Download China and the Global Economy

China and the Global Economy
Justin Yifu Lin
Remarks at the 20th Anniversary of the
University of Science and Technology
Hong Kong, March 23, 2011
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Outline
I. China’s achievements in the past 20 years
II. Prospect for China’s growth in the coming 20
years.
III. Challenges of China’s growth
IV. China and the Multi-polar growth world
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I
CHINA’S ACHIEVEMENTS IN THE
PAST 20 YEARS
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1. Maintained 20 years’ of Rapid
Growth
• From 1979 to 1990, China grew by 9 percent per
year.
• In 1990s, most people doubted that China could
continue to grow that fast.
• To everyone’s surprise, from 1990-2010, China’s
annual growth increased to 10.4 percent.
• Such an extended period of high growth in such a
populous country is a miracle in the world’s
history.
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2. The 2nd largest economy in the
World
• In 1990, China barely registered on the global
economic scale…
– Now it is the world’s second largest economy.
China's Share of World GDP (%)
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
1990
2009
Source: World Development Indicators
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3. The largest exporters
• In 1990, China’s trade played an almost
negligible role in world trade…
• With export growth at an annual rate of 18%, now China is the
largest exporter of goods in the world.
China's Share of World Exports of Goods and
Services (%)
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
1990
Source: World Development Indicators
Merchandise Exports ($, trillions)
2009
China
1.20
Germany
1.13
United States
1.06
Japan
0.58
2009
Source: World Development Indicators
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4. A solid middle-income country
• In 1990, China was still a low-income country. Its income per capita was
lower than Sub-Saharan Africa…
• Now China’s per capita income is more than three times the level of SubSaharan Africa.
• With an income per capita of $4,500, China is firmly in the middle-income
category.
China's GDP per capita (PPP):
Ratio to Sub-Saharan Africa
3.5
3.0
2.5
2.0
1.5
1.0
0.5
1990
Source: World Development Indicators
2009
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5. The World’s factory
• Structure of trade
has been
transformed…
– From limited trade
in a few
commodities….to
a global leader in
manufactures!
Commodities &
transactions not classified
according to kind, 0.1%
Beverages and Crude materials,
tobacco, 0.1% inedible, except
fuels, 0.7%
Food and live
animals, 2.7%
Mineral fuels, lubricants
and related materials,
1.7%
Animal and
vegetable oils
and fats, 0.0%
Chemicals, 5.1%
Miscellaneous
manufactured articles,
26.8%
Manufact goods classified
chiefly by material, 15.4%
2009 Structure of Chinese Exports
Machinery and transport
equipment, 47.3%
Source: WITS
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6. The Driving force for the recovery of
regional and global financial crises
• China escaped both regional and global financial
crises and contributed to the recovery…
– Regional in 1998 and global 2009.
GDP Growth During the Global Crisis, %
GDP Growth During the Asian Crisis, %
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China
8
6
4
2
EAP
0
1997
-2
1998
1999
2000
2001
16
15
14
13
12
11
10
9
8
7
6
5
4
3
2
1
0
-1
-2
-3
China
World
2005
2006
Source: WDI
Source: WDI
2007
2008
2009
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Reasons for the success
1. China adopted a dual-track approach to
reforms:
– Stability and dynamism simultaneously achieved.
2. China was a latecomer, developed according
to its comparative advantage, and tapped
into the potential of the advantage of
backwardness.
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II
Prospects for China’s Growth in the
Coming 20 years
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China may maintain 8% growth rate for the
coming 20 years
• China’s per capita income in 2008 was 21% of US per
capita income measured in purchasing power parity
• China’s current relative status to the US is similar to:
• Japan in the 1951, Korea in 1977 and Taiwan, China in
1975.
• The annual growth rate of GDP: 9.2% in Japan between 19511971, 7.6% in Korea between 1977-1997, and 8.3% in Taiwan
between 1975-1995.
• China’s development strategy after the reform in
1979 is similar to that of Japan, Korea and Taiwan,
China. China has the potential to achieve another 20
years of 8% growth.
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China may become the largest
economy in the world by 2030
• After 20 years’ rapid growth from the basis of
21% of US’s per capita income
– Japan: 65.6% of that of U.S. in 1971
– Korea: 50.2% in 1997
– Taiwan, China: 54.2% in 1995
• China’s per capita income measured in
purchasing power parity may reach 50% of U.S.’
per capita income by 2030
• Measured by purchasing power parity, China’s
economic size may be twice as large as the US;
and measured by market exchange rates, China
may be about the same size as the US.
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China may become a major
technological leader in the world
• As a middle-income country, China increasingly will have
comparative advantage in sectors where higher income
countries have graduated or are close to graduating.
• If China wants to maintain leadership in those sectors,
China needs to do the technology/product innovation by
herself and thus China can become a global
technological/industrial leader in those sectors.
• There are also some new sectors, such as green technology,
which China may be a leader due to its large domestic
market.
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.
III
CHALLENGES OF CHINA’S GROWTH
IN THE 12TH FIVE YEAR PLAN
15
.
