Forthcoming in Industry & Innovation (2011/4)
China’s Economic Catch-up :
Washington Consensus, E. Asian Consensus
or Beijing Consensus
Keun Lee 李 根
Professor of Economics
Seoul National University, KOREA
Director, Center of Economic Catch-up
([email protected])
1
Purpose of the Study
• To put China’s catch-up strategies into international
comparisons.
– Washington Consensus;
– East Asian model;
• To figure out the uniqueness of Chinese catch-up
strategies: Beijing Consensus?
• To assess Prospect of China
2
GDP (current, US billion $)
16,000.00
14,000.00
usa
12,000.00
10,000.00
Axis Title
EU
United States
Japan
8,000.00
China
Korea
Euro area
Japan
6,000.00
4,000.00
China
2,000.00
Korea
0.00
1994
1995
1996
1997
1998
* IMF, World Economic Outlook database, April, 2009
* Estimates start after 2008
* World : composed of 173 countries
* Euro Area: composed of 16 countries
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
세계60조; 60억인; 일인 만$; 미국,유럽 15조, 중,일5조, 한,인 1조
Per capita Income Levels Compared: China, Korea and World Average
70.0%
60.0%
5514.6
China / World
50.0%
3393.5
40.0%
2322.2
30.0%
China / Korea
20.0%
10.0%
464.4
523.3
1048.3
0.0%
China's GDP
per capita
(Current US$)
1978
1980
1988
1998
2003
2008
154.97
193.02
280.97
820.8
1273.64
3266.51
Washington Consensus vs. East Asian Consensus
A. Elements of Washington
Consensus
South Korea
Taiwan
China
Yes, generally
Yes
Yes, generally
2. Pub. Expenditure to Health, Edu, Infra
Yes
Yes
Yes, generally
3. Tax Reform, broadening the Tax Base
Yes, generally
Yes
Yes since 1994
4. Unified & Competitive Exchange Rates
Yes, except early time
Yes
Yes, since 1994
5. Secure Property Rights
Yes, except early prd.
Yes, generally
Mixed
Limited
Limited
Limited
7. Trade Liberalization
Limited until the 80's
Limited until the 80's
Limited until 2002
8. Privatization
many SOEs in 50, 60s
Many SOEs in 50, 60s
No, still SOEs dominant
Heavily restricted
subject to control
some sector restricted
Limited until the 80's
Limited until the 80's
Limited until the 80's
A1. Macroeconomic stabilization
1. Fiscal Discipline
A2. Privatization, Deregulation and Liberalization
6. Deregulation
9. Elimination of Barriers to FDI
10. Financial Liberalization
B. Missing Elements from the Washington Consensus
11. Export Promotion + Tariffs
Yes, very strong
Yes
yes, very strong
12. Technology Policy for Upgrading
Yes, since 1970
Yes, since the 1980s
priority since 90s
Yes, since the 1980s
Yes, generally
5
Yes, since the mid 1990s
13. Higher Education Revolution
Unique Chinese Mode: Beijing Consensus
•
Emphasis on the following three at earlier
stage of economic development
1. Parallel learning from FDI
(Mu & Lee, 2005 Research Policy)
2. Forward Engineering (in Univ.-run Companies)
Active role of domestic academic institutions
(Eun, Lee & Wu, 2006, Research Policy)
3. Acquisition of Technology and Brand through
International M&A
; So-called “Going Global” (Zouchuqu) strategy
6
Unique Chinese Mode 1: Beijing Consensus?
1. Parallel learning from FDI
(Mu & Lee, research policy 2005)
–
Trading Market for Technology
•
–
Leveraging the market size, China asked MNCs to transfer
technologies
Success Case: Telecom equipment industry
•
–
Shanghai Bell (a JV with Bell telephone company)
Only after 10 years since China import the first set of digital
automatic switches, indigenous Chinese firms started to
develop and produce themselves.
