CHINA’S NEW SOURCES OF ECONOMIC GROWTH vol. 2 Human Capital, Innovation and Technological Change Other titles in the China Update Book Series include: 1999 China: Twenty Years of Economic Reform 2002 China: WTO Entry and World Recession 2003 China: New Engine of World Growth 2004 China: Is Rapid Growth Sustainable? 2005 The China Boom and its Discontents 2006 China: The Turning Point in China’s Economic Development 2007 China: Linking Markets for Growth 2008 China’s Dilemma: Economic Growth, the Environment and Climate Change 2009 China’s New Place in a World of Crisis 2010 China: The Next Twenty Years of Reform and Development 2011 Rising China: Global Challenges and Opportunities 2012 Rebalancing and Sustaining Growth in China 2013 China: A New Model for Growth and Development 2014 Deepening Reform for China’s Long-Term Growth and Development 2015 China’s Domestic Transformation in a Global Context 2016 China’s New Sources of Economic Growth: Vol. 1 The titles are available online at press.anu.edu.au/publications/series/china-update-series CHINA’S NEW SOURCES OF ECONOMIC GROWTH vol. 2 Human Capital, Innovation and Technological Change Edited by Ligang Song, Ross Garnaut, Cai Fang and Lauren Johnston SOCIAL SCIENCES ACADEMIC PRESS (CHINA) Published by ANU Press The Australian National University Acton ACT 2601, Australia Email: [email protected] This title is also available online at press.anu.edu.au National Library of Australia Cataloguing-in-Publication entry Title: China’s new sources of economic growth : human capital, innovation and technological change. Volume 2 / Ligang Song, Ross Garnaut, Cai Fang, Lauren Johnston, editors ISBN: 9781760461294 (paperback : Volume 2.) 9781760461300 (ebook) Series: China update series ; 2017. Subjects: Economic development--China. Sustainable development--China. Climatic changes--Government policy--China. China--Economic policy--2000- Other Creators/Contributors: Song, Ligang, editor. Garnaut, Ross, editor. Cai, Fang, editor. Johnston, Lauren, editor. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying or otherwise, without the prior permission of the publisher. Cover design and layout by ANU Press This edition © 2017 ANU Press Contents Figures ........................................................vii Tables ........................................................ xiii Contributors ...................................................xvii Acknowledgements .............................................xxi Abbreviations ..................................................xxiii 1. China’s Path Towards New Growth: Drivers of Human Capital, Innovation and Technological Change. 1 Ligang Song, Cai Fang and Lauren Johnston Part I: Reform and Macroeconomic Development 2. Reform Dividends to Sustain China’s Economic Growth ..............23 Cai Fang and Xiaojing Zhang 3. China’s Macroeconomic Balancing Act: Shifting to New Drivers of Growth and Sustaining Financial Stability .......................47 Yiping Huang, Yan Shen and Qiuzi Fu 4. Internal Convergence and China’s Growth Potential .................67 Yang Yao and Mengqi Wang 5. Adjusting to the New Domestic Normal and the New International Normal: Supply-side Structural Reform 2.0 ........................89 Wing Thye Woo Part II: Education and Human Capital 6. Educating ‘the Masses’ in China: Unequal Opportunities and Unequal Outcomes .....................................117 Jane Golley and Sherry Tao Kong 7. Intangible Capital and China’s Economic Growth: Evidence from Input–Output Tables ........................................145 Shenglang Yang and Yixiao Zhou Part III: Innovation and Productivity 8. China’s Transition to a More Innovative Economy: Progress and Challenges ...........................................173 Shang-Jin Wei, Zhuan Xie and Xiaobo Zhang 9. Productivity, Innovation and China’s Economic Growth ..............213 Yanrui Wu, Xiumei Guo and Dora Marinova 10. Empirical Study of Regional Innovation Capability and Economic Convergence in China ......................................229 Chaofeng Yang, Zhiyun Zhao and Zhijuan Zhang 11. China’s Patent Protection and Enterprise R&D Expenditure ..........245 Zhifeng Yin and Hao Mao 12. Specialist Communities in China’s Aerospace Technology and Innovation System: The Cultural Dimension ...................263 Alanna Krolikowski Part IV: Technological Change by Sectors 13. Mechanisation Outsourcing and Agricultural Productivity for Small Farms: Implications for Rural Land Reform in China ...........289 Yu Sheng, Ligang Song and Qing Yi 14. Technological Progress in Developing Renewable Energies ..........315 Kejun Jiang 15. The China Interbank Repo Market .............................343 Ross Kendall and