What Is New About This Proposal Economics Essay

The manufactured exports-driven economic growing theoretical account of China has been the topic of much attending in recent old ages. Along with capital accretion, a huge pool of unskilled, excess labor has contributed greatly to the success of the theoretical account.

But altering human ecology is really likely to impact the sustainability of that theoretical account. An ageing population is besides likely to impact the authorities ‘s programs to do China a more domestic-consumption goaded economic system.

My proposal will reason that population alterations will necessitate Chinese policymakers to alter the growing theoretical account and increase focal point on the services sector, while promoting the fabrication sector to utilize more technology-intensive production processes alternatively of labor-intensive 1s. Changes in the one-child policy will besides be required to retain economic verve.

Therefore, China ‘s gait of growing in the hereafter will be dictated non merely by economic policy but population policy as good.


The proposal of a alteration in the economic theoretical account for China, along with alterations in the one-child policy, represents a combination of tendencies taken from different countries of research.

Current literature on the growing of China ‘s fabrication sector over the past three decennaries under economic reforms are practically consentaneous on the factors that brought about its success: high degrees of nest eggs and investings, sensible productiveness betterments in labor, relaxation of regulations refering to the external sector, a big pool of excess rural labor and low resource costs. Overall, low resource costs have been chiefly responsible for assisting China germinate into a top finish for planetary manufacturing1.

However, there are besides flaws in that growing theoretical account, which are highlighted by the literature: China still remains at the lower terminal of the fabrication concatenation in footings of value-added, despite ruling sheer physical end product ; the economic system is to a great extent dependent on exports for growing ; heavy environmental debasement ; and of class, lifting costs over the past few old ages in fabrication costs, the most of import of which is increasing rewards.

In economic footings, China is considered to be a middle-income developing state. The following measure, hence, should be an opening up of the services sector since industrialized states seeking farther economic growing move on to develop their services sectors. Many experts have called for China ‘s economic system to cut down its trust on exports and go more domestic-demand driven. In other words, economic growing needs to go more “ balanced ” 2.

Another ground for traveling off from the current labor-intensive theoretical account of fabrication is population alterations that will cut down the supply of working grownups in coming decennaries if current population tendencies continue. In fact, migratory deficits in coastal metropoliss can already be seen3. However, current academic literature on China ‘s labour supply, particularly on the topic of a looming labour deficit, is conflicting. While Golley & A ; Xin ( 2011 ) believe there is no existent labor deficit – it merely seems there is one because of go oning internal limitations on rural-urban migration in China – others experts argue that a deficit of labor has become apparent over the past few years4. Overall, there is no consensus on whether the Lewis turning point has been reached in China. ( The Lewis turning point is the point when excess labor dries up, doing rewards and rising prices to lift. ) .

What there is consensus on, nevertheless, is that China ‘s population is ageing quickly. Life anticipation has soared in China, even as birthrate rates have plunged. Presently those over 6o history for 13.3 % of China ‘s population ; by 2050, that will lift to30 % 5. The entire birthrate rate ( mean figure of kids a adult female is expected to bear across her life-time ) has dropped to between 1.5 and 1.8, good below the 2 required to maintain the population stable6. I will utilize a United Nations study ( World Economic and Social Survey 2007 ) to demo that when the proportion of ageing population in a state and the size of the labour force lessenings, economic growing slows down7.

While there is considerable literature on each of the assorted constituents – growing of the fabrication sector and its exports, population alterations and the importance of domestic ingestion to hike GDP growing – they tend to be discussed under their ain research subjects.

My proposal aims to convey together all these constituents together to supply a more holistic position of the monolithic transmutation happening in the Chinese economic system. It will take to demo that guaranting China ‘s future economic growing will necessitate structural alterations in the economic system every bit good as alterations in the one-child policy. Given current population tendencies, China ‘s purposes to transform into a domestic consumption-driven economic system will besides be hard to carry through.


