ECON 336 Lecture Notes - Lecture 8: Perfect Competition, Oligopoly, One-Child Policy

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Tuesday 27th 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
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Tuesday 27th 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
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