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China in 2006: An economist's view

  • Philipp Maier

Since the start of the economic transformation in 1978, China has been growing at spectacular level. Given the size and growth of its economy, China is in a position to substantially influence world commodity prices and prices for various consumption goods. This report summarises insights from a trip to China, aimed at getting better understanding of how the Chinese economy 'works'. Based on talks with government officials, Chinese and foreign firms, we provide evidence that (i) through piecemeal introduction of market elements, China has successfully made the transition from a planned economy to a marker economy; (ii) political stability is an important determining the attractiveness of China for foreign investors, and (iii) regional disparities are huge, which might at some point pose a concern to further growth. Also we note that China is primarily growing through use of more inputs, not through high productivity. Looking forward, input-based growth is typically not sustainable. As productivity does not tend to grow by 10 percent annually, China's economy will probably slow down at some point. Lastly, we expect that in the medium term, real wages will rise. The resulting expansion of China's domestic market would create new export opportunities for Western firms.

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File URL: http://www.dnb.nl/en/binaries/occstud45_tcm47-146650.pdf
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Paper provided by Netherlands Central Bank, Research Department in its series DNB Occasional Studies with number 405.

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Date of creation: Jul 2006
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Handle: RePEc:dnb:dnbocs:405
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Web page: http://www.dnb.nl/en/

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  1. Alicia Garcia-Herrero & Sergio Gavila & Daniel Santabarbara, 2005. "China’s banking reform: An assessment of its evolution and possible impact," Finance 0508010, EconWPA.
  2. Barry Eichengreen, 2006. "Global Imbalances and the Lessons of Bretton Woods," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262050846, June.
  3. Richard B. Freeman, 1995. "Are Your Wages Set in Beijing?," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 15-32, Summer.
  4. Wang, Yan & Yao, Yudong, 2003. "Sources of China's economic growth 1952-1999: incorporating human capital accumulation," China Economic Review, Elsevier, vol. 14(1), pages 32-52.
  5. Rodrik, Dani, 2006. "What's So Special about China's Exports?," Working Paper Series rwp06-001, Harvard University, John F. Kennedy School of Government.
  6. Chow, Gregory & Lin, An-loh, 2002. "Accounting for Economic Growth in Taiwan and Mainland China: A Comparative Analysis," Journal of Comparative Economics, Elsevier, vol. 30(3), pages 507-530, September.
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