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China: Transition to a Market Economy
Popular Courses. Login Newsletters. Key Takeaways The economies of the United States and China are intricately linked, due to the two nations sharing the second-largest trading partnership of goods and services. Low production costs and cheap labor are negatively impacting the export market of the United States. China's impact on oil prices can benefit the United States in the short term, as the States can enjoy decreased oil import prices.
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Partner Links. Related Terms Balance of Trade BOT The balance of trade is the difference between a country's import and export payments and is the largest component of a country's balance of payments. An Explanation of Net Exports Net exports are the value of a country's total exports minus the value of its total imports, which is used to calculate the GDP in an open economy. Understanding the Spillover Effect The spillover effect is the impact that seemingly unrelated events in one part of the world can have on the economies elsewhere.
The Chinese Economy: Transitions and Growth, vol 1
Some countries like Japan and the Eurozone experience protection since they are considered safe havens. Given such factors, growth in labour productivity must become an important driver of overall economic growth. Moreover, returns on investment have shown signs of decline since Increased productivity could come from reducing resource misallocation, including via further reforms to state-owned enterprises SOEs , but this area of potential productivity gains is also limited.
The pace of future reform is unlikely to be as aggressive as in the past, partly because many of the low-hanging fruits have already been picked and partly because society read: interest groups now has greater means to block reforms than in earlier decades. So can China rise to the challenge and transition to a more innovation-driven growth model?
And what sort of policies should the government be pursuing to ease this transition?
By examining indicators on patents, we found that Chinese firms have become increasingly more innovative, in absolute terms and also relative to other major developing economies and major patent-filing economies. Besides the correlation between firm size and level of innovation, and between export status and level of innovation, we found several other patterns.
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First, expanding market opportunities in the form of lower tariffs from trading partners tend to promote innovation. Second, firms respond to higher wages by engaging in more innovation. This is especially true for firms in labour-intensive sectors and sectors with more routine tasks. Third, Chinese products have taken an increasingly large market share after controlling for population, the size of the economy and the unit values of export products.
The increasing competitiveness of Chinese products in the international market suggests that Chinese products have exhibited quality improvement over time. There is some evidence that innovation responds positively to subsidies and negatively to taxes. But subsidy allocation appears to be strongly biased in favour of SOEs, especially those owned by local governments.