Chinas new sources of economic growth human capital, innovation and technological change (china update series) (volume 2)

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
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016

China: Twenty Years of Economic Reform
China: WTO Entry and World Recession
China: New Engine of World Growth
China: Is Rapid Growth Sustainable?
The China Boom and its Discontents

China: The Turning Point in China’s Economic Development
China: Linking Markets for Growth
China’s Dilemma: Economic Growth, the Environment and Climate Change
China’s New Place in a World of Crisis
China: The Next Twenty Years of Reform and Development
Rising China: Global Challenges and Opportunities
Rebalancing and Sustaining Growth in China
China: A New Model for Growth and Development
Deepening Reform for China’s Long-Term Growth and Development
China’s Domestic Transformation in a Global Context
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:
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.
3.

Reform Dividends to Sustain China’s Economic Growth. . . . . . . . . . . . . . . 23

Cai Fang and Xiaojing Zhang

China’s Macroeconomic Balancing Act: Shifting to New Drivers
of Growth and Sustaining Financial Stability. . . . . . . . . . . . . . . . . . . . . . . . 47

Yiping Huang, Yan Shen and Qiuzi Fu

4.
5.

Internal Convergence and China’s Growth Potential. . . . . . . . . . . . . . . . . . 67

Yang Yao and Mengqi Wang

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 by the USPTO:
Cross‑country comparison . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189
Figure 8.4 Ratio of subsidies to sales by firm ownership and size . . . . . . . . . . . 191
Figure 8.5 Patent intensity by firm’s export status. . . . . . . . . . . . . . . . . . . . . . . 193
Figure 8.6 Patent intensity by firm’s capital intensity . . . . . . . . . . . . . . . . . . . . 194
viii


Figures

Figure 8.7 Export quality: Conditional plot of export market shares
in selected countries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201
Figure 8.8 Tax rate by firm ownership and size. . . . . . . . . . . . . . . . . . . . . . . . . 204
Figure 8.9 Net tax rate by firm ownership and size. . . . . . . . . . . . . . . . . . . . . . 205
Figure 10.1 Moran’s I index of China’s regional per capita GDP, 2001–15. . . . 235
Figure 10.2 Four indicators of the gap in regional economic development. . . . 239
Figure 12.1 China’s expenditure on research and development (renminbi). . . . 264
Figure 12.2 Researchers in research and development in China . . . . . . . . . . . . 265
Figure 12.3 Research and development institutions in China. . . . . . . . . . . . . . 267
Figure 13.1 Output, input and TFP index in Chinese agriculture,

1961–2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292
Figure 13.2 Comparison of agricultural TFP growth in China and the rest
of the world, 1961–2013. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292
Figure 13.3 Change in input components of agricultural production
(US$ million at 2004–06 price). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 293
Figure 13.4 Relationship between the capital–labour ratio and agricultural
productivity, 1961–2013. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 294
Figure 13.5 Relationship between logarithm of yield and capital–labour
ratio between countries, 1961–2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 294
Figure 13.6 Variations in instances of land reallocation. . . . . . . . . . . . . . . . . . . 297
Figure 13.7 Relationship between relative labour–land productivity
and farm size, 2000–13. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 298
Figure 13.8 Distribution of farm size (by land area) in north-east
and northern China: 2003, 2008 and 2013 . . . . . . . . . . . . . . . . . . . . . . 299
Figure 13.9 Farmland ploughed, sown and harvested using machinery,
1979–2013 (per cent) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 301
Figure 13.10 Agricultural tractors, attached equipment and total
machinery power per capita in China, 1978–2014. . . . . . . . . . . . . . . . . . 301
Figure 13.11a Engine power of large tractors and equipment in use,
by size: 1978–2014 (billion watts). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 302
Figure 13.11b Total agricultural machinery in use, by size:
1978–2014 (million). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 302
Figure 13.12 Average farm size in China, 1985–2013. . . . . . . . . . . . . . . . . . . . 303
Figure 13.13 The number of communities providing mechanisation
services in China, 2008–13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 304

ix


China’s New Sources of Economic Growth (II)

