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Will technology prevent China from Lost Decade?
-by Ruxue Bai, Yiyi Ma, Qingyang Yu, Xinyu Lan
Lost Decades• Lost Decade refers to the period from 1990 to
2000 in Japan when it experiences decreasing growth rate and decreasing employment rate.
• Some people argue burst of real estate market bubbles, which may lead to a recession.
• However, bursting asset bubbles do not create recession in most cases.
Example: 1987-‘Black Monday’
Then what cased the Lost Decade?
• The reason of Lost Decade, according to Hayashi (2002), is low productivity growth.
• Technology in Japan is from United States. As U.S. tended to export technology to Korean instead of Japan, productivity growth rate in Japan decreased dramatically.
• Technology Progress Productivity Growth Rate
GDP Growth Rate
Growth Accounting Method
dY/Y = dA/A + 0.33 dK/K + 0.67dL/L
In 1995, Krugman stated that the Asian economic "miracle" was not due to total factor productivity (TFP) growth but rather to intensive use of inputs.
A high growth rate of capital due to the high rates of investment in Asia and a high rate of growth of labor inputs.
Limitations of Krugman’s Research
• Coefficients of China may differ from world average level.
• The research is based on data before 1995, the coefficients may change during the last two decades.
Empirical Study
Growth Rate and Technology
0
5
10
15
20
25
30
35
1995
1997
1999
2001
2003
2005
2007
2009
2011
Hi gh- technol ogyexports (% ofmanuf actured exports)Growth rate
Data Source: World Bank
Other Model
g: growth rate
H: human capital
FRD: foreign R&D
DRD: domestic R&D
Reference
• Lai Mingyong, Peng Shuijun, Bao Qun.(2006) Technology spillovers, absorptive capacity and economic growth.Chinese Economic Review,17 (2006),300-320.
• Mark Purdy.(2013). http://blogs.hbr.org/2013/11/chinas-economy-in-six-charts/
Disruptive Innovation
• Shanzhai• fake, pirate• Cheap• Multifunctional
What Shanzhai phone can do
• Two SIM cards• 1GB RAM• 1280*720 resolution ratio • (Iphone 4: 960*460)• 8 million pixels camera• 1.5GHz (iphone4 0.8GHz)• ¥ 799
Meitu phone (Able to Auto-PS)
How they can do
• Use the same supplier as Apple, Samsung, Nokia…
• Recycle phones. Reuse components.
Scale (Shenzhen)
• Employees: hundreds of thousand.• Companies: 2,000
sale (volume)
oversea sale
domestic maket share
2007
110M 40M 30%-40%
2008
130M 78M 30%-40%
2009
145M 110M
2010
159M
2011
228M
2012
255M
China Military Expense
2014: 808.23 Billion (RMB)2013: 709.631 Billion (RMB)2012: 670.274 Billion (RMB)=$106.182 Billion •RMB 6.3125=$1 GDP 2012= $ 8230 Billion
2011: 602.67 Billion (RMB) 2010: 526.13 Billion (RMB)
Source: National Defense White Paper
12.2%10.7%11.2%
12.7%
Actual Value??? • The Pentagon Secretary of Defense: Military and Security
developments involving PRC (2013)• “Military Transparency”• “R&D”• Actual value 2012: $135-215 Billion VS. $106 Billion
International Institute for strategic study (ISS): 2000 $29.1-43.7 Billion VS. official $14.6 billion
Secret Internet Protocol Router Network(SIPR): 2000 $120-180 Billion based on exchange rate, inflation and purchasing power parity basis
Example for roughly estimate
• 4 Air-Force squadrons: 1 South-West Area 2 Fujian Costal Area 1 Shandong Peninsula 14-16/squadron equipped J-10 fighters
Hide technology
Invisible device
Long-distance quantum teleportation
• Security of Information• Send message under surface
Laser weapon
Ion electric propulsion system• Low usage of fuel• More flexible • More accuracy • …
Offshore drilling new technology
• Offshore drilling waste fluids• Control of pollution• The protection of reservoirs
Japan china
Own technology innovation:
▪Disruptive technology and its extension ▪Independent high technology based on military development
▪Develops industrial technologies on the basis of U.S. fundamental technologies
Tech:
Other mkt fundermental:
▪Particularly in population and property issues.
Conclusion
▪ China will not experienced the “Lost Decade” as Japan
Thanks