Asia Economics Blog

Around 7,000 years ago in today’s East Africa, the donkey, equus asinus, was domesticated, marking a turning point in human productivity and mobility. To the present day, the donkey plays a vital economic role on the African continent, especially in remote and impoverished areas.

Around 3,000 years ago in today’s Dong’e County of China’s Shandong Province, an elixir for youthful vigor and feminine beauty, ‘ejiao’ (阿胶), or ‘donkey gelatin’, was concocted. The key ingredient in ejiao is donkey hide collagen.

Co-authors: Wong Koi Nyen; Goh Soo Khoon

A large and young labor force has been instrumental in China's economic growth for several decades. The age structure of the population is shifting, however, with the population in the working age range of 15 to 64 declining steadily since 2015. A decades-long fertility rate of below replacement level and increasing life expectancy have produced a dramatic ageing of the population. Despite the government's introduction of pro-birth policies, the fertility rate remains low in 2023 at 1.7 per woman. The shrinking workforce is putting upward pressure on wages causing China to lose the low-cost advantage that has propelled its growth for so long. The rapid “graying” of the workforce over the next decade raises concerns about the future pace of economic growth. Such concerns were galvanized in 2022 when China's population declined year on year from 1.4126 billion to 1.4118 billion.

Co-authors:  John R. Birge; Zi'ang Wang; Jing Wu
 
This post draws from a paper to be presented in the ACAES session on Asian Economies in Global Supply Chains at the 2023 Allied Social Science Association Annual Meeting, program here.

The vulnerability of global supply chains and their impact on the economy has become a central issue during the current COVID-19 pandemic. While global supply chains allow firms to outsource production more cost effectively, they also expose firms to developments in the local economies where supply chain partners are located. During the recent COVID-19 pandemic, countries took measures to contain the pandemic through shutdowns and social distancing mandates. These measures created disruptions for local firms and their supply chain partners located in different regions. Disruptions in supply chains adversely affected production for downstream firms, and financial flows for upstream firms, creating major vulnerabilities for firms connected within a production network.

Oxford University Press, May 2020.

As much as China's crash has been predicted, someone needed to explain why it hasn't happened. And no one could be more credible in doing so than Tom Orlik who has reported insightfully on China since 2011, first with the Wall Street Journal, then with Bloomberg where he is now Chief Economist. 

This post follows up on my review of Tom Orlik's wonderful book "China: The Bubble that Never Pops". The book explains why constant predictions of China's economic collapse due to mounting debt and financial risk have not been borne out, and the explanation is altogether compelling. My one quibble with the book regards Orlik's view of the underlying driver of the saving/consumption imbalances that motivated debt driven stimulus. Orlik emphasizes China's one-child policy as the source of the imbalances, going so far as to call it China's original sin in an interview. The argument is that with China's weak social welfare system, having only one child makes for insecurity about old age that induces parents to save more during their working years. I'm not convinced that this holds up as a reason for China's imbalances. Let me hasten to add that, regardless, the book's original contribution in explaining why no crash has occurred holds up very well. The source of the imbalances is a separate issue, but one worth pursuing in its own right.

There is a sense in which I agree that the one-child policy has been a factor in China's high saving. The exceptionally sharp decline in the birth rate in China's case accentuated the demographic transition that is common among countries during economic development. A couple of decades on, the drop in the birth rate brings a bulging labor force relative to a shrinking share of old and young age dependents in the population. Per the life cycle hypothesis of Modigliani (1970), saving is done by those in their working years who generate income whereas the young and old consume without producing any income from which to save. The decline in China's dependent share was particularly steep in the 2000-aughts and relatedly, so was the rise in the saving rate, as shown by Bonham and Wiemer (2013). So while the one-child policy mattered, it did not matter until two decades after it was introduced and not because it prompted precautionary saving to provide security in old age but because of the long-run demographic forces it intensified.

In the book Capitalism and Inclusion under Weak Institutions, reviewed in a previous post, author Raul Fabella points to a lack of social coherence in the Philippines as undermining economic progress and contrasts this with the Chinese case where "a strong sense of identity and mission" has propelled phenomenal economic growth. Judging by differences in receptivity to the statement "most people can be trusted", Fabella may be onto something. Survey results presented in Figure 1 show 62.7% of Chinese agreeing with this statement versus just 2.8% of Filipinos. Personally, I am mystified by these results having spent many years in both countries and not finding Filipinos any less trustworthy than Chinese. Yet the results do lend credence to Fabella's thesis.

Co-authors: Fushu Luan; Ming He; and Donghyun Park 

This post draws on a paper presented at the Allied Social Science Association Annual Meeting in a session sponsored by the American Committee on Asian Economic Studies on "Economics of Innovation in Asia", 3 January 2021, video here.   

China has long gotten a bad rap on currency manipulation. The fact is, however, that China is no different from other East Asian economies when it comes to exchange rate management.

The essence of the East Asian model is to steer the exchange rate along a steady long-run course, erring toward undervaluation in the face of uncertainties about the future. Any perception of overvaluation runs

Routledge, May 2021.

Isabella M. Weber’s “How China Escaped Shock Therapy” is a painstakingly researched but fundamentally flawed account of one key thread of the economic reform debates that took place in China during the 1980’s. For those who are already familiar with those debates it is a useful and often engrossing account of the nitty gritty details of the process by which price policy was determined. For those who are not familiar, the flawed underlying argument of the book poses the risk of creating considerable misunderstanding.

When:  7 April 2022, 1:00pm US Pacific Daylight Time (GMT-7)

Sponsor:  University of California San Diego, 21st Century China Center

When: 20 January 2022, 8:00-9:30pm Hong Kong time (GMT+8)

Sponsor: Hong Kong University of Science & Technology

When:  4 January 2022, 9:00-10:30am US EST (GMT-5)

Sponsor:  International Economic Association

When:  10 November 2021, 4:00pm US Pacific Standard Time (GMT-8)

Speaker:  Barry Naughton, University of California, San Diego

When: 22 June 2021, 5:00pm Hong Kong Time (GMT+8)

Speaker:  Edwin L.C. Lai, Hong Kong University of Science and Technology

When:  27 May 2021, 2:00-3:30pm US EDT(GMT-4)

Author:  Isabella M. Weber, University of Massachusetts Amherst

When:  4 May 2021, 12:30-2:00pm US EDT (GMT-4)

Speaker:  Isabella M. Weber, University of Massachusetts Amherst

When:  29 April 2021, 11:00am-noon US EDT (GMT-4)

Speakers:  Charles Goodhart and Manoj Pradhan, Authors, The Great Demographic Reversal 

When:  4 February 2021, 4:00pm US Pacific Time (GMT-8)

Speaker:  Scott Rozelle, Stanford University

When:  29 January 2021, 10:00am Singapore time (GMT+8)

Speaker:  David Dollar, Brookings Institution

When:  28 January 2021, 3:30-5:00pm US Pacific Time (GMT-8)

Speaker:  Andrew Batson, Gavekal Dragonomics, Beijing, China

When:  22-24 August 2020, 8:30am-- Hong Kong time (GMT+8)

Sponsors: Chinese University of Hong Kong & Tsinghua University

When: 13-15 August 2020, 8:00am-1:50pm US Eastern Daylight Time (GMT–4)

Announcement:  here