Figure 13.14 Structure of contract mechanisation services, 2013 . . . . . . . . . . . 305
Figure 13.15 Farm size–crop productivity in China, 2013 (hectares) . . . . . . . . 306
Figure 13.16 Farm size–profitability relationship in China. . . . . . . . . . . . . . . . 306
Figure 13.17 Cost per hectare and area harvested of using contracted
services from combined service enterprises. . . . . . . . . . . . . . . . . . . . . . . . 308
Figure 14.1 Newly installed capacity for selected renewable energy
generation in China (gigawatts (GW)). . . . . . . . . . . . . . . . . . . . . . . . . . . 315
Figure 14.2 Global and selected countries’ renewable power capacity. . . . . . . . 317
Figure 14.3 Global and selected countries’ installed capacity of hydropower. . . 317
Plate 14.1 Fenghuangshan wind power plant. . . . . . . . . . . . . . . . . . . . . . . . . . 322
Figure 14.4 Planned and realised installed offshore wind power capacity
in China. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 323
Plate 14.2 Satellite image of Delingha solar PV project in Qinghai province . . 328
Figure 14.5 Primary energy demand in China under the global 2ºC target. . . . 339
Figure 14.6 Installed capacity in China under the 2ºC scenario. . . . . . . . . . . . 340
Figure 14.7 Power generation in China under the 2ºC scenario. . . . . . . . . . . . 340
Figure 15.1 Chinese repo turnover (annual, by market). . . . . . . . . . . . . . . . . . 344
Figure 15.2 Lending balance outstanding (by market) . . . . . . . . . . . . . . . . . . . 344
Figure 15.3 Collateral used in repurchase agreements (interbank, pledged
collateral, percentage of monthly turnover by value). . . . . . . . . . . . . . . . . 345
Figure 15.4 Chinese interbank repo market (monthly turnover). . . . . . . . . . . . 346
Figure 15.5 Chinese interbank repo rates (by tenor). . . . . . . . . . . . . . . . . . . . . 348
Figure 15.6 Outstanding repo lending balance (interbank, pledged
collateral, by type of institution) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 349
Figure 15.7 Outstanding repo borrowing balance (interbank, pledged
collateral, by type of institution) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351
Figure 15.8 Net outstanding repo lending balance (interbank, pledged
collateral, by type of institution) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 352
Figure 15.9 Chinese repo rate (seven-day repo fixing rate, daily). . . . . . . . . . . . 353

Figure 15.10 Policy bank and PBC repo lending
(interbank, pledged collateral). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 354
Figure 15.11 PBC liquidity injections and withdrawals
(open market operations, net) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 354
x


Figures

Figure 15.12 Bond and repo rates (daily, on-the-run bond) . . . . . . . . . . . . . . . 356
Figure 15.13 Repo turnover (interbank, monthly, pledged collateral,
by tenor) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 356
Figure 16.1 China’s manufacturing exports, 1992–2015 (US$ billion). . . . . . . 368
Figure 16.2 China’s share in global manufacturing exports,
1992–2015 (per cent) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 369
Figure 16.3 Producer-driven, buyer-driven and total global network
exports from China, 1992–2015 (US$ billion) . . . . . . . . . . . . . . . . . . . . 369
Figure 16.4 China: Imports of parts and components relative to exports
of parts and components and assembled products (per cent) . . . . . . . . . . 373
Figure 16.5a China’s exports to the United States, 2000–16 (US$ billion). . . . 377
Figure 16.5b China’s imports from the United States, 2000–16 (US$ billion). . . 377
Figure 16.5c China’s trade surplus with the United States, 2000–16
(US$ billion) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 377
Figure 16.6a Shares of exports of parts and components and final assembly
products in total GPN product exports, 2000–16 (US$ billion) . . . . . . . 379
Figure 16.6b Shares of buyer-driven and producer-driven products
in GPN product exports, 2000–16 (US$ billion). . . . . . . . . . . . . . . . . . . 379
Figure 18.1 Per capita arable land area of BRI countries (hectare per person). . . . 412
Figure 18.2 Per capita water resources of BRI countries (million cubic
metres per person). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 412

