problem which include: delaying retirement, encouraging childbirth, and urbanizing rural people for a better quality of life.

Savings and Capital: Chinese economy depends on high investment. The saving ratio of Mainland China was too high due to which the ratio of investment to GDP was too high before 2010. However, post-2010 it has been declining. So now the government has given up the traditional pattern and it is the consumption demand that is contributing to the GDP growth now.

Education: Education is an important source of productivity. From 1980-2010 there was significant growth in national average education years but the speed of the rising growth rate itself has been declining since 2010. There is also an issue of Left-Behind-Children. Rapid urbanization has led people to leave their hometowns to urbanized places for better pay. But the migrants do not have equalized public services in these regions thus it is difficult for them to send their children to public schools. So, they leave behind their children in hometowns where they receive a poor-quality education.

Land and Inefficient Allocation: The crux of the Chinese economic slowdown is spatial misallocation which in turn is related to regional and urban restructuring. After reforms and economic opening, the Chinese economy evolved very fast. Globalization is based on export which is based on cheap transportation by sea. This is where the geography of China plays a huge role. China is a huge country with only one side facing the sea, the East Coast, where the economic activity is denser. The farther the seaports, the lower the GDP. The Northern part not only lacks rivers but also has frozen seaports during winters. It is only the Southern part that has the comparative advantage to manufacture goods and send them to the rest of the world. Regions with larger cities absorb people to live and work, so the smaller cities are losing population over better pay. This population allocation and restructuring is due to globalization.

A lot of economic resources controlled by the government are used in equalising economic activities to balance regional development. The Chinese government tries to move resources to smaller cities through policy regulations. This is one of the major reasons why the allocative efficiency of economic resources is actually going down because these regions cannot give returns as high as the investments made in them. Thus, the economic growth potential is going down in recent decades.

In concluding the webinar, Prof. Ming summarizes the problems leading to the slow economic growth of China as well as their solutions. The problems are: Accumulation of production factors slowing down due to fading demographic dividends; Over investment and falling returns; Land urbanisation is faster than population urbanisation thus leading to wastage of land resources; Deterioration of resource allocation efficiency after 2003.

The solutions to the above problems are: Free movement of labour including that of children so they receive a better education; More investment in alignment with a population would lead to a higher return; Supply land to people where they are moving to as opposed to where they are moving from; Reallocation of resources which can improve the efficiency of resource allocation including education to urbanise left behind children.

Prepared by Shriya Mishra, Intern at NIICE