China 2020 : development challenges in the new century

Report No. 17(127 ( HA I Ch2ina 020: Development Challen(ges in the Nevv CentU ryv Septernlber 1;, 1997 t 6;\ :)z > ~ <' i , , f m i I w I i( w m I l, > s 1l[ [i it U '>S' l ' ei l I' it 11% Rt J r lq! - Document of the World Bank  CURRENCY EQUIVALENTS (as of May 15, 1997) Currency = Renminbi Currency Unit = Yuan (Y) $1.00 = Y8.3 Y.1.00 = $ 0.12 FISCAL YEAR January 1 - December 31 WEIGHTS AND MEASURES Metric System Vice President Jean-Michel Severino, EAP Country Director Yukon Huang, EACCQ Staff Member Richard Newfarmer, Lead Economist, EASPR  Contents Acknowtedgments vii Chapter 1 Understanding the Present Swift growth 2 High savings 4 Structural change 6 Pragmatic and incremental reforms 8 Initial conditions 12 Chapter 2 Divining the Future 17 Growth challenges 18 Growth possibilities 19 Chapter 3 Laying the Foundations 23 Restoring and reshaping government finances 24 Making room for markets 28 Making markets work 36 Chapter 4 Shaping a Competitive but Caring Society 43 Making labor markets flexible 44 Protecting the vulnerable s0 . 8<~~~~~~~~~~~~~~~~~~~~~~~~~~~~~  Chapter 5 Feeding the People 61 Removing constraints to domestic production 62 Projecting grain balances 67 Using international trade 67 Chapter 6 Protecting the Environment 71 Deteriorating environmental conditions 72 Pollution prospects 74 Formulating policies for a cleaner future 76 Chapter 7 Integrating with the World Economy 83 Deepening trade integration 84 Deepening financial integration 90 Sharing the benefits of China's growth 92 Chapter 8 Setting the Agenda 97 Two visions for 2020 98 China's agenda to 2020 99 The world and China 103 Conclusion 104 Annex 1 Accounting for China's Growth 105 Preliminaries 106 Data deficiencies 106 Differences in technology 106 Structural change and the growth residual 107 Annex 2 Modeling Growth and StructuraL Change 109 Nontechnical overview 110 The model 110 Parameterization 111 Results 113 Annex 3 Projecting Poverty and Inequality 115 Counting the poor 116 Scenarios for reducing poverty 116 Statistical appendix 119 This report uses Hong Kong when referring to the Hong Kong Special Administrative Region, People's Republic of China. vi China 2020: DI)eveloprnent Challenges in the New Century  Acknowledgments .~~~~~~~~~~~~. M .00" his report was written by a team led by 91Vikram Nehru and comprising Aart Kraay and Xiaoqing Yu. Consultants to the team were Athar Hussain (London School of Economics, STICERD) and Barry Naughton (University of California, San Diego). The team was helped by summer interns jean Imbs and David Ng. The peer reviewers were Dwight Perkins (Harvard University), Gregory Chow (Princeton University), Peter Harrold, Homi Kharas, and Gene Tidrick. The task assis- tant was Janet Wyse. The team owes Nicholas Hope (former Director of the China and Mongolia Department at the World Bank) a special debt of gratitude for conceiving the study and for unceasing support. Other World Bank staff to whom the team is grateful for their contributions and comments are Halsey Beemer, Natasha Beschorner, Eduard Bos, Pieter Bottelier, Tilly Chang, Dipak Dasgupta, Yuri Dikhanov, Sandra Erb, Joseph Goldberg, Daniel Gunaratnam, Bert vii  Hofman, Janet Hohnen, Shaikh Hossain, Gordon Jingping (State Statistical Bureau); Guo Xiaomin, Xiao Hughes, E.C. Hwa, Todd Johnson, Bert Keidel, Kathie Xuezhi (National Environmental Protection Agency); Krumm, Anjali Kumar, Nathalie Lichtenstein, Feng Liu, Liu Peilong (Ministry of Health); Sun Ling (State Kseniya Lvovsky, Tamar Manuelyan-Atinc, Will Education