Figure 18.3 Distribution of total oil production of BRI countries
(100 million toe). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 413
Figure 18.4 Distribution of natural gas production of BRI countries
(toe). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 414
Figure 18.5 Trade tightness between one EEU country and the other
four EEU countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 416
Figure 18.6 China’s direct investment in EEU countries, 2003–15
(US$100 million). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 420
Figure 18.7 China–Europe Express Railways: Chongqing–Europe line,
Wuhan–Europe line and Chengdu–Europe line . . . . . . . . . . . . . . . . . . . 421
Figure 18.8 Sources of China’s oil imports. . . . . . . . . . . . . . . . . . . . . . . . . . . . 422
Figure 19.1 China’s net foreign aid (estimates). . . . . . . . . . . . . . . . . . . . . . . . . 432
Figure 19.2 China’s foreign aid by recipient region. . . . . . . . . . . . . . . . . . . . . . 440
xi



Tables
Table 4.1 Summary statistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Table 4.2 Regression results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Table 4.A1 Forecast investment growth rates . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Table 4.A2 Forecast GDP growth rates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Table 6.1 Preliminary statistics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124
Table 6.2 Inequality in educational outcomes. . . . . . . . . . . . . . . . . . . . . . . . . . 128
Table 6.3 Determinants of years of schooling: Nationwide, urban and rural. . . 130
Table 6.4 Determinants of years of schooling by cohort. . . . . . . . . . . . . . . . . . 132
Table 6.5 Inequality of opportunity: Nationwide, urban and rural. . . . . . . . . . 136
Table 6.6 Partial contributions to relative inequality of opportunity (IORP). . . 137
Table 7.1 Descriptive statistics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151
Table 7.2 Regression results for growth accounting without intangibles. . . . . . 152

Table 7.3 Categories of intangible investment . . . . . . . . . . . . . . . . . . . . . . . . . 154
Table 7.4 Increasing trend of intangibles in China (RMB thousand) . . . . . . . . 155
Table 7.5 Relationship between the intangible–tangible ratio
and TFP growth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156
Table 7.6 Impact of growth of different categories of intangible–tangible
ratio on growth of TFP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158
Table 7.7 Results of growth accounting with intangibles . . . . . . . . . . . . . . . . . 159
Table 7.8 Results of growth accounting with detailed intangible capital. . . . . . 161
Table 7.A1 Changes of parameters in sensitivity analysis (per cent). . . . . . . . . . . 169
Table 8.1 Number of Chinese firms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178
Table 8.2 Number of Chinese patent applications, 1995–2014 . . . . . . . . . . . . 183
Table 8.3 Number of patents approved by SIPO and patents granted
to Chinese applicants from overseas patent offices, 1995–2014 . . . . . . . . 185
Table 8.4 Foreign patents citations on Chinese domestic patents approved
by SIPO, 1995–2014. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186
Table 8.5 Total number of patents granted by the USPTO to (corporate)
applicants from BRICS countries, Germany, Japan and South Korea. . . . 187
xiii


China’s New Sources of Economic Growth (II)

Table 8.6 Distribution of domestically granted patents to firms, by firm type
and year of application. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192
Table 8.7 Hybrid negative binomial regressions on patent count: Baseline. . . . 196
Table 8.8 Impacts of wages on the innovation levels of labour-intensive firms. . . 198
Table 8.9 Impact of wages on levels of innovation in routine-intensive
industries and sunset industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199
Table 8.10 Impact of R&D on patent output: Hybrid negative
binomial regressions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203

