CHINA SUPERPOWER
Also by Francis A. Lees BANKING AND FINANCIAL DEEPENING IN BRAZIL (with James M. Botts and Rubens Penha Cysne) FOREIGN BANKING AND INVESTMENT IN THE UNITED STATES GLOBAL FINANCE INTERNATIONAL BANKING AND FINANCE INTERNATIONAL LENDING, RISK AND THE EUROMARKET'S (with Anthony Angelini and Maximo Eng) THE ECONOMIC AND POLITICAL DEVELOPMENT OF THE SUDAN (with Hugh C. Brooks)
China Superpower Requisites for High Growth Francis A. Lees Alois J. Theis Professor of Global Finance College of Business Administration StJohn's University New York
Francis A. Lees 1997 Softcover reprint of the hardcover 1st edition 1997 978-0-333-63708-1 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London W1P OLP. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. First published by MACMILLAN PRESS LTD Houndmills, Basingstoke, Hampshire RG21 6XS and London Companies and representatives throughout the world ISBN 978-1-349-39472-2 ISBN 978-0-230-37169-9 (ebook) DOI 10.1057/9780230371699 A catalogue record for this book is available from the British Library. This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. Transferred to digital printing 2000
To my four children, who keep me feeling young
Contents List of Tables ix List of Figures XIII Preface XV From Dragon to Superpower 2 Political Opening and Economic Reform II 3 Regional Development: Special Economic Zones 23 4 Emerging Superpower 39 5 Growth: Past, Present and Future 57 6 Development of Internal Markets 73 7 Banking, Money, and Credit 107 8 China's Emerging Capital Market 123 9 Strategic Trade 141 10 Foreign Investment Strategy 163 II China and the World 189 Notes 209 Index 223 vii
List of Tables!.1 Labor Costs per Hour in Manufacturing, 1993 4!.2 Per Capita Income Level, China Compared with Other Developing Countries, 1982 and 1991 (US$) 7 1.3 Comparison of GDP per Capita, Using Standard Method (Column 1), and New Word Bank Method (Column 2) 8 2.1 Conceptual Basis for Evaluation of China's Opening 14 2.2 Growth of Production in China, 1962-90 17 3.1 Comparison Data on Four Special Economic Zones and Hainan 28 3.2 Composition of Rural Gross Social Product, 1980 and 1986 35 3.3 Structure of the Rural Labor Force, 1980, 1984, 1986 36 3.4 Contributory Share of TVP Sector in National GVIO 36 4.1 Four Requirements for Superpower Status 41 4.2 International Comparisons of China's Economic Growth (average annual rates) 46 4.3 Greater China Zone Economic Growth, 1990-2025 48 4.4 Dragon Superpower, China in the 21st Century (China GNP as a per cent of G7, US, Japan, Germany) 50 4.5 China and Japan Compared 53 5.1 Selected Macroeconomic Indicators, 1980-93 (annual per cent change) 58 5.2 Total Fixed Asset Investment: By Sources of Financing (per cent of total fixed asset investment) 60 5.3 Technology Import and Growth Rate 65 5.4 Decomposition of China's Growth Rate 66 5.5 Projected Growth of China and G7 Countries to 2010 70 6.1 Reduction in Scope of Price Controls 74 6.2 Composition of Total Retail Sales Value by Ownership, 1960-91 (Y n I 00 million and per cent) 76 6.3 Growth of Domestic and Foreign Trade, 1985-92 78 6.4 China and Other Regional Trading Areas: Interregional Trade Comparisons 79 6.5 Employment in Transport and Trade, China Compared with Other Countries 88 6.6 Borrowing the Best 91 6.7 Annual Growth in Industrial Output (per cent, per annum) 92 IX
X List of Tables 6.8 Share of Industrial Output by Type of Enterprise 94 6.9 Number and Gross Output Value of Industrial Enterprises by Ownership, 1985-91 98 6.10 Trends in the Branch Composition of China's Industrial Output, 1970-90 (per cent) 99 6.11 Industrial Concentration Ratio for Selected Industries, 1986, 1987 101 6.12 Enterprise Group Typologies 104 7.1 Assets of Selected Chinese Banks, 1994 107 7.2 Major International Borrowings since 1990 120 8.1 Issues of Securities in China, 1981-91 (billions of Chinese yuan) 127 8.2 A Share Quotas for Stock Exchange Listing 131 8.3 Evolving Status of Corporations 134 8.4 International Bond Issues by Chinese-based Borrowers (US$ millions) 137 9.1 China's Total Foreign Trade as a per cent of National Income, 1962-91; and as a per cent of GDP, 1988-93 144 9.2 China's Overall Trade Position, 1985-93 148 9.3 China's Imports, Income, and Propensity to Import (billions of yuan) 148 9.4 China's Bilateral Trade with the US 150 9.5 China's Exports to the US, as a Source of Current Account Credits, 1986-92 151 9.6 Structure of China's Merchandise Imports(%) 153 9.7 Structure of China's Merchandise Exports(%) 153 9.8 Export Growth, China, Greater China, and G5 Countries, 1991-2010 156 9.9 Comparative Economic Performance in China Economic Area, Data as of 1991 157 9.10 Ten Mainland China Seaports 159 10.1 Financial Flows to the People's Republic of China, 1979-89 165 10.2 Asian Development Bank Cumulative Lending to the People's Republic of China, December 1992 168 10.3 Inward Foreign Direct Investment, 1984-94 (US$ bn) 173 10.4 Degree of Concentration of Direct Foreign Investment in Mainland China, Selected Countries (per cent of total DFI) 174 10.5 China's Motor Car Industry, 1995 and 2010 177 10.6 Required Infrastructure Investment Spending, to Year 2000 178
List of Tables xi I 0.7 Selected Large Infrastructure Projects in the People's Republic of China I 79 I 0.8 External Debt, Debt Ratios, and Terms of Borrowing, 1993 186 11.1 Nuclear Stockpiles 204
List of Figures 4.1 Six Centuries of Empires and Superpowers 43 4.2 Role Playod by Each Component of Greater China Zone in Future Growth 49 7.1 China'sBankingSystcm,l995 109 xiii
Preface Writing a book about China inevitably draws from the author his or her utmost in thought, resourcefulness, and humility. China is contrast, stark differences, filled with the inconsistent. China is changing in a dynamic way, but appears unmoved. The economy is becoming capitalist, but remains a mix of mercantilist and communist regulation. When I took on the task of studying and writing about China, there was an attitude on my part that this would be just another interesting book. Not so. It is a struggle to reduce this vast country to 200+ pages of simple narrative. As a struggling author I have revised my 'game plan' on this project several times. Hopefully, this is not apparent in the reading. Lack of clear success in responding to the question 'When will China become a superpower?' compelled me to estimate, decompose, and explain this nation's impressive economic growth. This has become a central aspect of the volume. The first three chapters outline how an economic and political opening took place, and the following two chapters outline the growth rate and its major components. The remaining chapters amplify the sources of economic growth and prospects into the future. China's opening and development are creating critical geopolitical issues for the world. These are not discussed very closely in the text. There simply is not sufficient space and they are too important issues to be given brief afterthought. But they must be considered and dealt with. The sleeping giant is awake and still growing. May 1996 XV