Commission); Wang Donghong (State Martin, Andrew Mason, Hena Mukherjee, Richard Customs Administration); Chi Jianxin (State Newfarmer, Al Nyberg, Alan Piazza, Klaus Rohland, Development Bank); Wang Loulin, Zhang Zhuoyuan, Helen Saxenian, Lyn Squire, Lee Travers, Jagdish Yang Shengming, Pei Changhong, Wang Zhenzhong, Upadhyay, Michael Walton, and Shahid Yusuf. Wang Tongsan, Li Yang, Lu Zheng, Han Jun, Jiang The World Bank team benefited from fruitful discus- Xiaojuan, Chen Zhensheng, Zhao Jingxing, Yu sions with many Chinese government officials and acad- Yongding, Zhang Yuyan, Zheng Yisheng, Yu Dechang, emics who were generous with their time and knowledge. Xu Gengsheng, Li Chenggui, Dong Yisheng (Chinese The mission is especially grateful to Zhu Xian, Ding Academy of Social Sciences); Fan Gang (National Xianjue, Du Jian, Pan Xiaojiang, Wang Zhen, Wang Economic Research Institute); Hu Angang (Chinese Weixin, Wu Jinkang, Liang Shuchun, Shi Yaobin Academy of Sciences); Wang Chuanlun, Tao Xiang (Ministry of Finance); Zheng Xinli, Dai Guiying, Cao (People's University); Yi Gang (Peking University); and Yushu, Liu He, Wang Xiduo, Yang Qingwei, Yao Hong, Andrew Sheng, Chad Leechor, Jim Wong, Lin Shoukang Zhao Shihong, Wang Jianjun, Wu Qiang, Zhao Shijun, (Hong Kong Monetary Authority). The team also bene- Lu Jiaxiang, Yu Peng, Ma Xiaohe, Li Yulin, Hu Chunli, fited from discussions with participants at the State Ning Jizhe, Xu Lin (State Planning Commission); Wang Planning Commission-sponsored seminar on "China: Dayong, Jing Xuecheng, Yang Zaiping, Xie Ping, Yao Striving Toward the Year 2020" held March 19-21, Keping, Pei Chuanzhi, Zhao Xianfeng, Chen Xin, Yang 1997 in Beihai, China. Huisheng, Zheng Yaodong (People's Bank of China); The team would like to express its thanks to the Wang Zixian, Zhu Zhiping, Liu Yajun, Wang Yi, Chen Canadian International Development Agency for a gen- Xin, Deng Li, Zhang Liyong, Liu Tianmin, Zou Xiaomin erous grant to finance three background papers by Hu (Ministry of Foreign Trade and Economic Cooperation); Angang (Tsinghua University), Cai Fang (Chinese Wang Huijong, Li Boxi, Li Shantong, Ding Ningning, Academy of Social Sciences), and the State Science and Zhao Jinping, Ge Yanfeng (Development Research Technology Commission. Center); Li Keping, Wang Haijun, Deng Xianhong, Guo Liu Dusheng (World Bank Resident Mission in Xiangjun, Jiang Xiaoyun, Deng Ran, Chen Yuyu (System China) provided coordination and logistical help, while Reform Commission); Ming Ruifeng, Wang Yadong, Liu Mei Hong, Fan Wenzhong, and Pan Wenxin (World Danhua, Li Jinghu, Lao Yujun, Li Zhengyu, Lu Yulin Bank Department, Ministry of Finance) coordinated (Ministry of Labor); Song Yuzhong, Wei Dong, Qin arrangements on the government side. Yongfa, Wang Xu, Liu Dongsheng, Zhou Shuanghu Rupert Pennant Rea edited the report. Bonita Brindley (State Economic and Trade Commission); Song Tingmin provided editorial guidance. Jennifer Solotaroff helped (Ministry of Internal Trade), Ma Lin, Zheng Hua, Jin with production. Meta de Coquereaumont, Paul Holtz, Dongsheng (State Tax Bureau); Feng Juping, Huang and Glenn McGrath of the American Writing Division of Hongbo (State Administration of Foreign Exchange); Liu Communications Development Incorporated handled Beihua (Ministry of Agriculture); Xuan Zengpei (State production and layout of the report, and Kim Bieler Science and Technology Commission); Ye Zhen, Zheng designed it. viii China 2020: Developmnent Challenges in the New Century  A t, ~~~~~- ~ ~ ~ ~ ~ ~ ~ ~ eihrshudChn' 'K"'~~~~~~~~~~~,, emral ~~~~t~~~~~~~~~~~4