Table 8.A1 Hybrid negative binomial regression on patent count:
Using lagged wages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210
Table 8.A2 Hybrid negative binomial regression on the patent count:
Using minimum wages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211
Table 9.1 Calculated growth rates, shares and returns to scale (per cent,
unless otherwise noted) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219
Table 9.2 Selected estimates of TFP growth and its share in output growth
(per cent). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220
Table 9.3 Computational results: Coastal versus non-coastal regions
(per cent). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221
Table 10.1 Regional economies’ absolute β convergence test results
(not considering the spatial effect). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236
Table 10.2 Regional economies’ absolute β convergence test results
(adjacent matrix weight). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236
Table 10.3 Results of absolute β convergence of regional economies
(reciprocal weight of spatial distance). . . . . . . . . . . . . . . . . . . . . . . . . . . . 238
Table 10.4 Results of the β convergence test of regional economic conditions. . . 240
Table 11.1 Descriptive statistics of the main variables (no. = 4,067). . . . . . . . . 252
Table 11.2 Distribution of the effect of patent protection intensity
on R&D expenditure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 254
Table 11.3 Analysis of structural differences in the effect of patent
protection on promoting R&D. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 256
Table 12.1 Technological development and innovation strategies in China’s
aerospace sectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276
Table 14.1 Hydropower projects under construction in China. . . . . . . . . . . . . 331
Table 14.2 Renewable energy development targets for China. . . . . . . . . . . . . . 336
xiv


Tables

Table 14.3 Revised targets for renewable energy in China. . . . . . . . . . . . . . . . . 337
Table 16.1 Commodity composition of China’s exports within global
production networks, 2000–01 and 2014–15 (per cent) . . . . . . . . . . . . . 370
Table 16.2 China’s share of global network trade, 2000–01 and 2014–15
(per cent). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 371
Table 16.3 Annual average wages for manufacturing workers in selected
countries (US$). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 372
Table 16.4 Destination-country composition of China’s global network
exports, 2000–01 and 2014–15 (per cent). . . . . . . . . . . . . . . . . . . . . . . . 374
Table 16.5 Source-country composition of China’s global network imports,
2000–01 and 2014–15 (per cent). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375
Table 16.6 Sales values for US multinational enterprises operating in China,
2013 (US$ billion). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 380
Table 17.1 Estimation results of the impact on provincial economic growth
of IFDI and OFDI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 399
Table 17.2 Estimation results of the impact on provincial economic growth
of IFDI and OFDI (OFDI stock) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 401
Table 18.1 Comparison of internal trade with external trade of the
EEU countries, 2015. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 417
Table 18.2 Trade between EEU member countries, 2015. . . . . . . . . . . . . . . . . 417
Table 18.3 The top-five commodity trading partners of EEU countries . . . . . . 418
Table 18.4 China–Central Asia natural gas pipeline construction. . . . . . . . . . . 423
Table 18.A1 Basic information about 65 BRI countries, 2015. . . . . . . . . . . . . 427
Table 18.A2 Trade connectivity index between EEU member countries,
2001–15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 429

xv

Contributors
Ross Garnaut
Professorial Research Fellow in
Economics, University of Melbourne,
Melbourne

Xiumei Guo
Curtin University Sustainability Policy
Institute, Faculty of Humanities,
Curtin University, Perth

Cai Fang
Vice President, Chinese Academy
of Social Sciences, Beijing

Prema-chandra Athukorala
Professor of Economics, Arndt-Corden
Department of Economics, Crawford
School of Public Policy, The Australian
National University, Canberra

Ligang Song
Crawford School of Public Policy,
The Australian National University,
Canberra
Lauren Johnston
Research Fellow, Melbourne Institute
of Applied Economic and Social
Research, Faculty of Business and

Economics, University of Melbourne,
Melbourne
Yiping Huang
National School of Development,
Peking University, Beijing
Wing Thye Woo
Economics Department, University
of California, Davis; Institute of
Population and Labor Economics,
Chinese Academy of Social Sciences,
Beijing; Jeffrey Cheah Institute on
Southeast Asia, Sunway University,
Kuala Lumpur
Yixiao Zhou
Curtin Business School,
Curtin University, Perth
Yanrui Wu
Economics, Business School, University
of Western Australia, Perth

