Abstract: After more than three decades of rapid development, China’s economic scale has increased by 20.5 times, and its per capita income has crossed the threshold of a high- to middle-income country, becoming the “world’s factory” and the world’s largest exporter. The world's second largest economy. It has not only made a huge contribution to the improvement of the living standards of the Chinese people, but also to the world economy. The main reason for China's sustained and rapid economic growth is that it has made full use of its late-mover advantage and vigorously developed labor-intensive industries with comparative advantages. Throughout the development process, the gradual dual-track transformation method has played an important role in enabling China's economy to smoothly transform into a socialist market economy. As long as we continue to emancipate our minds, seek truth from facts, keep pace with the times, and continuously improve our industrial and technological levels in accordance with the Scientific Outlook on Development, China's average annual growth rate of 8% is likely to be maintained for another 20 years, and by 2030 the overall economic size will be at least equal to that of the United States. .
Keywords: China; economic development; late-mover advantage; labor-intensive; industry and technology
1. The development of China’s economy since reform and opening up has attracted world attention
After more than 30 years of rapid development, China’s economic scale has increased by 20.5 times, and per capita income reached US$4,370 in 2010. It has crossed the threshold of a middle-income country and is already four times that of sub-Saharan African countries. about. At the same time, China has become the "world's factory" and the world's largest exporter, as well as the world's second largest economy. People's living standards have indeed improved a lot, and I personally have a lot of personal experience. In 1987, I returned to China after studying in Chicago. At that time, in order to attract talents who returned to China after studying abroad, the country had many preferential policies. According to the preferential policy, I can bring the "eight major items" back tax-free. What are the contents of the "eight major items"? In addition to a TV, a refrigerator, and a washing machine (things that were in short supply in China at the time), I also brought a water heater and four electric fans. Because there were four people in my family, one for each person. Now every room has air conditioning. In recent years, not only the quality of life of urban people has improved a lot, but also the living standards of people across the country, including rural areas, have also been greatly improved. The World Bank has a poverty line of one dollar a day based on purchasing power parity. According to this standard, 600 million people in China have been lifted out of poverty in the past three decades. This is of great significance because the United Nations has a "Millennium Development Goal", and its first goal is to reduce the number of poor people in the world by half in 2015 compared to 1990. In fact, China alone made this goal of the United Nations achievable a few years ago.
China's reform and opening up has made great achievements, not only making a huge contribution to the improvement of the living standards of the Chinese people, but also making a huge contribution to the world economy.
The most obvious example is the fierce East Asian financial crisis in 1998. At that time, it was generally believed that it would take at least ten to twenty years for the East Asian economy to recover. The Chinese government has implemented a policy of non-depreciation of the RMB to avoid competitive devaluation in neighboring economies. After being hit by the financial crisis, domestic and external demand must be activated if the economy is to recover. East Asian economies are generally export-oriented, and their products compete with Chinese products in the international market. If they want to recover from the crisis, they must increase domestic demand, but what is more important for them is to increase external demand. If the RMB depreciates and Chinese products increase their export competitiveness, they will occupy their markets. In order to improve their competitiveness, they may depreciate one after another. This will lead to so-called competitive devaluation, exacerbating economic turmoil, and is not good for everyone. As a responsible country, China has not devalued the RMB and avoided the adverse consequences of competitive devaluation. At the same time, during the period from 1998 to 2002, China maintained an economic growth rate of 8%, which was the highest in the world at that time, and drove the economic recovery of East Asia. The East Asian economy returned to its pre-crisis level two years after the crisis. The biggest contribution was China's rapid economic growth and its policy of not depreciating the RMB.
Another example is the global financial (economic) crisis that began in 2008. This is the largest shock to the world economy since the Great Depression triggered by the collapse of the New York stock market in 1929.
The Chinese government quickly adopted a proactive fiscal stimulus policy of 4 trillion yuan, which enabled China's economy to begin to recover in the first quarter of 2009 and maintain a growth rate of 9% to 10%. China's economy has also become the most important driving force for this global economic recovery, which is also a contribution to people around the world.
