1、 Chinas Policy Responses to the Global Financial Crisis* * Written for the Richard Snape Lecture of Australian Government Productivity Commission, 25 Nov. 2009. The Productivity Commission, is the Australian Governments independent research and advisory body on a range of economic, social and enviro
2、nmental issues affecting the welfare of Australians. Its role, expressed most simply, is to help governments make better policies, in the long term interest of the Australian community. The Commissions independence is underpinned by an Act of Parliament. Its processes and outputs are open to public
3、scrutiny and are driven by consideration for the wellbeing of the community as a whole. Information on the Productivity Commission, its publications and its current work program can be found on the World Wide Web at www.pc.gov.au. Richard Snape Lecture. Richard Snape capped a long and distinguished
4、career as Professor of Economics at Monash University with a new and accomplished career at the Industry Commission, and then as Deputy Chairman of the Productivity Commission. In the eight years that he spent at the Commission before his untimely death in October 2002, he played a pivotal role in o
5、verseeing our research program, as well as participating in major public inquiries. This is the seventh in a series of lectures in memory of Richard Snape. With Richards own interests and high standards in mind, the lecture series elicits contributions on important public policy issues from internat
6、ionally recognised figures, in a form that is accessible to a wide audience. Dec. 15, 2009 余永定 Working Paper No. 0917 2Since undertaking reform and opening up its economy, China has experienced an economic miracle. Its average annual GDP growth rate over the past three decades was 9.8 per cent. Th
7、is unprecedented growth vastly improved the living standards of the Chinese people. In the period 20022007, China registered an average annual growth rate of 10.5 per cent, while the inflation rate was kept under 2 per cent. This period can be said to be the best period over the past three decades a
8、s far as macroeconomic performance is concerned. In 2007, Chinas GDP growth rate was 13 per cent. In 2008 Chinas GDP growth fell gradually at first, and then after the Lehman Brothers fiasco, fell in a dramatic fashion. In the first half of 2008 China was still able to manage an annual growth rate o
9、f 10.4 per cent. In the third and fourth quarters, the rate fell to 9 per cent and 6.8 per cent respectively. In the first quarter of 2009, the growth rate fell further to 6.1 per cent. In hindsight, the turning point in Chinas growth happened in September 2008, after the Lehman Brothers bankruptcy.
10、 The monthly growth rate of industrial products is a better reflection of the changing fortunes of the Chinese economy. In August and September 2008, the growth rate of industrial products was 14.7 per cent and 11.4 per cent respectively. The growth rate had dropped to 8.2 per cent and 5.4 per cent
11、in October and November 2008. In February 2008, Chinas CPI hit 8.7 per cent, the highest in more than a decade. But the CPI index fell to 2 per cent in November and has remained negative since then, though sequential CPI growth has turned positive recently. The fall of the Producer Price Index since
12、 August 2008 was even more dramatic. There is no doubt whatsoever that due to Chinas extremely high export dependency the single most important impact of the global financial crisis on the Chinese economy came from the fall in global demand. Chinas export dependency is the highest among the major wo
13、rld economies. Chinas export to GDP ratio in 2007 was 35 per cent. In November 2008 exports shrank by 2.2 per cent on the year, compared with a positive growth rate of 25 per cent in September. The fall of exports may have cut GDP growth 3 by percentage points. If its indirect impact is included, it
14、 may have shaved more than 5 percentage points off Chinas 2008 growth rate. 1 The features of Chinas growth pattern Chinas high export dependency is a result of Chinas export promotion policy, which has been in place for decades. However, from the macroeconomic point of view, Chinas high export depe
15、ndency is, to a certain extent, attributable to Chinas overcapacity caused by over investment. This is especially true over the past five years or so. Fixed asset investment (FAI) and exports were the two most important engines of Chinas growth during the period of 20022007. In this period, the aver
16、age annual growth rate of exports and FAI were 29 per cent and 24 per cent respectively (figure 1). In 2007, the combined contribution of FAI and net exports to GDP growth was more than 60 per cent. Both Chinas investment rate and export to GDP ratio are strikingly high. These are the two most impor
17、tant characteristics of Chinas growth pattern. 3Figure 1 Growth rates of exports and investment (current prices) Source: Statistical Year Book, various issues, Statistics Bureau of PRC. FAI has long been the single most important factor contributing to Chinas economic growth, because of its high gro
