China’s Race-to-the-Bottom Growth Model:A Case Study of Vehicle Overloading and Highway Tolls
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| Title | China’s Race-to-the-Bottom Growth Model:A Case Study of Vehicle Overloading and Highway Tolls
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| Author | Tang Xiang |
| Organization | School of Economics, Peking University |
| Email | tangxiang_pku@163.com |
| Key Words | Export-led Growth; Race to the Bottom; The RMB Real Exchange Rate; Macro-tax Burden |
| Abstract | This paper explores the political economy of China’s export-led growth using a simple numerical model. We argue that since the 1990s China’s export-led growth strategy has gradually turned into a model that largely relies on “racing-to-the-bottom” (RTB) – strategic lowering of production standards – for achieving cost-competitiveness and income growth, a so-called “RTB growth model”. RTB has led to spurious total factor productivity growth and undervaluation of the RMB real exchange rate, spurring export and fueling strong growth in national income which we call “RTB-rent”. However, this RTB-rent largely accrues to the government and government-related special interest groups with stagnant real wage growth, as reflected by China’s heavy macro-tax burden and severe income inequality. The skewed income distribution in turn helps to maintain the undervalued real exchange rate by depressing internal consumption demand. If RTB is eliminated, then the existing level of China’s macro tax burden will almost certainly cause a spike in the RMB real exchange rate, jeopardizing its export-led growth. Our case analysis of vehicle overloading and highway tolls in China confirms the above theorizing. |
| Serial Number | |
| Time | 2013-06-26 |
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