Aggregate Behaviour of Investment in China, 1953-96 : An Analysis of Investment Hunger and Fluctuation

by Laixiang Sun

• ISBN13: 9780333948095
• ISBN10: 0333948092
• Format: Trade Book
• Copyright: 2001-08-25
• Publisher: Palgrave Macmillan

Summary

In China, aggregate investment levels have been high and the cycles of investment growth rate have been remarkable. In order to reveal the mechanisms which drive investment hunger and cycles, this book develops an integrated growth-cycle framework which integrates the standard theory of socialist economies, the distributive barrier-constrained growth theory of developing economies, and the recent technical progresses in the western business cycle theory. It also analyzes the evolutionary dynamics of China's state investment system and the policy trade-off between industrial expansion and agricultural development.

Author Biography

Laixiang Sun is an economist at the International Institute for Applied Systems Analysis, Laxenburg, Austria, and Senior Research Fellow, the Guanghua School of Management, Peking University.

Table of Contents

List of Tables and Figures	ix
Preface	xii
Introduction	1	(28)
Key Questions	1	(2)
Growth Cycle Model	3	(5)
Background	8	(7)
Cycles or Fluctuation?	15	(5)
Methodological Issues	20	(4)
Scope and Notes on the Database	24	(3)
Organization of this Book	27	(2)
Integrating Selected Theories Based on China's Experiences	29	(42)
Introduction	29	(2)
Incorporating the Investment Cycle Theory of the 'Hungarian School' With China's Experiences	31	(14)
Soft budget constraint, expansion drive and investment hunger	31	(4)
Bauer's four-phase theory and China's investment cycles	35	(3)
Single Control Equation model and the relevant problems	38	(7)
Kaleckian Economic Growth Theory and China's Capital Accumulation Mechanism	45	(12)
The causality line: From Growth rate to investment to saving to bottleneck constraints	45	(3)
Generalizing the Kaleckian labour constraint equation to a key factor constraint equation	48	(3)
China's capital accumulation mechanism and Kaleckian agricultural-determining growth theory	51	(4)
Equilibrium growth path and fluctuations	55	(2)
Existing Researches on China's Investment Cycles	57	(6)
The efforts to link investment cycles to agricultural fluctuations	57	(2)
Reform cycle theory and the persistence of substitution between growth and bottleneck	59	(4)
Insights from Western Business Cycle Theories	63	(6)
Summary: The Implications for Modelling Investment Cycles in China	69	(2)
The State Investment System and Its Response to Reform	71	(41)
Introduction	71	(1)
A Historical Overview of the State Investment System	72	(7)
The Project Approval System and Project Approval Norms	79	(5)
The project approval system: Formal procedure versus real practice	79	(3)
Project approval norms and locality's evasion by collusion	82	(2)
Credit Plan and Government Control Over Financial Resources	84	(13)
Investment plan, credit plan and mandatory loans	84	(2)
Central Government investment hunger and key state projects	86	(3)
Lending outside the credit plan	89	(1)
Adjustments of nominal interest rates and patterns of real interest rates	90	(5)
Recurring cycle of inflation and retrenchment during the reform period	95	(2)
The Material Supply System	97	(5)
Material Supply system: Function and Characteristics	97	(3)
Declining importance and its special focus since reform	100	(2)
Soft Budget Constraint and Investment Hunger in State-owned Enterprises	102	(4)
The Development Drive and Investment Hunger of Local Governments	106	(3)
Summary: Insatiable Investment Demand Exists at all Levels	109	(3)
Agricultural Constraint to the Insatiable Investment Demand	112	(50)
Introduction	112	(2)
Contribution of the Agriculture of the National Economy	114	(4)
The Change of Factor Proportions in China's Agriculture	118	(4)
The Specific Institutional Setting to Help Minimize Agricultural Fluctuation	122	(2)
Selection of Indicator System	124	(6)
Agricultural Fluctuations and Macroeconomic Adjustment: Empirical Evidence	130	(19)
Agricultural Fluctuations and Macroeconomic Adjustment: Stylized Facts	149	(7)
Summary	156	(6)
Data Appendix	158	(4)
Energy as the Representative of Producer Goods Constraints	162	(26)
Introduction	162	(4)
Energy Situation in China: An Overview	166	(8)
Widespread and Chronic Shortage of Energy in China	174	(5)
Transport Bottleneck and Effective Energy Supply	179	(5)
Energy Constraint to Investment Demand: Some Primary Econometric Evidence	184	(2)
Summary	186	(2)
Estimating Investment Functions Based on Cointegration	188	(33)
Introduction	188	(1)
Unit Roots, Equilibrium Relationship and Error Correction Mechanism	189	(3)
Modelling Strategy and Steps: A General Framework	192	(3)
Estimate of Cointegration and Investment Level Equation	195	(7)
Estimate of Conditional Investment Growth Rate Equation	202	(3)
Theoretical and Empirical Implications: A Summary	205	(16)
Appendices	208	(1)
Data	208	(2)
Cointegration analysis of the vector system	210	(7)
Exogeneity	217	(4)
Conclusions	221	(25)
Introduction	221	(1)
Major Theoretical Contributions of the Research	222	(3)
Aggregate Investment Behaviour in China: Stylized Facts	225	(7)
System-Generated insatiable investment demand exists at all levels	225	(4)
Supply and distributive barriers to investment expansion and retrenchment campaigns	229	(3)
Inefficiency as a Consequence of Investment Hunger and Bureaucratic Coordination	232	(3)
The Difficulties and Possible Selections of Reforming the State Investment System	235	(6)
Limitations of the Research	241	(1)
Summary	242	(4)
Notes	246	(14)
Bibliography	260	(22)
Index	282