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By Zhou Tianyong
China's economy has been continuously booming since 1979, but academics, government and investors wonder if this growth momentum can continue through 2020.
China will see annual economic growth of between 7 and 8 percent in the coming years and the GDP (gross domestic product) will amount to 38 trillion yuan (US$4.58 trillion) by 2020, when the per capita GDP will be 26,000 yuan (US$3,130).
Currently, the per capita GDP is fairly low. According to the experiences in economic growth of all countries, when the per capita GDP is low the growth percentage is high.
In the United States, where the per capita GDP is US$35,000, a one percentage point annual growth amounts to US$350. China's per capita GDP is currently US$1,000, so an annual growth even as high as 10 percent is only US$100.
A high growth rate upon a relatively low base will continue to be an important trend in China's economic development for the foreseeable future.
Since citizens try to satisfy consumption to improve their lives, mass production and consumption will become strong driving forces for sustained growth.
For urban residents, housing and automobiles will be the prime targets of consumption demand. For population newly relocated to cities and towns from rural areas, housing, durable consumer goods and daily consumer goods will be the major demands.
Given China's abundant human resources, the average salary here is about 2 to 3.3 percent of that in some industrialized countries. The ratio will be 5 to 6.6 percent by 2020 when China realizes its target of becoming a well-off society in an all-round way.
By the same year, the entrance rate for higher education will be 35 percent, which will make China a country with the richest human resources in the world.
Coupled with low labour costs, rich human resources will provide a strong impetus for the country's economic growth.
Migration during the process of urbanization and industrialization will be another engine for economic growth.
If the urbanization rate, the ratio of urban population in the total, grows by one percentage point each year until 2020, 210 million rural people will be relocated to towns and cities. Such a large scale migration will result in the growth of construction, transportation and consumption.
Another major growth generator is foreign investment.
Thanks to China's booming market, rich human resources and stable political and social situation, the country is now one of the world's safest and most rewarding destinations for investment.
Actual foreign investment in 2002 was US$52 billion and the figure in the first seven months of 2003 was US$32.4 billion - a 25 percent increase year-on-year.
Analysis of the development track of East Asian countries and regions shows that a country will maintain high-speed growth momentum when its urbanization rate is between 35 and 55 percent and the GDP per capita is in the US$1,000-3,000 range.
The Republic of Korea witnessed a 3.84 percent annual growth from 1953 to 1962. The rate jumped to 8.48 percent between 1962 and 1991 and it remained at 5.76 percent between 1991 and 2000. This is a 38-year-long boom.
Rapid economic growth lasted 35 years in Singapore and 49 years in Taiwan Province.
The urbanization rate and per capita GDP on the Chinese mainland exactly match the conditions of a booming economy.
It is groundless to doubt whether the Chinese mainland will see prosperous economic development.
As to specific contributors to such development, they can be determined through calculation.
The prime contributor to economic growth will be the development of small- and medium-sized enterprises (SMEs). If the economy maintains a 7.5 percent annual growth, nearly one-third of that (1.95 percentage points)will come from SMEs.
It is estimated the number of SMEs will rise to 27 million from the current 7 million by 2020.
During this process, SMEs will create 198 million jobs for new and laid-off workers before 2020.
SMEs will mainly focus on labour-intensive processing industries, the service sector and some high-tech fields.
The development of SMEs will not only stimulate employment, but also help encourage individuals to invest their private savings.
The second significant contributor is urbanization and ensuing migration. This will account for 1.35 percentage points of annual growth.
They will effectively enhance the competitive advantage of manufacturing sectors by pumping low-cost workers into the manufacturing bases in coastal areas.
At the same time, agricultural efficiency will be remarkably improved after surplus rural labourers find positions in cities and towns.
The third contributor, educational progress, will present the same share in economic growth, 1.35 percentage points.
The development of large-scale enterprises, investment from social institutions and industrial upgrading will account for 1.2, 0.9 and 0.75 percentage points in the economic growth respectively.
From these analyses, it is easy to see that the engine of economic growth for China will be the development of SMEs which are labour-intensive, have competitive advantages and are able to make full use of human resources and private capital.
Urbanization and education act as the twin propellers on the second level.
Developing high and new technologies also occupies a noteworthy position in the efforts of maintaining economic growth.
But if the State neglects the major contributors of economic prosperity, like growth of SMEs, urbanization and education, and puts undue priority on developing high-tech sectors, industrial restructuring and large enterprises, it will not be able to fully tap the potential of economic development.
The author is vice-director of the Party School's Office for Economic Research.
(China Daily July 15, 2004)
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