Challenges Of Book Review Structure Transformation

      There are two famous facts about economic development and industrial structure change: one is named "Kuznets fact" according to Kuznets, which describes that with the development of economy, the proportion of agriculture in the economy gradually decreases, while the proportion of industry and service industry continues to rise; The other is the "Post Industrialization fact" defined by bell, which describes that when the economy develops to a more developed level, the proportion of industrial sector will gradually decline, while the service industry will gradually become the main sector of the economy. Herrendorf and his collaborators have extensively studied the data of industrial structure changes of various countries in the United States. Basically, it can be verified that the added value of industrial sector and the proportion of labor force in the process of economic development present an "inverted U-shaped" structural change process that first rises and then decreases, This is a common phenomenon in the process of structural change in various countries in the world.

      The proportion of China's industrial and manufacturing sectors in GDP has declined significantly in recent years. Compared with the high point before and after 2007, the proportion has decreased by about 10 percentage points, which has aroused widespread concern in academic and policy circles. As far as I know, Zhang Bin may be the first scholar in China to make a clear judgment on the turning point or critical point of China's manufacturing industry (industry) share in the process of "inverted U-shaped" structural change. Based on the comprehensive evidence from purchasing power parity per capita income, consumption expenditure share, demand income elasticity, added value share of industry and service industry, employment share and other aspects, he proposed that China will enter the structural transformation period from manufacturing industry to service industry from 2010 to 2012 at the latest after 2012.

      Of course, according to my personal understanding, the structural transformation period from manufacturing to service industry proposed by Zhang Bin refers to the second half of the process of "inverted U-shaped" structural change of China's manufacturing and industrial sectors, which means that the share of China's manufacturing and industrial sectors will not reach a new high in the future, while the share of service industry in both GDP and employment will accelerate, However, this does not mean that China has entered the "post industrialization period" in which the service industry is dominant. I think most scholars still think that China is in the late stage of industrialization, which is not contradictory to the concept of transition from manufacturing industry to service industry proposed by Zhang Bin.

      After China has entered the structural transformation period from manufacturing industry to service industry, the peak of industrialization has passed. The development of middle and high-end manufacturing industry and producer service industry will become the main force to push China from the late stage of industrialization to the "post industrialization period". In this process, I think we should not easily judge that China's manufacturing and industrial share will decline unilaterally in the future. It is not easy to judge how long the "inverted U-shaped" structural change process of manufacturing and industrial sectors will take, which depends on a variety of factors. Although researcher Zhang Bin judged that the turning point or critical point from ascending to descending has passed, it is also possible that the inflection point or critical point will remain at a relatively high level for a long time. In fact, in the middle and late 1990s, the share of China's industry and manufacturing industry in GDP was also at the highest level in history. With the change of economic cycle, this share decreased, until 2003. After that, with the rapid growth of China's net exports, the share of manufacturing and industry soared again, and rose to the historical high again around 2007. After 2008, the decline of China's manufacturing and industrial share is similar to the decline in the late 1990s, which is greatly affected by the economic cycle. Therefore, we should not rule out the possibility that the manufacturing and industrial shares will rise significantly again with the recovery of the cycle in the future.

      There is a precedent that manufacturing and industrial sectors have been in high position for a long time in the process of "inverted U" structural change. For example, in South Korea, in 2018, its manufacturing industry accounted for 26.64% of GDP, and industry accounted for 34.05% of GDP. In fact, this proportion has not changed significantly since the 1980s. Another example is Germany. In 2018, its manufacturing industry accounted for 20.08% of GDP, and industry accounted for 27.38% of GDP, which was virtually the same as that of Germany in 1998 and 2008.

Many studies at home and abroad show that the development of manufacturing industry is the main engine of economic growth. Based on a large number of data, Denny Roderick, a development economist at Harvard University, has shown that the manufacturing sector has obvious growth convergence characteristics, that is, the development speed of manufacturing industry in developing countries is higher than that in developed countries, while the non manufacturing sector does not. Roderick further proposed that developing countries should focus on the development of manufacturing industry. Economies with comparative advantages in manufacturing or with relatively large proportion of manufacturing industry tend to have better growth performance. Therefore, although the peak of China's industrialization has passed, we should still try our best to maintain a high share of manufacturing and industry. The longer the inverted U-shaped structural change process goes up and down, the better, or at least the decline curve of manufacturing and industrial share should be smoothed as much as possible.

