China has been in a high growth mode since it started economic
reforms in the late 1970s. Its almost three decades of high growth
is the longest among the 11 high-growth economies in the world and
part of "a recent, post-World War II phenomenon". And the Chinese
economy will sustain its fast growth for at least two more
decades.
These are the words of no less a person than Stanford University
professor Michael Spence, who shared the 2001 Nobel Prize for
Economics with Columbia University professor and former senior
vice-president of World Bank Joseph E. Stiglitz and University of
California (Berkeley) professor George A. Akerlof.
In the post-War period, 11 economies have recorded high growth,
with eight of them being in Asia: the Chinese mainland, Hong Kong,
Taiwan, Singapore, Indonesia, South Korea, Malaysia and Thailand,
Spence says. Going by gross domestic product (GDP) figures, "high
growth" means above 7 percent expansion, and an economy is said to
have "sustained growth" if it keeps growing for 25 years or more.
Growth at such rates produces very substantial changes in income
and wealth.
The Chinese mainland is not only the latest example of a
high-growth economy, but it has also seen the fastest and largest
increase in growth in terms of population, says the senior fellow
of Hoover Institution, a top US think tank. India too has attracted
a lot of attention because it is entering a period of high
growth.
"Though each growth model is different, they share certain
features," Spence told the Shanghai Forum 2007 at the Fudan
University in late May. "In all cases, there is a functioning
market economy with its price signals, incentives, decentralization
and enough definition of private property ownership to enable
investment."
The high levels of savings and investments both in the public
and private sectors, resource mobility and rapid urbanization are
the important characteristics of China's high growth, says Spence,
who is also the chairman of the independent Commission on Growth
and Development. The commission was set up last year to focus on
growth and poverty reduction in developing countries. China's
saving rate of between 35 to 45 percent is among the highest
despite the relatively low level of income of its people. Resource
mobility has generated new productive employment to absorb surplus
labor in a country where 15-20 million people move from the rural
areas to the cities every year.
The most important feature of sustained high growth is that it
leverages the demand and resources of the global economy, says
Spence. All cases of sustained high growth in the post-War period
have integrated into the global economy because exports act as a
major high-growth driver.
"The systematic reduction of barriers to trade and investment in
the last 55 years and the dramatic fall in costs of transportation,
information and communications technologies have combined to raise
the level of that integration. It is the combined effect of these
trends that has made the global economy an increasingly powerful
source of potential growth."
Enumerating the reasons why the Chinese economy will sustain its
high growth rate for another two decades, he says: "There are
basically two reasons. One is that there is still a lot of surplus
labor in agriculture. The engine for high growth is still there.
The second is that the Chinese economy has diversified very
rapidly. It's quite flexible and entrepreneurial."
But a recent report of the Chinese Academy of Social Sciences
surprised many by saying the most populous country in the world
will actually suffer from a shortage of labor from 2009.
Spence, who won the Nobel Prize for Economics in 2001 for his
contribution to the analysis of markets with asymmetric
information, however, says: "The economy is more global in every
dimension and it just seems to me that there is lot of potential.
The reason I am optimistic is that I don't see anything in the way;
your government seems to understand perfectly the dynamics
(required for sustained high growth)."
The only way to stop China's high growth would be to shut the
economy off from the rest of the world. "It's just not going to
happen." Even 20 years later, China will continue to grow because
its currency will appreciate, helping raise the income level and
increase the wealth of the people.
Spence, who now visits China frequently, and is scheduled to
attend a meeting on urbanization in Beijing this month, is
concerned about the country's problems, too, with the environment
being right on top of his list.
Claiming to be more on the Chinese side on trade surplus and
currency issue, Spence sees China's huge trade surplus as a likely
cause of protectionism both by the US and the Europe Union. The
high proportion of China's trade surplus is unprecedented in the
world, he says. To balance the huge trade deficit, Spence hopes
China would boost domestic consumption and bring down the saving
rate.
He acknowledges, though, that the relatively high-income younger
generation is spending more despite the fact that East Asians
traditionally are good at saving. A solution to the trade imbalance
could also be found by increasing social security and the pension
system, making them available to everybody, improving the medical
coverage in the rural areas and making education at all levels
affordable.
Spence comes from a family that lays strong emphasis on
education, and hence he believes it to be a vital driver of
economic growth. Years ago, he joined China's top education
official Wei Yu in Beijing to talk on education, human capital and
the country's economic future.
He has also written articles in major business newspapers,
criticizing ignorant and protectionist views on China's trade and
economic issues because he says he understands the Chinese
Government's pragmatic and experimental approach toward the
currency issue. He thinks a measured appreciation of the yuan could
be done with balanced and coordinated efforts. "I think it is good
if this could be done more quickly."
Though the widening income gap and corruption are his other
concerns, he is optimistic of the future because the Chinese
leaders are aware of the problems and are trying to solve them.
People should have been worried if Premier Wen Jiabao hadn't dealt
with the problems in his Five-Year Plan.
(China Daily June 11, 2007)