•
•
Local firms' market share: less than 50% (1980s)  more than 90%
(1996)
Local firms benefited from knowledge diffusion via inter-firm
mobility of skilled engineers
7
Figure 1: Local Products vs. Imported products in Switch Market in China (1982-2000)
120
Market share
100
80
60
40
20
0
1982
1987
1992
1993
1994
1995
1996
1997
2000
D irect Im po rt
Jo int venture
Indigeno us S uppliers
lo cal suppliers = jo int venture + Indigeno us suppliers
8
Knowledge Diffusion, Market Segmentation & Technological Leapfrogging
Trajectory of
Telephone
Switch
Technology :
Foreign Path: Manual  Step-by-step  Crossbar  Analogue electronic  Digital SPC
Chinese Path: Manual  Step-by-step  Crossbar  ----------------- Digital SPC
Bell Telephone
Manufacturing
Company
Technology
Transfer
---------------Trading Market
for Technology
Shanghai
Bell
( 1984:
System-12)
CIT (R&D)
PTIC (Finance & PM)
LTEF (Manufacturing)
(1991:
HJD-04)
Knowledge
Diffusion
---------------•Person Mobility
•Document study
•Technical Help
Government
Policy
-------------Protection &
Coordinating
Great Dragon
(1995, HJD-04)
Datang
(1995, SP30)
Zhongxing
Huawei
(1995:
C&C08)
(1995, ZXJ10)
Market
Segmentation
Corporate
strategy &
Culture
9
Unique Chinese Mode 2: Beijing Consensus
2. Forward Engineering by University-run enterprises
(cf: reverse engineering of Korea, Taiwan)
–
China has reared some national champions in high-tech
sector by exploiting universities’ scientific knowledge.
•
•
–
Lenovo, Founder, Tsinghua Tongfang, Dongruan (so-called
Academy-run enterprises, AREs)
Fwd Eng. differentiates China from other East Asian Countries
Although UREs are now under reform, Chinese
academic institutions are highly motivated to directly
contribute to the real world economy.
•
Different from Latin American counterparts and from the ones in
East Asian countries
10
University-run Enterprises listed on the Stock Markets
Stock No.*
600076
600100
600136
600181
600255
600530
600601
600624
600657
600661
600701
600718
600730
600750
600797
600806
600846
600857
600892
Firm Title
Qingdao Huaguang
Tsinghua Tongfang
Daobo Gufen
Yunda Keji
Xinke Cailiao
Jiaoda Angli
Fangzheng Keji
Fudan Fuhua
Qingdao Tianqiao
Jiaoda Nanyang
Gongda Gaoxin
Dongruan Gufen
Zhongguo Gaoke
Jiangzhong Yaoye
Zheda Wangxin
Jiaoda Keji
Tongji Keji
Gongda Shouchuang
Huda Keji
The Major Stockholder
Beida Qingdao
Tsinghua Univ.
Saier Wangluo
Yunnan Univ.
Hefei Polytechnic Univ.
Shanghai Jiaotong Univ.
Peking Univ.
Fudan Univ.
Peking Univ.
Shanghai Jiaotong Univ.
Haerbin Polytechnic Univ.
Dongbei Univ.
36 Universities**
Jiangxi Chinese Medical Univ.
Zhejiang Univ.
Xian Jiaotong Univ.
Tongji Univ.
Haerbin Polytechnic Univ.
Hunan Univ.
4
150
532
537
551
590
790
836
915
925
938
988
990
H-418
H-618
H-8045
H-8095
H-8102
H-8106
H-8205
H-8231
Beida Gaoke
ST Maikete
Aohuadian
Nankai Gede
Keda Chuangxin
Ziguang Shengwu
Huashen Jituan
Tianda Tiancai
Shanda Huate
Zheda Haina
Tsinghua Ziguang
Huagong Keji
Chengzhi Gufen
Fangzheng Konggu
Fangzheng Shuma
Nanda Soft
Beida Qingdao
Fudan Weidianzi
Zheda Lande
Jiaoda Huigu
Fudan Zhangjiang
Peking Univ.
Peking Univ.
Shenzhen Tsinghua Univ.
Nankai Univ.
Chinese S&T Univ.
Tsinghua Ziguang
Chengdu Chinese Medical Univ.