Global crisis and the new normal
Two-speed Economic Recovery….
Faster Growth in Developing Countries (%)
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the risk of the
“new normal” :
The combination of lower growth,
high unemployment, low capacity
utilization and lower returns on
investment in high-income countries
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Developing Countries
4
2
…and
High Income Countries
0
2008
2009
2010e
2011f
2012f
-2
-4
Source: World Bank Global Economic Prospects 2011: Navigating Strong Currents
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The challenge of triple imbalances
• With a less favorable external environment and the need
for global rebalancing, there is the need to rebalance
towards domestic demand.
• China also needs to rebalance income distribution to
address the issue of increasing income inequality for
maintaining social stability
• Another form of rebalancing is required for short-term
growth and long-term environment sustainability
• How can we engineer this triple rebalancing?
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The income disparity is the root for
internal and external imbalances
– Data show that a disproportionate share of China’s national income accrues to
corporations as well as rich people.
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Income inequality in China
45
40
35
30
25
20
15
10
5
0
Gini index(%)
50
40
30
20
10
Government savings
Household savings
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
0
1995
Corporate, government and
household savings to GDP (%)
Corporate, government, and household savings to GDP
China: 1995-2006
Rural
Urban
National
1980
1985
1990
1995
2000
Corporate savings
– Such income distribution increases investment and production capacity while
represses domestic consumption, leading to large current account surplus
– Shifting more income towards workers can rebalance income between rich and poor
and between corporate and workers. Such redistribution will also reduce external
imbalance.
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Distortions and income disparity
• The concentration of income in the corporate sector
and rich people is a consequence of dual-track
reforms, which retain certain distortions that favor
large corporations and rich people. There is the need
to finish the transition towards a market economy.
The reforms include:
– Financial structure
– Natural resources
– Monopoly
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The Environment and rebalancing the shortterm growth and long-term sustainability
• Pollution and global warming are real challenge for longterm sustainability. China is a continental economy and
environmental externalities from economic activity are
internalized within China’s borders.
• Challenge: China is still on a high carbon phase of
development.
• Opportunity: China may have the opportunity to become
the technological leader of green growth
– The necessity
– The market size
– The resources
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The above reforms are the main
items in the12th Five-year Plan!
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IV
CHINA AND THE MULTI-POLAR
GROWTH WORLD
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The World Economic Landscape
• After the Industrial Revolution,
the world was polarized.
• Growth in industrialized countries 30,000
accelerated.
• A few developing economies in
East Asia were able to accelerate
growth and caught up with
industrialized countries.
• Most other developing countries
failed to have sustained and
accelerated growth.
• As a result, there is a great
divergence between the
developed and developing
countries
Western Europe
Western Offshoots
Eastern Europe
Former USSR
Latin America
Japan
Asia excl. Japan
Africa
25,000
20,000
15,000
10,000
5,000
0
1 1000 1500 1600 1700 1820 1870 1913 1950 1973 2001
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The Global Economic Landscape was
Dominated by the G7 before 2000
Share of global GNI (USD)
Share of global GNI (PPP)
25
China and the Emergence of a multi-polar
growth world
Top 5 Contributors to World Growth by Decade (%)
1980-1990
30
25
20
15
10
5
0
1990-2000
40
35
30
25
20
15
10
5
0
2000-2009
30
25
20
15
10
5
0
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There was Growth Acceleration in almost all
Developing Countries After 2000
Gap between developing country growth
and HIC growth
(% points, avg. for 2000-2008)
10
9
8
7
6
5
4
3
2
1
0
Additional Growth in
Developing Countries
HICs Average Growth
Source: World Development Indicators, available at
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data.worldbank.org
Rebalancing of the Global Economic Landscape
Share of global GNI (USD)
Share of global GNI (PPP)
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China’s Contributions in the Multi-polar Growth
World in the coming 20 years
1. China will expand the markets for high-income
countries’ capital goods /intermediate goods
exports.
2. China’s rapid growth will support adequate
prices for commodity prices.
3. Chinese government investment overseas and
Chinese firms’ investment overseas provides
financing for development in emerging markets
and low income countries.
– In particular, growing role in the Africa region.
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China’s Contribution to the Multi-polar
Growth World in the Coming 20 years
4. China will become a a leading dragon for other
developing countries’ Industrialization:
--As China upgrades to more sophisticated
product markets, China will leave a huge space
for other low-income countries to move into
labor-intensive industries.
5. China and the new global economic architecture
– Leadership Role in the G20?
– Gradual emergence of new global reserve currency?
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China and Economic Thinking
• Since the birth of modern economics in the late 18th century, marked
by the publication of Adam Smith’s Wealth of Nations, modern
economic theories are based mostly on the experience of the
industrialized nations.
• China’s and other East Asian economies development did not follow
the policy recommendations based on the existing dominant
theories.
• China’s and East Asian economies’ experience provides a golden
opportunity for rethinking of the fundamental issues about economic
development.
• This is a great opportunity and challenge
for the Business School/econ dept at
HKUST to be a top global academic
institution!
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