Chinese Growth Prospects

China's dual economy:

Will Super-High Chinese Growth Continue?: With an average annual increase in GDP over the last two decades of more than 9 percent, China's economic development has been nothing short of spectacular. But such astonishing growth inevitably inspires the perennial question: How long can China keep it up?

In China's FDI and Non-FDI Economies and the Sustainability of Future High Chinese Growth (NBER Working Paper No. 12249), co-authors John Whalley and Xian Xin attempt to answer the question with data supplied by the National Bureau of Statistics of China. They consider, in particular, the roles of... the mainly manufacturing-based Foreign Invested Enterprises (FIEs), which are often joint ventures between Chinese enterprises (usually state-owned) and overseas companies supplying Foreign Direct Investment (FDI), product designs, and international sales networks. The second sub-economy is the non-FIE portion of China's economy in manufacturing, agriculture, and services....

FIEs employ only 24 million workers out of a total workforce of 752 million, and their labor productivity is around 9 times that of the workers in the non-FIE sub-economy. The FIEs account for over half of exports and 60 percent of imports. Industrial FIEs are responsible for over 30 percent of China's industrial output.... FIEs are concentrated in Southern and Eastern China.... The FIE sub-economy currently is growing at around 18 percent per year, while the non-FDI portion is growing at about 5-6 percent annually....

In dollar terms, annual FDI inflows to China were less than $2 billion in 1985, but had ballooned to $61 billion by 2004.... By 1997, China had FDI inflows of $49 billion.... China's FDI inflows fall into two categories: horizontal FDI, which involves the transfer of production (mainly from North America and Western Europe) to service the Chinese internal market; and vertical FDI, which takes advantage of low-cost production in China for products to be exported and which is fueled mostly by China's Asian neighbors....

About 84 percent of China's inward FDI occurs in nine coastal provinces, leaving the remaining 20 provinces with 12 percent of inward FDI and resulting in great disparities in income....

Matt Nesvisky