Tianjin Univ.
Shandong Univ.
Zhejiang Univ.
Tsinghua Univ.
Huazhong S&T Univ.
Tsinghua Tongfang
Peking Univ.
Peking Univ.
Nanjing Univ.
Peking Univ.
Fudan Univ.
Zhejiang Univ.
Shanghai Jiaotong Univ.
Fudan Univ.
11
Unique Chinese Mode 3: Beijing Consensus
3. Going Global and International M&A
–
Until 1990s, outward investment has been strongly
restricted in China.
A Policy Shift in 2002
–
•
•
Zouchuqu (going global)
Measures in 2004, 2005
– Preferential interest rates for some key overseas projects
– Simplify the approval procedure
–
While Chinese ODI is still small, however, the rate of
growth is among the fastest.
•
•
By the end of 2005, more than 6,000 Chinese enterprises are
investing abroad.
Some official sources predict an additional $60 billion Chinese
ODI by 2010.
12
Table 8. Outward Direct Investment from China (billion US dollars)
2002
2003
2004
2005
Annual ODI outflow
(excluding financial sector)
2.70*
2.85
5.53
6.92
Growth rate
n.a.
5.50%
93%
25.80%
n.a.
33.2
44.8
n.a.
Accumulated ODI total
13
Unique Chinese Mode: Beijing Consensus
3. Going Global and International M&A (cont.)
– Motivations
•
•
•
•
Resource-seeking ex) natural resource: Oil
Market-seeking
Capability-seeking ex) technology:
eg) Shanghai Motors acquiring Ssang-yong motor in
Korea; Co.’ acquiring Hydis’s TFT-LCD in Korea
Brand-seeking: Renovo acquiring IBM-PC (thinkpad)
– Characteristics
•
Saving time in acquiring technologies and brands
14
Can China be free from the Middle-Income
Country Trap:
• Can China be innovative enough?
• Important: Rodrick: China’s authoritarian regime not fit
well with innovation and creativity
15
More private
R&D needed;
Korea:
50% ->80%
16
Table 4 Number of Utility Patent Applications Filed in the United States
(By Country of Origin)
Country
1980
1981
1985
1988
1990
1993
1995
1998
2000
2002
2003
Korea
33
64
129
295
775
1,624
2,820
5,452
5,705
7,937
10,411
Taiwan
367
394
760
1,246
2,035
2,874
4,054
7,412
9,046
12,488
13,786
China
7
10
24
122
111
135
144
181
469
888
1,034
23
31
26
23
30
34
40
60
91
88
105
average of 9 MICs
MIC (Middle Income Countries)
Argentina
56
55
39
32
56
56
65
119
137
95
125
Brazil
53
66
78
71
88
105
115
165
220
243
259
Chile
8
11
7
4
13
11
10
17
24
38
33
Costa Rica
6
5
3
4
8
7
13
16
8
11
Malaysia
5
5
8
6
11
20
30
41
104
142
237
Mexico
77
99
81
74
76
82
99
141
190
157
185
Turkey
3
2
11
7
6
3
6
16
28
36
28
Uruguay
2
3
2
4
5
8
6
1
4
8
11
Thailand
1
5
5
4
8
15
21
26
92
61
60
104,329
106,413
117,006
139,825
164,558
174,743
212,377
243,062
295,926
334,445
342,441
TOTAL
17
Table 3.Tertiary School Enrollment Ratio (%)
Korea
1980
1982
1984
1985
1990
1995
1998
1999
2000
14.7
21.7
26.6
34.1
38.6
52.0
65.0
71.7
77.6
3.4
7.2
9.8
10.5
12.5
20.1
24.5
26.4
26.9
29.6
China
Average of 9 MICs
13.5
15.8
17.3
19.1
2003
17.0
Developed Countries
Average
27.2
28.0
29.3
30.4
39.1
52.0
54.5
56.9
59.0
9 Middle Income Countries (MICs)
Argentina
21.6
24.5
29.3
36.4
40.8
43.8
47.0
48.0
52.0
Brazil
11.9
11.4
11.0
11.0
11.6
12.7
14.0
15.0
16.0
Chile
10.9
10.4
13.3
15.9
20.5
28.2
34.0
38.0
38.0
Costarica
23.3
27.3
21.9
22.7
25.5
32.7
17.0
16.0
17.0
Malaysia
4.1
4.5
5.1
6.0
7.3
16.8
23.0
24.0
27.0
Mexico
14.3
14.9
15.2
15.9
14.5
15.3
18.4
19.8
20.7
Thailand
13.1
22.3
21.0
19.6
17.4
20.1
31.0
32.0
36.0
Turkey
5.4
6.4
8.9
8.9
13.1
19.5
18.0
15.0
24.0
Uruguay
17.3
20.4
30.0
35.8
30.1
31.2
35.0
34.0
36.0
18
Changing Engines of Growth in China
– Jin, Lee and Kim (2008: China & World Economy) show
that
- China’s growth engines have already shifted from FDI,
exports and de-nationalization to innovations and exports.