My proposal will be chiefly explanatory in nature, taking to reply why China ‘s place as the universe ‘s top maker will be challenged over the following decennary. It will besides reason why the one-child policy demands to be modified and suggest an alternate theoretical account to guarantee continued economic success.

For the most portion, it will utilize quantitative informations to do illations based on economic theory.

My research proposal will hold five chief subdivisions:

Section I will incorporate a description of the Chinese manufacturing-led, export-driven economic growing theoretical account. It will foreground the cardinal grounds why China became the universe ‘s workshop in the span of about two and a half decennaries, and the challenges the theoretical account faces.

This subdivision is an introductory portion, which will supply the background for my proposal. It will foreground the specific strengths and policies that enabled China to go a preferable finish for low-priced fabrication.

Section II will demo the tendency of labor costs in China over the past few old ages. I will besides depict the grounds why labor costs have been lifting.

Labour, nevertheless, is merely one component of the cost of production. I will supply informations on how other resource costs ( land, H2O, energy, electricity, etc. , ) are besides expected to lift bit by bit. This subdivision is intended to demo that in the medium term, force per unit area on costs is expected to stay high for Chinese makers.

Section III will foreground the altering composing of the population. It will demo how rising life anticipation and a falling birthrate rate will impact the proportion of old people ( over 60 ) and working grownups in the entire population. In this subdivision, I will besides supply a brief description of China ‘s one-child policy and how it has been chiefly responsible for the altering population structure8. I will supply informations to demo that China ‘s population of working grownups is set to diminish over the following few old ages. Together with the decisions in Part A, I aim to demo that there will be go oning upward force per unit areas on rewards and other costs in China. They are likely to gnaw China ‘s competitory advantage as a low-priced fabrication finish.

Here I will utilize a widely-accepted model of how aging populations affect the labor market and economic growing ( already mentioned earlier ) to turn out my point. Given similar tendencies for the Chinese population, I will propose that long-run force per unit areas on labor costs will prevail in the economic system given the worsening degrees in labour supply. Two decisions will be provided here: one, labor costs will go on to lift in the long term, gnawing China ‘s repute of holding a huge pool of inexpensive labor. That could coerce makers to switch production to other finishs.

Two, an progressively ageing population, harmonizing to economic theory, will decelerate the explosive growing of the Chinese economic system, which has been basking a ‘demographic dividend ‘ over the past few old ages.

Section IV will present an alternate growing theoretical account for China, which will stress the development of the services sector. This will be based on literature that notes the services sector histories for a larger portion of GDP in advanced economies9.

A sector break-up of GDP represents the ‘supply ‘ side of the economic system. I will supply informations on China ‘s current GDP dissolution between agribusiness, industry and services and supply comparative informations for selected developed and developing states. I will demo that the low portion of services in China ‘s GDP provides ample room for developing this sector.

Economic theory provinces that when the degree of accomplishments additions in an economic system, the services sector starts to develop 10. China is believed to be at that phase now. An estimated 6.5 million pupils graduate from China ‘s universities every twelvemonth, harmonizing to media reports11. Their accomplishments are non being utilised to the full because the current fabrication theoretical account ( which depends on unskilled, poorly-paid labor ) , which is the driver of economic growing, does non make adequate occupation chances for them. Greater focal point on services could supply more occupations for the turning figure of alumnuss with accomplishments in accounting, jurisprudence, media, etc.

In add-on, China needs to travel up the value concatenation in planetary fabrication, in order to better use the accomplishments of the educated labor force pool that is increasing every bit good as because of the looming labour deficit in coming decennaries. Here, I will reason that even if China does hold surplus rural labor as some experts claim, it might non assist China since attempts to travel up the fabrication value concatenation, already in gesture, will demand better-skilled workers.

Overall, this subdivision will demo the demand for an alternate growing theoretical account necessitating the development of the services sector and value-added fabrication in China.

Section V will see the sentiment of many economic experts that China needs to better domestic ingestion as portion of switching to an alternate growing theoretical account. Consumption trades with the ‘demand ‘ side of the economic system.

