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THE ROLE OF EDUCATION AND TECHNOLOGY IN

CHINA’S MIDDLE CLASS GROWTH

Xingmin YinFudan University,

Shanghai

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MAIN QUESTIONS What is an incentive for the ongoing

discussion of middle-income trap? Is it possible to define the fundamental

factors of China’s moving to middle-income country?

How can the middle-class play a great role in country’s global competitiveness?

Can we analyze the trajectory of income per capita in terms of China’s comparative advantage?

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1. INTRODUCTION What is a major feature of China’s

comparative advantage over the past decade?

It may be argued that the country’s huge pool of human resources and capital will generally move China along the path of both knowledge-intensive and capital-intensive mode of production and growth.

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2.MARCH TO HIGH INCOME COUNTRY What is the term of middle income

country? How to better capture it? China made leapfrog from US$1042

per capita in 2001 to US$7500 in 2014. It is better to discuss China’s income

growth under the consideration of fundamental factors.

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INTERNATIONAL COMPARISON

2001 2009

Low income 430 509

Middle income 1,860 3,397

Low middle 1,230 2,321

Upper middle 4.550 7,502

High income 26,510 37,990

China 1042 6,000 (in 2012)

7,500 (in 2014)

15,000 (in 2020)

35,000 (in 2030)

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DISCUSSION Can China continue and even

accelerate its economic growth and enter into the gate of high income country by 2020?

A positive effect of economic growth on disposable income for China’s households.

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GDP PER CAPITA, URBAN WAGE AND DISPOSABLE INCOME, US$

100020003000400050006000700080009000

1000011000

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

Per Capital Urban Wage Disposable Income in Urban Areas

GDP per capital/Urban Wage

Disposable Income per day

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DISCUSSION There is sizable income rising in China in

the past decade. Daily disposable income of more than

50 percent of urban population is in the higher $10 levels.

Rural areas also saw a very sharp increase in the population earning $10 per person per day.

The prosperity to high income country can only be built on the higher productivity.

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3. MORE SCHOOLING FOR LABOR QUALITY Education policies have sought to

improve labor quality to make schooling better serve the needs of the labor market, stimulate the economy, and promote China’s global competitiveness.

As education provision has expanded, the composition of enrollment has changed.

Schooling expansion in every level, particularly in higher education.

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PROMOTION RATESSenior

Secondary School

Junior Secondary

School1990 27.3 40.62000 73.2 51.22003 83.4 59.62012 87.0 88.4

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NUMBER OF NEW STUDENT ENROLLMENT IN HIGHER EDUCATION

N. Of College

Students,

10,000

No. of Postgraduates, 10,000

No of Students per100,00

0

1990 61 3 3042000 221 13 7232003 382 27 12982012 689 59 2335

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PROGRESS IN HIGHER EDUCATION Promotion rate Mass higher education

movement Subject composition of college

students Overseas study More measures:

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ECONOMIC GROWTH IMPACT ON EDUCATION AND MIDDLE CLASS As the middle class grows it raises

investment in human capital, in turn, drives national economic growth.

The causality can also go the other way, with human capital accumulation (typically education) pulling more of the poor into the middle class.

Increasing demand for education, combined with technological advances, is fuelling a rise in income.

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4. A GROWING ROLE OF R&D INTENSITY TO GDP China is making a great transition

from middle-income toward an industrialized economy status as it intensifies its innovation effort.

Discussion on R&D intensity with special reference to international experience.

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R&D INTENSITY, 2000-2008

Country R&D Persons/million

R&D/

GDP Rati

o

Country R&D Persons/million

R&D/

GDP Rati

o

France 3496 2.05 China 1071 1.44

Germany

3532 2.54

Japan 5573 3.44 Indonesia 205 0.05

UK 4269 1.88 Malaysia 372 0.64

USA 4663 2.82 Philippines

81 0.12

Korea 4627 3.21 Thailand 311 0.25

Singapore

6088 2.52 India 137 0.80

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By 2013, China’s R&D intensity remarkably rose to 2.03 percent. As a middle-income country, its R&D spending to GDP already passed its Asian counterparts.

In 2012, China graduated 250,000 scientists and engineers with degrees at the master’s level and above.

Against the backdrop of the R&D spending of the middle income countries, China has begun to move to the high income country.

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5. EXPORTS AS A REFLECTION OF COMPARATIVE ADVANTAGE

These educational and technological developments are likely to affect trade patterns because of their impact on country’s comparative advantage.

How to analyze China’s trade performance?

A rising sophistication in China’s exports relative to countries with similar aggregate endowments.

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EXPORTS OF MANUFACTURED GOODS, US$ BILLION, 2001-2012

2001200220032004200520062007200820092010201120120

200

400

600

800

1000

1200

Light Textile Machinery Miscellaneous

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DISCUSSION There has been a pronounced shift in

China’s exports, first to more capital-intensive industry such as steel and then to those coming from more technology-intensive industry, which is in consistent with the growing role of higher education and R&D intensity to GDP ratio.

Exports of skill-intensive goods to rich countries can be a source of growth for middle-income country.

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6. HIGH PRODUCTIVITY THROUGH INDUSTRIAL RESTRUCTURING

R&D is highly concentrated. Nearly 85 percent of R&D spending takes place in the manufacturing sector.

China’s industry labor productivity increased from US$3,437 in 2000 to US$10,439 in 2008, further to US$16,029 in 2012.

The size of China’ manufacturing capacity.

The case of industrial products.

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LABOR PRODUCTIVITYIndustrial Labor, million 2003 2011 Growth

Rate, %

Textiles 4.99 5.99 18.04

Steel 2.56 3.40 32.81

Transportation equipment 3.12 5.80 85.90

Electric Power 2.38 2.53 6.30

Manufacturing industry 48.84 80.14 64.09

Industrial Products Growth Times

Yan, million tons 9.84 28.70 1.92

Rolled steel, million tons 241 886 2.68

Motor vehicles, million units

4.44 18.42 3.15

Electricity, trillion kwh 1.91 4.71 1.47

Output value, RMB trillion 12.74 73.40 4.76

In US$ trillion 1.54 11.63 6.55

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RISING PRODUCTIVITY The capital-intensive industrialization

involved the establishment of an extensive set of capital-intensive industries, including steel, chemicals, heavy machinery, electric and electronics, automobile and civil aircraft industries.

High returns from investing in relatively capital-intensive technologies, with the support of R&D spending, China has retained an enormous achievement in its quest for economic efficiency and rising income level.

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7. CONCLUDING REMARKS Changes of China’s comparative

advantage. Among the middle-income countries,

China has been the only country where level of R&D intensity has risen beyond 2 percent and the student new enrollment rate in higher education for the same age population reached 30 percent.

China’s rapid rising labor productivity has been a key factor for income growth.

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THANK YOU!