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ECX2630-ECX5630 Chinese Economy and Global Business 

Sample Final Exam Paper

Question 1

A recent study used the Theil Index to measure the inland-coastal income inequality in China before and after the economic reform in 1978. The main results are presented in Figure 1, in which the overall income inequality in terms of PCGDP (per capita GDP) is decomposed into within-inland inequality, within-coastal inequality, and inland-coastal inequality.

Three policy variables, namely globalization, decentralization and marketization, are introduced to explain the enlarging regional inequality between the coastal and inland regions, especially during the reform period

International trade and FDI are used as the proxies for globalization (see Figure 2), and non-SOEs production and employment are used as the proxies for decentralization and marketization (see Figure 3).

A. Based on Figure 1, briefly describe the trends of income inequality in China during the pre-reform period and reform period, in terms of overall, within-inland, within-coastal, and inland-coastal disparities [4 marks]

B. Based on Figure 2, explain the contribution of globalization on the overall, within-inland, within-coastal, and inland-coastal income inequalities during the reform period [3 marks]

C. Based on Figure 2, explain the contribution of decentralization and marketization on the overall, within-inland, within-coastal, and inland-coastal income inequalities during the reform period [3 marks]

Question 2

New census data released on 11 May 2021 reveals China's population growth has fallen to its slowest pace since the 1960s (see Figure 1), posing a challenge to the economic sustainability.

As a consequence, it has been projected that China will experience a steep decline in working-age population – which will be accompanied by a sizeable drop in GDP in the absence of dramatic gains in labour productivity. Japan experienced a similar decline in its working-age population and was unable to boost productivity enough to maintain GDP growth in the last two decades (see Figure 2).

A. Identify and explain three (3) population-related factors (the so-called “population bonus”) which have contributed to the success of the economic growth in China in the last 40 years. [5 marks]

B. Improving labour productivity has been mentioned as a key factor to counterbalance the negative impacts of population decline. In 2015, China released its Made in China 2025 plan, which calls for transforming 10 strategic industries into world leaders through homegrown technology innovation. Critically evaluate the Made in China 2025 and explain why this policy has attracted lots of criticism in the international business community. [5 marks]