Tuesday, 6 January 2009
2009: China’s Year of Rising Opportunities, and Challenges
In 2009, China, along with the rest of the world, is at a new historical starting point. The largest post-Cold War change in the world situation is taking place in response to the global financial crisis and economic recession, a rebalance of the global economy. The change will not be sudden and catastrophic but a gradual and, it is profoundly to be hoped, peaceful evolution, and will run from to the middle of the 21st century.
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2009: China’s Year of Rising Opportunities, and Challenges
Zhou Jiangong, Shanghai
5 January 2009
In 2009, China, along with the rest of the world, is at a new historical starting point. The largest post-Cold War change in the world situation is taking place in response to the global financial crisis and economic recession, a rebalance of the global economy. The change will not be sudden and catastrophic but a gradual and, it is profoundly to be hoped, peaceful evolution, and will run from to the middle of the 21st century.
The phrase “China’s historic opportunity,” often mentioned by Chinese leaders, is taking on new meaning. If China’s economy achieves a growth of about 8% in 2009, while the US, EU, and Japan continue to slog through recession, China’s contribution to global economic growth may close in on 50% as almost the only engine for the global economy. The swift emergence of China’s economy is having a significant and far-reaching impact on the wider economy, the financial order and geopolitics. The global financial crisis originating in the US, as well as a series of major events during the century’s first decade, particularly the 9/11 attacks and the invasion of Iraq, are leading to the end of a uni-polar world and the formation of a multi-polar world.
China’s President Hu Jintao says that by 2021, the 100th anniversary of the establishment of the Communist Party of China, the government’s goal is to build a well-off society that brings tangible benefits to all of its over one billion people, and to build a prosperous, democratic, civilized and harmonious modern socialist country by 2049, which will be the 100th anniversary of the founding of the New China.
Most economists comparing China’s and America’s economic growth conclude that between 2009 and 2049, the size of China’s economy, measured in dollars, will exceed that of the US. China’s economic growth is and will be the most significant event in the first half of the 21st century and will influence the whole century.
However, it is not the end for China’s development that its GDP exceeds that of the US, only a step in a process of resuming its normal historical status. In 1820, China’s GDP totaled 1/3 of the world’s, greater by percentage than that of the US today, while its population comprised over 1/3 of the world’s.
But even with such an economic scale, China’s per capita GDP is only 1/3 the US’s. The biggest challenge and also the greatest mission for China in the next 40 years is to chuck the distinction as world’s largest population and to achieve unparalleled economic scale and the continuous rise of its share in the global economy .
While China long boasted the world’s largest population and the strongest economic power, its personal productivity has lagged. In the 14th century, Western Europe’s per capita income and productivity levels overtook China. Moreover, despite its GDP lead, China was far from a true economic center because of its limiting of exchanges with the outside world. Since 1500, China’s per capita GDP has run under the world average.
By the middle of this still new century, China not only needs to change that fact, but also needs to become an affluent and powerful country with a per capita GDP close to that of developed countries. China still has a long way to go.
In 2009, China is faced with unprecedented challenges as well as rare opportunities. China needs a firm confidence and wise vision. The challenge is very clear: the current development momentum should continue, but profound reform must be undertaken.
Under the impact of external demand triggered by the financial turmoil, China’s economic structure needs reconstruction. A domestic demand economy, especially a consumption demand-driven economy, needs to be established, so that risks can be managed when China’s economic growth faces of fluctuations of the global economy.
Many economists predict that China’s economy will achieve its number one ranking in the world around 2025, when the “demographic dividend” of China’s economy, the swarming over the past 30 years of hundreds of millions of migrant workers into urban and coastal areas to join the global labor force, will be running out.
From 2015 to 2050, China’s working age population is set to shrink by 23%. Before that time ends, China must have established a modern social security system and have found a solution to the urban-rural dual structure and the urbanization of the migrant workers. Demographic changes require improved and sustainable labor productivity to maintain economic growth, a fundamental factor for decent living standards. Such productivity is also necessary if China is to transform itself into a “science and technology-oriented” country.
In the next 40 years, China will continue as a manufacturing country, acting as a global production center. With domestic consumption growth brought about by urbanization, China needs secure energy and resource supplies. In future economic cycles, China should seek opportunities to transform it enormous foreign reserves into energy and resource reserves, not only for wealth security but also for strategic needs.
With the growth and increasing stability of China’s economy, RMB will continue appreciate and, once open to free convertibility will become an international reserve currency. In the next 40 years, China’s finance will assume the dual task of changing and opening up the existing international financial order. To serve China’s economic restructuring, financial markets will need to help channel the country’s huge savings into capital, to promote the development of the social security system, as well as manage the immense RMB wealth during the process of economic growth.
All of these changes and challenges call for strong management. China’s economic model becomes more and more developed, but whether it will turn into “soft power” contributing to further growth and productivity depends on improved democracy, rule of law, and the widely accepted values in the international community.
There is no doubt that China’s growth is speeding up. However, strength is only a means, and the future depends on how China uses its strength in the global arena. One certainty is that China cannot emerge as a world power without playing a leading role in dealing with, along with other powers, challenges of the economic and political world it inhabits.
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