The above-mentioned achievements were unexpected by everyone, because foreign media and academic circles have been predicting when China's economy will collapse since the 1980s. Although China's economy had experienced 20 years of rapid growth by the end of the 1990s, there was still a best-selling book in the world called "China's Collapse Theory" until 2001. At that time, it was sold in foreign bookstores and airports. The stalls are placed in the most conspicuous positions. However, from 2001 to the present, China's economic growth has accelerated instead of slowing down: from 1978 to 2000, the average annual growth rate was 9.7%, while from 2000 to 2010 it was 10.5%. Such achievements were actually something Comrade Deng Xiaoping, the chief architect of reform and opening up, did not expect. In the early days of reform and opening up, he set the goal of quadrupling China's economy in 20 years. I was a graduate student at Peking University at the time, and I wanted to know how much average annual growth would be needed to quadruple in 20 years. There were no computers at that time, so we had to do calculations by hand. I spent a whole afternoon calculating that the average annual growth rate for quadrupling in 20 years is 7.2%. I think that is an impossible goal, because economics has a "natural growth rate theory", which uses a beautiful mathematical model and historical empirical experience to show that any country's economic recovery will not recover except after a war or a natural disaster. , it can reach 7% or slightly higher and continue to grow for a few years. It is impossible to grow at a rate of more than 7% per year for a long time. At that time, I thought that Comrade Deng Xiaoping was a very experienced politician, because there is an old saying in China: "If you take the method from the top, you can only get the middle; if you take the method from the middle, you can only get the bottom." Therefore, we must set a higher goal to inspire the whole country. Work hard to achieve that goal. Even if you don't reach 7%, reaching 5% or 6% is not bad. But now it is discovered that Comrade Deng Xiaoping was indeed a great statesman. His goal of growing at a rate of 7.2% for 20 years was not only achieved, but exceeded, not only for 20 years, but now for more than thirty years ( average annual growth of 9.9%). Although the gap between 7.2% and 9.9% does not seem too big, after more than 30 years, the gap becomes very large. If it grows at an annual rate of 7.2%, it will only grow 9.2 times in 32 years compared to 1978. Now it is growing at 9.9% per year, and it will be 20.5 times in 32 years.
What I want to discuss is: Why has China’s economy developed so fast after reform and opening up? Why did the Chinese economy fail to achieve the same results before reform and opening up? Why did other socialist countries and many developing countries that carried out reform and opening up after the 1980s fail to achieve the same results? Compared with 1978, China has indeed made a lot of progress, but the current per capita income in the United States is US$50,000, and China is only 1/10 of that. Even in terms of purchasing power parity, it is only 20% of that. Therefore, compared with developed countries, There is still a considerable gap. Only by maintaining a relatively high growth rate can we catch up with developed countries. So, how long can such a high growth rate be maintained?
About the author: Lin Yifu, a famous economist, senior vice president and chief economist of the World Bank, honorary dean of the National School of Development of Peking University, professor, doctoral supervisor, All-China Federation of Industry and Commerce Vice Chairman, Academician of the Third World Academy of Sciences.
2. Why can China’s economy continue to develop rapidly?
Why has China’s economy been able to grow at a rate of 9.9% for more than 30 years since 1978? Rapid growth is a new civilization phenomenon that only appeared after the 18th century. According to research by the famous economic historian Madison, in the Western world, before the 18th century, the average annual per capita income growth rate was only 0.05%, which means that it would take 1,400 years for per capita income to double. It was actually a stagnant society at that time. At that time, a person's life expectancy was only thirty or forty years old. Even if he lived to be seventy or eighty years old, he would not see any economic development. After entering the 19th century, the growth rate of per capita income suddenly increased by 20 times, from only 0.05% per year to 1% per year. This was an earth-shaking change.
At this rate, per capita income could double in just 70 years. In other words, in the 19th century, if a person was lucky enough to live to be 70 years old, by the time he was about to die, his income level would have doubled compared to when he was a child. After entering the 20th century, the growth rate of per capita income doubled again, from only 1% per year to 2% per year. In this way, the time required to double per capita income was reduced to 35 years. By the 20th century, the life expectancy of the average person in Western countries could reach 70 years, which means that a person's income can quadruple in his lifetime. From 1400 to 35 years, it is indeed an earth-shaking change. Why is there such a big change and the speed of this change is accelerating? The reason is that the industrial revolution occurred in the 18th century, which accelerated the pace of technological invention, innovation, and upgrading, and the industrial structure continued to transform from agriculture with low added value to manufacturing and service industries with high added value. Such technological innovation and industrial upgrading have improved labor productivity and become the material basis for increasing per capita income.
