The Political Economy of Sino-American Relations: A Greater China Perspective

13. China in the World Economy

WL------------------------------~ China in the World Economy* Marcus Noland INTRODUCTION AND OVERVIEW Since the inception of economic reforms in the late 1970s, China's economic performance has been nothing short of spectacular. Between 1979 and 1994, China's real growth rate has averaged more than 9 percent annually (Figure 13.1). Agriculture has been decollectivized, the management of state-controlled firms has been decentralized, and property rights reforms have facilitated an explosion of business outside central government control. Goods and factor markets have been liberalized to a Significant extent: most prices are now determined by markets, state control of labour markets has been reduced, and previously repressed capital markets have experienced rapid, if uneven, development. China nevertheless retains a significant state-owned sector, and problems associated with lack of reform in this sector, combined with the relatively primitive nature of macroeconomic policy instruments, have led to a stop-start pattern of growth and problems with inflation. The time path of Chinese economic growth is subject to considerable uncertainty.l The level of output in China is likewise subject to considerable uncertainty, and various attempts to measure the purchasing power adjusted level of GDP have generated a wide range of estimates.2 Indeed, the estimate of Chinese GDP per capita reported in the most widely cited source, the Penn World Tables, changed by 40 percent in successive versions of the Tables. Thus any attempt to put the size of the Chinese economy into international perspective is subject to enormous uncertainty. With this caveat, an estimate of the Chinese share of world output derived from purchasing power adjusted data reported by the United States Central Intelligence Agency is reported in Table 13.1. As can be seen in the first column of Table 13.1, China accounted for just under 9 percent of world output in 1993, making it the world's third largest economy following the United States and Japan. The remaining columns show China's share ten years hence under various scenarios.3 The Chinese growth * Copyrightc 1997 by the Institute for International Economics. All rights reserved. 278 Marcus Noland 1970 1900 1901 1902 1!183 1_ 1905 1900 1007 1900 1909 1!lOO 1991 1092 1903 1094 Figure 13.1 GOP Growth Rate in China, 1979-1994 Table 13.1 World Income Shares, 1993 and 2003 1993 2003 Low Medium High North America 26.3 22.8 24.0 25.5 United States 21.9 18.2 19.2 20.6 Canada 2.1 1.9 2.0 2.0 Mexico 2.3 2.7 2.8 2.9 Asia-Pacific 26.1 28.1 31.0 33.6 Japan 8.8 7.6 8.1 8.8 China 8.8 10.8 13.0 15.5 Rest of Asia-Pacific 8.5 8.4 9.9 10.8 Korea 1.5 1.4 1.9 2.1 Taiwan 1.0 1.0 1.2 1.3 Hong Kong 0.6 0.5 0.7 0.8 Singapore 0.3 0.4 0.4 0.5 Malaysia 0.4 0.5 0.6 0.7 Thailand 0.8 0.9 1.2 1.4 Philippines 0.4 0.4 0.5 0.5 Indonesia 0.9 1.0 1.3 1.4 Australia 2.2 1.9 2.0 2.1 New Zealand 0.3 0.3 0.3 0.3 Western Europe 22.5 18.3 19.1 19.9 Latin America 6.0 5.6 5.9 6.1 Rest of the world 19.1 19.2 20.0 21.9 Note: Shares are calculated from purchasing power adjusted national income figures. Source: Marcus Noland, 'Implications of Asian economic growth', Asia Pacific Economic Cooperation Working Paper Series, No. 94-5 (Washington: Institute for International Economics, 1994). China in the World Economy 279 rate is subject to the greatest uncertainty due to questions about the character of Chinese economic policy in the post-Deng era. The bottom line is that even under the slow growth scenario, China clearly emerges as the world's second largest economy in the next decade. This conclusion is further reinforced if the figures for Hong Kong's share of output are added to China's. These are the two central points that must be kept in mind in analysing China in the world economy: the reform process is incomplete and China is huge. The inevitable bumps along the way in the reform...