Ross Kendall
International and Economic Research
Departments, Reserve Bank of
Australia, Sydney
Jonathan Lees
International and Economic Research
Departments, Reserve Bank of
Australia, Sydney
Chunlai Chen
Crawford School of Public Policy,

The Australian National University,
Canberra
Biliang Hu
Professor of Economics, Dean of
Emerging Markets Institute, Beijing
Normal University, Beijing
Shang-Jin Wei
N.T. Wang Professor at Columbia
University, New York, and Research
Associate at the National Bureau of
Economic Research
Zhuan Xie
Research Fellow in the State
Administration of Foreign Exchange
(SAFE) of China, Beijing
xvii


China’s New Sources of Economic Growth (II)

Xiaobo Zhang
Distinguished Professor at Peking
University, Beijing, and Senior Research
Fellow at the International Food Policy
Research Institute, Washington
Marina Rudyak
Institute of Chinese Studies,
Heidelberg University, Heidelberg
Zhifeng Yin
School of Economics, Central

University of Finance and Economics,
Beijing
Hao Mao
Development & Research Center, State
Intellectual Property Office, Beijing
Alanna Krolikowski
China Institute, University of Alberta,
Alberta
Yu Sheng
Associate Professor, School of Advanced
Agricultural Sciences; Deputy Director,
China Center for Agricultural Policy,
Peking University, Beijing
Qing Yi
PhD Candidate, School of Advanced
Agricultural Sciences; Deputy Director,
China Center for Agricultural Policy,
Peking University, Beijing
Jiang Kejun
Senior Researcher, Energy Research
Institute, China
Yan Shen
National School of Development,
Peking University, and Senior Research
Fellow at the Institute of Digital
Finance, Peking University, Beijing

xviii

Qiuzi Fu

National School of Development,
Peking University, Beijing
Yang Yao
Dean and Professor, National School
of Development, Peking University,
Beijing
Mengqi Wang
National School of Development,
Peking University, Beijing
Jane Golley
Associate Professor and Deputy
Director, Australian Centre on
China in the World, The Australian
National University, Canberra
Sherry Tao Kong
Associate Professor at the Institute
of Social Science Survey, Peking
University, Beijing
Xiaojing Zhang
Deputy Director-General of
National Institution for Finance
& Development, Chinese Academy
of Social Sciences, Beijing
Shenglang Yang
Crawford School of Public Policy,
The Australian National University,
Canberra
Dora Marinova
Curtin University Sustainability Policy
Institute, Faculty of Humanities,

Curtin University, Perth
Chaofeng Yang
Institute of Scientific & Technical
Information of China, Beijing


Contributors

Zhiyun Zhao
Institute of Scientific & Technical
Information of China, Beijing
Zhijuan Zhang
Institute of Scientific & Technical
Information of China, Beijing
Qingjie Liu
Postdoctoral Researcher, Emerging
Markets Institute, Beijing Normal
University, Beijing
Jiao Yan
Doctoral Candidate, School of
Economics and Resource Management,
Beijing Normal University, Beijing

xix



Acknowledgements
The China Economy Program gratefully acknowledges the financial support
for the China Update 2017 provided by Rio Tinto through the Rio Tinto–ANU

China Partnership, as well as coordination and editorial assistance provided by
Program Manager Elizabeth Buchanan and our colleagues at the East Asia Forum
at The Australian National University. This is the 17th edition in the China Update
Series and we sincerely thank our contributors from around the world for their
valuable contributions to the book series and the Update events throughout these
years. Thanks also go to the ANU Press team, notably Emily Hazlewood and
Jan Borrie, for the expeditious publication of the book series, and to Social Sciences
Academic Press (China) in Beijing for translating and publishing the Chinese
versions of the Update book series to make the research work available to the readers
in China.

