(Organized in accordance with the live presentation at the AIMS International Annual Meeting for European Partners,
December 03, 2010)
Good afternoon, ladies and gentlemen!
First of all, I would like to thank AIMS International and DCBF for your invitation to attend this meeting! To many, China has become some sort of focal point in the world economic growth, and China's growth story has become the subject of much debate. As requested, I would be very happy to share with you some of my personal perspectives about the growth trend of China's economy in the next decade.
1,Can China keep its trend in growth? Will the growth model and speed be sustainable?
There're great many views as to the future growth of China with different assumptions and scenarios. Some people who hold negative views believe that problems such as trade surplus, under-valued currency, social discontent, inefficient energy consumption, and an unbalanced wealth distribution will all lead to potential damage to a sustainable growth. Meanwhile, we can also see positive views supporting a healthy and steady growth of China such as giant market potential, a sound basis of market-driven economy and deep integration with the world economy. We even get very optimistic comment: Jim O'Neill, the head of Global Economic Research, Goldman Sachs International claimed - that "China is the biggest strategic development of our lives".
I think that a reasonable estimation about china's development in the next decade should be based on the analysis of the past thirty year's development of china's economy and the understanding to the current reality we are facing as well.
According to statistics, annual GDP growth of China reached 9.8% over the past 30 years. In the last 5 years, the growth rate is above 10% averagely. From 2008 to 2010, China accounts for 50 percent of global growth if measured by the IMF's purchasing power parity. By that calculation, China has already acted as a locomotive in the world economic growth. Last year, China overtook Germany to be the world's largest exporter, and China accounts for about 10% of the world's total export by 2010. Till September 2010, China has attracted a total of 1,060 billion US dollars since 1978. Globally, among the largest FDI recipients, China rose to second place after the US in 2009.
(1) What is the main features of China's growth in the past 3 decades?
I outline the main features as below:
Firstly, it maintained a very high growth rate. For a huge country like China, maintaining 9.8% annual growth rate over 3 decades is a real miracle in human history. Consequently, it has changed China as well as world economic landscape.
Secondly, such a high growth is mainly fueled by investment and export, while domestic consumption contributed relatively fewer to the growth. In 2009, China's consumption over GDP ratio is only 36%.
Thirdly, this high growth is also very reliant on energy and resources consumption. This feature is directly related to the economic policies that prioritized the manufacturing industry over the past 3 decades.
However, this high growth has gradually and negatively affected the environment, that's why environmental protection issue has become one of the top priorities among the government agenda.
(2) What is the economic realities we're facing?
What kinds of outcome have resulted after 30 years of high growth? In other words, what kind of economic realities we're facing?Let's first look at the positive side. I believe that we can list at least 4 main achievements:
Firstly, there's no doubt that China has become the world's 2nd largest economy; If we calculate the data as per Purchasing Power Parity, China's GDP in 2009 is 80% of the US, and will surpass the US in 2014 to be the biggest economy in the world.
Secondly, Chinese people are generally more well-off; Compared with 1978, per capita GDP has increased by 51.2 times by 2009 at 3,680 US dollars, while per capita income has increased by 21 times.
Thirdly, the inflow of foreign direct investment, combined with the industrialization strategy, have dramatically expanded China's manufacturing capability. Being a manufacturing powerhouse of the world, China has been regarded as the "world factory".
Fourth, with a large population base and ever-growing household income, China has become a huge and unparalleled marketplace in the world. Further, this market still has great potential, and it has become more open and integrated with the global market.
When celebrating these achievements, we also have to face the grim realities that the fast growth has brought about problems: Structural imbalance has become the most pressing issue directly affecting sustainable future growth of China. The situation is so grave that these imbalances not only involves a wide-ranging economic relations like industrial structure, urban and rural development, regional development, but also that the seriousness of the imbalance has reached the limits of tolerance. Take income inequality as example, over the past decades, the gap between the rich and the poor kept widening. Currently, Gini coefficient is approaching 0.5, which is believed to be the risk mark leading to social instability. The consumption ratio of GDP kept declining over the years, and accounts for 36% of GDP in 2009, only half of the USA or two thirds of Japan.