Technological changes and industrial upgrading after the industrial revolution are the main driving forces for human society to enter modern civilization. Before the 18th century, China was leading the world. However, in less than 100 years, China went from being the country with the most prosperous civilization in the world to one of the poorest and backward countries in the world. The reason is not that China has regressed, but that other countries have advanced too fast. After the Industrial Revolution, the West experienced rapid technological progress and rapid economic development. However, China was still stuck in the development model of pre-modern society. It would take hundreds or even thousands of years for the economy to double, so it fell behind.
But if technological innovation and industrial upgrading are the fundamental driving forces for modern economic development, then backward countries actually have advantages. What are these advantages? After the Industrial Revolution, developed countries' industries and technologies have become the most cutting-edge in the world. Their industrial upgrading and technological innovation must come from their own inventions. Invention requires a very large investment, but the probability of success is very low. According to some research results, in the research and development of cutting-edge technologies, on average, out of 100 investments, only 5 technologies will pass the test and be able to apply for patents; and among the technologies applied for patents, only one has real commercial value. In other words, if you invest in 100 items, only one can really contribute to production and economic development in the end. Of course, this patent can own the market all over the world, and the return will be very high, but those 99 patents have been wasted and will never come back. There is a gap between the technologies and industries currently adopted by developing countries and developed countries. This gap is the economic advantage of latecomers, because what contributes to economic development is innovation. The so-called innovation means that the technology used in the next period of production is better than the existing technology, the productivity is high, and the industry entered has higher added value than the existing industry. But innovation is not necessarily the latest invention. If developing countries are good at taking advantage of latecomer advantages, that is, using ready-made and mature technologies in the world that are better than what they are using now to innovate, the cost of innovation will be very low. Because many of these technologies have passed the patent protection period, even if they are still within the protection period, as long as it exceeds 10 years, there is basically no need to pay patent fees. Using these technologies is not only low cost, but also low risk. If a developing country knows how to take advantage of being a latecomer, the cost and speed of innovation will be much faster than that of developed countries.
After World War II, 13 economies in total (including Japan, South Korea, Singapore, Taiwan, China, Hong Kong, China, and several other countries and regions) made full use of the post-war It has achieved economic growth of 7% or more per year and has lasted for 25 years or more, and China only became one of them after reform and opening up. The main reason why China has been able to grow so fast after reform and opening up is that it has made full use of its late-mover advantage. However, the late-mover advantage has always existed. Why did China achieve such results only after the reform and opening up? This is related to development strategy.
After the Opium War, China has been pursuing the rejuvenation of the country and the nation, overthrowing the Manchu government. After experiencing warlord melee, domestic revolutionary war, and anti-Japanese war, it was not until the founding of New China in 1949 that it realized that without the military Industry, there is no national defense industry, and without the national defense industry, it will be beaten, and the military industry is a heavy industry, so the first five-year plan started in 1953 put forward the strategic idea of ??giving priority to the development of heavy industry, hoping to build on a poor agricultural society. , establish a modern and advanced heavy industry system. This goal is great, but there are some problems. First, heavy industry at that time was the most advanced industry in the world. The most advanced industries were generally protected by patents, and high patent fees were required to use them. More importantly, those advanced industries were generally considered to be related to national defense and security. Even if you are willing to pay to buy it, others may not be willing to sell it. Therefore, you must do research and development yourself, and the cost will be at least the same as or even higher than that of developed countries, because their foundations are better. Second, these industries are not in line with China’s comparative advantages. China was an agricultural society at that time, capital was relatively scarce, and the price of capital was relatively high according to the market. This advanced industry was a capital-intensive industry, and the most important cost was the price of capital (capital). In an open market, these enterprises cannot compete with heavy industry enterprises in developed countries and have no ability to survive. They need protection and subsidies from the state with low interest rates and exchange rates to survive. Moreover, heavy industry requires large-scale capital investment. China was a backward agricultural economy at that time. Most of the production activities were in the vast rural areas, with very little surplus. The only way to rely on the government was to mobilize the scissor gap between workers and farmers to invest in heavy industry. Such a development strategy has its achievements - the atomic bomb was produced in the 1960s, and satellites were launched into the sky in the 1970s - but it also paid a heavy price: a serious misalignment of resource allocation. It should be said that China had a very large labor force at that time and had comparative advantages in labor-intensive industries, but it did not have access to funds for development. This was the reason why in the early 1970s and 1980s, daily products were in short supply.