18、wth rate as well as its sizable share in GDP1. A noteworthy phenomenon in the past decade or so is that the growth rate of FAI has been consistently higher than that of GDP and hence the investment rate has been increasing persistently since 2001 (figure 2). Figure 2 Chinas investment rates Source:
19、Zhongjing Net date bank 1There have been controversies about the FAI real growth rate statistics. However, despite the inaccuracy, it is difficult to deny the fact that the growth rate of FAI in real terms has been consistently higher than that of real GDP. 20% 25% 30% 35% 40% 45% 50% 1995 1996 1997
20、 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008051015 20 25 3035 401995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007Export growth Investment growth (中经网数据库 ). 4The persistent rise in the investment rate means that the growth of the Chinese economy is in a non-steady state. By
21、definition, a steady state means that (1) aggregate demand is equal to aggregate supply (and so are their growth rates); (2) the growth rates of all components of aggregate demand are equal; (3) the shares of all components of aggregate demand are constant; (4) a growth process in a steady state is
22、sustainable. Our question here is that, in a non-steady state, characterized by a constant rising investment rate, how is Chinas growth drama being played out? Let me set out a framework of analysis first. 1. If the initial steady state is disturbed by an external shock in the form of a sudden accel
23、eration in the growth rate of FAI, the investment rate of the economy increases. 2. Starting from the initial steady state and equilibrium, an increase in the growth rate of FAI means aggregate demand is greater than that of supply and hence overheating occurs. 3. Provided that there is no change in
24、 the capital-output ratio, a higher investment rate means a higher potential growth rate of the economy in the future. 4. However, in the periods immediately following, if the growth rates of the other components of aggregate demand remain unchanged, the excess demand caused by the initial rise of t
25、he growth rate of FAI, which disturbed the initial equilibrium, will persist until the gap of excess demand narrows gradually to zero. However, the new equilibrium is temporary. Because the growth rate of FAI is higher than that of the other components of aggregate demand, the investment rate and he
26、nce the potential growth rate will continue to rise. As a result, excess demand (overheating) will shift to overcapacity. Equilibrium is just a transitional stage between the overheating and overcapacity. The specific point in time of the turning point from overheating to overcapacity depends on ini
27、tial conditions2. 5. It should be emphasized that equilibrium between aggregate demand and supply does not imply a steady state, because growth rates of different components of aggregate supply are different. In other words, the growth is imbalanced. Here, the growth rate of FAI is higher than those
28、 of the other components of aggregate demand. 2For example, if the growth of FAI is maintained at the given higher rate after the one-off disturbance, the growth rate of potential GDP will rise gradually in the subsequent periods. At a certain point in time, when the growth of potential GDP has reac
29、hed a certain rate, which is higher than that of the rest of the components of aggregate demand but lower than that of FAI, the macroeconomic situation will shift from excess demand to overcapacity. 56. If the growth rate of the components of aggregate demand other than FAI as a whole fail to rise3,
30、 overcapacity can only be absorbed by a further rise in the growth rate of FAI. As a result, the investment rate will rise further and so will the potential growth rate. 7. With both a higher investment rate and a higher potential growth rate, the growth rate of FAI must be increased further and fur
31、ther in subsequent periods so as to absorb overcapacity. Correspondingly, the investment rate will rise further and further and so will the potential growth rate. This implies that although a steady increase in the growth rate of FAI can help the economy achieve temporary equilibrium (aggregate dema
32、nd = aggregate supply), it will worsen the balance of growth of different components of aggregate demand, with investment occupying an increasingly higher share of GDP, and overcapacity will continue to widen. 8. Obviously, the growth rate of FAI cannot accelerate forever. Sooner or later the growth
33、 rate of FAI will hit a ceiling imposed by social, environmental or other constraints. 9. Even if the growth rates of all components of aggregate demand, including FAI, become constant, owing to the fact that the growth rate of FAI is higher than those of the other components of aggregate demand, th