Another main problem we encounter is caused directly by the growth pattern of the past 30 years. Due to the persistent expansion of energy-dependent industries, especially due to the impact of the speed-oriented growth mode, further development of China faces different kinds of obstacles, especially the restriction posed by limited natural resources and energy, and environmental capacity as well. China's economy faces the urgency to further improve the quality and efficiency of growth, which is fully dependent on high-tech and innovation.
In summary, China's economy has made great achievement after 30 years' development, which has laid a solid foundation for further development; meanwhile, China's economy could not further develop as the way we pursued over the past 30 years.
(3) What are the main elements supporting China's growth in the coming decade?
Based on the explanation above and the analysis below, I believe that China's economic development is entering a new stage. Relying on the transformation of China's growth pattern, China's economy maintains strong momentum to keep relevant high pace of development in the coming decades. It maybe not so fast, like almost 2-digit growth seen in the past 3 decades, but definitely it will be more steady and sustainable than before.
The following 3 main elements guarantee a sustainable and relatively high economic development of China in the future, which include basic factors, new driving forces and incentives created by reform.
Basic factors supporting growth:
Economic scale and overall economic power could play a fundamental role in a nation's economic development. As world's 2nd largest economy, and with over 2.6 trillion US dollars in foreign reserve, nobody would doubt that such a large economy could empower future economic development.
Both a relatively mature market mechanism which has been built up over the past 3 decades' reform and huge market with great potential will constitute basic conditions for China's future development.
The new driving forces supporting economic growth:
They are all created by the transformation of growth pattern, which has turned into various action plans from mere academic argument. You can find those guidelines in the Proposal of China's 12th Five-Year Plan for National Economic and Social Development. This proposal has been approved by the ruling party, and will be implemented from 2011 after finally being ratified by China's top legislature.
The future growth will be more dependent on domestic demand. As mentioned before, China's consumption has huge potential to be increased, owing to modernization of agriculture, urbanization process and ever-maturing social welfare system. Restructuring industries and narrowing the gap between rich and poor, urban and rural, east region and west region has been put on the agendas of all level of governments in China.
Industrial upgrading and encouraging innovation is one of the key components of growth pattern transformation. Under the new growth pattern, green growth will be regarded as a main way pushing next round growth. During the coming decades, the globalization will provide Chinese enterprises with much more good opportunities to diversify their investment globally. As a result, Chinese enterprise will gain competitive edge from overseas engagement.
We have also designated 7 sectors to be the strategic emerging industries in China, which include energy-saving and environmental protection, next-generation information technology, biology, high-end equipment manufacturing, new energy, new materials and new-energy automobile.
The incentive driven by reform:
The transformation of growth pattern relies on a further and overall economic and social reform. Since the financial crisis broke out in 2008, Chinese government has been formulating series of reform plans covering traditional industries, regional development, education, science and technology, social welfare system and administrative reform, etc. So far, almost all the major reform plans have been completed. Among them, 10-year reform plans in areas of education, technology and human resources have been formulated and implemented. These reform plans will pave the way for the new growth pattern, so as to ensure a sustainable green growth.
2,What is the implication of China's growth to the world economy?
Generally speaking, I'm holding an optimistic view on the future development of the world economy. I think that the future development of world economy will present 4 features as follows.
(1) What are the features of the future development of world economy
Firstly, globalization will continue to be the mainstream of the world economy. Economic interconnectivity and interdependence among nations will be strengthened, and the trend will be going strong and help drive the world economy despite occasional outbursts of protectionist move. As the G20 in "Seoul Summit Declaration" pointed out: recognizing the importance of free trade and investment for global recovery, we are committed to keeping markets open and liberalizing trade and investment as a means to promote economic progress for all and narrow the development gap.