After the reform and opening up, China changed its development strategy and allowed the development of labor-intensive industries with comparative advantages, and soon became the "world's factory". For example, high-tech products such as computers and mobile phones are produced in China in the labor-intensive processing sector, which is a labor-intensive industry. Labor-intensive industries have comparative advantages and therefore competitiveness; if they are competitive, they can create profits; if they are profitable, they can invest; after investment, capital increases and the comparative advantage changes - from being extremely labor intensive to gradually Become relatively capital intensive. In this process of transformation and upgrading, we can make full use of our late-mover advantages. This is why China has been able to develop so fast after reform and opening up, but not before reform and opening up.
If China’s ability to take advantage of comparative advantages after reform and opening up is the reason for its rapid economic development, then why can’t other countries in transition, such as the Soviet Union, Eastern Europe, Latin American countries, and many African countries, achieve the same results? The root of their problems is actually the same. All socialist countries implement the "Stalin model" and implement a planned economic system that prioritizes the development of heavy industry. They all develop modern industries under relatively backward mechanisms. So the problems created by their planned configuration are the same as China's.
After World War II, even developing countries in the capitalist camp also promoted the priority development of heavy industry based on the mainstream thinking of development economics at that time. Development economics as a discipline emerged after the 1940s. At that time, development economics only saw the gap between the industrial structures of developed countries and developing countries. That is, the dominant industries in developed countries were advanced heavy industries, while developing countries accounted for The dominant industries are backward agriculture and natural resource industries, so it is suggested that developing countries should give priority to the development of heavy industry. In this way, they will have the same problems as China, including many distortions, government intervention, inefficient resource allocation, and suppressed enthusiasm. wait.
China began to carry out reforms in 1979, and other socialist countries and developing countries also began to reform and open up in the 1980s.
But by 2000, looking back at the development of these countries from 1960 to 1980 and 1980 to 2000, we can find that in the next 20 years, that is, from 1980 to 2000, their economic growth rate was faster than that from 1960 to 1980. Not only is the average growth rate slow, but the economy is also more volatile and risky. Why has China's reform and opening up achieved rapid growth for more than 30 consecutive years, while their economic growth has slowed down, and crises have continued and occurred more frequently? This is actually related to their promotion of the so-called "Washington consciousness." At that time, there were many distortions common in socialist countries and developing countries. Similar to the idea of ??development economics that recommended developing countries to establish the industrial structures of developed countries, the "Washington Consciousness" recommended that developing countries implement the systems of developed countries, and this The system is an ideal market economic system, which mainly includes: total privatization, privatizing all state-owned enterprises; liberalization, opening up and free trade; marketization, resources are allocated by the market and prices are determined by the market; stabilization, that is, the government's The budget should be balanced and stable macroeconomic policies should be adopted. We should no longer subsidize non-viable enterprises in industries that do not meet our comparative advantages.
The result of the implementation of "Washington Consciousness" is counterproductive, because "Washington Consciousness" only sees the widespread distortions in the economy, but does not see the root causes of the distortions. As mentioned earlier, after the 1950s, so many planned interventions and so many distortions in the Chinese economy were all aimed at protecting those enterprises that were not viable in the heavy industry system that prioritized development. If protection and subsidies are all canceled at once, all those companies will collapse. But there are many workers in those enterprises, and if they all close down, there will be a lot of unemployment, and social and political instability will occur. Without stability, of course, development cannot occur. The vast majority of countries that implement the "Washington Consciousness" not only want to avoid such socioeconomic consequences, but also believe that these industries are advanced and needed for national modernization. Therefore, the vast majority of politicians and people do not Be willing to let them go out of business. Therefore, after implementing the "Washington Consciousness" reforms, these countries have introduced many other more subtle distortions, protections and subsidies, and these measures have in many cases cost more money than originally spent. For example, Russia's heavy industry is now controlled by eight oligarchic groups, and the money spent on protecting and subsidizing these eight oligarchic groups is more than before the implementation of the transformation policy in the early 1990s.
