The Washington Consensus and

China Approach

Ping Chen pchen@ccer.pku.edu.cnhttp://pche.ccer.edu.cn/

China Centre for Economic Research, Peking University, Beijing, China

Centre for New Political Economy, Fudan University, Shanghai, China

6º. FORUM DE ECONOMIADA FUNDAÇÃO GETÚLIO VARGAS

Sept. 22, 2009

Average GDP Growth Rate in Decades (%)

Decade 1970s 1980s 1990s

---------------------------------------------------------------------------

East Asia 4.5 4.4 2.8

East Europe 4.8 2.4 -4.4 (-46%)

West Europe 2.7 1.9 1.6

North Amer. 3.3 3.0 2.8

South Amer. 5.2 1.2 2.9

World 3.6 2.7 2.1

Arable Land and Population

• Cross Country Comparison in 1993 (Madison1998)

--------------------------------------------------------------------------------------------- Region Arable Land (%) Population (millions) Arable land per capita (ha) -------------------------------------------------------------------------------------------- China 10 1178 0.08 Europe 28 507 0.26 US 19 239 0.73 fUSSR 10 203 0.79 Japan 12 125 0.04 India 52 899 0.19 Brazil 6 159 0.31 Australia 6 18 2.62 Canada 5 28 1.58 ----------------------------------------------------------------------------------------

Average GDP Growth Rate in Decades (%)

---------------------------------------------------------------------------------

Decade 1970s 1980s 1990s

---------------------------------------------------------------------------------

Japan 4.2 3.6 1.2

German 2.6 1.7 1.6

China 4.7 8.8 9.4

Vietnam -0.1 5.0 6.9

Poland 6.1 0.9 3.2

Hungary 4.7 1.5 0.3

USSR 4.6 2.6

Russia -4.8

Ukraine -8.9

------------------------------------------------------------------------------

Data Source: United Nations Statistics

World Economy in Historical Perspective

• (Annual average compound rate of GDP growth)

------------------------------------------------------------------------------------------

WEuro EEuro Asia US Japan fUSSR China

1913-50 1.19 0.86 0.82 2.84 2.21 2.15 -0.02

1950-73 4.79 4.86 5.17 3.93 9.29 4.84 5.02

1973-2001 2.21 1.01 5.41 2.94 2.71 -0.42 6.72

------------------------------------------------------------------------------------------

Source: Maddison (2007) at http://www.ggdc.net/Maddison/

Russia’s Economic Declines in 20th Century

• (Each period started with 100%)

-------------------------------------------------------------------------------------------- Period 1913-22 1940-45 1990-96 Russia/USSR WWI&CW WWWII Transition ----------------------------------------------------------------------------------------- National Income 55.6 83.1 54.7 Industrial Output 31.0 91.8 47.5 Agriculture Output 66.3 57.0 62.5 Capital Investment 40.3 89.0 24.3 --------------------------------------------------------------------------------------------- Source: V.Tikhomirov (2000)

Economic Performance during Transition

• (Each period started from 100%)

---------------------------------------------------------------------------------- Date 1978 1989 1990 1998 2006 Region ----------------------------------------------------------------------- China 100 272 282 651 1327 100 104 239 488 100 230 471 East Europe 100 151 82.6 55.7 87.1 100 54.7 36.9 57.7 100 67.4 105 Russia (100) 50.7 31.5 53.1

100 57.4 96.6 ---------------------------------------------------------------------------------- Data source: United Nations Statistics (in constant 1990 dollar). Russia (1989) was estimated from USSR (1989).

Transition Recession in East Europe Peak Though Recovery Length (yrs) Decline (%)

------------------------------------------------------------------------------------------------

Germany 1992 1993 1994 1 -1.1

(Two minor recessions in 1993, 2003, decline –1.1%)

Czech 1989 1992 2000 13 -13

Slovakia 1989 1992 1998 9 -22

Poland 1989 1991 1996 7 -18

Hungary 1989 1993 2000 11 -18

Romania 1987 1992 >2003 >16 -30

Bulgaria 1989 1997 >2003 >15 -34

Albania 1989 1992 2000 11 -40

Mongolia 1989 1993 2002 13 -22

----------------------------------------------------------------------------------------------

Decline is measured by trough to peak ratio in real GDP

Source: United Nations Statistics

Transition Recession in Former Soviet Union

Peak Though Recovery Length (yrs) Decline (%)

------------------------------------------------------------------------------------------------

Estonia 1990 1994 2002 12 -45

Latvia 1990 1995 >2003 >13 -50

Lithuania 1990 1995 >2003 >13 -44

Russia 1990 1998 >2003 >14 -43

Ukraine 1990 1999 >2003 >14 -61

Belarus 1990 1995 2003 13 -45

Georgia 1990 1994 >2003 >13 -82

Uzbekistan 1990 1995 2001 12 -19

Azerbaijan 1990 1995 >2003 >14 -58

Kazakhstan 1990 1995 >2003 >13 -49

Tajikistan 1991 1996 >2003 >13 -70

China’s Industrial Output ----------------------------------------------------------------------------------------- Year 1958 1968 1978 1988 1998 2007 2008 2009 ---------------------------------------------------------------------------------------- Steel (Mton) 6 16 31.8 59 116 489 500 Gr(%) 9.8 6.9 6.2 6.8 14.6 Car 57 279 3k 36 k 507k 4.8m 5.0m Gr(%) 15.9 23.8 24.9 26.4 22.9 Vehicles 16k 25k 149k 647k 1.6m 8.9m 9.3m 10m? Gr(%) 4.4 17.9 14.7 9.1 17.6 CoTV 4k 10m 35m 85m 90m Gr. 78.2 12.5 9.4 PC 116k 2.9m 121m ? Gr(%) 32.2 41.5 CellPhone (started 2001) 547m ---------------------------------------------------------------------------------------- Here, Gr for average annual growth rate for each decade. Listed items include steel production, vehicle and car production, color TV, PC computer, cell phone.

