Andrea Boltho
Magdalen College
Università di Oxford
Torino
10 dicembre 2018
UNIVERSITA DI TORINO
Potrà la Cina evitare un rallentamento alla giapponese ?
4.0
OUTLINE
Introduction: Some stylized facts
Why did Japan slow down ?Any parallels with China ?
Short-term: someMedium term: noneLong-run: one
Conclusion: It will happen, but only eventually
WILL CHINA AVOID A JAPANESE-STYLE SLOWDOWN ?
JAPAN AND CHINAGDP per Capita (in 2016 $ in ppps)
1950 1960 1970 1980 1990 2000 2010 2020
200
2,000
20,000
Japan
Sources: Conference Board, Total Economy Database, March 2018; Oxford
Economics Database, October 2018.
%
China
40,000
GROWTH OF OUTPUT, 1950-2020
(average annual percentage changes)
Japan China
1950-73 9.3
1973-90 4.1
1990-2020 1.0
1980-2010 10.1
2010-2020 7.1
Sources: Conference Board, Total Economy Database, March 2018; Oxford Economics Database, October 2018.
JAPAN AND CHINAGDP per Capita in ppp's (indices)
1950/80 1960/90 1970/00 1980 1990/20
100
1,000
Sources: Conference Board, Total Economy Database, March 2018; Oxford
Economics Database, October 2018.
China, 1980-2020 (1980=100)
2,000
/00
Japan, 1950-90 (1950=100)
JAPAN AND CHINA
Ratio of Gross Fixed Investment to GDP*
1950/80 1960/90 1970/00
10
20
30
40
50
Sources: Historical Statistics of Japan; Oxford Economics Database,
November 2018. * Constant prices.
China, 1980-2017
Japan, 1955-87
1980/10
JAPAN AND CHINAExport Performance in Manufacturing
(share of world market)
1950 1960 1970 1980
0
3
6
9
12
15
Japan(1951-1980)
Sources: GATT and WTO.
China(1980-2010)
/80 /90 /2000 /10
JAPAN'S SUCCESS STORY
A major ingredient: good (interventionist) policies
Belief in the importance of competition in thedomestic market
Yet, at the same time, belief in the virtues ofprotectionism vis-à-vis the outside
... but this could not continue in a globalizing world
Good coordination between monetary andfiscal policy through most of the high-growth period
... but this gave way to excessive financial liberalization and a massive bubble
And there were some excesses ...
CHINA'S SUCCESS STORY
The main ingredient: sensible policies
Accepting that markets are efficient
... but switching only gradually from plan to
market (unlike what happened in Russia)
Starting reform in agriculture (unlike what
happened in the USSR)
Opening to foreign trade and FDI (unlike
earlier Latin American policies)
Yet maintaining controls on capital
movements (unlike South-East Asia)
Of course, mistakes were made, e.g.:
Letting pollution reach sky-high levels
Allowing wide income gaps to emerge
And there were some excesses ...
INCOME DISTRIBUTION 2015 SELECTED COUNTRIES
Ratio of highest to lowest quintile
Swed. Germ. Japan* Italy China** USA*** Brazil
0
4
8
12
16
Source: World Bank. * 2008. ** 2012. *** 2016.
CHINESE EXCESSES
"China poured more cement and concrete between 2011 and 2013 than the US did in the whole of the 20th century"
L.Summers, Financial Times, 11 January 2016
POVERTY IN CHINA
Per cent of population living in poverty*
1990 67 per cent
2015 1 per cent
* Defined by the World Bank as an income below$ 1.90 a day at 2011 purchasing power parity.
Source: World Bank.
JAPAN AND CHINA - 1
Japan's growth decelerated sharply after 1990
Initial cause: The bursting of a financial bubble
Secondary causes: Monetary and fiscal policy mistakesSouth-East Asian crisis
Longer-term causes:Economic maturityDemography
JAPAN AND CHINA - 2
Does China face similar dangers ?
Financial bubble:Yes, up to a point
Other potential problems: Internal disequilibriaTrade war with the US
Longer-term causes:Maturity - eventually, but not yetDemography - yes !
JAPAN AND CHINA HOUSE PRICES
1980/2000 1985 1990/2010 1995/2015 2000
90
120
150
180
210
240
270
300
Japan
1980-2005
(1980=1000)
China*
2000-18
(2000=100)
* Major cities. Note: The 2000-05 data for China are VERY tentative.
CHINA - TOTAL DEBT*(in per cent of GDP)
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
140
170
200
230
260
* Families, companies (excluding the financ. sector) and government.** China 2018 first quarter only. Sources: BIS, Oxford Economics.
