Long-Range Goals within Reach
Mar 26-2021
Goals have been laid out in China’s 14th Five-Year Plan and the Long-Range Objectives Through the Year 2035, and development is designated as the basis and key to solving challenges along the way. In a recent seminar, Prof. Justin Yifu Lin of the NSD believed that China is fully likely to achieve a real annual growth rate of 5-6% from 2021 to 2035 and a further 4% from 2036 to 2049.
The seminar, held on March 18, marked the 56th version of the NSD’s China Economic Observation and zoomed in on China’s policies and economy in the wake of the Two Sessions (NPC and CPPCC). Seven NSD professors each spoke on an area based on their respective research and then took questions from the media. Prof. Lin is Honorary Dean of the NSD, Dean of both the Institute of New Structural Economics and the Institute of South-South Cooperation and Development at PKU.
Two reasons are commonly cited for a downbeat view of China’s growth potential. The first one refers to the annual growth rate of Germany and Japan – at 2.3% and 4.4% respectively - within the 16 years after their GDP per capita reached USD14,120. It’s just natural that China, whose GPD per capita reached USD14,129 in 2017 based on purchasing power parity, would fall back to this ‘normal’ level of growth after four decades of rapid growth, the theory goes. The other reason points to China’s aging population, the negative effect of which on the economy has materialized in other countries.
Seemingly convincing, such arguments miss the most critical factor that has been driving China’s growth: the advantages enjoyed by latecomers, said Prof. Lin. What counts is not China’s current income level but rather its income gap with developed countries like the US. Germany and Japan had depleted their latecomer’s advantages by the time their GDP per capita reached USD14,120, at around 70% of the American counterpart. In comparison, China’s GDP per capita was only 22.6% of that of the US in 2019. At this level of relative GPD size, Germany grew 9.4% annually for 16 years, and Japan, 9.2%.
Aging population might not seem as potent a mitigating force as popularly believed. Still referring to Germany and Japan at comparable income level, Prof. Lin said that at most 1% of growth would be subtracted from China’s annual growth rate, and this is without considering the counteracting benefits that could be gained by moving the labor force from low to high value-added industries, by prolonging retirement age, and by improving education quality.
Thus, China will command a growth potential of 8% annually up until 2035; Factoring in the needs to deal with such issues as the environment, urban-rural gaps, and trade frictions, China is still fully possible to pull off an annual growth of 5-6% in the next 15 years. As such, its GDP per capita will have crossed the threshold of USD12,535 by 2025 and USD23,000 by 2035. From 2036 to 2049, the economy is expected to grow at 4% annually, pushing GPD per capita to half that of the US in 2049.
And that will be a watershed moment for the world. With four times the US population, China will see its GDP volume double that of the US. The two countries are likely to be less at loggerheads and more at ease with each other mainly for three reasons: by then the US will have found little room for ‘throat-strangling’ maneuvers; the US won’t be able to change the fact about China’s GDP size; and the US will need the Chinese market to create jobs and achieve prosperity.
The terrains traversed by Sino-Japanese relations offer an illuminating example. In 2010, China’s economic volume surpassed that of Japan. At a great loss, Japanese right-wing politicians were bent on fabricating tensions out of Diao Yu Island, part of Chinese territory. Lately, bilateral relations have calmed down as China’s economic size reaches 2.8 times Japan’s. Happy or not, the Japanese economy needs the Chinese market for further growth, and bilateral relations are increasingly moving towards win-win cooperation.
