As China became the world’s second-largest economy after growing at an annual average rate of about 9.5 percent over the past four decades, last year, socialism with Chinese characteristics has entered a new era. There are many understandings and interpretations about the new era, and here are some of mine.
First, reform will always be in progress in the new era. In recent decades, China carried out progressive reforms through a dual-track system, which prevented the country from experiencing such significant changes as the ones in Central and Eastern Europe and the former Soviet Union. It was during this process that the Chinese government provided progressive support to some large but outdated State-owned industries to stabilize the economy and also achieve growth.
Nevertheless, China also paid a price for its gradual transition, which is reflected by certain market distortions. In the past, due to low income levels, insufficient capital and a lack of advanced technology, China subsidized some industries to ensure their stable operation. But things are different now. The current stage of economic development requires that the country must further deepen its reforms to address problems like corruption and widening income inequality. So China has been committed to further reforms to let the market play a decisive role in allocating resources and eventually eliminate the market distortions.
The government has already taken hundreds of relevant measures to eradicate such distortions. Needless to say, it takes time. Even if all the government’s plans are fully implemented, new problems will emerge and structural problems will persist. Therefore, it must be recognized that there will always be reform in China.
Second, China’s economic growth still has strong momentum, given its great innovation potential. The new sectors included in the Fourth Industrial Revolution are characterized by short cycles, as emerging technologies could be developed within 12 to 13 months. The development of such new technologies mainly depends on human resources, and China has a huge supply of human resources due to its large population. Moreover, the country also shows strong competitiveness in aspects of the new economy. Whether China realizes its full potential will depend on how the international economic situation develops, whether the nation itself can further deepen domestic reform and whether it can solve problems in the process of technological innovation and industrial upgrading. But in the coming 20 years, China still has the potential to reach an average of 8 percent GDP growth annually.
In this sense, the “Made in China 2025” initiative is exactly designed to help the country cope with its development problems, which is similar to Germany’s “Industry 4.0,” India’s “Make in India” and the US’ “Make America Great Again.” With such an industrial initiative, China could unleash its economic potential and maintain a relatively high growth rate. Even if it is not as high as 9 percent, it may still stay above 6 percent.
Third, since the Chinese and the US economies are complementary, bilateral trade should be a win-win situation. In 2017, China’s per capita GDP reached $8,640, accounting for only 15 percent of the US per capita GDP measured by variable prices. China’s industrial sector mainly produces middle- and low-end, low value-added products, while the US produces high value-added ones. Bilateral trade allows China to supply low-priced goods and low-cost intermediates to US consumers. Meanwhile, China offers a huge market for high value-added products and services from the US.
Comparative advantage is the foundation of international trade. As long as there is comparative advantage, win-win outcomes could be achieved. The complementarities between the economic structures of China and the US enable companies to gain higher profits and consumers to have a better life.
Last but not the least, China needs to shoulder more responsibility for the global development system. As the world’s second-largest economy and the biggest merchandise trader, China is very likely to become a high-income country by about 2025. Like other high-income countries, China needs to contribute to the world to help other developing countries in terms of growth and poverty alleviation.
After World War II, high-income countries provided more than $3 trillion in development aid. But those efforts need improvement because poverty remains widespread around the world. I always believe that economic development is a process of structural reform. Some countries like Japan and the four Asian Tigers seized development opportunities during the process, transitioning from agricultural countries to manufacturing powers. China has become an upper middle-income country, and it’s expected to be a high-income country in the near future.
At that time, its labor-intensive industries will lose their comparative advantages and the work may move to other countries. According to my estimate, China may transfer 85 million manufacturing jobs out of the country. If other countries grasp this opportunity, they will gain great momentum in their manufacturing development.
Meanwhile, developing countries must resolve their bottlenecks, the most important of which is infrastructure. For this reason, China has proposed the Belt and Road initiative, which focuses on cooperation and connectivity.
Infrastructure investment is just a form of cooperation and China must comply with international standards in this regard, which requires good governance, transparency, high standards and cooperation between China and other countries and communities