How long can Chinas economic miracle continue

1
How long can Chinas economic miracle continue?

• March 2007
• David Dollar, World Bank, Beijing

2
GDP growth and poverty decline
7th Plan
6th Plan
8th Plan
9th Plan
10th Plan
2700
Dollar-a-day consumption HCR
60
2200
Per-capitaGDP
1700
40
Headcount rate of poverty (HCR) (percent)
Per capita GDP (yuan at 1980 prices)
1200
20
700
Official rural HCR
0
200
2001
2003
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
3
Chinas challenges

• Natural resource scarcity and environmental
  degradation
• Increasing inequality and social disparities
• Global trade imbalances

4
China (especially North) is water scarce
North China
cubic meters
728
China
2183
Renewable fresh water per capita
Thailand
3380
Japan
3386
Vietnam
4513
U.S.
9621
13,233
Indonesia
17,848
Myanmar
5
China uses as much water as the USA
Billions cubic meter
600
500
400
300
200
100
0
Brazil
China
France
Germany
India
Japan
Russia
UK
USA
2003
6
to produce two-thirds its PPP GNI
Water use per PPP of GNI, cubic meter
0.25
0.10
0.15
0
Brazil
China
France
Germany
India
Japan
Russia
UK
USA
7
So groundwater gets rapidly depleted
8
Water quality improves in the South and worsens
in the North
South China
North China
Percent of rivers
100
Class V V
Class V V
80
Class III IV
60
40
Class III IV
20
Class I II
Class I II
0
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Class I-II Suitable for drinking Class III-IV
Moderately polluted Class V Severely polluted
9
Water tariffs have increased but are still
relatively low
Cebu
Beijing
Chiang Mai
Sihanoukville
Bangkok
Manila (MWSI)
Jakarta
Hanoi
Phnom Penh
Ho Chi Minh City
Ulaanbaatar
Shanghai
Medan
Manila (MWCI)
Darkhan
Savannakhet
Vientiane
0
0.10
0.20
0.30
0.40
Average water tariff (US dollars per cubic meter)
10
China is not meeting its own environmental targets
11
Policy measures for water

• Pricing (especially waste water treatment)
• Enforcement/penalties
• Tradable pollution certificates

12
World Bank demonstration projects for water
conservation and efficiency

• Loess Plateau, Yellow River rehabilitation
• Changjiang rivershed rehabilitation
• Pearl River clean-up
• Water/waste water treatment in more than 100
  cities

13
Air pollution in Chinas major cities has
declined
Total suspended particulates (µg/m3)
Average of southern cities
3,000
Averages of northern cities
Annual average standard
2,500
24-hour average standard
Vertical bars indicate ranges of values for all
cities
2,000
1,500
1,000
500
0
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
14
But PM10 concentrations are still high
Annual average PM10 concentrations observed in
selected cities worldwide, 2004, 2005
300
250
200
150
100
50
Kathmandu Dhaka New Delhi Kolkata Ho Chi
Minh Mumbai Colombo Chiang Mai Hong
Kong Surabaya Bangkok Singapore
Lifen Kaifeng Datong Taiyuan Beijing Xian Jilin Sh
enyang Shijiazhuang Tianjin
Prague Barcelona Milano Oslo Budapest Vienna Munic
h London Stockholm
Panzhihua Chongsha Changsha Wuhan Nanjing Hangzhou
Guangzhou Shanghia Xiamen
Lima Santiago Bogota Havana City Mexico City Rio
de Janeiro La Paz Sao Paulo
0
San Diego Los Angeles Houston WashingtonNew
York Seattle
Cairo Vereiningen Johannesburg Cape Town
United States
Africa
Europe
Latin America
S. China
Other Asia
N. China
15
Air pollution causes considerable damage to health
16
Costs of air and water pollution in China
Total
5.8 of GDP
Air pollution health costs
3.8
Non-health costs of air/water
1.5
Water pollution Health costs
0.5
17
Greenhouse gases China will soon be the largest
emitter
CO2 emission, million tons
12000
China
10000
8000
United States
6000
4000
OECD Europe
2000
0
1990
2004
2015
2030
18
Although China is only catching up with others
CO2 emission, million kilotons
1960-2002
400
300
200
2002
100
0
China
Brazil
Germany
OECD
Japan
UK
USA
India
19
Chinas energy efficiency increased up to 2000,
then reversed
Energy use (SCE) per 10,000 yuan of GDP
8
6
4
2
0
1980
1984
1988
1992
1996
2000
2004
20
Energy efficiency in China and selected OECD
economies, 2004
GDP per kt of oil equivalent use (PPP million
dollars)
8
6
4
2
0
China
USA
Australia
Japan
UK
21
Chinas gasoline price in international
perspective
Gasoline price (US cents/liter)
175
UnitedKingdom
150
KoreaRep
Japan
125
100
Singapore
75
UnitedStates
China
50
Malaysia
UnitedArabEmirates
Indonesia
25
Yemen
SaudiArabia
Venezuela
Iran
0
100
1,000
10,000
100,000
GDP per capita (log scale)
22
Policy measures for energy efficiency

