Too much focus on big GDP and big firms

By Ivan Png
0 CommentsPrint E-mail Shanghai Daily, September 27, 2010
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The Econometric Society is an international organization of economists who apply quantitative methods to various issues. The 2010 World Congress took place in August in Shanghai.

The congress, which meets every five years, devoted a panel discussion to the outlook for the Chinese economy. Panelists include Justin Lin, chief economist of the World Bank; and Yingyi Qian, dean of the Tsinghua University School of Economics and Management.

It is not only China's sustained economic growth since Deng Xiaoping launched economic reforms in 1978 that is remarkable; China's quick recovery from the sub-prime financial crisis is equally remarkable.

What about China's future? Many economists have been puzzled by an apparent contradiction between China's fast economic growth and the poor state of its legal institutions.

Professor Qian explained that, on a per capita basis, China is still relatively poor. He pointed to a strong correlation between per capita income and institutions.

In his view, China's institutions are still weak because it is a relatively poor country. (Professor Qian's reasoning bordered on reversing the accepted logic and implying that good institutions are an outcome rather than a determinant of economic growth.)

My own research (with my National University of Singapore colleague Lu Yi and Hong Kong University economist Zhigang Tao) suggests a more nuanced view.

China's economic growth was relatively faster in areas with relatively better institutions. The most prominent of these were the six special economic zones (SEZs) - Hainan, Shantou, Shenzhen, Xiamen, and Zhuhai in 1980 - with Pudong added later.

The genius of former leader Deng was to recognize that China's pool of policy making and managerial talent was limited.

So, rather than spread the limited pool thinly over the entire country, China would get much better returns by concentrating its resources.

This year marks the 30th anniversary of the special economic zones. They were as much an experiment in policy as a rational concentration of limited human resources.

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