Understanding China’s Development Potential
Professor Justin Lin Yifu Interprets Policy and Economics from the Two Sessions: Understanding China’s Development Potential
Whether you’re raising a Pekingese dog or a Tibetan mastiff, they were both very small when they were young, about the same size, and both looked like little lions. If you raise a Pekingese dog, no matter how hard you work, it is impossible to raise a big Tibetan mastiff; but if you raise a Tibetan mastiff as a Pekingese dog, it is really possible to raise it as a small Pekingese dog. This is because the growth potential of the Pekingese Dog and the Tibetan Mastiff is quite different. So it is very important to spot the potential.
How should we look at the future development potential of our country?
From the reform and opening up in 1978 to 2020 , the average annual growth rate of China’s economy was 9.2% . Never in human history has any country or region sustained such a high growth rate for so long. We have all witnessed and participated in this miracle in human economic history.
All walks of life are very concerned about the future, but the current domestic and foreign academic circles and public opinion circles are generally not optimistic about China’s future development potential. In summary, there are roughly two reasons:
One reason is that China has developed too fast in the past 42 years , whichis abnormal and always has to return to normal growth. According to the view of the internationally renowned economist, former U.S. Treasury Secretary, and Harvard University President Summers, China will fall back to 3%-Normal growth of 3.5% . At the same time, according to research data released by the tenth edition of the World Table of the University of Pennsylvania , China ‘s per capita GDP at the end of 2019 has reached US$14,129 based on the purchasing power parity of US dollars in 2017 . Some scholars compare this figure with Germany, Japan, Germany, found 16-yearaverage annual growth rate after reaching about $ GDP14120 per capita ofonly 2.3%; after 16 years, the average growth rate of Japan to achieve this level of only 4.4%. The economic development of Germany and Japan is world-renowned. After 16 years the average growth rate since they arrived at this level only 2.3% and 4.4%, China 2019-2035 growth potential of this 16-year period will not be very high. This reasoning sounds reasonable.
Another reason is that China has already begun to age.
After the aging of the population in other countries, economic growth has slowed down, and China will inevitably slow down its economic growth.
The above research seems very convincing, but I personally disagree. This is because there are many factors for China to achieve an annual growth rate of9.2% in the past 40 years , but the most important decisive factor is to make full use of the advantages of latecomers contained in the industrial technology gap with developed countries in the process of economic development.
For a country or region, if the economy wants to develop and the standard of living needs to be improved, it must rely on the continuous improvement of labor productivity. This requires continuous technological innovation and continuous industrial upgrading. The technology and industry of developed countries are at the forefront of the world, and their technological innovation and industrial upgrading must be invented by themselves. The investment is very large, the risk is very high, and the rate of progress is very limited. Historical experience shows that the normal growth of developed countries in the past 100 years is the What Moss said is 3%-3.5% per year . However, developing countries can take advantage of the industrial and technological gap with developed countries and introduce mature technologies as a source of technological innovation and industrial upgrading. The cost and risk of this approach are relatively small. Developing countries that know how to use this method can develop their economies faster than developed countries. After the reform and opening up, China became one of the thirteen developing economies that knew how to use this advantage to achieve 7.0% or more per year for 25 years or more after World War II .
Therefore, from this perspective, the future development potential of China depends not on the current income level, but on the gap between China and the developed countries represented by the United States.
Take Germany and Japan, for example, Germany’s per capita GDP of about $14120 in 1971, when the United States has a 72.4% level of GDP per capita,has undoubtedly among the most developed countries in the world, we have exhausted latecomer advantages, To carry out technological innovation and industrial upgrading, we must invent ourselves, and the economic growth rate will naturally slow down. Japan’s per capita GDP reached approximatelyUS$ 14,120 in 1975. At that time , its per capita GDP reached 69.7% of the American per capita level . It has also become one of the most developed countries in the world. Technology has reached the forefront of the world, and economic growth must rely on its own invention and development. Of course the speed will also slow down.
China’s per capita GDP (PPP) reached US$ 14,129 in 2019 , but only 22.6% of the US level in the same period .
In contrast, when did other countries such as Germany, Japan, South Korea, etc., have developed better, when their per capita GDP reached 22.6% of that of the United States ? Germany was in 1946 , Japan was in 1956 , and South Korea was in 1985 . Germany from 1946 to 1962, for 16 years the average economic growth rate reached 9.4%; Japan from 1956-1972, the average economic growth in 16 years to reach 9.2%; South Korea from 1985to 2001 between, during the suffered the Asian financial and economic crisis Under the condition of one-year negative growth , the average growth rate in16 years is still as high as 9.0% .
Judging from these data, China should also have about 9% growth potentialin the next 16 years (from 2019) , because Germany, Japan, South Korea and other countries have already achieved it.