Italy
(1996-2008)
China**
JAPAN AND CHINAHousehold Debt (in per cent of GDP)
2006 2008 2010 2012 2014 2016 2018
10
20
30
40
50
60
70
* Non financial sector.
Sources: BIS and Oxford Economics.
Japan(1980-92)
China
(1stqtr)
JAPAN AND CHINAPublic Sector Debt (in per cent of GDP)
2006 2008 2010 2012 2014 2016 2018
20
40
60
80
* Non financial sector.
Sources: BIS and Oxford Economics.
Japan(1980-92)
China
(1stqtr)
JAPAN AND CHINACorporate Debt* (in per cent of GDP)
2006 2008 2010 2012 2014 2016 2018
90
110
130
150
170
* Non financial sector.
Source: BIS.
Japan(1980-92)
China
(1stqtr)
CAN CHINA COPE WITH A FINANCIAL BUBBLE ?
Yes. Better, in any case, than most other
countries
Japan's monetary policy reacted very
hesitantly to what was happening. And
fiscal policy was tightened in 1997, just as South-East Asia plunged into crisis
China's authorities have many more fiscal
and monetary instruments than Japan had
at the time and have shown their readiness
to use them
In addition, capital controls protect the
country from a sudden outflow of capital
(as occurred in South-East Asia in the
late 1990s)
CHINA'S STRUCTURAL DISEQUILIBRIA
China's growth has been driven by an
incredibly high rate of investment which
has, until recently, been concentrated on
manufacturing and exports
The importance of exports has declined
somewhat, but the weight of investment
and of manufacturing remain excessive
The authorities are conscious of this and
would like to rebalance the economy
towards consumption and services
This, however, clashes with the growth
objective, particularly at present, in the
presence of a slowdown and a trade war
JAPAN AND CHINA
Ratio of Exports to GDP*
1950/80 1960/90 1970/00
0
10
20
30
Sources: Historical Statistics of Japan; Oxford Economics Database,
November 2018. * Constant prices.
China, 1980-2017
Japan, 1955-87
1980/10
GROSS FIXED INVESTMENT(in per cent of GDP; 3 years mov. avrgs.)
1990 1993 1996 1999 2002 2005 2008 2011 2014 2017
15
25
35
45
India
China
Italy
Japan
Germany
Source: World Bank.
MANUFACTURING OUTPUT
(in per cent of GDP; 3 years mov. avrgs.)
1990 1993 1996 1999 2002 2005 2008 2011 2014 2017
10
20
30
China
Korea
Source: World Bank.
Japan
Thailand
Taiwan
MANUFACTURING OUTPUT
(in per cent of GDP; 3 years mov. avrgs.)
1990 1993 1996 1999 2002 2005 2008 2011 2014 2017
10
20
30
China
EasternEurope
Eurozone
Source: World Bank.
LatinAmerica
India
USA
THE US-CHINA TRADE WAR
So far, this has been contained, and its
likely effects are hardly devastating
It could, however, last a long time, well
beyond Trump
It is not just about China's trade surplus,
but about a technological battle between
the world's two largest economies
And China would suffer more than America
given the trade imbalance:
2017 US exports to China $ 130 bn
2017 China exports to US $ 505 bn
And also its dependence on imports of
foreign technology
THE US-CHINA TRADE WAR
Cumulative effects of measures taken or
announced so far on GDP levels*
China USA
0
0.1
-0.1
-0.2
-0.3
-0.4
-0.5
* Including a 25% tariff from 1.1.2019. Source: Oxford Economics.
2018 2019 2020 2018 2019 2020
THE US-CHINA TRADE WAR
Cumulative effects of measures taken,
announced or threatened on 2021 GDP levels
China USA China USA
0
-0.3
-0.6
-0.9
-1.2
-1.5
Source: OECD
Current tariffsplus 25% in 2019
Tariffs on allChina-US trade
Raise tariffs on imports from the US to much
higher levels
Trump would do the same
Sell US Treasury Bonds
Could hurt China almost as
much as it hurts the US
Sharply devalue the renminbi
Could lead to massive capital
flight and destabilize many
other countries
Make life difficult for US companies in China
Possible, but US companies
matter for employment,
exports and technology
Gradually liberalize and open up which, in the
end, would be beneficial
(and, in the meantime, live with the costs)
HOW CAN CHINA RESPOND ?
CAN CHINA COPE WITH THESE CHALLENGES ?
Probably, in the light of its past (and more
recent) policy successes
It coped extremely well with the "Great
Recession"
It is reducing the share of investment
and of manufacturing in GDP
It has reduced the importance of exports
to the economy
It is achieving some reduction in
(regional) income differentials
It is gradually cooling the housing market
etc., etc.
