Understanding the Pattern of Growth and Equity in the People's Republic of China

Abstract

There are likely to be many factors which have together shaped the current pattern of growth and equity in the People’s Republic of China (PRC). Among them are the foundations laid in the pre-1978 era, especially in respect of land-related institutional reforms and social sector investments. These factors successfully complemented the subsequent export and foreign direct investment promotion strategies the PRC followed in the post-1978 years. However, given the large size of the PRC, while these strategies have helped to kick-start its economic take-off, the long-run growth of the country cannot depend on it. It will be important for the PRC in the forthcoming decades to expand its own domestic demand and renew social sector investments. Among other things, it will need to improve on its current income distributions. In particular, as well as wage increases, it will be important for the PRC to expand its social protection programs. This will help not only to boost its domestic demand, but also, more importantly, to contribute to a renewal and expansion of its human capital accumulation. In the long run, there is nothing more important than this if the PRC is to continue on its growth track, to modernize, and to catch up with today’s developed nations. Superior pre-1978 human capital accumulations have helped the PRC to compete with and outperform other similarly positioned economies in the decades before; continued growth of the economy and continued improvements of the living standards of its people in the forthcoming decades will require vast amounts of new investment in human capital. And to this, increased investments by the government, whether through direct spending or increased levels of social protection, may well prove to be of special importance.