China’s Catch-up Strategy Based On Backwardness Advantage

The ups and downs of economic development on countries of the world perform distinctively. Most of the developing countries either struggle in front of the ’poverty trap’, or struck in the ’middle-income trap’, while in contrast, there are always ’outstanding’ individual countries in the world economic history could buck the trend, not only successful to shorten catch-up time than predecessors economically, but also enter into the virtuous cycle of growth during the catch-up process. Since the scholars like Veblen and Gerschenkron made pioneering research on the advantage of backwardness, it has been taken as important theory support on a country’s catch-up strategy. This thesis applies the perspectives of the advantage of late-development, studying on China’s economic growth and catching-up with the developed country. Contrast with most of current studies, the thesis will jump out the single vision of technical catch-up of underdevelopment country or foreign investment’s spillover effects, and take the developing country’s structure advantage of late-development, human advantage of late-development, technology advantage of late-development, capital advantage of late-development and institution advantage of late-development as a whole. This thesis also focuses on the changing stage characteristics of all sorts of advantages of late-development, and combs and explains China’s economic development and the process of institutional reform under the theory formwork of late-development. In this thesis, the basic idea is that it is the synergy of these five kinds of advantage backwardness; China is able to achieve sustainable and rapid catch-up performance.The core concept of late-development is learning, which is the Chinese leaders constantly emphasis on reflecting on the economic development policy. As the study start point, this thesis firstly makes an empirical analysis on the structure change and growth momentum during China’s economic catch-up. Taking1992and1997as nodes, we can divide China’s economic catch-up into three stages after the reform and opening, the catch-up ability in return enforce by trend. The growth momentum empirical analysis reveals that capital accumulation, human resource, structure transformation, technology improvement and institutional change can explain mostly of the economic growth since China’s reform and opening. From our judgments, the reason for the continuous catch-up trend on China’s economic growth, that is exactly because of the advantage on capital accumulation, human resource, structure transformation, technology improvement and institutional change than the mature economies, so for raising the concept of capital advantage of late-development, human advantage of late-development, structure advantage of late-development, technology advantage of late-development and institution advantage of late-developmentThe structural advantage of late-development lies, relative to the developed country, on the larger space of structural transformation, reallocation of capital and labor factor from low productivity sector to high productivity sector which brings additional gains for economic growth. Particularly, the structural transformation process under the push of industrialization is the important power of China’s faster economic growth than developed country. We will divide the process for China’s playing structural advantage of late-development into five stages, of three stages1978-1986,1992-1997and2003-2012which the structural change contributes relative higher on promoting the productivity. After experienced era of growing pain of the strategy adjustment on urban state sector, the structural advantage of late-development becomes the strong support on rapid economic growth since new millennium.The basis of human advantage of late-development are abundance labor resource and cheap labor cost, on the other hand, the knowledge spillover of the developed country which makes the developing country can obtain more return on investing on education and human resource than the developed country. By taking the human advantage of late-development, the most significant achievement is constantly enlarging total export trade and becomes the world’s manufacture factory. Since China’s entering WTO, the human advantage of late-development release in a greater degree. The technology advantage of late-development mainly means the developing country only need to cast a tiny cost for importing science and technology applying on domestic production activities, and narrowing the gap with international technology frontier. We divide the process of playing technology advantage of late-development into three stages since China’s reform and opening:during the beginning and middle of1980s, the technology development map of China is the adjustment of economic planning period and exploration of playing technology advantage of late-development on the environment of opening; from the late of1980s to1990s, China’s technology development is center on importing and imitation; since the late of1990s, China speeds the shift of technology catch-up map from imitation to innovation.The theory basis of capital advantage of late-development relies on the law of capital return diminishing, so that, capital return rate in the developing country is higher, the international capital will flow into the developing country and promoting the later economic development. Comparing with the developed country, the developing country always has higher investment ratio, partly due to the applying of nationalization and forcibly capital accumulation way of the developing country’s takeoff stage, behind the high investment ration may be low production efficiency and return on investment. Judging from the conclusions of relevant literature researches, at least since the late90s, with the deepening of the reform of state-owned enterprises, China’s high investment phenomenon and the inflow of foreign capital has the microeconomic foundation with high return on investment. Using the provincial panel data, taking the year of1997as watershed, China’s capital accumulation patterns appear distinctly difference, alternative institutional arrangements of capital accumulation are gradually give way to robustness institutional arrangement.Institutional advantage of late-development means that the developing country by learning, imitating and referencing the advanced institution and management experience of developed country avoid the high required cost of trial and error on forming the effective institution, therefore there are plenty of time cost and innovation space to be saved for the economic development. In order to achieve the optimum goal of catch-up economic performance, the developing country should apply different development policies on the different development stages. The former alternative institutional arrangement may good for backward country’s economic catch-up, may not suitable on the later period, the government must consider shift the alternative institutional arrangements to robustness institutional arrangement, which is catch-up policy basing on market competition and taking innovation as main form, or it will be drop into the non-convergence equilibrium trap. This thesis explains the logic for the reform of state-owned enterprise in the late90s under the framework of institutional advantage of late-development, the integrity of the institutional change and correlation play an important role in this transformation.In this thesis, based on the five kinds of backwardness advantage, put forward the concept of systemic backwardness advantage strategy, the task of the developing country is to design a mechanism that makes the structure advantage of late-development, human advantage of late-development, technology advantage of late-development, capital advantage of late-development and institution advantage of late-development fit into circulation system interaction benign with economic catch-up. This thesis divide China’s catch-up strategy practice of using the backwardness advantage into three phases:preparation phase, adjustment phase and consolidation phase. Taking the late90s and the beginning of new millennium as the turning points, China experiences the state-owned enterprise strategic adjustment and entering into WTO, the backwardness advantage strategy steps into consolidation phase. This thesis takes empirical analysis on all sorts of backwardness advantages’ contributions of China’s economic catch-up, since the late90s, institutional advantage of late-development, human advantage of late-development and human advantage of late-development on education play significant roles.Finally, this thesis makes detailed comparison between catch-up strategy based on backwardness advantage, catch-up strategy and comparative advantage strategy, and puts forward some suggestions on China’s economic development model conversion and further deep reform.