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CF40 - Sun Yefang Book Club on Forty Years of Reform and Opening-up
 
 
 
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CF40 - Sun Yefang Book Club on Forty Years of Reform and Opening-up


On November 20th, 2018, the fifth lecture of the series CF40 Review of 40 Years of Reform and Opening-up was held in Beijing. The lecture was also the tenth event of CF40 - Sun Yefang Book Club co-hosted by China Finance 40 Forum and Sun Yefang Economic Science Foundation, with support from the Bank of Communication and CFCity. The theme of the lecture was “China’s 40 years: from high-speed growth to high-quality development”.

 
From left to right: Wang Haiming, Cai Fang, Justin Yifu Lin, Zhang Bin
 
Cai Fang, CF40 academic advisor and Vice President of Chinese Academy of Social Sciences, delivered the keynote speech, analyzing the role of demographic dividends in explaining China’s great success in the past four decades.


 
Cai Fang

Besides, the unique demographic structure sped up capital accumulation. First, declining Population Dependency Ratio led to growing surplus savings, which was also source of investment. Second, abundant labor supply curbed the diminishing return on capital investment, thus secured high investment return and capital accumulation which contributed to economic growth.
 
Over the first 30 years of China’s reform, working-age population grew while growth of dependent population was almost stagnant, even declining at the rate of 0.2 percent a year. Cai pointed out that such demographic structure provided sufficient supply of labor, greatly boosted economic growth and served as a unique advantage for China’s unprecedented development.
 
Cai added that sufficient supply of labor also elevated total factor productivity, which is decided mainly by resource relocation that is, the flow of laborers from agriculture with sufficient workforce but low productivity to the second and tertiary industry with insufficient workforce but high productivity. In conclusion, he claimed that demographic dividends played a leading role in China’s economic growth.
 
He then gave two examples. First, different from developed countries, who have equally high level of education in all age groups, in China, the younger generations were better educated, so when they began to work, they restructured labor market, and empowered China to quickly overtake other countries in labor’s education level. Second, about 44% of TFP growth comes from the transfer of resources between the three industries, mainly the relocation of labor resources, an illustration of demographic dividends

To capitalize demographic dividends, reform and opening-up is a must. Cai generalized China’s capitalization on demographic dividends as a process of “exit-flow-enter”. The micro incentive system reform in rural areas empowered farmers to allocate their own production factors and freed them from grain production. With the tide of urbanization, they exited from agriculture to the second and tertiary industries and flowed to coastal areas, where small and medium enterprises, non-public sector and export-oriented manufacturing thrived. Rural migrant workers now account for 40% of urban employment. Finally, they got over the system barrier and entered big cities and state-owned companies, and some of them even became permanent urban residents. Cai believed that the demographic flow greatly contributed to the annual growth rate of 10% until 2010.

The situation, however, changed in 2010, when China's working-age population reached a peak-after which it has been experiencing negative population growth. As a result, the ratio of dependent population has increased. “That’s why China ’s growth speed fell from 11% to less than 8%,” Cai pointed out.

As population dividends diminish, the potential growth rate for China after 2010 is bound to fall, but it’s still higher than 6.2% now. Therefore, Cai was confident that full employment will still be secured even if the figure drops to 6% in a few years.

Following Cai’s speech, Prof Justin Yifu Lin from National School of Development at Peking University and Mr. Zhang Bin, CF40 Senior Fellow, had a discussion of the main driver of China’s economy over the past four decades. Prof Lin offered a quite different perspective.



Justin Yifu Lin

Prof Lin insisted that China’s latecomer’s advantage was the main driver force behind its economic development since the start of reform and opening-up in 1978. As a developing country, China had access to technological advances at low costs and risks.

If the accumulation of labor and capital is not supported by technological advances and industrial upgrade, marginal return will fall, and the economy will not thrive. Prof Lin gave the example of Singapore, who has both high savings rate and high rate of income on investment, but without demographic divendends. It is because Singapore made the most out of its latecomer’s advantage and brought in technologies and mature industries that it has kept high growth rate for many decades.
 
 Lin argued, “Demographic change is a slow variable that can’t explain the fast decline in growth speed.” He listed several countries whose economy boomed without demographic dividends, and countries who enjoyed demographic dividends but still suffered economic downslide. Slowing down of growth rate and diminishing demographic dividends may be happening simultaneously in China, but it doesn’t necessarily mean they have a causal link.

Lin gave his explanation of China’s growth since 2008. After the financial crisis, the cyclical interventions of government and pro-active fiscal policies did not function as expected, and international trade and investment remained sluggish. Compared to other countries, China had a higher rate of employment and increased household income, so it maintained a high level of consumption, which explained why it did not suffer sluggish economy like other countries.



Zhang Bin

Zhang Bin predicted that China would soon become a high-income country, but with people's life quality lower than that of other developed economies. The main causes for that are insufficient public service and the government's overregulation on service sector, especially healthcare and education.

CF40 Secretary-General Wang Haiming moderated the discussion.

Book Introduction

CF40 Review of 40 Years of Reform and Opening-up


The book embodies the in-depth reviews and reflections of CF40 members, executive members and academic advisors on China’s financial system reform, financial opening-up and Renminbi internationalization, construction of modern currency and fiscal policy system, fintech and green finance in the past 40 years. It is regarded an important piece of work to commemorate the 40th anniversary of reform and opening-up.
 
 
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