Asian Tigers and China PDF

Asian Tigers and China Amatori-Colli, part ch. 18, and ch. 22 Economic history cl. 15 Ay 2024/2025 Sonia Schifano In this episode The rise of the 4 Asian Tigers The rise of China A.Y. 2024/2025 30076 - cl. 15 2 A.Y. 2024/2025 30076...

Asian Tigers and China Amatori-Colli, part ch. 18, and ch. 22 Economic history cl. 15 Ay 2024/2025 Sonia Schifano In this episode The rise of the 4 Asian Tigers The rise of China A.Y. 2024/2025 30076 - cl. 15 2 A.Y. 2024/2025 30076 - cl. 15 3  https://www.oecd-ilibrary.org/sites/3d96efc5- en/1/3/5/index.html?itemId=/content/publication/3d96efc5- en&_csp_=2c2e680562193998e9d20ed6a45a9242&itemIGO=oecd&itemCo ntentType=book A.Y. 2024/2025 30076 - cl. 15 4 The rise of the 4 Asian Tigers Latecomers and disadvantages: Catching Up!!! They could not rely on: mechanisms of secular accumulation in the primary sector. labor-intensive sectors and low wages (unsustainable in the medium to long term). currency devaluation. investments from foreign capital (less interested in investing in poor markets). Some Asian countries (the so-called Tigers, namely South Korea, Taiwan, Hong Kong, and Singapore) and some South American countries found themselves in these conditions They had a less dynamic domestic market and therefore had to focus immediately on exports A.Y. 2024/2025 30076 - cl. 15 5 How the East Asian Tigers became rich The “East Asian Tigers” (Hong Kong, Singapore, South Korea, and Taiwan) became rich in the second half of the 20th century. East Asian Tigers: catch-up growth by importing new ideas and technologies. But why were these countries able to catch up while many other parts of the world remained poor? Per capita GDP in various parts of the world, 1960–2019 A.Y. 2024/2025 30076 - cl. 15 6  Catch-up growth Because of technological advances in developed countries, catch-up potential is greater than ever before. This is illustrated by Parente and Prescott (2000): countries that reached 2000 (1990 $) earlier took longer for their incomes to subsequently double. East Asian countries after WW2 were far from the economic frontier and hence had tremendous catch-up “potential”. A.Y. 2024/2025 30076 - cl. 15 7 Catch-up growth Catch-up growth is not simply a matter of importing technology. Institutions, culture, geography, demography, colonial past matter a lot. Economic geography: emergence of a cluster of densely populated manufacturing and consumption hubs in East Asia was an important precondition: Well placed to follow the path pioneered by Japan Late growth meant they were far from the economic frontier and had a larger “backlog” of modern technologies to import A.Y. 2024/2025 30076 - cl. 15 8 Trade, institutions and catch-up growth The East Asian economies were all relatively small: were forced to rely on international markets No protective tariffs to support domestic manufacturing firms (as done, for instance, by Brazil and India) Institutions that constrain executive power are important… the East Asian Tigers were not initially democratic but The failure of eastern economies (Soviet Union) as a learning experience A.Y. 2024/2025 30076 - cl. 15 9 How the East Asian Tigers became rich Inspired by Japan Helped by US investments High level of Human Capital These countries adopted policies classifiable as export-led growth The success of growth recipes depended on: The choice of sectors to invest in Automobile, chemical, electronical Forms of enterprise  Diversification The role of the State A.Y. 2024/2025 30076 - cl. 15 10 The Role of the State Developmental States: forms of state intervention to support economic growth: Customs policies Establishment of public enterprises in specific sectors Planning policies Support for businesses with the potential to become competitive in international markets Developmental banks (state-controlled): providing loans on favourable terms Fiscal incentives A.Y. 2024/2025 30076 - cl. 15 11 Similan but Different Approaches Each solved in their own way: Hong Kong (a British colony at the time): most reliant on markets, open to trade Singapore (ex-British colony): pragmatic combination of market & government South Korea: weak formal constraints; large industrial conglomerates (chaebols) relied on export markets, providing much-needed market discipline Taiwan Small enterprises focusing on spare parts market A.Y. 2024/2025 30076 - cl. 15 12 The rise of China A.Y. 2024/2025 30076 - cl. 15 13 A.Y. 2024/2025 30076 - cl. 15 14 How China is becoming rich After a long delay, the Chinese economy has grown rapidly since the late 1970s. As recently as 1990, 66.2% of Chinese were earning less than $1.90 per day, and 98.3% of the population made less than $5.50 per day. As of 2016, only 0.5% of the population made less than $1.90 per day and 23.9% made less than $5.50 per day. Per capita GDP has risen from $71 in 1962 (around $0.20 per day) to $10,262 in 2019. What happened? A.Y. 2024/2025 30076 - cl. 15 15 China’s