- But export and innovations led by foreign companies
– China’s growth is not likely to be short-lived at least from
the internal reasons?
– Not 100% sure yet!!
19
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Food Stuffs
Agriculture
Drugs
Non organic chemistry, Fertilizer
Biotechnology, Beer, Fermentation
Weapons, Blasting
Mining, Drilling
Dyes, Petroleum
Construction
Metallurgy, Coating metals
Lighting, Steam generation, Heating
Paper
Separating, Mixing
Machine tools, Metal working
Genetic Engineering
Health and Amusement
Others
Personal and Domestic Articles
Organic chemistry, Pesticides
Transporting
Engine, Pump
Textile
Engineering elements
Printing
Organic molecule compounds
Casting, Grinding, Layered Product
Clock, Controlling, Computer
Measurement, Optics, Photography
Packing, Lifting
Electronics circuit, communication tech.
Nuclear physics
Electronics components, semiconductor
Display, Information Storage, Instruments
Foreign
Individual
Firm
Univ+PRI
From Motohashi (2009)
20
Market Shares in Mobile Phone Markets in China;
Foreign vs. Indigenous (TCL, Bird, Renovo )
120
Market share(%)
100
100
95.02
94
88
80
70
60
58
56
58.7
40
42
44
41.3
30
64.2
66.2
35.8
33.8
20
0
0
1998
4.98
1999
6
2000
12
2001
2002
2003
2004
2005
2006
2007
Year
Data source: CCID&MII
Local brand
Foreign brand
21
Market Shares in Mobile Phone Markets in Korea:
Foreign vs. Indigenous
60
56
55
50
44
Market Share (%)
54
51
50
46
46
48
40
30
28
26
26
25
21
20
20
16
15
10
0
21
8
2
1994
4
1995
9
3
1996
0
1997
1998
1999
2000
2001(First
half year)
Ye ar
Data Source : Monthly Ce llular
Sumsung
LG
Motorola
22
Korea
Individual>Corporate
Foreign> domestic
1986
Individual<Corporate
Foreign> domestic
1992 Individual<Corporate
Foreign< domestic
23
Number of Patent Application in China
400000
350000
300000
Domestic
Invention
Foreign
Invention
Chinese
Individual
Chinese
Corporation
Year
250000
200000
150000
100000
50000
0
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
No.of Patent
Data Source: State Intellectual Property Office of P.R.C, and National Bureau of Statistic of China.
24
Reverse Order in Catch-up
in Korea and China
• Korea: corporate>individual: 1986
 invention>utility (petit): 1989
-> domestic >foreign: 1993
** dominated by private Firms
• China: : domestic >foreign: 2002-3
-> invention>utility (petit): 2003-4
 corporate>individual: 2007
** less dominated by private firms’ R&D
25
Check point 2: Big Local Firms ?
Table : Number of Global Companies by Country, 2000-10
2000
2004
2007
2008
2009
U.S.
218
231
184
169
181
Japan
77
55
49
39
49
FT 500
China
8
25
27
(ranks by
India
3
2
8
13
10
market
South Korea
5
3
6
5
5
capitalizati
Germany
20
19
20
22
20
on)
France
26
28
32
31
23
U.K.
