Aggregate and regional productivity growth in Chinese industry, 1978-2002

This book analyses the growth experience in Chinese industry and manufacturing, with a special emphasis on the decomposition of growth, structural change, regional divergence and convergence, and technology spillovers. The decomposition analysis focuses on three dimensions: sectoral, regional and institutional. The book examines regional productivity differentials and convergence or divergence trend in regional industry. It includes an analysis of the regional, institutional and technological sources of growth. Chapter 2 provides a general review of the literature on regional disparity, structural change and technological spillovers. In later chapters the insights from this literature are applied to the analysis of China's regional industrial performance. In Chapter 3, a summary is provided of the aggregate growth in China since 1978. This chapter describes the main stages of the reform process and the corresponding institutional changes. As the largest transition economy in the world, China's reform has been carried out through step-by-step experimentations. From conventional points of view, the reform process might be puzzling to some researchers. However, the growth resulting from the reforms is unmistakable. China's GDP has grown more than 9 per cent per year after 1978 according to the official data provided by China's National Bureau of Statistics (NBS). China’s institutional change is characterized by a big drop of the share of state-owned enterprises and an increase of various different ownership types. Township and village enterprises (TVEs), which started from the negligible small community-funded enterprises, have shown an impressive growth and contribution to China's economy. In addition, Chapter 3 also presents a survey of the developments of technology indicators and education levels in China. Along with the openness policy, the changes of foreign investment and trade are also discussed. Chapter 4 tackles data issues and statistical problems at both the national level and regional levels. Adjustments for value added and labour are made to create consistent time series under comparable coverage. In Chapter 5, we provide new estimates of capital inputs in the Chinese economy. Estimates are made for the total economy (1953-2003), for the industrial sector (1978- 2003) and for the manufacturing sector (1985-2003). The estimates for industry and manufacturing are broken down into thirty regions. This chapter makes a systematic attempt to apply SNA concepts to the estimation of Chinese capital inputs, according to the Perpetual Inventory Method. It makes a clear distinction between capital services and wealth capital stocks. After a general discussion of theoretical issues in capital measurement, a detailed analysis of the relevant Chinese statistical concepts and data is provided. Chapter 6 focuses on the contribution of structural change to aggregate manufacturing performance in China. Since the start of the reform period the booming Chinese economy has experienced rapid structural change. Using shift-and-share techniques, this chapter examines three types of structural change: changes in the sectoral structure of production, changes in the regional structural of production and changes in the ownership structure. Overall productivity growth was slow in the 1980s, but accelerated dramatically from 1990 onwards. In 1980s, we found evidence of a structural change bonus, with sectoral shifts contributing 24% to overall productivity growth. However, when productivity growth accelerated in the 1990s, the contribution of the shift effect dropped to a mere 3.3%. In contrast to sectoral changes, changes in the ownership structure in the early 1980s contributed negatively to overall productivity growth. The contributions of ownership change turned positive after 1985, reaching 23% of productivity growth in the period 1992–1997. Shifts in ownership explain a substantial part of productivity growth during the productivity boom. Like shifts in ownership, regional shifts initially contributed negatively to productivity growth till 1992, and positively thereafter. However, the general contribution of regional shifts is lower than the contributions of sectoral and ownership shifts. Contrary to initial expectations, the regional analysis of productivity trends does not indicate regional divergence. Chapter 7 explores the extent to which there is regional productivity divergence or productivity convergence in Chinese manufacturing. Traditional regression methods are based on the relationships between productivity growth rates and initial productivity levels. Instead of these methods, we use the stochastic kernel density approach, which provides a better view of distribution dynamics. Besides the commonly used variables such as GDP per capita and labour productivity, we use Data Envelopment Analysis to measure the productive efficiency of manufacturing in Chinese regions relative to best regional practice. The evolution of regional productivity performance can thus be compared among 30 Chinese regions. Our results show that there was substantial regional convergence from 1978 to around 1990. This was followed by a period of modest divergence up till around 2001. After 2001, convergence trends resumed. Whatever indicator was used, the degree of regional inequality was substantially lower than at the beginning of the reform period. In Chapter 8, the contribution of technological spillovers in the process of industrial growth and catching-up in Chinese regions is analyzed. Concerning the sources of technological spillovers in Chinese regions, we distinguish between the regional level and the international level. The former refers to R&D inputs in other regions, the latter concerns international R&D investment which is embodied in foreign direct investment (FDI). Our analysis covers the impact of spillovers from R&D in other regions, from FDI in the own region, as well as FDI in other regions. Our empirical analysis indicates that there are stronger R&D spillover effects than FDI spillover contributions at the national level. Regional spillovers are an important explanation of the catching-up in middle regions of China. Chapter 9 concludes the whole thesis, with a brief discussion of the main results of our analysis, and some indications for further research.