China: New Engine of World Growth (review)

As its title indicates, this book takes as its central theme China's emergence as the new powerhouse of the world economy. Twenty-four essays address issues in the general areas of macroeconomic policy and performance, financial-system reform, foreign economic relations, the sectoral effects of reform and opening up and adjustments to such effects, income distribution and social security, enterprise reform, regional development and interregional transfer payments, and industrial location. Several chapters feature extended discussion of China's recent WTO accession and its implications. With few exceptions, the authors are affiliated with universities, firms, and government offices in Australia. One of the editors, Ross Garnaut, is Chairman of the China Economy and Business Program at Australian National University and a former Ambassador to China; the other editor, Ligang Song, is Director of the China Economy and Business Program at ANU.

The twenty-four essays vary considerably in style and technical sophistication, in the extent to which they illuminate the stated central theme of the volume, and in the audiences to which they appeal. At one extreme, Garnaut's chapter is a highly readable and nontechnical survey of major issues in China's development during 1997-2002; it will appeal to a broad audience, including not just economists and businesspeople but all readers interested in China. Garnaut takes up, for example, China's "Keynesian expansion" in the wake of the Asian crisis and its positive and negative implications for long-term development, the undervaluation of the yuan and what should (and should not) be done about it, and the effects of China's sustained growth on the world community and, in particular, the countries of the Western Pacific. Garnaut's essay, though not billed as an introduction, serves as such to the entire volume.

The essays by Fang-Fang Tang and Yifeng Wu, unlike Garnaut's, address very specialized topics: the development of the internet and business opportunities for foreign pharmaceutical firms. Those by Jordan Shan and by Jennifer Chang and Rod Tyers are among the more technically demanding; the former uses vector-autoregression modeling and the latter, simulations based on a global macroeconomic model with nine regions, five primary factors, fourteen productive sectors, and an added representation of the government's fiscal regime. Shan seeks to understand the causal relationship between China's financial opening and its economic growth, while Chang and Tyers seek to understand the extent to which restrictive macroeconomic policies caused China's growth slowdown and, in particular, the deceleration of worker relocation. The essay by Geoff Raby is short, factual, and devoid of statistics, equations, and even references. Raby, who is affiliated with Australia's Department of Foreign Affairs and Trade, describes the negotiations leading up to WTO accession, the commitments China made during those negotiations, and China's first steps toward implementation.

Over half the twenty-four essays are clearly intended for economists who study contemporary China rather than for a more general readership or for highly specialized audiences. These essays take up issues widely addressed in academic journals and classrooms, use data and methods familiar to China economists, and tilt toward analysis and, in some cases, formal model-building and hypothesis testing. The essays by Wing Thye Woo, Enjiang Cheng, and Tingsong Jiang and Zhiyun Zhao are representative of this group.

Woo, a well-known economist affiliated with the University of California at Davis, examines "the travails of current macroeconomic and exchange rate management." Woo believes that China's slowdown during the late 1990s reflected inadequate growth of aggregate demand more than a reduction in the growth potential of aggregate supply. He then argues that (1) many of the macroeconomic challenges facing China are the consequences of inadequate marketization and continued discrimination against the private sector; (2) China's persistent trade surplus is linked to deflation, so that the successful solution of one problem—surplus or deflation—would resolve the other; and (3) the state-owned and state-controlled sector still...