46
42
41
35
32
U.S.
179
189
162
153
140
Japan
107
82
67
64
68
China
10
15
24
29
37
India
1
4
6
7
7
Fortune
global 500
South Korea
12
11
14
15
14
Germany
37
34
37
37
39
France
37
37
38
39
40
U.K.
38
35
33
34
26
2010
163
42
23
16
6
19
27
32
139
71
46
8
10
37
39
29
rank
2000
2001
2002
2003
2004
2005
07’
2008
1
USA
179
185
197
192
189
176
162
153
2
Japan
107
104
88
88
82
81
67
64
3
France
37
37
37
40
37
39
39
4
Germany
37
34
35
35
34
37
37
5
UK
38
33
33
34
35
35
34
6
China
10
12
11
11
15
16
7
Netherland
8
9
9
11
12
14
8
Canada
12
15
16
14
13
13
9
Korea
12
11
12
13
11
11
9
Swiss
11
11
11
11
12
11
11
Australia
7
7
6
6
7
9
12
Italy
10
8
8
9
8
8
12
Spain
5
6
5
5
7
8
14
Sweden
4
5
5
6
6
7
15
India
1
1
1
1
4
5
16
Belgium
3
3
3
3
3
3
16
Finland
2
2
2
3
4
3
16
Brazil
3
3
4
4
3
3
16
Russia
2
2
2
3
3
3
24
29
14
15
7
5
27
06’ 24 Companies
Rank
Headquarters
Revenue
(Mi. $)
Profit
(Mil.$)
17
Sinopec
Beijing
131,636
3,703
24
China National Petroleum
Beijing
110,520
13,265
29
State Grid Corporation
Beijing
107,186
2,238
170
Industrial & Comm. Bank China
Beijing
36,833
6,179
180
China Mobile Limited
Beijing
35,914
6,260
192
China Life Insurance
Beijing
33,712
174
215
Bank of China
Beijing
30,751
5,372
230
China Construction Bank
Beijing
28,532
5,810
237
China Southern Power Grid
Guangzhou
27,966
1,074
275
China Telecom
Beijing
24,791
2,280
277
Agricultural Bank of China
Beijing
24,476
728
290
Hutchison Whampoa
Hong Kong
23,661
2,578
299
Sinochem Corporation
Beijing
23,109
345
307
Baosteel
Shanghai
22,663
1,622
342
China Railway Engineering
Beijing
20,520
143
384
China Railway Construction
Beijing
18,736
70
385
First Automotive Works
Changchun
18,711
70
396
China State Construction
Beijing
18,163
281
402
Shanghai Automotive
Shanghai
18,010
90
405
COFCO Limited
Beijing
17,953
281
435
China Minmetals
Beijing
16,902
154
457
Jardine Matheson
Hong Kong
16,281
1,348
469
China National Offshore Oil
Beijing
16,039
3,007
488
China Ocean Shipping
Beijing
15,414
1,093
28
Challenges ahead for China:
compared with Korea
• Short- and Medium Term:
upgrading into higher value-added
• Longer Term:
Equity and More Democratization
29
Current Crisis in Coastal Regions in China 
Need for upgrading & sustained catch up
(Lee & Mathews 2008)
Korea had a similar crisis in mid late 80s: rising wage rates
and crisis of cheap wage based- and low value-added
growth:
-> outbound FDI and in-house R&D and innovation
A critical matter is not just growth but sustaining growth,
which requires some degree of innovative capabilities.
PRC’ smaller firm need upgrading like Taiwanese,
big firms need upgrading like Korean Chaebols.
30
The Process of Sustained Catch-up (Korea & Taiwan)
= upgrading in a given industry
+ successive entries into new industries.
Upgrading: In a given industry, move up along the
OEM-ODM and OBM.
