2 | Friday, December 4, 2020 HONG KONG EDITION | CHINA DAILY PAGE TWO Income: Economic transformation predicted
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Michael Power, strategist at Ninety One, a global asset management business based in London and Cape Town, South Africa, said China will make the transition by trans forming its economy beyond recognition. “It has climbed the ladder of valueadded industrialization. Many other emerging market economies in Latin America, Russia, Africa and much of the Middle East have failed to do this. Many have remained com modityoriented,” he said. Stephen Roach, a leading United States economist and senior fellow at Yale Univer sity’s Jackson Institute for Global Affairs, said China is set to escape the middlein come trap, as it has taken two important steps. “It will have made great progress in rebal ancing the structure of its economy — shift ing its growth impetus from manufacturing to services, shifting the support of its aggre gate demand structure from exports and investment to internal private consumption by Chinese households,” he said. “It will also have succeeded in shifting from imported to indigenous innovation — drawing less on the technologies of others and more on those developed at home.” Since 1960, only 15 countries and econo mies, including Japan, South Korea, Hong Kong, Taiwan and Singapore, have escaped the middleincome trap, according to the World Bank. All the BRICS countries — Brazil, Russia, India, China and South Africa — have mid dleincome status, as do many Asian nations such as the Philippines, Indonesia and Malaysia. Thailand has set a goal of becom ing a highincome country by 2037. The middleincome trap has been a par ticular problem for Latin American coun tries. Argentina became a highincome country in 2017, only to be reclassified as a middleincome nation last year. Keyu Jin, associate professor of econom ics at the London School of Economics, or LSE, said productivity has been a key issue for many Latin American countries. “A number of countries, including those in Latin America, have failed to grow after reaching a certain level of income, mostly because of reduced productivity growth,” she said. “What distinguishes China from the rest is a ‘pullingup’ development strategy, which focuses on priorities such as educa tion and infrastructure, rather than trickle down economics (involving tax cuts for the wealthy and corporations), which works in principle, but rarely in practice.”
Pitfalls warning Zhu Ning, professor of finance and also deputy dean at think tank the Shanghai Advanced Institute of Finance, or SAIF, said China will be very mindful of the Argentina experience, and it is not just a question of reaching highincome status, but maintain ing it. “The bar for a highincome country is not constant, and gradually goes up. While we can celebrate China’s economic growth mir acle, it is important that policymakers con tinue to watch out for potential pitfalls in SONG CHEN / CHINA DAILY the choices they make,” Zhu said. Michael Pettis, professor of finance at more fully. Emergingmarket crises in US to become the world’s probably enhance its Kuijs, at Oxford Economics, thinks that Peking University and author of Trade Wars recent decades have shown the risk of get largest economy, could international status in the State planning has performed an important are Class Wars, argues that the main issue is ting this sequence wrong,” he said. have been advanced by Future growth will near future,” he said. role. debt, which he said has risen sharply over China aims to go beyond merely meeting the pandemic. China will work very “There are ways in which a relatively the past decade. the highincome threshold level — advanc Power, at Ninety One, be built on hard to remain integrated strong role for the State can have advanta “It is pretty clear that China can only ing toward income levels in leading Western believes this could hap productivity, and with the global economy ges for economic growth and development, maintain high growth rates as long as debt countries. pen sooner than many and worldwide financial mainly in terms of effective mobilization of is able — and allowed — to continue grow Xi, in his speech to the CPC Central Com observers think — even by productivity in system, Zhu added. resources. However, those advantages ing rapidly. Should Beijing ever decide to mittee, also made clear his ambition for the the end of 2025. China’s next stage of Roach, author of shrink and eventually disappear as the take steps to keep its debt burden from dete country’s economy to double in size by 2035. “If economic recovery Unbalanced: The Code economy develops, and become more com riorating, it might be very difficult for China It has effectively done so over the past 10 in the US from COVID19 development has to pendency of America and plicated,” he said. to maintain growth rates much above 2 per years, and the nation is on the brink of is lackluster — and I fear be based on China, said, “For open Hong, at BOCOM, said the State’s role has cent to 3 percent,” he said. becoming a “moderately prosperous socie political stalemate in economies like China — been vital, and he expects it to play an even Many Asian countries were thwarted in ty” in time for the Party’s 100th anniversary Congress might make it innovation. This will especially in light of its more important part in the next stage of attempts to escape the middleincome trap next year. such — and if, more sig mean highquality new commitment to China’s development. by the regional financial crisis of 1997, If the Chinese economy does double in nificantly, the US dollar ‘higherlevel reform and “The central planning mode has been when a series of currency emergencies size over the next 15 years, it