Will technology prevent China from Lost Decade?

-by Ruxue Bai, Yiyi Ma, Qingyang Yu, Xinyu Lan

Lost Decades• Lost Decade refers to the period from 1990 to

2000 in Japan when it experiences decreasing growth rate and decreasing employment rate.

• Some people argue burst of real estate market bubbles, which may lead to a recession.

• However, bursting asset bubbles do not create recession in most cases.

Example: 1987-‘Black Monday’

Then what cased the Lost Decade?

• The reason of Lost Decade, according to Hayashi (2002), is low productivity growth.

• Technology in Japan is from United States. As U.S. tended to export technology to Korean instead of Japan, productivity growth rate in Japan decreased dramatically.

• Technology Progress Productivity Growth Rate

GDP Growth Rate

Growth Accounting Method

dY/Y = dA/A + 0.33 dK/K + 0.67dL/L

In 1995, Krugman stated that the Asian economic "miracle" was not due to total factor productivity (TFP) growth but rather to intensive use of inputs.

A high growth rate of capital due to the high rates of investment in Asia and a high rate of growth of labor inputs.

Limitations of Krugman’s Research

• Coefficients of China may differ from world average level.

• The research is based on data before 1995, the coefficients may change during the last two decades.

Empirical Study

Growth Rate and Technology

0

5

10

15

20

25

30

35

1995

1997

1999

2001

2003

2005

2007

2009

2011

Hi gh- technol ogyexports (% ofmanuf actured exports)Growth rate

Data Source: World Bank

Other Model

g: growth rate

H: human capital

FRD: foreign R&D

DRD: domestic R&D

Reference

• Lai Mingyong, Peng Shuijun, Bao Qun.(2006) Technology spillovers, absorptive capacity and economic growth.Chinese Economic Review,17 (2006),300-320.

• Mark Purdy.(2013). http://blogs.hbr.org/2013/11/chinas-economy-in-six-charts/

Disruptive Innovation

• Shanzhai• fake, pirate• Cheap• Multifunctional

What Shanzhai phone can do

• Two SIM cards• 1GB RAM• 1280*720 resolution ratio • (Iphone 4: 960*460)• 8 million pixels camera• 1.5GHz (iphone4 0.8GHz)• ￥ 799

Meitu phone (Able to Auto-PS)

How they can do

• Use the same supplier as Apple, Samsung, Nokia…

• Recycle phones. Reuse components.

Scale (Shenzhen)

• Employees: hundreds of thousand.• Companies: 2,000

　sale (volume)

oversea sale

domestic maket share

2007

110M 40M 30%-40%

2008

130M 78M 30%-40%

2009

145M 110M 　

2010

159M 　 　

2011

228M 　 　

2012

255M 　 　

China Military Expense

2014: 808.23 Billion (RMB)2013: 709.631 Billion (RMB)2012: 670.274 Billion (RMB)=$106.182 Billion •RMB 6.3125=$1 GDP 2012= $ 8230 Billion

2011: 602.67 Billion (RMB) 2010: 526.13 Billion (RMB)

Source: National Defense White Paper

12.2%10.7%11.2%

12.7%

Actual Value??? • The Pentagon Secretary of Defense: Military and Security

developments involving PRC (2013)• “Military Transparency”• “R&D”• Actual value 2012: $135-215 Billion VS. $106 Billion

International Institute for strategic study (ISS): 2000 $29.1-43.7 Billion VS. official $14.6 billion

Secret Internet Protocol Router Network(SIPR): 2000 $120-180 Billion based on exchange rate, inflation and purchasing power parity basis

Example for roughly estimate

• 4 Air-Force squadrons: 1 South-West Area 2 Fujian Costal Area 1 Shandong Peninsula 14-16/squadron equipped J-10 fighters

Hide technology

Invisible device

Long-distance quantum teleportation

• Security of Information• Send message under surface

Laser weapon

Ion electric propulsion system• Low usage of fuel• More flexible • More accuracy • …

Offshore drilling new technology

• Offshore drilling waste fluids• Control of pollution• The protection of reservoirs

Japan china

Own technology innovation:

▪Disruptive technology and its extension ▪Independent high technology based on military development

▪Develops industrial technologies on the basis of U.S. fundamental technologies

Tech:

Other mkt fundermental:

▪Particularly in population and property issues. 

Conclusion

▪ China will not experienced the “Lost Decade” as Japan

Thanks