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Lecture 8

Lecture 8

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Economics (Arts)
ECON 336
Christopher Green

Tuesday 27 September (missed last class) ECON 336 Savings, Housing, Marriage and One Child Policy  where ended last class • Recently, it has been suggested that Chinese saving behavior is motivated in part by the combination of: a) rapidly rising cost of housing b) young woman, now substantially outnumbered by young men, who expect a prospective spouse to own an apartment/house • Parents save to allow their sons to purchase an apartment • One implication is that having a son is now perceived by some as less of an advantage than previously thought • Why the high cost of housing (despite a housing boom fed by low interest loans to builders)? – When in late 1990s the government allowed people to purchase homes, some people jumped in and purchased more than one home, and have made big capital gains – Recently, this has raised the specter of a housing “bubble” – Can the government prevent the bubble from bursting? • We have not heard the last about the housing issue Rules for paper online now – Need to start looking at topics – Get a bibliography and go to him then The Industrial Sector • The next 40 slides deal with topics directly or indirectly related to China’s industrial sector • After a couple of slides on agriculture and rural industry (TVE’s), we turn to: – ownership and control of China’s firms – industrial organization analysis – China’s steel industry; some other industries – the development of a hi-tech sector – the energy sector – rare earth minerals – China’s railroads • These provide an analytical framework and a sample of issues related to the industrial sector China’s Evolving Industrial Sector • In the “socialist” era (1949-1978) heavy industry promoted on a base that remained heavily agricultural Tuesday 27 September (missed last class) ECON 336 • But with reform, TVE’s blossomed, and so did “light”, labour-intensive manufacturing industry – TVEs showed the comparative advantage of China – Labour intensive – 1994 – Companies Act passed Government held 50% of shares on stock market for companies it cares about – much of TVE labour force came from agriculture as market incentives increased productivity and freed-up labour – although TVEs collectively owned, prices/outputs were market determined and stiff competition prevailed – TVEs also provided competition for SOEs – in mid-1990’s many TVEs began to privatize – by 2005, many of the remaining TVE’s had become “local corporate” hybrids with both private and gov’t involvement • Since, late 1990’s there has been rapid growth of capital and energy intensive industries due to rapid urbanization and industrialization – Those who see this from energy standpoint  immense emission of green house gases – Necessarily so because large populations on small parcels of land The Rural Economy • The rural economy was suppressed under Mao---used to supply cheap foodstuffs for the urban industrializing economy • When substantially freed up under reform, farm productivity soared, and food self-sufficiency maintained, due to: – greatly improved (market-based) incentives – increased irrigation and fertilizer use  huge amount of fertilizers used; making of fertilizers very energy intensive • technological changes in seeds and agricultural chemicals • But Chinese agriculture remains characterized by small operations (0.55 hectares in 2000) : a comparison of factor proportions with the US indicates dramatic differences – Farmers do not own the land but have leases on them – Consolidation of parcels of land not possible – Ownership conditions play a huge role over here – User rights vs. Exchange rights  we take advantage that both exist simultaneously  in China these only exist with buildings NOT with land • In addition to population to land ratio, small size is attributable to: – lack of full property rights—it is difficult to consolidate holdings Tuesday 27 September (missed last class) ECON 336 – hukous and inability to use land as collateral – when no ownership cannot get collateral from the bank • Very capital land intensive when it comes to US as compared to the China  no question that greater amount of land in the US • In terms of total factor productivity US is still ahead of China but China has improved a lot  Notably china not a net exporter in agriculture because trying to feed own pop Strains on Agriculture • China’s quest for food self-sufficiency is strained by: – loss of arable land due to: a) urbanization Land
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