Why? In the early 1990s, I argued with many domestic and foreign economists that because those industries were not in line with comparative advantages and the enterprises were not viable, after privatizing them, private bosses would never spend their own money to strengthen the country. Subsidized. Private capitalists only pursue profits and do nothing that does not make money. After privatization, private capitalists will use the excuse that these enterprises are not viable to demand protection subsidies from the state. When it was still state-owned property, no matter it was a ministerial-level unit or a bureau-level unit, the managers were civil servants. Civil servants could ask for protection subsidies on this basis, but they could not put the money in their own pockets, otherwise it would be corruption. It's illegal. But after privatization, it is natural that the more you want, the more you put in your pocket
Why has China avoided collapse like the Soviet Union and Eastern Europe while maintaining social stability and rapid economic growth? The main reason is that China has adopted a gradual dual-track transformation approach. For the heavy industry sectors left over from the planned economy era, we know that they are not viable and need protection and subsidies. We must acknowledge this reality and continue to provide them with the necessary protection and subsidies. At the same time, we should introduce methods such as profit retention, contract system, and shareholding system that can increase production enthusiasm. , as long as the business is well run, the income can be higher. In rural areas, the household contract responsibility system is implemented to increase farmers' enthusiasm. In addition, we will implement an opening policy for labor-intensive industries with comparative advantages that were previously suppressed, and encourage the entry of the private economy and foreign-funded economy. Because these new sectors are in line with comparative advantages, they develop very quickly, and therefore capital accumulation is also very fast.
With the accumulation of capital, comparative advantages have been brought into play, and many industries that were not in line with comparative advantages in the 1950s and 1960s have become viable and can compete with industries in other countries. At the same time, the rapid development after the reform has created a lot of resources for the country, which can be used to subsidize those who have lost interests in the reform, so that the entire economy can smoothly and gradually transform into a socialist market economy.
3. How long can China’s rapid economic development continue?
The most important question now is, how long can China maintain such rapid growth? How much potential is there? Judging from the previous analysis, this depends on the technological gap, that is, how big the advantage of being a latecomer is. The technological gap itself indicates that China is relatively backward, but it is also a resource. How to measure this gap? A better measurement indicator is the per capita income level, especially the per capita income level calculated according to purchasing power parity. Because the per capita income level represents the level of labor productivity, labor productivity reflects the use of technology and capital. The latest data that can be used for cross-national historical research is Professor Madison's data in 2008. In 2008, China's per capita income based on purchasing power parity was 21% of that of the United States. Japan in 1951, Taiwan in 1975, and South Korea in 1977 were all 21% of that of the United States.
Japan’s average annual economic growth was 9.2% in the 20 years from 1951 to 1971; Taiwan, China’s average annual economic growth in the 20 years from 1975 to 1995 was 8.3%; South Korea’s average annual economic growth was 8.3% from 1977 In the 20 years to 1997, the average annual economic growth was 7.6%. They have all given full play to their comparative advantages and made full use of their latecomer advantages. After China's reform and opening up, it also adopted this economic development model. If Japan can maintain a growth rate of 9.2% for 20 years, Taiwan of China can maintain a growth rate of 8.3%, and South Korea can maintain a growth rate of 7.6%, China should also be able to maintain an average annual economic growth rate of 8% for another 20 years after 2008. Growth potential. That is to say, continue to emancipate the mind, seek truth from facts, keep pace with the times, constantly improve China's industrial and technological level in accordance with the scientific outlook on development, make full use of the technological gap with developed countries, give full play to the advantage of latecomers, and maintain an average of 88 per year for another 20 years. % growth is entirely possible. After 20 years of rapid growth, per capita income in Japan has increased from 21% to 65.6% of that in the United States, Taiwan has increased to 54.2% of that in the United States, and South Korea has also reached 50% of that in the United States. In other words, if China makes full use of its late-mover advantage and maintains an annual growth rate of 8%, its per capita income calculated based on purchasing power parity by 2030 should be at least 50% of that of the United States, because China’s population is four times that of the United States. many. If per capita income is half that of the United States by 2030, the overall size of China's economy will be twice that of the United States, and it will become the world's largest economy. If calculated according to the market exchange rate, it may be lower. At the current level of 2:1, the overall size of China's economy will be at least as large as that of the United States by 2030.
What will happen to China’s economic development after 2030? Compared with the United States, which represents the most advanced country, China can continue to use its late-mover advantage to maintain relatively high economic growth. Of course, reaching half of the per capita income of the United States is equivalent to the gap between South Korea and the United States today. At that time, many industries had reached the world's advanced level. By then, China will need more independent research and development. This is a transformation from introduction to independent research and development. Generally speaking, the prospects for China's economic development are promising.
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