China Human Capital Index Report 2009
Executive Summary
In this project we estimate China’s human capital stock from 1985 to 2007 based on the Jorgenson-Fraumeni lifetime income approach. An individual’s human capital stock is equal to the present discounted value of all future income it can generate. In our model human capital accumulates through formal education as well as on-the-job training. The value of human capital is assumed to be zero upon reaching the mandatory retirement ages.
China’s total real human capital increased from 26.98 billion yuan in 1985 (base year) to 118.75 billion yuan in 2007, implying an annual growth rate of 6.78%. In particular, annual growth rate increased from 5.11% during 1985-1994 to 7.86% during 1995-2007. Per capita real human capital increased from 28,044 yuan in 1985 to 106,462 yuan in 2007, implying an annual growth rate of 6.25%. The annual growth rate also increased from 3.9% during 1985-1994 to 7.5% during 1995-2007. Therefore, although population growth contributed significantly to the total human capital accumulation before 1994, per capita human capital growth has become the primary driving force after 1995.
Since human capital accumulation is slower than GDP growth and physical capital accumulation, the ratio of human capital and GDP has declined from 30 in 1985 to 18 in 2007; while the ratio of human capital and physical capital has declined from 16 in 1985 to 11 in 2007. Although these values are not far away from those obtained in studies on other countries, they certainly raise questions about what, if there is any, are the optimal values for sustainable economic growth.
By 2007, total male human capital is about twice of total female human capital, and this gap is only slightly larger than 1985. However, female per capita human capita is nearly 90% of male per capita human capita in 2007, indicating that most of the gap in total human capital can be attributed to population difference. Rural total human capital was greater than that of urban in 1985, but urban overtook rural in the early 1990s, and by 2007 urban total is about twice of rural total. Urban per capita human capital increased from 47,874 yuan in 1985 to 154,803 yuan in 2007, while rural per capita human capital increased from 21,856 yuan to 66,164 yuan. The urban-rural gap has increased by about 10%.
In our projection from 2007 to 2020, total human capital will grow at a much lower rate of 0.61%. Urban total human capital will continue to rise, while rural total human capital will slowly decline. Per capita human capita, however, will remain constant in the rural area, and only have small growth in the urban area.