Academic journal article China Perspectives

China’s Economic Growth Prospects: From Demographic Dividend to Reform Dividend

Academic journal article China Perspectives

China’s Economic Growth Prospects: From Demographic Dividend to Reform Dividend

Article excerpt

Cai Fang, China’s Economic Growth Prospects: From Demographic Dividend To Reform Dividend, Cheltenham (UK), Northampton (MA, USA), Edward Elgar Publishing, 2016, 234 + XII pages.

Cai Fang is a demographer and economist, currently director of the Institute of Population and Labour Economics, Chinese Academy of Social Sciences (CASS). He is a member of the Standing Committee of the National People's Congress (since 2008) and author of many books and research articles on China's demographic transition and the reality of its growth process.

His book, China's Economic Growth Prospects: From Demographic Dividend to Reform Dividend, combines theoretical reflections and empirical work to analyse the engines of China's growth and to explain the deceleration underway. The argumentation highlights the existence of a demographic dividend, the source of a sea of workers behind China's industrialisation and development process until recently. The book's main aim is to signal the end of this demographic dividend, portending the evaporation of China's comparative advantage based on low-cost work and the inevitable slowing of the growth rate. The various chapters discuss the main challenges China has to face so as to avoid getting stuck in the so-called middle income trap and to eventually join the league of rich nations.

The reflection covers different themes at the heart of the author's expertise, such as ageing population, labour's contribution to growth, migratory flows, income inequality, and quality of education, for which theoretical argumentation and corrected official figures are mobilised. The rich and at times technical discussion envisages unavoidable adjustments and perilous conditions. The rest of the book analyses rebalancing of growth, from a model drawing on an accumulation of factors (labour and public investment) and export of low-quality manufactured goods, towards a process based on innovation and domestic consumer demand, especially for services. The chapters on recommendations and policies and on pitfalls to avoid are particularly interesting, especially given the author's proximity to the authorities. The discussion implicitly deals with the difficulty of abandoning China's traditional policy of macro-economic support such as its industrial policies, regional strategies, and stimulus packages in favour of those that would actually boost modernisation of the industrial structure and innovation.

The book is divided into 12 thematic chapters. At about 15 to 20 pages each, they offer a persuasive analysis of the sources of growth deceleration, the risks to be overcome if China is to become a developed economy, and different proposals for economic policies to get there. The analysis often refers to the experience of China's neighbours, such as South Korea and Japan.

The first six chapters discuss the relevance for China of the dual sector development theoretical framework and demonstrate Chinese specificity when it comes to demography's contribution to economic growth. Chapter 1 sets the scene, describing the advantage of lagging behind economically while in a trajectory of catching up: borrowing, purchasing, and imitating technologies that already exist overseas makes for rapid growth, which however inexorably slows as the technological gap begins closing. China is nearing this crossroads. Chapter 2 turns to the theory of dual economy development characterised by a surplus of farm labour. In this model, workers' migration towards urban industry naturally fuels the industrialisation process and productivity gains. This engine, which worked full steam in boosting China's growth, is now nearly extinguished. Chapter 3 relies on recent detailed data to show that in the middle of the last decade, China reached what is called "the Lewis Turning Point," after which the extinction of surplus labour led to wage increases and contributed to growth deceleration. Chapter 4 describes the end of the demographic dividend linked to the reduction in the proportion of the working-age population, while Chapter 5 discusses the inexorably aging population. …

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