(b/c forerunners are always moving their orders; need
to hold to higher value-added orders )
Entries: after acquiring certain design capabilities, how
to use them to strike a late but fast-following entries
into new emerging industries
(b/c industries themselves are changing, often
becoming declining industries or new industries are
emerging by initiatives by forerunners)
31
Upgrading in the same industry:
Value Chain in Semiconductor Sector
High value-added
Low value-added
32
Taiwan: IC related revenues (1989-1998):
Starts at back-end of value chain, and moves forward
9
8
$US Billion
7
6
5
IC packaging
4
IC manufacturing
3
IC design
2
1
0
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Year
Source: ERSO/ITRIS
33
Successive Entries: Composition of sales in Samsung
100%
90%
12
18
24.4
30.2
80%
70%
60%
1.1
3.5
25
4.4
3.7
48
18.3
50%
28
40%
30%
20%
19.9
3.3
2.4
1.1
3
40
6.3
35
35
24
10%
1
0.8
0%
1965
(25.8 billion)
1
1976
(640 billion)
1987
(16,767
billion)
6
1.6
Insurance(Finance)
Food&Leisure
Textiles
Paper
Home Appliance
Construction
Vehicles
Machinery, Steel
Nonmetalic
W holsale&Retail Trade
Telecomunications
Semiconductor
O ther services
1998
(93,766
billion)
Source : Chang (2003), Notes: numbers are share percentages in sales
34
Democracy vs. Economic Growth 1
– Western Orthodoxy: Democracy first, then
economic growth;
without democracy, no growth
– East Asian Experience: S. Korea, Taiwan,
Singapore
- economic growth first then democracy
– But, when and how cross the river?
– Often turbulent transition
35
Democracy vs. Economic Growth 2
• However, given the huge difference in size and
complexity, and long turbulent history of centerlocal relations, the need for central authority
might be higher than in Korea.
• It can be contended that such economic problems
of inequality, environment problems, and
corruptions might happen less with centralized
governance in China.
- (eg.1994’ fiscal decentralization->more inequality)
• Thus, higher degree of and longer lasting political
authoritarianism can be said to be needed to
govern China.
36
Still, long term risk for China
• However, even if it comes at a later stage of
economic development, transition to democracy
often come with some turbulence.
–Korean paying high costs of democratization with
rising diverse voices of NGOs.
• This is another kind of big risk China will be
facing in the future.
• Future challenge for China will come not from
economic areas but from non-economic areas or
as side effects of economic growth
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What can be done in China
• Inequality: 1) Allow more rural to urban migration;
it will boost the revival of labor intensive industries
• 2) use foreign exchg. Reserve for more and
better education and inland infrastructure.
• 3) boost urban service sector to generate more
jobs for them
• Western Democracy: no need to hurry;
- gradualism can work here, too, like gradual reform
• Middle-income country trap: continue to do more
(private) R&D and promote indigenous firms
(more manufacturing)
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references
• Lee, Keun, & B. Kim, “Both institutions and Policies matter but differently
at different income groups of countries: determinants of long run economic
growth revisited,” World Development (March 2009).
• Lee, Keun, S. Cho, & J. Jin, “Dynamics of Catch-up in China’s Mobile
phone and automobile industries,” China Economic Journal, 2009, no,1.
• Jin, F., Keun Lee, & Y. Kim “Changing Engines of Growth in China: From
Exports, FDI and Marketization to Innovation and Exports),” China and
World Economy 16, no. 2: 31-49, 2008.
• Lee, Keun, and John Mathews, “Successive Upgrading and Entries for
Sustained Catchup: Firms from Korea and Taiwan,” paper for international
project on Catch-up, 2008
• Lee, Keun, Justin Lin, & Ha-Joon Chang "Late Marketization vs. Late
Industrialization: Convergence or Divergence in East Asia) , Asia-Pacific
Economic Literature, Vol. 19, No. 1, 42-59, 2005.
• Lee, Keun, “Making a Technological Catch-up: Barriers and Opportunities,”
Asian Journal of Technology Innovation, vol. 13: 2: 97-131, 2005.
• Motohashi, Kazuyuki “Catching up or lagging behind? Assessment of Techn
ological Capacity of China by Patent Database,” China Economic Journal,
2009, No .1.
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謝謝 大家
Thank you!
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