Secondly, facing the challenge of global climate warming, although the international community did not reach a binding agreement on CO2 emission, the Copenhagen Accord has shown political will of world leaders to combat climate change. What is more valuable is that the general public has raised their awareness of protecting nature and environment. Pursuing green growth has been chosen as the solution in realizing economic growth while at the same time reducing CO2 emission. I believe that with the world's concerted effort, global growth in the future will be increasingly characterized by sustainable green technology and low-carbon industries.
Thirdly, emerging countries will play a more active role in the world stage due to their considerably higher growth rate than developed world. This is a welcome tendency that will slowly close the development gap between advanced countries and developing countries, which also serve the goal of a more balanced economic development among nations.
Fourth, due to the development of globalization, the world becomes smaller and smaller. Cooperation and collaboration in seeking win-win outcome will become dominant means for peoples dealing with bilateral or multilateral relations. Negotiation and dialogue should become the main approach in settling dispute and confrontation. International organizations like UN, IMF, World Bank, WTO, as well as multilateral forums like G20 will exert more active role in addressing common issues and challenges facing the whole world.
(2) What is the implication of China's future development
Let's first look at some forecasts and statistics about China's future development. According to Goldman Sachs, by 2050, BRIC countries, Brazil, Russia, India and China are all top runners in the world economy. In another forecast, China will be catching up the US around 2022. The forecast is prepared by a private consulting company using EIA 2009 data. (EIA is US Energy Information Administration). According to A. T. Kearney Consultant's FDI Confidence Index 2010, China remains the top rank, a position it has held since 2002. Regarding China's outbound direct investment, Asia was China's primary investment destinations in 2009. From 2004 to 2009, China's overseas investment has achieved astounding growth, with an average yearly growth of 90%.
It is fair to say that China as one of the most open economies in the world will be integrated to the world economy more seamlessly in the future. Relevant fast development of China's economy would be a positive contributor to drive the global economic growth. And even its internal policies like encouragement of household spending will mean huge market opportunities to other countries. According to Boston Consulting Group, China's middle class, which now stands at 150 million, will grow to 400 million by 2020.
Furthermore, as its urbanization evolves, a steady and sustainable growth of China also supports healthy growth of the world economy. China's green growth strategy follows the development of global green industry. This will undoubtedly contribute to a faster growth in the sector globally. China's economic growth will pull more people out of poverty. According to Chinese statistics, since 1978, 8 million people every year were pulled out of poverty; China is also responsible for 75% of poverty reduction in the developing world since 1980,directly contributing to UN Millennium Development Goals.
Chinese government persists in the belief of win-win cooperation, and is actively engaged in the multilateral process. China's reciprocal approach in addressing global issues will surely be a positive force in promoting peace and stability, solving pressing problem facing the international community.
(3) How will China interact with the rest of the world in the future
First, I think, the growing population of consumers in China will have multi-level demand in the world products and services. It means that Chinese consumer could purchase a great variety of products and service from other countries.
Secondly, while FDI continues to flow into China, more Chinese enterprises will be "going global" to invest and compete in all parts of the world. As we have just seen before, the overseas investment by Chinese companies is expanding fast on a global scale, which definitely is a positive contributor to the world economy.
Thirdly, with China becoming more integrated with the world economy, this much more open economy will allow foreign investment to access Chinese market in a range of new areas and sectors. Foreign-invested companies in China have been entitled with national treatment, and latest FDI liberalization policy also includes possibility for foreign-invested companies in China to be offered with credit services provided by Chinese financial institutions, as well as involving in corporate restructuring by means of merger and acquisition.
Fourth, cross-border technology cooperation and innovation will be strengthened on a global basis. Protection of Intellectual Property Rights (IPR) will be reinforced under the framework of relevant laws and regulations. Collaboration between nations in frontier technologies such as aerospace and bio-science will be enhanced. Meanwhile, technological and educational exchange will be intensified, resulting in an increased cross-border flow of personnel, as well as a flourishing tourism industry.
Chinawill play a more active role in the international organizations. The latest example has been the decision by the IMF to boost China's voting rights in IMF from 3.65% to 6.07%, which has positioned China as the 3rd largest member state after the US and Japan.