xxi



Abbreviations
AfDB
AIIB
ASEAN
ASEAN-5
ASIEC
AVIC
BEC
BIS
BRI
BRICS
CAICCF
CAS
CASC
CASIC

CCAP
CCDC
CDB
CEC
CEO
CEPII
CFPS
Comac
Complant
CPC
CPI
CPPCC
CSFAGC
CSP
CUI
DID
EC

African Development Bank
Asian Infrastructure Investment Bank
Association of Southeast Asian Nations
Association of Southeast Asian Nations Five
Annual Survey of Industrial Enterprises in China
Aviation Industry Corporation of China
Broad Economic Classification (United Nations)
Bank for International Settlements
Belt and Road Initiative
Brazil, Russia, India, China and South Africa
China–Africa Industrial Capacity Cooperation Fund
Chinese Academy of Sciences

Chinese Aerospace Science and Technology Corporation
Chinese Aerospace Science and Industry Corporation
Center for Chinese Agricultural Policy
China Central Depository & Clearing
China Development Bank
China Electricity Council
chief executive officer
Centre d’Etudes Prospectives et d’Informations Internationales
(Centre for Prospective Studies and International Information)
China Family Panel Studies
Commercial Aircraft Corporation of China
China National Complete Plant Import Export Corporation
Communist Party of China
consumer price index
Chinese People’s Political Consultative Conference
China State Farms Agribusiness Group Corporation
concentrating solar power
catch-up index
difference-in-difference
efficiency change
xxiii


China’s New Sources of Economic Growth (II)

EEU
EIB
EU
Exim Bank
FDI

FE
FIE
FIT
FOCAC
FTA
GDP
GFC
GMM
GPN
GW
GWh
HH
HRS
HS
HSR
ICOR
IEE
IFDI
IID
IMF
IPAC
IPO
ISSS
IT
kW
kWh
LCOE
LMERR
LMLAG
LP

xxiv

Eurasian Economic Union
European Investment Bank
European Union
Export–Import Bank of China
foreign direct investment
fixed-effects model
foreign-invested enterprise
feed-in tariff
Forum On China–Africa Cooperation
free-trade agreement
gross domestic product
Global Financial Crisis
generalised method of moments
global production network
gigawatt
gigawatt-hour
Herfindahl–Hirschman
household responsibility system
Harmonised System
high-speed rail
incremental capital–output ratio
Institute of Electrical Engineering
inward foreign direct investment
independent and identically distributed
International Monetary Fund
Integrated Policy Assessment Model for China
initial public offering
Institute of Social Science Survey

information technology
kilowatt
kilowatt-hour
levelised cost of electricity
Lagrange Multiplier Error
Lagrange Multiplier Lag
Levinsohn and Petrin


Abbreviations

m/s
M&A
M1
M2
MITH
ML
MNE
MOFCOM
MOFTEC
MW
NAFTA
NASA
NBS
NDRC
NEA
NEI
NFS
NPC
NPL

ODA
OECD
OFDI
OLS
OOF
PBC
PBS
PMI
PPI
PPP
PRC
PV
R&D
RBA
RCEP
RE

metres per second
merger and acquisition
narrow money supply
broad money supply
middle-income trap hypothesis
maximum likelihood method
multinational enterprise
Ministry of Commerce of China
Ministry of Foreign Trade and Economic Cooperation
megawatt
North American Free Trade Agreement
National Aeronautics and Space Administration
National Bureau of Statistics of China

National Development and Reform Commission
National Energy Administration
new-economy index
National Fixed-point Survey
National People’s Congress
non-performing loan
official development assistance
Organisation for Economic Co-operation and Development
outward foreign direct investment
ordinary least squares
other official flow
People’s Bank of China
Provincial Bureau of Statistics
purchasing manager index
producer price index
purchasing power parity
People’s Republic of China
photovoltaic
research and development
Reserve Bank of Australia
Regional Comprehensive Economic Partnership
random-effects model
xxv