I will supply informations demoing that China ‘s domestic ingestion is much lower than many developing and developed states. Several experts have argued that China can non depend on high growing through exports, particularly since its cardinal trading spouses – Europe and the US – are fighting economically and may go on to make so for rather a piece.

However, increasing ingestion could be a challenge for policy shapers in visible radiation of an ageing population since ingestion tends to be high in economic systems with a turning proportion of immature and declines as the population ages12. I will propose possible solutions to assist China hike ingestion: addition in the legal age of retirement, higher authorities disbursement on health care and pensions and a alteration in the one-child policy.

Section VI will summarize the conclusions/ deductions of my research proposal.


My research proposal involves a combination of economic/population theories and informations. I will be analyzing four sets of informations: labor informations, population informations, ingestion informations and services sector informations.

As mentioned before, I will be doing illations from quantitative informations. The information will chiefly be from secondary beginnings every bit good as official statistics.

Labour informations: I will be analyzing rewards and comparative informations of labour costs among some cardinal fabrication states.

In footings of rewards, I will be utilizing national-level pay informations for fabricating workers since it is the most appropriate informations for analyzing fabrication sector labor costs in the fabrication sector.

China ‘s official labor informations beginning is the National Statistics Bureau, but at that place seems to be agnosticism about the truth of the information. Some of that agnosticism stems from the fact that urban rewards are widely reported by official beginnings but rural rewards are non, harmonizing to some experts. The US Bureau of Labour Statistics has two studies on the mean hourly compensation of fabricating sector workers in China, every bit good as comparings of pay costs in other selected economic systems. This set of information has been cited by other economic writers, which suggests it is accepted as a beginning on labor costs in China. The studies provide time-series quantitative informations — pay costs from 2002 to 2008 — which is equal for my intents to demo that labor costs have been increasing in recent years13.

Given the concerns about official Chinese statistics, this beginning seems to outdo suited for my proposal. It besides has comparative informations on pay rates in some cardinal manufacturing/outsourcing finishs like India, Mexico, Brazil every bit good as the US.

I will besides be reasoning that along with labor costs, other resource costs are besides lifting. However, longitudinal information does non look to be available from any dependable beginning, so I will utilize secondary beginning analysis to back up my statement. I plan to utilize intelligence studies ( Chinese media and international ) and a state analysis study to demo that China ‘s demand for resources such as oil and electricity are set to go on lifting and hence, monetary values, which are presently subsidised, can non stay low for much longer14.

Together, they will set up a tendency of a tendency of lifting costs for the fabrication sector in China.

Population informations: I plan to utilize clip series quantitative informations to demo the alterations in population construction. The information I will utilize will be the entire birthrate rate, life anticipation rate, ratio of working to non-working age population and the portion of the graying population ( over 60 ) in China. This information is available from the United Nations database ( along with projection to 2050 and beyond ) 15.

Uniting the labor and population informations, I will demo that lifting costs in the fabrication sector and falling portion of working-age grownups will go on to set upward force per unit area on rewards.

The ageing population is besides likely to slow economic growing. While there are several journal articles on the topic, I intend to utilize a United Nations study ( mentioned before ) to supply the economic theory on the relation between falling labour population and economic growing to demo the likely future tendency in China.

I chose a UN study because it is a planetary administration with entree to state informations in a manner that few establishments can fit. The broad acceptableness of its assorted studies and databases is another ground.

Servicess sector informations: I will utilize informations ( latest twelvemonth figures ) from the World Bank database to demo China ‘s GDP composition16. I besides plan to utilize GDP informations from selected states ( US, Germany, India, Mexico ) and compare the portion of the services sector in each of these states ( latest figures ) .

Why these four states? The US is the biggest economic system, Germany was the universe ‘s biggest exporter ( China overtook it in 2010 ) ; India is an economic challenger and portion of the emerging state group BRIC ( Brazil, Russia, India, China ) , while Mexico is an outsourcing finish, merely like China. The information will demo that there is range for China ‘s services sector to develop.