In this regard, many people have begun to emphasize the second reason, that is, the aging of the population affects the economic growth rate. Indeed, countries facing an aging population have slower economic growth. But don’t forget that most countries with population aging are developed countries. When aging comes, their technology has developed to the forefront of the world. Technological progress must be invented by oneself, and the rate of labor supply will be superimposed on it, and economic growth will be even slower. .
China is experiencing an aging population, but our per capita GDP is only 22.6% of that of the United States . Technological innovation and industrial upgrading can take advantage of latecomers, and we can also allocate labor from low-value-added industries to high-value-added industries to increase labor productivity. The space is still very large. Therefore, if China can take advantage of latecomers, even if its population does not grow, it can grow faster than developed countries.
In addition, China is currently gradually extending the retirement age, which is conducive to increasing labor supply. Moreover, the most important thing about the labor force is not only quantity, but quality. China can also improve per capita efficiency.
Let’s compare the population growth of Germany, Japan, and South Korea in the 16 years after the per capita GDP reached around US$ 14,100 , and look at the contribution of demographic factors to economic growth.
Germany ’s average annual population growth from 1946 to 1962 was 0.8% ; Japan ’s average annual population growth from 1956 to 1972 was 1.0% ; South Korea ’s average annual population growth from 1985 to 2001 was0.9% . China ‘s natural population growth rate in 2019 is 0.3% , and it may drop to 0% in the future . Therefore, even if we do not consider the possibility of distributing labor from low-value-added industries to high-value-added industries, and the possibility of extending retirement and improving the quality of education, the population growth factor of China and Japan, Germany, and South Korea is at most A difference of 1 percentage point.
Potential Growth Rate of 8% by 2035
Therefore, by 2035 , China should still have an average annualgrowth potential of 8% . Compared with the actual 9% growth in Germany, Japan and South Korea , I consider the population growth factor and reduce it by one percentage point.
Of course, to have this growth potential does not necessarily have to be fully developed regardless of other factors, because what China wants to achieve is high-quality growth, and it must then solve environmental problems such as carbon peaks, carbon neutrality, urban-rural gaps, regional gaps, etc. The problems must be resolved, and there is also the “stuck neck” problem caused by friction in Sino-US relations, which must be overcome by innovation on our own. Considering these issues that must be dealt with, as well as the 8% growth potential, I judge that it is entirely possible for China toachieve an average annual real growth of 5%-6% in the next 15 years ( 2021-2035 ) .
The General Secretary mentioned in his recommendations on the “14th Five-Year Plan” and 2035 long-term goals that by 2035 , China will strive to double the size of China’s GDP on the basis of 2020 , or strive to double the per capita income on the basis of 2020 . Regardless of which goal is achieved, an average annual economic growth rate of 4.7% needs to be achieved from 2021 to 2035 .
If China can achieve a growth rate of 5-6% , by 2025 , the current exchange rate per capita will cross the threshold of US$ 12,535 and become a high-income country. This will also be a historic moment. Because until now, the world’s population living in high-income countries only accounts for 18% of the total population. If China becomes a high-income country, this number will double.
By 2035 , China’s per capita GDP (current exchange rate) should be above US$ 23,000 ( calculated based on the purchasing power of US dollars in2019 ), and it will become a modern socialist country.
Using the same method described above (from the perspective of the gap in the industry and technology level represented by the income level gap), we can find that China still has an average annual growth potential of 6%between 2036 and 2049 , and considering that there are still many The issues that need to be addressed, it is entirely possible to achieve an average annual growth rate of about 4% . Based on this calculation, China’s per capita GDP will reach half of that of the United States by 2049 , which is an important indicator of the great rejuvenation of the Chinese nation.
Development is the key to coping with international changes
Faced with a major change in the world unseen in a century, we must first think about why this change occurred. The economy is the foundation. Let’s look at the development and changes of the economy.
In 1900 , the Eight-Power Allied Forces attacked Beijing, including Britain, the United States, France, Germany, Italy, Russia, Japan, and the Austro-Hungarian Empire. The GDP of these eight countries combined accounted for50.4% of the world’s total in terms of purchasing power parity . The Austro-Hungarian Empire collapsed after the First World War and divided into two countries. Later, the Canadian economy grew rapidly. By 2000 , the Group of Eight (referred to as G8 , the United States, the United Kingdom, France, Germany, Italy, Russia, Japan, and Canada) ) GDP accounts for 47% of the world in terms of purchasing power parity . In other words, the international political economy of the entire 20th century was dominated by these eight developed countries.
By 2018 , the General Secretary put forward “a major change unseen in a century” at the Central Foreign Affairs Work Conference. The background is that the G8’s GDP share in the world has dropped to 34.7% , and it has changed from half of the world to a third of the world. It is difficult to continue to be the dominant force in the world. So it can be seen that as early as 2008when the international financial and economic crisis broke out, the “G8” that dominated world affairs became the “G20”.
