China and the Global Economy. Asia'a Role in the Post-Crisis Global Economy - Justin Yifu Lin 2012.pdf

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China and the Global Economy
Justin Yifu Lin
lUnCHeOn aDDRess
1. introduction
It is a great pleasure to be here with you today to discuss the role of Asia in the
post-crisis global economy—that is, to the extent that the global economy is
truly “post-crisis.” My focus will be on my home country—China is obviously the
biggest story out of Asia in terms of economic growth in recent decades, and the
growth in China has been a driving force for the recovery from the global crisis
since 2009. As a Chinese economist and specialist on economic development, I
have had the good fortune to witness and participate in the policy debate over
this remarkable period since returning to China with a PhD in economics in 1987.
I will organize my remarks around the following four themes: (i) China’s
achievements since the initiation of economic reforms in 1979; (ii) prospects
for China’s growth in the coming decades; (iii) challenges for China’s future
growth; and (iv) the role of China in the multipolar growth world.
2. China’s achievements since the Reform and Opening in 1979
China started its reform and opening in 1979 and achieved an annual growth
rate of 9 percent between 1979 and 1990. At the end of that period and even up
to early 2000s, many scholars still believed that China could not continue that
growth rate much longer due to the lack of fundamental reforms.
1
However,
China’s annual growth rate during the period 1990–2010 increased to 10.4 per-
cent. On the global economic scene, China’s growth since the reform and open-
ing started has been unprecedented. This was a dramatic contrast with the
depressing performance of other transitional economies in Eastern Europe and
the former Soviet Union.
As a result of the extraordinary performance, there has been a dramatic
change in China’s status in the global economy. When China embarked on its
economic reform program in 1979, the world’s most populous country barely
registered on the global economic scale, commanding a mere 1.8 percent of
author’s note:
I am grateful for David Rosenblatt’s help in preparing the paper.
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ASIA ECONOMIC POLICY CONFERENCE
ASIA’S ROLE IN THE POST-CRISIS GLOBAL ECONOMY
global gross domestic product (GDP) (measured in current U.S. dollars). Today,
it is the world’s second-largest economy and produces 9.3 percent of global GDP
(Figure 1).
China’s exports grew by 16 percent per year from 1979 to 2009. At the start
of that period, China’s exports represented a mere 0.8 percent of global exports
of goods and nonfactor services. Now China is the largest exporter of goods in
the world, with 9.6 percent of the global share and an 8.4 percent share of goods
and nonfactor services (Figure 2).
In 1980, China was still a low-income country; in fact, its income per capita
(measured in purchasing power parity or PPP) was only 30 percent of the level
of the average sub-Saharan African country.
2
Today, its income per capita of
China’s share of World gDp
(share measured in current USD)
Percent
10
9
8
7
6
5
4
3
2
1
1979
2010
0
FIgurE 1
Source:
World Development Indicators.
China’s place in the World as an exporter
A
China’s Share of World Exports of Goods and
Nonfactor Services (share
measured in current USD)
Percent
9
8
7
6
5
4
3
2
1
1979
2009
0
FIgurE 2
B
M erchandise Exports, 2009
(in trillions of USD)
China
Germany
United States
Japan
1.20
1.13
1.06
0.58
Source:
World Development Indicators.
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CHINA AND THE GLOBAL ECONOMY
215
$7,500 (in terms of PPP; $4,400 in current dollars) is over three times the level
of sub-Saharan Africa, and China is well-established as a middle-income coun-
try (Figure 3).
Behind this growth, there has been a dramatic structural transformation—
in particular, rapid urbanization and industrialization. At the start of economic
reforms in the 1980s, China was primarily an agrarian economy. Even in 1990,
73.6 percent of its population still lived in rural areas, and primary products
composed 27.1 percent of GDP. These shares declined to 27.1 percent for the
rural population and 11.3 percent for primary products composition of GDP in
2009. A similar change occurred in the composition of China’s exports. In 1984,
primary products and chemicals composed an important share of merchandise
exports (about 55 percent). Now, almost all of China’s exports are manufactures
(Figure 4).
