What China needs «

What China needs

People visit a shop on Qianmen Street, a popular pedestrianised traditional street with shops and restaurants, during the Labour Day holidays, which take place from May 1 to May 5, in Beijing on May 2, 2021. (Photo by Noel Celis / AFP) (Photo by NOEL CELIS/AFP via Getty Images)

By Nancy Qian

Nancy Qian Says More…

Project Syndicate: You recently pointed out that economic reporting about China focuses far too much on total GDP and not enough on per capita GDP. In fact, “China remains a poor country, despite its phenomenal headline GDP growth over the past four decades.” For that to change, you say, it must “significantly boost the incomes of a population about the size of that of Sub-Saharan Africa.” Are the government’s plans for the next five years likely to increase per capita GDP? What else should China be doing to tackle domestic poverty?

Nancy Qian: The timeline for lifting half the Chinese population out of extreme poverty needs to be longer – ten or more years. Poor rural populations need the tools and resources to become integrated into the modern economy, including better schools, better health care, a meaningful pension system, and savings instruments besides banks (which pay negligible interest rates to depositors).

The question is how to fund all this. As it stands, schools, health care, and pensions are insufficient in all but the wealthiest areas, and state banks maintain low-interest rates as essentially a tax on depositors. Revenues from poor areas cannot be expected to fund the services and resources they need locally, not least because, as the China 2030 report showed, average GDP growth will decline steadily over time. This means that domestic poverty alleviation will require significant redistribution.

The challenge here will be to ensure that the needed redistribution does not exacerbate the natural aggregate slowdown for urban and coastal populations that have, over decades, become accustomed to phenomenal growth.

PS: In the same commentary, you note that to engage effectively with China, other countries should remember that “behind the world’s second-highest GDP are hundreds of millions of people who just want to stop being poor.” How should this inform the foreign and economic policies of other countries, especially the United States, toward China?

NQ: Currently, the foreign and economic policies of the US and others toward China are confused and reactionary. Instead, these governments should be devising a coherent and proactive approach to building a cooperative relationship with China. One way to do this (with neither side abandoning caution or their own national interests) is to build trust with China’s poor, who have so far received very little attention from the international community because they have less consumption power and don’t travel abroad.

For example, the US could create jobs (such as by moving American factories to poor rural areas), subsidize American products (say, a chain restaurant like KFC) to be sold in these areas, or encourage poor young Chinese to engage in health-enhancing athletic activities by getting professional sports teams to tour peripheral areas. Barcelona Football Club’s 2019 tour around China was wildly popular and generated a tremendous amount of goodwill. Such initiatives would yield economic and political returns, as they bolster favorable feelings from the Chinese toward the US (or others). All else being equal, this would nudge the Chinese government toward cooperative behavior, because even autocracies must account for their citizens’ preferences.

PS: One issue that comes up often in discussions of poverty in China – including in your most recent PS commentary – is the country’s hukou system of residency permits. What are the main obstacles to reforming this system, and how should China’s leaders be approaching the social and economic problems associated with it?

NQ: Economists all agree that these migration barriers are bad for economic development, not to mention inequality. But dismantling them too fast could cause poor migrants to rush into urban areas, overwhelming cities’ infrastructure and leading to problems such as slums, crime, and poor public health. The best way forward is a gradual phaseout, with a share of the population being given “nationwide” status every year until hukous are completely gone – a process that could take about a decade.

It is also important to note that everything in China – school access, health care, housing – is currently tied to hukous. So, it is important that the plan is laid out clearly and shared in advance, giving local governments (and individuals) time to adjust.

PS: Even before that happens, you recently argued, China must improve rural populations’ access to health and education, in order to avoid the rapid expansion of an unskilled workforce. Moreover, it must address the barriers to childbearing faced by urban populations, including the high costs of raising children and the burden of caring for aging parents. What must China do to prevent its new three-child policy from exacerbating its demographic challenge?

NQ: We need to take a step back and recognize that demographics are only part of the problem. The other problem, to which my commentary alluded, is the lack of jobs and the economic slowdown. With sufficient economic growth, the increase in per capita income will offset the decline in the number of workers. The smaller young population won’t struggle to support their older counterparts, if they earn a lot more than their parents and grandparents.

Income is roughly a measure of a worker’s productivity. The standard policy tools for increasing worker productivity in developing economies are improved education and health care. There is, of course, uncertainty, in terms of the magnitude of the benefits these policies will bring. But they are still win-win because they will also ensure that increased fertility doesn’t create a population of unskilled and unhealthy workers raised in poor and rural households.

By the Way…

PS: In 2018, you, Ming-Jen Lin, and Jin-Tan Liu published research showing that increased access to sex-selective abortion in Taiwan reduced relative female neonatal mortality rates, implying a better quality of life for girls who are born in places where such abortions are easily accessible. What are the economic-policy implications of these findings in a country like China, which has a strong preference for sons and childbearing incurs high costs? Should the government implement, for example, incentives for families to have girls?