Two countries have the greatest impact on this change, one is the United States and the other is China. In 2000 , the United States accounted for21.9% of the world’s GDP in terms of purchasing power parity , but in 2014 China surpassed the United States to become the world’s largest economy. The current GDP of the United States accounts for about 16% of the world’s GDP , and China is even higher than that. These facts show that the influence of the United States is declining, and the influence of China is increasing. In this regard, the American political powers, intellectuals, and policy research circles all see it in their eyes. Therefore, when Obama was in power, he proposed the strategy of “returning to the Asia-Pacific”. After Trump took office, he launched a trade war and a technology war. After Biden came to power, I guess it was “changing the soup without changing the medicine.” This kind of exchange of the positions of the world leader and second child, of course, caused tension between the two countries, and at the same time brought a lot of uncertainty to the world, so it is “a major change unseen in a century.”
If China can tap the development potential and realize the development speed obtained from the previous analysis, by 2049 , China’s per capita GDPwill reach 1/2 of that of the United States , and China’s population is four times that of the United States, so the total economic scale will be twice that of the United States. .
Among them, Beijing, Tianjin, Shanghai and the five eastern coastal provinces (Shandong, Jiangsu, Zhejiang, Fujian, and Guangdong) have a population of a little more than 400 million. I believe that the per capita GDP and economic scale of these regions will reach the same level as the United States by 2049. . GDP per capita represents the average labor rate level and the average technology industry level. By then, the areas where the United States can hold China’s neck are basically gone. China has a population of 1 billion in thecentral and western regions , and its per capita GDP is only one-third of that of the United States . Its economic scale is comparable to that of the United States. These regions are still catching up, and their economic growth can be faster. Therefore, the economic growth of China as a whole can be faster.
In this situation, I think the relationship between China and the United States may change from tension to relaxation. Because first, by that time, the United States will not have any areas that can hold China’s neck; second, China’s economic aggregate was twice that of the United States at that time, and the United States cannot change this fact no matter how unhappy it is. Third, China’s economic growth is fast. It is the largest market in the world. For the US economy to develop well, it must be necessary for its own employment and prosperity.
This situation has historical experience. Japan was one of the eight-nationcoalition forces in 1900. In 2000 , Japan was the only country in Asia that entered the “Group of Eight”. Japan was the leader of Asia in the entire 20thcentury. However, in 2010 , China’s economic scale surpassed that of Japan, and its influence was rising. Japanese rightists felt a great sense of loss, so problems such as the Diaoyu Islands were created, and Sino-Japanese relations became tense. Recently, Sino-Japanese relations have eased. The reason is that China’s economic scale is already 2.8 times that of Japan. No matter how unhappy it is, it can’t change this fact. Japan’s economic development depends on the Chinese market, and the relationship between China and Japan tends to win-win.
In the “14th Five-Year Plan” and the 2035 long-term goal outline, it is mentioned that development is the foundation and key to solving all the problems in our country. At the same time, it is also mentioned that China’s development is still in an important period of strategic opportunities, and continued development still has many aspects. Under the premise of ensuring the obvious improvement of quality and efficiency, we must give full play to our growth potential. If we can follow the recommendations of the central government, follow the policy guidance of the “14th Five-Year Plan” and the 2035 long-term goal outline, I believe that we can overcome the middle-income trap and build China into a modern socialist country by 2049and realize China. The goal of the great national rejuvenation can also control the changes unseen in a century and rebuild a new, stable and shared prosperity for the world.
Chinese are five IQ points smarter than Americans and twice as hungry to regain their nation’s place at the center of the world. Their kids are better educated than our kids and their economy is better designed and regulated. Their trust in their government is 400% higher than ours and every Chinese worker has doubled his income every ten years since 1975. China leads the world in critical technologies like Speech Recognition, Graphenics, Thorium power, Pebble Bed Reactors, Genomics, Thermal Power generation, Supercomputing, Quantum Communication Networks, ASW Missiles, In-Flight Satellite Refueling, Naval Guns, Passive Array Radar, Metamaterials, Hyperspectral Imaging, Nanotechnology, UHV Electricity transmission, Electric Vehicles, High Speed Rail, Radiotelescopy, Hypersonic Space Weapons and Satellite Quantum Communications.
China also has the world’s best economists who, instead of theorizing, actually run the economy and take responsibility for it. As a result their economy is growing exponentially – unofficially it will be 50 percent bigger than the USA’s next year – and its people are united behind clear, agreed-upon plans for the next 5–50 years. The Chinese are the most optimistic people on earth and you can see why:
What about sustainability? Can this momentum be sustained and, if so, for how long? Let’s look at moderately prosperous, C0nfucian South Korea: part of a divided peninsula with little natural endowment. Its GDP/capita is $27,000 and barely growing. China’s is $8,000 and growing at 6.5%. How possible is it that China can continue growing to reach $16,000?