. China’s Development Progress ---------------------------------------------------------------------------------------- Year 1958 1968 1978 1988 1998 2007 2008 2009 ---------------------------------------------------------------------------------------- ExWay 0.1k 8.7k 53.9 Gr(%) 44.7 20.3 UnvSts 856k 2.1m 3.4m 18m Gr(%) 8.9 4.8------16.7 GrSts 3k 10.9k 113k 199k 1.2m Gr(5) 23.4 5.7 20.0 StsAbr 500 860 3.8k 17.6k 144k Gr(%) 14.9 15.3 23.4 ------------------------------------------------------------------------------- Here, listed items are: high speed express way, total number of university students, graduate students, and students studying abroad.

China’s Living Standard

---------------------------------------------------------------------------------

Year 1958 1968 1978 1988 1998 2007 2008

--------------------------------------------------------------------------------

AvWage 615 2000 7480 24900

Gr(%) 11.8 13.2 13.4

ResDpt(Byen) 21 600 5340 17253

Gr(%) 33.5 21.9 13.0

--------------------------------------------------------------------------------

Listed items include average nominal wages, and resident

deposits in banks. Their growth rate is parallel or even higher

than GDP growth rate.

China’s Trade, Foreign Reserve, and FDI

-------------------------------------------------------------------------------

Year 1958 1968 1978 1988 1998 2007 2008

------------------------------------------------------------------------------

TrSpls($b) -2 200 360 2017

Gr.(%) 5.9 19.2

ForRes($b) 0.2 3.4 145 1528

Gr(%) 28.3 37.5 26.2

FDI($b) 5.3 52.1 200

Gr(%) 22.9 16.8

-----------------------------------------------------------------------------------

Here, data include trade surplus, foreign reserves, and FDI received.

Growth rate is measured by average for each decade.

Washington Consensus (Williamson 1990)

• Fiscal discipline • A redirection of public expenditure priorities toward fields

such as primary health care, primary education, and infrastructure

• Tax reform (to lower marginal rates and broaden the tax base)

• Interest rate liberalization • A competitive exchange rate • Trade liberalization • Liberalization of inflows of foreign direct investment • Privatization • Deregulation (to abolish barriers to entry and exit) • Secure property rights.

Beijing Consensus (Ramo 1997)

• First, the value of innovation. The development strategy should not be trailing-edge technology (copper wires), but bleeding-edge innovation (fiber optic) to create change that moves faster than the problems change creates.

• Second, focus is the quality-of-life and chaos management. It demands a development model with sustainability and equality.

• Third, a theory of self-determi nation.

China Approach (Chen 2009)

• (1) Finding growth opportunity first; then take bold reform

• (2) The dual-track system for stability and innovation• (3) A clear division of labor between central

government (stability & coordination) and local governments (innovation & development)

• (4) Leadership in regional development• (5) The mixed economies sustainable for public

finance, development and reform.

China Approach

• (6) The Chinese discipline based on competition at all the level, not checks and balance by interest groups in western style.

• (7) A new coordinative partnership among governments, entrepreneurs, workers, and farmers

• (8) Government should create and guide market, but not be driven by the market

• (9) Central government should focus on China’s development trajectory without distracting from outside disturbances.

A New World Order after this Crisis

• From a universal (Anglo-Saxon) value system to a more diversified world

• China is developing new partnership with Africa and Latin America countries

• China’s approach of resource-saving and labor-intensive technology

• China’s equal approach in intennational exchange

Teachings by Confucius (551-479 B.C.)

• “What you do not want done to yourself, do not do to others.”

• “To lead by setting an example, (not by lecturing).”

References• Ping Chen, “From an Efficient to a Viable International Financial Market,” in

R. Garnaut, L. Song and W.T.Woo eds. China’s New Place in a World in Crisis: Economic, Geopolitical and the Environmental Dimensions, Australian National University E-Press and The Brookings Institution Press, Canberra (2009)

• Ping Chen, “Three Dimensions of Current Economic Crisis,” in Looking for Solutions to the Crisis: The United States and the New International Financial System, Conference Proceedings, New York, Nov. 14, 2008, EPS (Economists for Peace and Security) and IRE(International Initiative for Rethinking the Economy), Published in Clamecy, France (2009)

• Ping Chen, “Equilibrium Illusion, Economic Complexity, and Evolutionary Foundation of Economic Analysis,” Evolutionary and Institutional Economics Review, 5(1), 81-127 (2008).

• Ping Chen, “Complexity of Transaction Costs and Evolution of Corporate Governance,” Kyoto Economic Review, 76(2), 139 － 153 (2007).

• Ping Chen, “Evolutionary Economic Dynamics: Persistent Business Cycles, Disruptive Technology, and the Trade-Off between Stability and Complexity,” in Kurt Dopfer ed., Evolutionary Foundations of Economics, Chapter 15, pp.472-505, Cambridge University Press, Cambridge (2005).