        Of course, there are great challenges in achieving this goal. We should be soberly aware that China's savings rate is still as high as 43%, and there are sufficient factors to guarantee the improvement of manufacturing and industrial production capacity. The root cause of the stable share of China's manufacturing industry and industry lies in the demand side, and both domestic and foreign demand have encountered challenges. Therefore, it may be counterproductive to support the development of manufacturing industry and industry with the industrial support policy in production area as the main means. In my opinion, to maintain a high share of manufacturing and industry, we should focus on solving the problem of insufficient domestic demand of China's manufacturing and industry, which requires timely adjustment of the coordinated development relationship between manufacturing and service industries according to the development stage.

      The consumption structure is endogenous. With the increase of income level, consumers will turn more to service products, which is an objective law. However, there is obvious supply inhibition in some areas of service industry in China. The supply inhibition policy of service industry can guide the flow of production factors to the manufacturing sector and further expand the production potential of manufacturing industry. However, the adverse effect is that the supply capacity of the service industry is insufficient. The rising price of service products will squeeze the consumer's ability to consume the manufacturing products, which will squeeze and restrain the expansion of domestic consumption of manufacturing products. Thus, the mismatch of supply and demand structure of the expansion of production potential of the manufacturing sector exceeds the domestic consumption demand, resulting in the excessive dependence of the development of the manufacturing industry on the international market. Therefore, in my opinion, the most fundamental thing at present is to intensify the structural reform of the supply side, remove the policy of restraining the supply of the service industry, and reorganize the harmonious development relationship between the manufacturing industry and the service industry in the new environment and development stage, so that the market can play a decisive role in regulating the supply structure of the manufacturing industry and the service industry, We should eliminate the squeezing effect of insufficient supply capacity and rising prices in some fields on the consumption of manufacturing products, so as to release the domestic demand potential of manufacturing products and reduce the excessive dependence of China's manufacturing and industrial sectors on foreign demand.

      Another way to maintain a high share of China's manufacturing industry and industry is to continue to tap the demand capacity of the international market for China's manufacturing and industrial products. Under the current environment, China can promote the export of manufacturing products by expanding imports. In China's agricultural and natural resources mining industries that do not have comparative advantages, those that can be imported should be imported as far as possible. In this way, on the one hand, more production factors will be released in the non manufacturing field, which will help to reduce the production cost of manufacturing industry and enhance the competitiveness of manufacturing industry; On the other hand, only by continuously expanding imports can we cultivate the purchasing power of other countries, especially small and medium-sized developing countries, so as to promote the export and market share of China's manufacturing products. With China's super large-scale economy, actively expanding the import of non manufacturing industries will strengthen the comparative advantages of other countries in the field of non manufacturing industries, and then consolidate China's comparative advantages in the field of manufacturing industry. In the long run, it will certainly help to enhance China's national competitiveness. This initiative to expand imports to promote China's manufacturing exports, based on the premise of balance of payments, will not increase the dependence of China's economy on the international market and foreign demand. It can be more deeply bound with the markets of other countries in the world, and is more conducive to ensuring China's economic security.

      In the structural transformation period from manufacturing to service industry, in addition to maintaining a high share of manufacturing industry as much as possible, another challenge is how to avoid "Baumol disease". American scholar William Baumol put forward in the 1960s that the economy will face the problem of whether to enter the service industry or stagnant service industry after entering the structural form dominated by the service industry. If it is unfortunate to enter the stagnant service industry, the slowdown of economic growth will be inevitable, resulting in "Baumol disease" defined by later scholars. A recent study by hernandorf and his collaborators shows that most of the economies in the world, including developed countries, can not avoid "Baumol's disease", with the exception of the United States. Therefore, when the United States enters the "post industrialization period" dominated by the service industry, the economic growth rate has not decreased significantly, This pushed the United States to significantly widen the per capita income gap with other developed economies such as Europe and Japan after the 1980s.

As far as China is concerned, we still have the conditions to delay the decline of manufacturing and industrial shares as much as possible, and continue to play a good role in the engine of growth of manufacturing industry. However, in the medium and long term, China needs to avoid Baumol disease effectively. Hernandorf did not give a theoretical explanation of why the United States can avoid "Baumol disease". The research on this issue is still in progress. The academic circles in China should pay close attention to the latest progress on this issue.

      In his works, Zhang Bin made a more comprehensive and in-depth discussion on various problems faced by China after entering the structural transformation period from manufacturing industry to service industry. He paid special attention to the adjustment of monetary policy and macroeconomic policy in the period of structural transformation. In this regard, I have the honor to co publish a theoretical paper with Zhang Bin in the Journal of China Social Sciences, which focuses on the strategy of expanding domestic demand in the period of structural transformation from the perspective of fiscal policy transformation. It's a great honor that our cooperative paper has become one of the contents of this book. I believe that Zhang Bin's work will play a positive role in promoting the understanding of various deep-seated problems in China's structural transformation period and enhancing their interest in the study of structural transformation and its policies.