• Prices and taxes to reflect environmental
  externalities
• Urban mass transit
• Support to clean technologies (CMM, wind,
  biomass)
• Cap emissions and trade

23
World Bank demonstration projects for energy
efficiency

• Renewables (wind, biomass, small-scale hydro)
• Coal mine methane in Shanxi
• Xian urban transport
• Technical support to clean development mechanism
  fund for new technologies

24
Income inequality has risen (Theil index and
decomposition)
Theil index of income inequality
40
Within urban, within provinces
30
Within urban, between provinces
Within rural, within provinces
20
Within rural, between provinces
10
Between rural and urban areas
0
1987
1995
2003
25
Urbanrural labor productivity differentials have
grown
Index of labor productivity 1978 labor
productivity in agriculture1
80
76.4
Urban industry
60
40
Urban
36.6
Rural industry services
Urban services
24.3
23.6
20
Rural
11.4
Agriculture
3.3
0
1978
1983
1988
1993
1998
2003
26
Rural population is moving to cities
Rural population (millions)
1000
Rural population based on hukou
900
800
Rural population based on residence
700
1978
1985
1990
1992
1994
1996
1998
2000
2002
2004
27
Some rural land shifts to urban use

• 0.15 of agricultural land per year converted to
  urban use (2000-2004)
• Living standards of 62 percent of farmers who
  have had land taken were lower after land
  acquisition (2005 Green Paper on Rural Economy,
  NBS and RDI of CASS)

28
Education inequality has risen
High school enrollment rate ()
100
2003
80
60
40
20
1990
0
6
7
8
9
Provincial mean per-capita income (log)
29
Disparities in per capita county expenditure
Education
2003
Constant 2000 RMB
600
500
400
300
200
100
0
30
Days of work for to pay for middle school, 2004
Days of work needed to pay middle school fees
80
60
40
20
0
0
20
40
60
Average male daily wage in village (yuan)
31
Disparities in per capita county expenditure
Health
County health expenditure (RMB p.c.)
200
160
Percentile 95th
120
Mean
Percentile 5th
80
40
0
Jilin
Tibet
Anhui
Hubei
Hebei
Fujian
Hunan
Henan
Gansu
Shanxi
Jiangxi
Jiangsu
Ningxia
Qinghai
Yunnan
Xinjiang
Sichuan
Shaanxi
Guangxi
Liaoning
Guizhou
Zhejiang
Shandong
Guangdong
Heilongjiang
Inner Mongolia
32
Unaffordable hospital care in China
Both lack of insurance, and costly care,
contribute to Chinas unaffordable hospital care
100
China
Mexico
80
60
Switzerland
Inpatient episode cost as percent of household
consumption per capita
Japan
Canada
Denmark
40
Spain
Australia
Germany
France
Turkey
20
Korea
Hungary
0
20
40
60
80
100
Out-of-pocket share of inpatient episode cost
(percent)
33
Evolving poverty strategy from poor places to
poor people

• Facilitate migration hukou reform, rural land
  market
• Rural health and education reform
  inter-governmental fiscal, conditional transfers
• Reduce vulnerability health and crop insurance,
  urban and rural dibao

34
World Bank demonstration projects to reduce
social disparities

• Support to rural-urban migrants in 3 provinces
• New approaches to compensating rural-urban land
  transfers in Sichuan
• Basic education in the west
• Rural health reform in sample counties
• Integrated delivery of rural water, sanitation
  and hygiene in 2 poor provinces

35
Global Imbalances
Current account balances, percent of GDP
Source IMF and World Bank Staff Estimates
36
Chinas challenges

• Natural resource scarcity and environmental
  degradation
• Increasing inequality and social disparities
• Global trade imbalances