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Sustaining Growth after Takeoff

Dec 14-2020   



China serves as a good example of economic takeoff, a theory developed by American economist W.W. Rostow. But the new situations and challenges confronting China since 2008 also underscore a weakness of the theory, i.e. a lack of systematic research into post-takeoff growth, said Prof. Zhou Qiren of the NSD in a keynote speech at the recently concluded China Economics Annual Conference.

 

For an economy to take off, Rostow laid out three conditions: investment should account for 5-10% of national income to ensure that economic growth outpaces demographic growth; Some dominant sectors must come into being and pull other sectors along; Other jigsaw puzzles such as technology, innovation, risk-taking and entrepreneurship also should fall into place. The takeoff stage usually spans 20-30 years, then the economy matures and moves up to higher levels characterized by high consumption of the masses.

 

When did the Chinese economy complete its takeoff? Prof. Zhou Qiren said that 1980s could hardly be a convincing answer despite high investment rate and the formation of industrial departments. The year 2008 might invite less contention thanks to decades of growth at around 10% annually, the mushrooming of high-growth dominant sectors, the wider spread of modern science and technology across national economy, and most importantly, the launch of comprehensive reform and opening up of the Chinese economy and the removal of the barriers between urban and rural areas.

 

The takeoff marks a critical leap from traditional economy to modern economy. Then what would happen henceforth? Rostow might have assumed that a smooth flight would logically ensue. But what China has experienced since 2008 shows that more daunting challenges stand in the way.

 

The first major challenge is how to balance the economic relations between poor countries and rich ones. David Hume noticed with acumen that manufacturing moves from high-waged areas to low-waged ones. Frictions are thus unavoidable. The second challenge lies in China’s outsized economic volume and unbalanced income distribution among residents and across regions, industries and entities. In the short term, it’s quite unlikely even for China’s superjumbo economy to bring everyone up to the stratosphere. Another challenge is to try to pull off a balancing act while not losing its momentum. The engine must keep revving in order for the plane to get through turbulences. Prof. Zhou suggested more tax on rental-type incomes and less on incomes from labor and productive investment.

 

 

Sustaining Growth after Takeoff

Dec 14-2020   



China serves as a good example of economic takeoff, a theory developed by American economist W.W. Rostow. But the new situations and challenges confronting China since 2008 also underscore a weakness of the theory, i.e. a lack of systematic research into post-takeoff growth, said Prof. Zhou Qiren of the NSD in a keynote speech at the recently concluded China Economics Annual Conference.

 

For an economy to take off, Rostow laid out three conditions: investment should account for 5-10% of national income to ensure that economic growth outpaces demographic growth; Some dominant sectors must come into being and pull other sectors along; Other jigsaw puzzles such as technology, innovation, risk-taking and entrepreneurship also should fall into place. The takeoff stage usually spans 20-30 years, then the economy matures and moves up to higher levels characterized by high consumption of the masses.

 

When did the Chinese economy complete its takeoff? Prof. Zhou Qiren said that 1980s could hardly be a convincing answer despite high investment rate and the formation of industrial departments. The year 2008 might invite less contention thanks to decades of growth at around 10% annually, the mushrooming of high-growth dominant sectors, the wider spread of modern science and technology across national economy, and most importantly, the launch of comprehensive reform and opening up of the Chinese economy and the removal of the barriers between urban and rural areas.

 

The takeoff marks a critical leap from traditional economy to modern economy. Then what would happen henceforth? Rostow might have assumed that a smooth flight would logically ensue. But what China has experienced since 2008 shows that more daunting challenges stand in the way.

 

The first major challenge is how to balance the economic relations between poor countries and rich ones. David Hume noticed with acumen that manufacturing moves from high-waged areas to low-waged ones. Frictions are thus unavoidable. The second challenge lies in China’s outsized economic volume and unbalanced income distribution among residents and across regions, industries and entities. In the short term, it’s quite unlikely even for China’s superjumbo economy to bring everyone up to the stratosphere. Another challenge is to try to pull off a balancing act while not losing its momentum. The engine must keep revving in order for the plane to get through turbulences. Prof. Zhou suggested more tax on rental-type incomes and less on incomes from labor and productive investment.