THE BRICs IN THE "GREAT RECESSION"(GDP; per cent changes; 3 quarter moving averages)
2007 2008 2009 2010 2011 2012 2013
0
4
8
12
-4
-8
China
India
Brazil
Russia
CHINA - REGIONAL INCOME INEQUALITY
(Gini coefficients for regional per capita GDP)
1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012
0.15
0.20
0.25
0.28
Sources: China Economic Review , 2001; China Statistical Yearbook.
CHINESE POLICIES
" The Chinese political system has a
striking ability to target a few critical
issues and mobilize talent and resources
to address these issues when it is
absolutely necessary to do so".
Barry Naughton, The Chinese Economic System,
Cambridge MA, 2007, p.11.
WILL SUCCESS CONTINUE ?
But will such successes continue ?
Optimistic view:
The authorities are clearly consciousof the problems they are facing
Technocratic quality is improvingThe relatively liberal Bank of China
is gaining influenceRegional policy competition remainsin place
Pessimistic view:
There is one main danger: politics
Excessive centralization (as seen atpresent) can lead to very costlymistakes (remember Mao)
DENG AND CHINESE GROWTH
(GDP; percent changes; 3 years mov. avrgs.)
1978 1983 1988 1993 1998 2003
0
6
12
-6
-12
Source: Maddison.
9.7 % per annum
MAO AND CHINESE GROWTH
(GDP; percent changes; 3 years mov. avrgs.)
1953 1958 1963 1968 1973 1978
0
6
12
-6
-12
Source: Maddison.
The Great LeapForward (1958-62) -0.5% per annum
The Cultural Revolution (1966-76) 5.9% per annum
5.9 % per annum
JAPAN AND CHINAGDP per Capita (in per cent of US level)
1950 1960 1970 1980 1990 2000 2010 2020
0
20
40
60
80
100
Sources: Conference Board, Total Economy Database, March 2018;
Oxford Economics Database, October 2018.
China
Japan
United States
JAPAN AND CHINAGDP per Capita (in per cent of US level)
1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050
0
20
40
60
80
100
Sources: Conference Board, Total Economy Database, March 2018; Oxford
Economics Database, October 2018.
China
/00
Japan
United States
ASSUMPTIONS
GDP per capita average annual growth rates, 2020-2050
United States 1.4
Japan 0.7
China 4.0
Source: Oxford Economics Database, September 2018.
JAPAN AND CHINA
Population (indices)
1950 1970 1990 2010
100
110
120
130
140
150
160
Japan
(1950=100)
Source: UNPD
China
(1980=100)
/80 /00 /20 /40
Italy
(1950-100)
JAPAN AND CHINAAgeing (share of people aged 65 and more
in total population)
1950 1970 1990 2010
0
5
10
15
20
25
30
Source: UNPD
China(1980-2050)
Japan(1950-2020)
/80 /00 /20 /40
Italy(1950-2020)
4.0
AGEING AND ECONOMIC GROWTH
An older population is likely to:
i) Reduce growth because of lower labour supply
ii) Save less, thus raising interest rates and depressing
investment
iii) Lead to a rising pension burden and increasing health
costs, implying higher taxes, or budget deficits, and
spurring inter-generational tensions
iv) Be less dynamic and entrepreneurial
ENTREPRENEURSHIP BY AGE, 2009(percentages)
20-49 50-64 20-49 50-64 20-49 50-64 20-49 50-64 20-49 50-64 20-49 50-64
0
10
20
30
40
50
Thinking about starting a business Involved in early stage
start-up activities
China Japan Italy China Japan Italy
Source: EU, Eurobarometer.
Age:
ENTREPRENEURSHIP BY AGETotal entrepreneurial activity*, 2017
China Japan Eurozone
0
3
6
9
12
15
* Starting or owning/managing a new/recent venture. Source: GEM.
16- 25- 35- 45- 55-
24 34 44 54 64
16- 25- 35- 45- 55-
24 34 44 54 64
16- 25- 35- 45- 55-
24 34 44 54 64
Sources: Maddison, The World Economy, 2001 (for 1978); Boltho, Singapore Economic Review, 2004 (for 2020).
AN EARLIER PROJECTION
China
Share in World Output (ppp)
1978 4.92020 19.8*
China
Share in World Output (ppp)
1978 1.92018 19.1*
Source: Conference Board, Total Economy Database,March 2018.
2040 32.5*
* Assuming average annual growth of 4.75 for China and2.25 for the World.
* Assuming average annual growth of 6 per cent for Chinaand 3.5 per cent for the World.
* Actual growth rates: China 9.4 and World 3.3 per cent.