In add-on, I have mentioned that China ‘s turning pool of alumnuss calls for development of the services sector. The economic theory of higher accomplishments development taking to the growing of the services sector in an economic system will be based on a journal article by Buera and Kobowski ( 2006 ) ( mentioned as beginning earlier in design part ) .

Since informations on Chinese alumnus Numberss is patchy, I intend to utilize informations from a combination of web sites, one of which is www.econmatters.com17.

Consumption informations: Datas on Chinese ingestion as a per centum of GDP is widely available in economic literature. I plan, nevertheless, to take the figure from a recent paper on ingestion in China by the International Monetary Fund18. It provides comparative informations every bit good, i.e. , ingestion informations of other selected states ( current figures ) .

Using this information and labour/population informations, I will foreground the troubles of prolonging high ingestion degrees in states with ageing populations. The theory is good explained in a paper on the macro-economic deductions of ageing populations by the US Federal Reserve22. This theory has been widely discussed in economic literature, but I chose the Fed Reserve paper because coming from the cardinal bank of the biggest economic system of the universe, it carries more weight. And the general account provided can be applied to China ‘s state of affairs.


Much of my research proposal will be based on economic theories that have been accepted among the academic community. I do non mean to turn out any new relationships between economic variables.

The links between ageing populations and economic growing, and ingestion and ageing populations will be based on theories widely explained in economic literature.

I do non mean to carry on any quantitative research per Se, even though much of the informations being used is quantitative. However, I will do illations from such informations. I will be utilizing chiefly secondary beginnings of quantitative informations. The information, as can been seen from above, will include both clip series informations and cross-sectional informations. I do non mean to carry on any primary research to entree informations, since I believe there are plenty reputed secondary beginnings to supply the same, particularly for this proposal.

Disproof OF MY Proposal:

There are four chief ways in which my proposal can be falsified.

One, some of my informations could be inaccurate. Chinese official statistics are regarded as undependable, yet in several economic/labour research articles, writers rely on these statistics to back up their analysis.

I have tried, nevertheless, to avoid utilizing official Chinese figures every bit far as possible. However, that still leaves the inquiry of how dependable other beginnings of informations are. I have tried to understate those uncertainties by utilizing informations from globally accepted beginnings such as the United Nations database, the World Bank and the International Monetary Fund.

Besides, I have tried to guarantee that informations taken from other beginnings like the CIA Fact book web site are cross-checked with beginnings like the World Bank where possible. For illustration, any informations that I might take from media studies, I will seek and guarantee that the Numberss are similar at least across three beginnings, and utilize the most reputed beginning.

The weakest nexus in footings of informations could be the Chinese rewards informations, which I have taken from research done on behalf of the US Bureau of Labour Statistics. There is ever a possibility that the research could intentionally hold understated Chinese rewards, particularly since the US has ever complained about low rewards in China driving fabricating out of the US. It is possible the research might hold intentionally stated low rewards for China.

The lone counterargument is that, if that is true, there would hold been studies oppugning the cogency of those Numberss. On the contrary, the information has been cited by other economic studies, which gives me assurance that the Numberss must be moderately accurate.

Two, it is possible that theoretical links between economic variables under survey in my proposal could be disproved in the Chinese context because of the presence of one or more variables that have non been taken into consideration. However, that is non a ground to fling this proposal since confuting any economic relation between variables requires demoing what those links could be in the first topographic point.

The causal links I provide in my proposal ( falling labour supply and lifting wages/ worsening economic growing every bit good as ingestion and ageing population ) are based on what are already established through economic literature. I am non proving such causal links in my proposal.

Three, it is possible to reason that ingestion of the aged could besides lend to overall ingestion since they spend on goods and services every bit good. My counter-argument to that the form of ingestion for the aged is immensely different from immature Spenders and non needfully sustainable.

Older populations spend more on health care and less on fast traveling consumer goods, leisure, transit etc. It can be argued that the aged disbursement on medical attention could itself assist China travel to a more services-dominated economic system, since it will hold to better its installations for health care services.

