Sustainability of China's Growth

["Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>]

China: Ability of Economy to Sustain Prolonged High Annual Growth Examined

Renmin Ribao 10 February 2003 p 13
by Reporter Zhu Jianhong cites comments by two senior officials
regarding sustainability of high economic growth.

[FBIS Translated Text] To achieve the goal of an across-the-board
establishment of a fairly well-to-do society (technical term in Chinese
policy parlance meaning middle class with private property), we must
struggle to doublethe overall Chinese economy by the year 2020, which
means that, for the next 18 years, the national economy must maintain an
annual growth of nearly 7.2% -- Can the economy sustain 18 years of high
growth or not? In comparison to the various economic indicators of the
developed countries, China still has a fairly large gap, and there is
still much room for economic development .

Xu Xianchun, the head of the Department for National Economic Accounting
at the National Bureau of Statistics, a scholarly official who has
studied national economic accounting methods and systems for a long
time, likes to use numbers to explain problems.
He cited the following figures for this reporter by way of explaining
that China's economy hasmuch room to grow:

-- Viewed from per capita GDP, which is a reflection of a country's
degree of prosperity and the people's standard of living. Although
China's overall economy is now ranked sixth in the world, its per-capita
GDP is only in about 140th place. For example, China's per
capita GDP was $856 in 2000, equivalent to 2.29% of that of Norway,
which was number one in the world, and it was 2.32%, 2.44%, and 2.49% of
that of Japan, the US, and Switzerland, which were second, third, and
fourth in the world.

-- Viewed from the industrial structure. Tertiary industries in the US
account for over 70% of the GDP, and Britain, France, Germany, and Japan
all have figures over 60%, while in China it is only around 33%. Even
taking statistical errors into consideration, the gap between China and
these advanced countries is at least 20-30 percentage points.

-- Viewed from the perspective of final use, that is, demand. When
acountry's economy develops to a certain stage, the consumption
proportion will exhibit an upward trend. The consumption rate in the US
(that is, the relative proportion of consumption to the GDP) is over
80%, and investment is less than 20%, while in China the consumption
rate is onlya bit more than 60%. Resolving three agricultural-related
problems will promote the growth of the national economy As everyone
knows, China also has the rural area, where
there is the most room for economic growth. According to the 16 basic
monitoring indicators for a fairly well-to-do society that were
formulated in 1991, as of 2000, there were still three indicators which
had not reached this standard, that is, the per capita net income of the
farmers, the per capita daily intake of protein by the farmers, and the
proportion of rural counties which basically met the primary health care
standards. It is not hard to see that these three items are concentrated
in the countryside. So, will
agriculture hold back the doubling of the GDP?

Chen Xiwen, a deputy director general of the State Council Development
Research Center and an economic expert who has a clear understanding of
the three agricultural-related problems, said to this reporter that so
long as the farmers can shift so that their
non-agricultural income goes up each year, agriculture will not hold
back the GDP, but will be a positive factor ensuring the growth of the
national economy.  As Chen Xiwen explains it, once the GDP in countries
such as the US and Japan reached the $1 trillion mark,
it took less than 10 years for it to double. However, although we have
similarly reached the $1 trillion GDP mark, we still have tremendous
differences with these countries. One is that the majority of the
population in these countries is in the cities, while nearly
two-thirds of our population is still in the countryside. A second is
the relative proportion of agriculture to the GDP, which was less than
10% and 6% in Japan and the US at the time, while for us it is 16.4%.
The high proportion of the rural population and the high proportion of
agriculture to the GDP are both advantages and disadvantages for our
goal of doubling. The agricultural growth rate will be lower than that
of the secondary and tertiary industries, and therefore the direct
impact of the high proportion accounted for by agriculture and its slow
growth will not benefit economic growth. But viewed from a different
perspective, in a situation in which the national economy is growing
steadily, the proportion of the GDP accounted for by agriculture will
inevitably decline year by year. The large-scale shift of rural
residents to the cities represents rather considerable potential for
creating new growth in the secondary and tertiary industries. To
maintain this favorable cycle of development requires that we do a
better job of resolving employment for the rural population. All else
aside, if the employment and income problems of the farmers are not
resolved, the countryside will not be stable, and the enormous room
for consumption in the countryside will not be developed.

To resolve the three agricultural-related problems and develop new room
for economic growth, people will naturally think of urbanization. Chen
Xiwen says that there is a consensus among Chinese and foreign scholars
that the Chinese economy will have three growth points in the 21st
century: high-tech industries and the large-scale development and
urbanization of western China. Just how much room does
urbanization afford? According to estimates, in building a town with
40-50,000 people, the per capita investment is at least 40,000 yuan.
Chen Xiwen gave me an example. When the town of Longgang in Wenzhou City
in Zhejiang Province was built in 1984, it only
consisted of three small fishing villages, with a population of 3,000
plus. Since its construction, the total investment has come to over 7
billion yuan, and the current population is 120-130,000. He says that
"if China creates several thousand towns like Longgang, that will be
something else!" China not only has tremendous development potential and
vast space, an even more important assurance is that the
Party is not wavering in reforms and opening up, and we will be able to
avoid major ups and downs in economic development.

There is no question that many people think that China's economic
prospects look good. From 1978 to 2002, China's economy maintained a
high-level of growth -- 9.5% per year. Over the next 18 years, can this
high-speed growth be maintained? Looking at
the history of the development of countries and regions such as Japan
and the "Four Little Dragons of Asia" [Hong Kong, Taiwan, South Korea,
Singapore], all experienced a slowdown after 20 years of high-speed
growth of around 9%. There has been a noticeable
decline in the growth of some. For example, from 1973 to 2000 the
average annual growth rate of Japan's economy was only 2.81%. On the
other hand, somehave maintained a fairly high annual growth rate. For
example, Singapore, South Korea, and China's Taiwan
Province have still maintained fairly high annual growth rates of over
7%, 5%, and 6% respectively, and only experienced relatively low or
minus growth following the Asian financial crisis.

Also located in Asia, we are now going through the economic growth
process that these countries and regions have already gone through, but
based on his own research, Xu Xianchun believes that China can avoid
what has happened to the Japanese economy, that
is, following high-speed growth, being plunged into a prolonged interval
of low-speed growth. This is not only because we have tremendous
development potential and vast space, an even more important assurance
is that the Party is not wavering on reforms and opening up. In
addition, we have accumulated a large amount of valuable experience, and
the ability of the Party and the government to control the economy is
getting stronger and stronger, so we will be able to avoid the problem
of major ups and downs in economic
development. Xu Xianchun pulled out a graph of China's GDP growth which
showed clearly that, up to the 1970s, there were major ups and downs in
the growth of the national economy, but in recent years the stability of
national economic growth has gotten stronger and
stronger. He said that, "Although we are facing numerous problems, we
now have a fairly substantial material base, and so long as society
continues to be stable, I am confident that, having accumulated so many
years of experience, we will not see a sudden decline in China's
economic growth rate."

[Description of Source: Beijing Renmin Ribao (Internet Version-WWW) in
Chinese -- Internet version of daily
newspaper of the CPC Central Committee (People's Daily).]