NQ: The clear policy implication is that the government should not ban sex-selective abortion in countries with a strong preference for sons. “Carrots” such as economic incentives are always better than a ban because they still leave the choice to the parents. This mitigates extreme outcomes like female infanticide by parents who are desperate for a son. In the case of China, where child-rearing is very expensive, economic incentives could come in the form of cash, housing subsidies, or support for school fees.

As such support increases female employment opportunities, wages, and access to higher education, parents’ perceptions of a daughter’s economic value, relative to a son’s value, would improve. Increasing mothers’ wages can also help, given that research shows that mothers have weaker son preferences than fathers, and earning more would give them a greater say in household decisions.

PS: You and your co-authors – Xin Meng, Pierre Yared, Andrei Markevich, and Natalya Naumenko – spent 15 years assembling archival evidence and available geospatial data to understand the root causes of the Soviet famine of 1932-33 and the Chinese famine in 1959-61. What did this research reveal about these famines that previous accounts missed or got wrong?

NQ: In the study of the Great Chinese Famine, Xin, Pierre, and I found that famine mortality rates were higher in places that produced more food per person – a very surprising pattern, which no one had previously noticed. Understanding this strange mortality pattern transforms the way we think about the famine: rather than being entirely the result of politics, it was largely an unintended consequence of a problematic economic system.

As for the Soviet famine, Andrei, Natasha, and I found that Ukrainians died at higher rates than others: half of all famine deaths were Ukrainians, who accounted for only around 21% of the pre-famine Soviet population. The regime wanted to control grain-producing regions, where Ukrainians – who were resistant to Soviet agricultural policies – were the dominant group. This resolves a longstanding, contentious debate about whether Ukrainians were more affected by the famine, and whether this was an unlucky coincidence or state policy.

PS: Much of your research reflects a similar focus on analyzing long-term survey data, historical records, and natural experiments to provide empirical evidence that can advance development economics. Your 2019 paper with Abhijit Banerjee and Esther Duflo on the effect of access to transportation networks on regional economic outcomes in China is a case in point. Where else would you like to see development economists apply this kind of empirical analysis?

NQ: Long-run studies using natural experiments and historical data are very useful for understanding big-picture questions about economic development, particularly as they relate to processes that take time to unfold. We know that institutions, culture, geography, climate, and demographic changes are all important determinants of development. But we still know very little about the details of these complex processes. Recently, there’s been a dramatic growth in economics research in this area, which is very exciting.

PS: You are the founding director of China Econ Lab, a “voluntary organization that supports cutting-edge research on the Chinese economy.” What are the most important research projects or topics China Econ Lab is currently supporting?

NQ: China Econ Lab affiliates work on a wide range of topics, including gender, finance, climate, e-commerce, supply chains, and economic history. Bringing researchers in such a variety of areas together is important because economics research is usually very siloed according to field and topic, but ultimately, to understand the Chinese (or any) economy, we need to aggregate what we know from all these domains. In addition to research projects, we work to build capacity for economic research by students and young researchers, especially researchers in China.

Qian Recommends

The Ethnic Origins of Nations
By Anthony D. Smith

As a habitual binge-reader, I will recommend sets of books – beginning with three of Smith’s works: The Ethnic Origins of Nations, Myths and Memories of the Nation, and A Nation in History: Historiographical Debates about Ethnicity and Nationalism. These books argue that nationalism is rooted in very old and fundamental human notions of group identity. The ideas they put forward – which I’m still digesting – give shape to my understanding of how and why a country like China is both ancient and constantly changing.

Stalin: Paradoxes of Power, 1878-1928
By Stephen Kotkin

For rich narratives of the early Soviet era, look no further than Kotkin’s biographies of Stalin – which also include Stalin: Waiting for Hitler, 1929-1941 – and Victor Sebestyen’s Lenin: The Man, the Dictator, and the Master of Terror. These works give readers a visceral understanding of how extreme personalities with exceptional ability created a sprawling state by implementing brutal methods in a terrible environment. I found the human experiences described in these books disturbing. But I also came away feeling optimistic, because they make clear how much economic, political, and moral progress the last century has brought.

The Expanse
By James S. A. Corey

This science fiction series is set a few hundred years from now, when humans, having colonized the moon, Mars, and the outer planets, are confronted with a new alien species. The stories provide insightful descriptions of human interaction and economic and political competition. They offer the fun of passing through worm holes, with none of the stress.

From the PS Archive

In “The Two Sides of Chinese GDP,” Qian argues that the media’s focus on aggregate income obscures how poor the country remains. Read more.

In “Rebuilding Social Trust in Post-COVID America,” Qian hopes that shared sacrifices during the pandemic will spur greater progress in economic redistribution. Read more.

Around the Web

Qian, Abhijit Banerjee, and Esther Duflo estimate the effect of access to transportation networks on regional economic outcomes in China. Read the paper.

Qian, Sandra Sequeira, and Nathan Nunn analyze the effects of European immigration to the US during the Age of Mass Migration (1850–1920) on economic prosperity. Read the study.

Nancy Qian, a professor at Northwestern University’s Kellogg School of Management, is the Founding Director of China Econ Lab and Northwestern’s China Lab.