China in Focus: Lessons and Challenges
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China in Focus: Lessons and Challenges 2012 This work is published under the responsibility of the Secretary-General of the OECD. The opinions expressed and arguments employed herein do not necessarily refl ect the offi cial views of the Organisation or of the governments of its member and partner countries. This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. Please cite this publication as: OECD (2012), China in Focus: Lessons and Challenges, OECD, Paris. http://www.oecd.org/china, htttp://www.oecdchina.org Photo credits: © CD – Fotolia.com © OECD 2012 You can copy, download or print OECD content for your own use, and you can include excerpts from OECD publications, databases and multimedia products in your own documents, presentations, blogs, websites and teaching materials, provided that suitable acknowledgement of OECD as source and copyright owner is given. All requests for public or commercial use and translation rights should be submitted to [email protected]. Requests for permission to photocopy portions of this material for public or commercial use shall be addressed directly to the Copyright Clearance Centre (CCC) at [email protected] or the Centre français d’exploitation du droit de copie (CFC) at [email protected]. FOREWORD FOREWORD The OECD’s mission is to help governments develop, adopt and implement “better policies for better lives”. To do so, the Organisation brings together the collective expertise and accumulated experience of a range of policy communities from all around the world. The main challenges faced by our economies are indeed global and addressing them requires the OECD to work ever more closely with its partners to design better policy options and truly global solutions. China’s experience and development path are thus of critical interest to the OECD. The collaboration between China and the OECD is a two-way process. The OECD is increasingly incorporating China’s perspectives into its policy analysis and recommendations in order to provide its Members with smarter, innovative policy choices. In turn, as China becomes a more prosperous country, the challenges it faces in its economic development are also increasingly similar to those of many OECD countries, in particular regarding how to foster and sustain more inclusive and greener growth. The experiences of OECD countries are thus more and more relevant for China’s own policy choices. This is evidenced by the fact that the OECD works on many policy issues identifi ed as priorities in the Chinese 12th Five Year Plan, including energy effi ciency, public service delivery, social protection, education and health care, just to cite a few. This publication “China in Focus: Lessons and Challenges” has a two-fold objective. First, it provides a snapshot of the current cooperation between China and the OECD by gathering analyses conducted by the OECD on China in 2011, including in the areas of poverty reduction, inequality, health care and foreign trade. Second, it shares with China the policy experience of OECD Members on issues of particular relevance for China, such as green growth and skills. Our intention is to make this publication a regular feature of the OECD-China policy dialogue to help shape and deepen our cooperation further. This cooperation dates back to the mid-90s and has since then been intensifi ed and extended to new policy areas. We consider this policy dialogue as strategic for the future of the OECD and to build together a stronger, cleaner and fairer world economy. Angel Gurría OECD Secretary-General CHINA IN FOCUS: LESSONS AND CHALLENGES © OECD 2012 i ACKNOWLEDGEMENTS ACKNOWLEDGEMENTS This volume is the product of a collaborative project of different directorates of the OECD. The authors are Irène Hors (Introduction), Richard Herd (Chapters 1, 2, 3), Samuel Hill (Chapter 1), Alessandro Goglio and Theodora Xenogiani (Chapter 2), Nathalie Girouard and Eugene Mazure (Chapter 3), Przemyslaw Kowalski and Hildegunn Nordås (Chapter 4), Dirk Pilat, Norihiko Yamano and Naomitsu Yashiro (Chapter 5), Kathrin Hoeckel and Andreas Schleicher (Chapter 6), Michael Borowitz and Valérie Paris (Chapter 7), Serge Gas (Chapter 8), Richard Carey and Li Xiaoyun (Senior Advisor to the International Poverty Reduction Centre in China) (Chapter 9). The project was initiated and managed by Irène Hors, Senior Adviser in Beijing, under the direction of Richard Boucher, Deputy Secretary-General and Marcos Bonturi, Deputy Director of the Council and Global Relations Secretariat. Richard Herd, Sam Hill, Irène Hors and Vincent Koen provided extensive comments and editing on all chapters. Lynn Robertson and Lian Liu also provided comments on different chapters. The publication was fi nalised in mid-February 2012. ii CHINA IN FOCUS: LESSONS AND CHALLENGES © OECD 2012 TABLE OF CONTENTS TABLE OF CONTENTS Introduction .......................................................................................................................................... vii Chapter 1: Macroeconomic Overview .........................................................................................1 Recent performance and near-term prospects ...................................................................1 The framework for monetary and exchange rate policy needs improvement ......................8 The fi scal framework needs to be strengthened to meet economic and social objectives ................................................................................................................... 11 Medium-term challenges ............................................................................................................12 Chapter 2: Inequality: Recent Trends in China and Experience in the OECD Area ................16 Introduction ..................................................................................................................................16 Trends in inequality .....................................................................................................................17 The causes of inequality in China ............................................................................................. 20 The social protection system has been widened but is far from universal .........................20 The impact of taxes and cash transfers policies on inequality in the OECD area ..............23 Complementarities between policies to reduce inequality and boost growth ...................25 Taxing in a way that allows equitable and inclusive growth .................................................26 Dealing with the distributional consequences of short-term output fl uctuations of macroeconomic shocks .......................................................................................................... 28 The infl uence of institutions on the distributional implications of shocks ........................29 Reforms in product markets can also improve the income distribution ............................30 Financial reforms as well can have redistributive effects .....................................................31 Conclusions .................................................................................................................................. 31 Chapter 3: Key Lessons from OECD Work on Greening Growth ................................................. 35 What are the benefi ts of green growth? ................................................................................... 36 A framework for green growth .................................................................................................. 37 What are the essentials of green growth policies? ..................................................................39 Institutions and multi-level governance ...................................................................................43 Employment and distributional aspects ...................................................................................44 The international dimension .....................................................................................................46 Measuring progress towards green growth ..............................................................................47 Chapter 4: China’s 10 Years in the WTO: Sustaining Openness-based Growth into the Future..50 Introduction ..................................................................................................................................50 China’s accession to the WTO as the cornerstone of its re-emergence as an economic power .............................................................................................................................................50 CHINA IN FOCUS: LESSONS AND CHALLENGES © OECD 2012 iii TABLE OF CONTENTS Global trade networks, global value chains and FDI ............................................................... 54 Trade specialisation patterns .................................................................................................... 55 Moving up the income ladder and sustaining openness-based growth .............................58 Summary and conclusions ........................................................................................................69 Chapter 5: Moving up the Value Chain: China’s Experience and Future Prospects ................72 Introduction ..................................................................................................................................72