difficult path to catching up The Chinese miracle is remarkable: nearly one billion people taken out of extreme poverty within the span of a lifetime. China has remained an autocracy: very few constraints on executive power. Communist period (1949-present): modern centralized state at tremendous human cost: Forced collectivization of agriculture and a series of Five- Year Plans culminating in the disastrous Great Leap Forward (1958–62) Misguided attempt to jump-start industrialization in the absence of a market mechanism A.Y. 2024/2025 30076 - cl. 15 16 China’s difficult path to catching up The growth recipe initially adopted pivoted on central planning and collectivization: 1953-57, the first five-year plan Initiation of land and enterprise collectivization Commencement of industrialization Technical and economic support from the USSR Despite the success of collectivization and growth, from 1949 to 1957 - GDP grows by 57% - the plan does not generate sufficient industrialization. Model change: 'Great Leap Forward' A.Y. 2024/2025 30076 - cl. 15 17 Great Leap Forward (1958-1960) Objectives: Rapid and parallel development of agriculture and industry. Avoiding the import of heavy machinery from abroad. Financing the industrial sector through mass exploitation of low-cost labour, guaranteed by the enormous availability of peasant labour. Tools of the plan: Collectivization of agriculture: abolition of private plots and the emergence of gigantic 'People's Communes' (99% of peasants). Implementation of large hydraulic works through forced and massive labour of millions of peasants. Increase in steel production through the creation of thousands of small backyard furnaces. A.Y. 2024/2025 30076 - cl. 15 18 Consequences of the Great Leap Forward Between 1959 and 1962, a severe famine strikes the entire country, causing tens of millions of deaths: The officially recognized figure in China is 14 million, but scholars provide estimates ranging from 20 to over 40 million. In 1966, a new radical change is implemented with the Cultural Revolution, aiming to flatten wage differentials and inequalities (among intellectual and professional elites) The disorders that ensued caused serious problems to the economy, leading to a pronounced decline of GDP A.Y. 2024/2025 30076 - cl. 15 19 GDP Growth in China A.Y. 2024/2025 30076 - cl. 15 20 China’s reversal China began to successfully reverse course under the Chinese leader Deng Xiaoping Initiated market-oriented reforms in 1979. Remained autocratic. How did China reverse course? China did not need to reinvent the wheel of industrialization or the modern economy. It could borrow industrial inputs and managerial know-how from abroad via opening up to foreign direct investment. Tremendous under-utilized economic potential had clearly been there for decades prior to the reforms of the late 1970s. A.Y. 2024/2025 30076 - cl. 15 21 Market-based reforms and the rule of law China’s first reforms (1978-95) dismantled command economy and collectivization, freeing up hundreds of millions of workers to move into industrial labor. Post-1995 reforms involved widespread privatization: state’s share of industrial output declined from ~50% in 1995 to 24% in 2008. But there was no rule of law in pre-reform China: as a market economy was introduced, a corresponding legal system had to be developed. One important development was the adoption of elements of German civil law such as the right for private citizens to sue the government. Relatively minor moves towards greater rule of law were sufficient to induce a radical transformation of Chinese economy and society, between 1978 and 1993: foreign investment poured in, Trade to GDP ratio rose from 9.7% to 31.9% A.Y. 2024/2025 30076 - cl. 15 22 Opening up to the West Among the most important decisions: in 1979, 4 Special Economic Zones (SEZs) were opened to attract foreign capital and with the aim of stimulating Chinese exports. The SEZs: Were the tool for the 'modernization' of the country, where new forms of enterprise governance were also experimented. Became a driving force for growth and innovation. The number of SEZs increased to 14 in 1985. Other significant events: China becomes a member of the World Bank (1980). 1986: China applies for membership in the GATT. A.Y. 2024/2025 30076 - cl. 15 23 Tensions in the party and economic growth (1990s) Concerns in the party and society: the repression of Tiananmen Square (1989). In the 1990s, the goal is a 'socialist market economy.' 1993: Restructuring of state-owned enterprises and the beginning of new legislation. 1995: Privatization of smaller state-owned enterprises. 1997: Public presence in the economy to be maintained only in certain sectors. 2001: China joins the WTO. 2002: Recognition of the role of the private sector in the Chinese economy. Concentration and internationalization of state-owned enterprises: the SASAC A.Y. 2024/2025 30076 - cl. 15 24 A.Y. 2024/2025 30076 - cl. 15 25