To an extent that could be true: China ‘s services sector, particularly healthcare, could acquire a push from increased disbursement by a greying population. However, once more, I would reason that this is non a sustainable way to hiking ingestion.

I base this statement on the life rhythm theoretical account of ingestion, in which families build up assets until in-between age and so get down to pull down on those nest eggs as they progressively consume in surplus of current income after retirement.

Since the aged consume more resources than produced through their ain labour, they need to trust on reallocations from the working age population. Widening this thought about resource demands of older population suggests a general impairment in economic conditions. As population becomes progressively concentrated at older ages, when ingestion exceeds production, mean ingestion will worsen comparative to labour income, keeping other things equal ( Lee, Mason, Park, 2011 ) 20.

Hence, I stand by my proposal statement that an ageing population will take down ingestion in the long tally. However, it could help in the development of the services sector in the medium term, although even that will hold its bounds as the population continues to shrivel.

Four, it is possible that China could ease in-migration policies to ease expected labour deficits in the hereafter. That would confute my statement of upward force per unit area on lifting rewards. However, China is non expected to alter its foreign worker policies any clip shortly. Besides, linguistic communication and cultural competences remain large barriers to a inundation of migratory workers come ining the state. Even acquiring foreign migratory staff for more specialised/senior degrees is hampered by the same jobs.


As mentioned before, my proposal aims to turn out that China can non sustainably go on being the universe ‘s workshop given its altering human ecology.

Given the ageing population and falling labour supply, labor costs are expected to confront upward force per unit area in the average term. Other resource costs are besides lifting bit by bit. That means China ‘s manufacturing-led, export-driven growing theoretical account can non go on to power in front indefinitely. Low costs have been one of the grounds why China has emerged as a top fabrication finish over the past two decennaries. That competitory border is likely to get down erosion.

In visible radiation of that ongoing development and given the increasing pool of skilled labor ( alumnuss ) , China needs to follow an alternate growing theoretical account, one that emphasizes growing of the services sector. China needs to travel up the value concatenation of planetary fabrication for two grounds: one, to better utilize the accomplishments of the educated work force and to fix for the contingency of a falling work force in coming decennaries, presuming no alterations in population tendencies. The fabrication sector that has been extremely labor-intensive will hold to switch to more technology-intensive procedures.

Second, even attempts to do the economic system more domestic-consumption oriented will be challenged by the falling population of immature people. China ‘s sustained economic growing, hence, requires alterations in economic and population policy.

Chinese policy shapers are already cognizant of these challenges. Along with economic alterations, China will necessitate to raise the age of retirement, increase disbursement on health care and pensions and loosen up the one-child policy.



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13. U.S. Bureau of Labor Statistics, “ International comparings of hourly compensation costs in fabrication, 2008, ” August 26, 2010. Retrieved from hypertext transfer protocol: //www.bls.gov/news.release/pdf/ichcc.pdf. Erin Lett and Judith Banister, “ China ‘s fabrication employment and compensation costs: 2002-06, ” A Monthly Labor Review, April 2009, p.35. Retrieved fromA www.bls.gov/opub/mlr/2009/04/art3full.pdfA

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19. Sheiner, Sichel, Slifman, “ A Primer on the Macroeconomic Implications of Population Aging, ” Finance and Economics Discussion Series, Divisions of Research and Statistics and Monetary Affairs, Federal Reserve Board, Jan. 2007. Retrieved from hypertext transfer protocol: //www.federalreserve.gov/pubs/feds/2007/200701/200701pap.pdf

20. Lee, Mason & A ; Park ( Aug. 2011 ) , “ Why Does Population Aging Matter So Much for Asia? Population Aging, Economic Security and Economic Growth in Asia ” , ERIA Discussion Paper Series. Retrieved from hypertext transfer protocol: //sites.asiasociety.org/asia21summit/wp-content/uploads/2010/11/Why-Does-Population-Aging-Matter-So-Much-for-Asia-Take-excerpt.pdf