Industrial Structural Change and Economic Growth in China, 1987–2008

• Author: Jianmin Tang,Jingfeng Zhao
• DOI: http://doi.org/10.1111/cwe.12104
• Date: 01 March 2015
• Published date: 01 March 2015

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China & World Economy / 1–21, Vol. 23, No. 2, 2015

©2015 Institute of World Economics and Politics, Chinese Academy of Social Sciences

Industrial Structural Change and Economic

Growth in China, 1987–2008

Jingfeng Zhao, Jianmin Tang*

Abstract

The present paper studies the sources of economic growth and the nature of structural

change in the Chinese economy from 1987 to 2008. Using a methodology that evaluates the

contribution of an industry to economic growth, the present paper shows that the post-2000

subperiod marked an increased reliance on the services sector as a source of growth in the

Chinese economy. Much of the acceleration in real GDP or aggregate labor productivity

growth in China in the post-2000 subperiod compared to the pre-2000 period can be traced

to an increased contribution from service-producing and high-technology exporting

manufacturing industries. The evidence indicates that the Chinese economy has been

rebalancing toward domestic consumption and shifting its export sector toward high-

technology manufacturing industries.

Key words: aggregate labor productivity growth, economic growth, industry contribution,

industrial structural change

JEL codes: O10, O47

I. Introduction

Since market reforms began in 1978, China has consistently registered an unprecedented

higher economic growth rate compared to both its own past record and those of other

countries. According to the official accounts, for example, the average GDP growth rate

was 9.8 percent from 1978 to 2008, more than double the rate of 4.6 percent from 1952 to 1978

(Wu, 2011).

Many studies have sought to identify the sources of the economic growth (e.g. Zhu,

2012). Most of those studies focus on economic policies, inputs (e.g. physical capital

accumulation and human capital) and technological progress (e.g. multifactor productivity).

*Jingfeng Zhao, Professor, School of Economics and Management, Northwest University, Xi’an, China.

Email: 171545892@qq.com; Jianmin Tang (corresponding author), Chief, Productivity and Trade, Industry

Canada, Ottawa, Ontario, Canada. Email: Jianmin.tang@ic.gc.ca.

2Jingfeng Zhao, Jianmin Tang / 1–21, Vol. 23, No. 2, 2015

©2015 Institute of World Economics and Politics, Chinese Academy of Social Sciences

They attribute economic achievement to the success of China’s implementation of market-

oriented reforms, enterprise ownership changes, human capital accumulation, and the

adoption of a development strategy associated with foreign direct investment and exporting.

The above factors facilitate the industrial structural change of the Chinese economy

and affect economic growth at the aggregate level through their impacts on industries.

Industrialization and changes to industrial structure are vital to economic growth (IMF,

2013) but few studies systematically document industrial structural changes and industry

contributions as the sources of economic growth in China. One exception is Cao et al.

(2009). They estimate industry contribution to economic growth in China in 1982–2000.

Following a traditional formulation of aggregate GDP growth being a weighted sum of

industry value-added growth, they find that primary industry (agriculture) and some

manufacturing industries (e.g. electrical machinery) played an increasingly important role

in economic growth in China over this period. In contrast, they find that the contribution

from service industries diminished.

However, the above findings are inconsistent with the observation that the Chinese

economy is shifting from a focus on primary industry to service industry in terms of output

or employment. We argue in this paper that Cao et al. (2009), by considering only the

quantity effect and ignoring the price effect, underestimate the contribution of industries

with rising output prices and overestimate the contribution of industries with falling output

prices.1

In the present paper, we study the sources of economic growth and the nature of

economic structural change in the Chinese economy from 1987 to 2008.2 In particular, we

estimate industry contribution to two key economic indicators: real GDP growth and aggregate

labor productivity growth.3 In the process, we consider industrial structural change and

the role played by major sectors and exporting industries. In the present study we focus on

exporting industries because exports have been suggested to be one of the most important

factors in China’s economic growth (e.g. Aky

ü

z, 2011).4

1As discussed in detail later on, the quantity effect is due to industry real output growth, while the price

effect reflects the rising importance of an industry in its ability to create/capture economic value.

2When data are available, this study may be extended to compare China with other comparable countries

to see how industrial structure change plays a different role in the economic growth of the countries.

3Real GDP growth is mainly driven by aggregate labour productivity growth over a longer period. These

two aggregate measures are regularly published by national statistical agencies (at least in developed

countries), and have been widely used to assess a country’s overall economic performance and to develop

the country’s monetary and fiscal policies.

4Most of China’s exports currently originate from foreign affiliates located in the country (Sauvant,

2011)