34、e investment rate will continue to rise and so will overcapacity. This is an unsustainable process. Under the pressure of overcapacity, eventually, deflation will set in and the growth process of the economy will break down. 10. To prevent the breakdown of the growth process, either the growth rate
35、of FAI can be lowered, or the growth rates of the other components of aggregate demand can be raised, so that balanced growth of all components of aggregate demand is restored. 11. If the growth rate of FAI is lowered, the immediate result will be worsening of the overcapacity. However, as a result
36、of the fall of the growth rate of FAI, the investment rate will fall and so will the growth rate of potential GDP. If the growth rate of FAI continues to fall, balance can be restored when the growth rate of FAI is equal to that of the other components of aggregate demand as well as that of GDP. 3We
37、 assume that there is no endogenous mechanism to ensure that the growth rates of these components of aggregate demand increase so as to catch up with FAI growth. 612. If the growth rate of the other components of aggregate demand is raised, not only will overcapacity be reduced, but the growth of al
38、l components of aggregate demand will become more balanced. The feasibility of this policy of adjustment depends on external constraints on the potential growth rate. 13. The balance of growth of all components of aggregate demand, or more precisely, the equality of the growth rate of FAI and that o
39、f the other components of aggregate demand, is a necessary and sufficient condition for staying at a steady state and maintaining sustainable growth. Government policy should be aimed at pulling the economy back to the steady state following one deviation after another, while recognizing that the st
40、eady state itself can be variable, owing to changes in exogenous conditions. These dynamics can be simulated by numerical examples (figure 3). The vertical axis and horizontal axis represent the excess demand gap and periods of time, respectively. The positive figures represent a positive excess dem
41、and gap to GDP ratio, and the negative figures represent overcapacity (negative excess demand gap to GDP ratio). The shape of the excess demand gap to GDP ratio is determined by various assumptions such as the initial shares of each component of aggregate demand, the initial growth rate, the growth
42、rate of FAI after the initial shock, the governments reaction to overcapacity, enterprises responses to the existence of the excess demand gap and so on. In figure 3, it is assumed that, initially, all components of GDP grow at a rate of 8 per cent, and the shares of FAI and consumption in GDP are 4
43、0 per cent and 60 per cent respectively hence, there are only two components of aggregate demand. The capital output ratio is assumed to be 5. Provided that, as a result of an external shock, the growth rate of FAI jumps to 10 per cent, then in the next period, despite the increase in supply as a re
44、sult of the higher investment rate in the preceding period, the increase in aggregate demand as a result of the increase in FAI more than offsets the increase in aggregate supply, and the excess demand gap appears. Assuming in the following periods, the growth rates of FAI and consumption remain unc
45、hanged at 10 per cent and 8 per cent respectively, the excess demand gap will increase until the 7th period and then the gap will decrease. After the 17th period, overcapacity will appear. 7Figure 3 Overheating and overcapacity in tandem (a numerical simulation) Source: Drawn by Dr. Xu Qiyuan. If ov
46、ercapacity is absorbed by increases in FAI in the current period, the overcapacity gap will increase further in the next period.4Obviously, this process is not sustainable. Over the past three decades, overheating and overcapacity occurred in tandem in China. During this process, the fluctuation of
47、the growth rate of FAI has played a pivotal role. Since the turn of the century, the growth rate of FAI has begun to accelerate and surpassed that of GDP, owing to the expansionary fiscal and monetary policies implemented since the Asian financial crisis. As a result, the investment rate has risen s
48、ince 2001 (figure 2) and overheating (excess demand) has surfaced gradually since 2002. As we have mentioned, a sudden accelerating of the growth rate of FAI will create excess demand immediately afterwards for a period of time, and then after the investment rate reaches a certain level, the economy
49、 will shift from overheating to overcapacity. The turning point seems to be 2004, when signs of overcapacity began to surface. The Government tried to clamp down on the launch of new investment projects. The Chinese Governments clamp down on investment in the steel industry is a case in point. In 2004, Chinas steel production capacity was about 400 million tons. Worrying about overcapacity, the Government started to clamp down on building new steel mills. The Government used administrative methods to ban unapproved constru