Jonathan Lees Part V: Technologies with Trade and Investment 16. China’s Evolving Role in Global Production Networks: Implications for Trump’s Trade War ......................................363 Prema-chandra Athukorala 17. China’s Overseas Direct Investment and Reverse Knowledge Spillovers ................................................389 Chunlai Chen 18. Promoting the Belt and Road Initiative by Strengthening ‘5 + 1’ Cooperation ..............................................409 Biliang Hu, Qingjie Liu and Jiao Yan 19. China’s ‘Innovative and Pragmatic’ Foreign Aid: Shaped by and now Shaping Globalisation ...................................431 Lauren Johnston and Marina Rudyak Index .......................................................453 Figures Figure 1.1 GDP growth rates, 1975–2016 ..............................2 Figure 1.2 Consumption and investment, 2000–15 .......................3 Figure 1.3 Sector shares in total GDP, 1978–2016 ........................3 Figure 1.4 China’s export share in GDP, 1978–2016 ......................4 Figure 1.5 Share of China’s trade surpluses in GDP, 1994–2016 ..............4 Figure 1.6 Shares of China’s GDP and trade in global totals, 1978–2014 (2010 constant US$) ..........................................5 Figure 1.7 Decomposition of China’s GDP growth, 1995–2015 .............5 Figure 1.8 University students per 100 population, 1978–2014 ..............7 Figure 1.9 China’s shares of R&D and total education expenditure in GDP, 1991–2015 .................................................8 Figure 1.10 Number of patent applications, 1995–2015 (million) ............8 Figure 2.1 Trends in the relative size of state-owned assets (as percentage of total assets in the corporate sector) .............................29 Figure 2.2 China’s sovereign assets, liabilities and net worth (RMB trillion) ....30 Figure 2.3 International comparison of China’s net worth structure, 2015 (per cent). .31 Figure 2.4 Supply-side structural reform and growth scenarios ..............44 Figure 3.1 Quarterly GDP growth in China, 2007–16 (percentage year-on-year) ......................................47 Figure 3.2 Monthly growth of fixed-asset investment in property, infrastructure and manufacturing, 2007–16 (percentage year-on-year) ...............49 Figure 3.3 Monthly growth of property prices for groups of cities, 2007–16 (per cent) ..........................................50 Figure 3.4 Monthly PPI and CPI, 2007–16 (per cent) ....................51 Figure 3.5 Consumption share of GDP, 2000–15 (per cent) ................52 Figure 3.6 NEI industries and their shares .............................54 Figure 3.7 NEI (left-hand side) (per cent) and PMI in China ...............55 Figure 3.8 Capital, labour and technology subindices .....................56 vii China’s New Sources of Economic Growth (II) Figure 3.9 NEI (left-hand side) and month-on-month value-added growth rate (per cent). 57 Figure 3.10 NEI (left-hand side) and month-on-month growth rate of infrastructure investment (per cent) ............................57 Figure 3.11 Commercial banks’ average NPL ratio (per cent) ...............59 Figure 3.12 China’s leverage ratios (percentage of GDP) ...................60 Figure 3.13 Provincial GDP growth of Guangdong, Jiangsu, Liaoning and Heilongjiang, 2007–16 (per cent) ............................61 Figure 4.1 Real GDP per capita (RMB100 per capita) ....................73 Figure 4.2 Growth rates of real GDP per capita .........................73 Figure 4.3 Growth rates of real investment per capita .....................74 Figures 4.4a–d Forecast investment growth rates ........................79 Figures 4.5a–d Forecast growth rates of GDP per capita ...................81 Figure 4.6 Common-parameter estimation versus heterogeneous-parameter estimation .................................................82 Figures 4.7a–c Effects of regional convergence ..........................84 Figures 4.8a–c Effects of the convergence of technological progress ..........85 Figure 6.1 Years of schooling across two generations, 1940–89 .............125 Figure 6.2a Educational attainment, urban China (per cent) ..............126 Figure 6.2b Educational attainment, rural China (per cent) ...............126 Figure 6.3 Inequality of educational outcomes by cohort .................129 Figure 6.4 Nationwide trends in inequality of outcome and inequality of opportunity. 134 Figure 6.5 Share of inequality of opportunity in inequality of outcome (IOR). 135 Figure 8.1 Patent approval rates in BRICS countries, South Korea and the United States. .184 Figure 8.2 Invention patents granted by the USPTO for different countries ...188 Figure 8.3 Citations of invention patents granted