Finally, China will exert active and constructive influence on the world financial system. The world financial crisis has exposed structural flaws of the existing global economic and financial architecture, and structural reform in the aspect of monetary and regulatory scheme has already been on agenda. This will require concerted effort by the international community including China.
3,Challenges and uncertainties facing the future growth of China's economy
I have just introduced China's future growth trend and its implications to the world economy. Now I'd like to talk about some challenges and uncertainties facing the future growth of China's economy. There are some challenges and uncertainties coming from external and internal.
(1) Some of the external uncertainties:
First, misjudgment of globalization. We have seen policies that showed short-sightedness and reluctance in recognizing new realities that globalization has become mainstream, and ignorant of the fact that globalization can bring long-term benefit in re-allocating resources on a global basis. When facing challenges of adjusting or reforming existing economic framework to cope with globalization, trade remedy measures are adopted from time to time, and in some cases protectionism arises, which becomes the major uncertainty to date.
Secondly, a confrontational mentality or passive attitude towards growth in emerging economies, especially the BRIC countries. The growth potential of the emerging economies is not accepted as an opportunity for mutual growth but rather a harmful threat.
Thirdly, on the aspect of heightening global collaboration and concerted economic and financial governance, passive attitude towards structural reform still persists in an effort to maintain interests of status quo.
The next challenge is the phenomenon to politicize economic and monetary issues for the sake of one's own benefit, which in nature is another form of protectionism. We must be wary of this tendency.
Another challenge is the public opinion to keep China as Non-Market Economy (NME) Status country, despite the fact that China is already one of the most open economies in the world. In such circumstances, China has been barred from import of high-end technologies and products from advanced countries, and technology transfer barrier still exists.
(2) Some of the internal uncertainties and challenges
First and foremost, it is whether we can maintain political and social stability, which has become the overwhelming concern for most people in China. History has demonstrated clearly that without political and social stability to safeguard China's reform and opening-up process over the past 30 years, there would be no spectacular and continuous growth of China's economy as we've witnessed today, and there also should be no further development in the next 30 years.
Secondly, to achieve a sustainable development of China's economy, we have to further embark on social and political reform. But the key issue is whether China's social and political reform can be introduced in a gradual and steady fashion? Our basic experience has repeatedly proved that China's economic and social reform cannot be complete overnight, because the notion does not match with Chinese realities. History taught us that the social and political reform should follow a path of evolutionary reform rather than revolutionary "shock therapy".
Thirdly, can the governmental administrative reform be implemented efficiently to meet the requirement of the general public? The reform will involve establishment of a new system where people can exert more positive influence on the process of decision-making, and enhance transparency to help promote a healthier economic and social growth. The reform agenda also covers such pressing issues as to setting up anti-corruption action plan and a rule-based society.
The fourth challenge is how to protect Intellectual Property Rights on a rule-of-law basis. IPR protection is the key factor in fostering innovation in technology as well as a fair-play marketing environment. IPR protection is also the basic pre-condition by which innovation is encouraged and successful in technology, management and marketing. It is the foundation for the growth of talent, as well as maintaining competitiveness in attracting talented people.
The next challenge is whether greater social security and public service could be realized quickly. A flexible economy has to depend on a society that ensures high-standard social welfare and services, which prompts people to start spending willingly. The provision of social safety net for all the people in China will naturally unleash purchasing power of consumers.
Another challenge among the others is how could Chinese farmers increase their income, so that the economy could be further stimulated by this huge demand of consumption. Achieving this goal involves comprehensive policies adjustment and implementation, including the process of urbanization, and the establishment of social welfare system which provide basic medical treatment, educational programs and pension schemes for farmers.
Conclusion in summary:
China is capable of achieving sustainable growth in the next decade;
The driving force of China's future development mainly comes from the transformation of growth pattern;
Chinawill play a much more positive role in the world economy;
The road of future development faces many uncertainties and challenges, which will prompt us to keep vigilant and cautious!