is likely to sur were to fall, say 15 per growth, not just opening up’ — twoway essential in allocating resources quickly at a undermined an unprecedented period of pass the US as the world’s largest during this cent, over five years growth.” (trade) flows with the rest very low capital cost and very high return. success. China, still a largely closed econo time. against the yuan, China of the world will render Going forward in a digital society, the case my, was relatively shielded from the Hao Hong, managing director and head could even pass the US by Keyu Jin, associate professor the verdict on global link for central planning is even stronger,” he of economics at the London impact. of research at BOCOM International Securi middecade. Whatever School of Economics ages.” said. Roach, former chief economist and Asian ties, based in Hong Kong, said the Chinese happens, it will be the In the debate over the Jin, at the LSE, has no doubts about the head of investment bank Morgan Stanley, economy would have to grow at an annual largest economy globally middleincome trap, the contribution made by the planning process. said China has fully learned the lessons of rate of 4.7 percent to meet the 2035 goal. by the end of the decade.” fact that many Chinese “A benevolent government capable of 1997. “It is an ambitious target, given the size of Regardless of the progress China makes, already lead comfortable highincome lifes allocating immobilizing resources is, of In particular, it has built up a stock of for China’s economy already. Mathematically, it it is likely to emerge as a giant economy in tyles is often overlooked. course, better than one that remains pas eign exchange reserves, enabling the coun is difficult to grow continually at a rapid the near future. As such, the question is Beijing and Shanghai, with respective per sive, or one that serves its own purposes,” try to deal with the global financial crisis of pace, but in view of the low base this year, it whether it will be possible for the US or oth capita incomes of $23,805 and $22,799, she said. 2008 and the COVID19 pandemic, he said. should expand by 8 percent or 9 percent er countries to decouple from China — even according to the World Bank, are already “The Chinese government has filled in “China’s twin cushions — foreign next year,” he said. if they want to. regarded as comfortably highincome — on missing markets, organized networks for exchange reserves and extremely high Jin, also a World Economic Forum Young a level similar to the Czech Republic, Portu suppliers and producers, and lavished sub domestic savings rates — provided it with Global Leader, is confident this can be More integration gal and Bahrain. stantial resources on firms with high poten both the resilience and policy space to pro achieved, as many areas of China still Hong, at BOCOM International, believes However, Gansu, China’s poorest prov tial. In developing countries where actively address major economic and finan require major development. China will become even more integrated ince, has a per capita income of $7,812, institutions are still immature, the State can cial threats, unlike morevulnerable “There are many opportunities for with the rest of the global economy. equivalent to those in many countries in play a very important role.” economies. This is increasingly important growth in China. Urbanization is only half “I don’t think there will be a decoupling. subSaharan Africa. Power, at Ninety One, said that as policy in a crisisprone world,” Roach added. way done, services have the scope to grow to Deepening reform and further accelerating Jin believes this adds complexity to the makers finalize the 14th FiveYear Plan, Louis Kuijs, chief Asia economist at up to 80 percent of the economy, and market opening and access suggest China is debate over how China will develop. which should deliver China highincome Oxford Economics, an economics research although the level of human capital (in more connected with the world, not less,” he “Aggregate numbers belie substantial het status, the nation will have achieved the consultancy, said China still needs to be cau terms of workforce skills) has been accumu said. erogeneity at regional and local level. What kind of “economic complexity” set as a stan tious in opening up its capital markets, lating rapidly, is still far from advanced Zhu, at SAIF, author of China’s Guaran this tells us is that there is much room for dard by Harvard University’s The Growth which could destabilize its economy if done economy levels,” she said. teed Bubble, which examines risks in the convergence, and therefore opportunities, Lab, which researches country develop too quickly, disrupting the nation’s highin “Future growth will be built on productiv country’s financial system, said attempts to for growth even within China,” she said. ment. come trajectory. ity, and productivity in China’s next stage of isolate the nation will recede as its economic As the nation completes its journey to “Investing in infrastructure, an increas “It needs to manage to continue to cor development has to be based on innovation. importance rises. becoming a highincome country in a histori ingly welleducated workforce, and the rectly sequence financial reform. It is there This will mean highquality growth, not just The pandemic has demonstrated the cally short period, part of the debate will cen advantages of central planning have ena fore crucial to make its exchange rate more growth.” capability and success of China’s pragmatic ter on whether this could have been achieved bled the achievement of that complexity,” he flexible before capital controls are removed The stage at which China overtakes the approach to solving problems, which will without a centrally planned economy. said.