Accompanying the change in the composition of China’s exports is the accu-
mulation of foreign reserves. In 1990, China’s foreign reserves were $11.1 bil-
lion USD, barely enough to cover 2.5 months of imports, and its reserves today
exceed $3 trillion USD—the largest in the world.
Globally, China’s economic performance was outstanding during the East
Asian financial crisis (1998) and the current global crisis (2008) (Figure 5).
China withstood the shocks and maintained dynamic growth in both crises.
China’s decision to maintain the renminbi’s stability helped other East Asian
economies avoid a competitive devaluation, which contributed tremendously to
the quick recovery of the crisis-affected countries. China’s dynamic growth in
the current global crisis has been a driving force for the global recovery.
FIgurE 3
Ratio of China’s gDp per Capita
Relative to sub-saharan africa
(ratio measured in current
PPP-adjusted dollars)
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
1980
2010
0
Source:
World Development Indicators.
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ASIA ECONOMIC POLICY CONFERENCE
ASIA’S ROLE IN THE POST-CRISIS GLOBAL ECONOMY
The structural Transformation of China’s exports
a
A
1984 Structure of Chinese Exports
Machinery and Transport Equipment; 5.7%
FIgurE 4
Manufactured Goods
Classified Chiefly
by Material; 19.3%
Chemicals; 5.2%
Animal and Vegetable Oils and Fats; 0.6%
Mineral Fuels, Lubricants, and
Related Materials; 23.0%
Miscellaneous
Manufactured
Articles; 18.0%
Unclassified; 6.1%
Food and
Live Animals; 12.4%
Crude
Materials,
Inedible,
except
Fuels; 9.2%
Beverages and Tobacco; 0.4%
B
2009 Structure of Chinese Exports
Miscellaneous
Manufactured Articles; 26.8%
Machinery and
Transport Equipment; 47.3%
Unclassified; 0.1%
Food and Live Animals; 2.7%
Beverages and Tobacco; 0.1%
Crude Materials, Inedible, except Fuels; 0.7%
Mineral Fuels, Lubricants, and Related Materials; 1.7%
Animal and Vegetable Oils and Fats; 0.0%
Manufactured Goods
Classified Chiefly
by Material; 15.4%
Chemicals;
5.1%
a
Data are not available prior to 1984 for this classification.
Source:
WITS database.
The reasons for China experiencing such remarkable growth over the past
30 years were
1
China adopted a dual-track approach and was able to achieve stability
and dynamic transformation simultaneously.
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CHINA AND THE GLOBAL ECONOMY
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China glides past Regional and global Financial Crises
A
GDP Growth during the Asian Crisis
China
Percent
10
8
6
4
East Asia & Pacific
2
0
–2
World
China
FIgurE 5
B
GDP Growth during the Global Crisis
Percent
16
14
12
10
8
6
4
1
0
–2
1997
1998
1999
2000
2001
2005
2006
2007
2008
2009
2010
–4
Source:
World Development Indicators.
2
China was a latecomer, developed according to its comparative advan-
tage, and tapped into the potential advantage of backwardness.
3
Many authors, myself included, have written extensively about the Chinese
government’s pragmatic approach to reforms. The result was to achieve “tran-
sition without tears.” This was no accident: It was based on the government’s
recognition that big-bang reforms could be self-defeating. It was necessary to
let private enterprises prosper wherever feasible, but to continue to support
important state-owned enterprises while reforming them gradually.
The second point is the latecomer advantage, as I wrote in my article “Chi-
na’s Miracle Demystified”:
4
A developing country such as China, which started its moderniza-
tion drive in 1949, potentially has the advantage of backwardness in
its pursuit of technological innovation and structural transforma-
tion (Gerschenkron 1962). In advanced high-income countries techno-
logical innovation and industrial upgrading require costly and risky
investments in research and development, because their vanguard
technologies and industries are located on the global frontier. Moreover,
the institutional innovation required to accommodate the potential of
new technology and industry often proceeds in a costly trial-and-error,
path-dependent, evolutionary process (Fei and Ranis 1997). By con-
trast, a latecomer country aspiring to be at the global technological and
industrial frontiers can borrow technology, industry, and institutions

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