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Interpreting China’s Performance With a Russian Perspective

Interpreting China’s Performance With a Russian Perspective . Yukon Huang Carnegie Endowment. Similarities. Differences. Three Key Policy Differences. Agglomeration and manufactures trade Innovation and productivity increases Vested interests and state capture.

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Interpreting China’s Performance With a Russian Perspective

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  1. Interpreting China’s Performance With a Russian Perspective Yukon Huang Carnegie Endowment

  2. Similarities

  3. Differences

  4. Three Key Policy Differences • Agglomeration and manufactures trade • Innovation and productivity increases • Vested interests and state capture

  5. (1) Economic activity is concentrated in Asia

  6. Massive migration of labor to the coast spurs concentration 6

  7. China – location of globalized industries

  8. China – location of domestic oriented industries

  9. Labor Productivity Growth (%), 1980-2005 10 China 8 6 4 2 0 10 15 20 25 30 35 40 -2 -4 Investment to Output Ratio (%) -6 -8 High investment rates coupled with spatial agglomeration effects increased labor productivity 9

  10. China and Russia – Comparison of World Bank’s Business Environment Rankings

  11. Investment climate: administrative and transactions costs as a percent of sales

  12. Regional Trade – specialized components, strong logistics and scale economies

  13. Processing trade drives China’s trade surplus

  14. Russia and China – relations with global community • Differing productive structures limits growth prospects for Russia but provides flexibility for China. • China will continue to shape global market for manufactures – more in terms of variety than in just lower costs. • Russia will continue to be largely an energy/mineral supplier and vulnerable to price fluctuations. • This has political implications for how they will relate to the international community. • China needs good relationships given its dependency on the broader global market for its goods. Russia sees itself as an energy exporter to captive markets and thus less dependent on favorable relationships.

  15. (2) Innovation must drive China’s future growth • Future growth should come more from innovation. • But innovation needs to be private sector driven in comparison with the past state led investment approach. • By 2030, China will have 200 million college graduates, more than the entire workforce in US but skills are deficient. • R&D spending is rising rapidly but reliance on government support is a concern. Patents are soaring but value unclear. • Some firms are getting closer to the technological frontier but overall production mix is still not technologically advanced. • Big question can China leapfrog beyond its “natural” position and develop more indigenous technology?

  16. China and East Asian economies are innovating no more than comparators at similar income levels(ranking)

  17. But China really stands out in terms of adoption of technology

  18. Global R&D Landscape

  19. (3) Vested Interests and State Capture • Russia – state capture by financial-industrial groups and a dominant leader. Influenced by “dutch disease” and resource rich governance vulnerabilities. • China – shifting from a broad coalition of growth advocates to state capture by the Party/State Banks/SOEs. State led rapid growth has generated abundant rent-seeking opportunities.

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