The changes China’s economy has undergone are sweeping, unprecedented, and essential. The world would be far better served by understanding them than by trying to prove these achievements are less impressive than they are

The changes China’s economy has undergone are sweeping, unprecedented, and essential. The world would be far better served by understanding them than by trying to prove these achievements are less impressive than they are

For the West, the year 2008 marked the beginning of a difficult period of crisis, recession, and uneven recovery.

For China, 2008 was also an important turning point, but one followed by a decade of rapid progress that few could have foreseen.

Of course, when the US investment bank Lehman Brothers collapsed, triggering a global financial crisis, China’s leaders were deeply worried. Their concerns were compounded by natural disasters – including severe freezing rain and snow storms in the south in January 2008 and the devastating Sichuan earthquake five months later, which killed 70,000 Chinese – as well as unrest in Tibet.

At first, China’s fears seemed to be coming true. Despite hosting an impressive Olympics in Beijing that August, its stock market plunged from its 2007 high of 6,124 to 1,664 in October 2008, in what amounted to a record-breaking crash.

But the Chinese authorities remained dedicated to their long-term plan to revise the country’s growth model, by shifting away from exports and toward domestic consumption. In fact, the global economic crisis served to strengthen that commitment, as it underscored the risks of China’s dependence on foreign demand.

This commitment has paid off. Over the last decade, many millions of Chinese have joined the middle class, which is now 200-300 million strong. With an average net worth of $139,000 per person, this group’s total spending power could amount to over $28 trillion, compared to $16.8 trillion in the United States and $9.7 trillion in Japan.

China’s middle class is already wielding that power. China accounts for 70% of global luxury purchases annually over the past decade. Though per capita car ownership is only around half the global average, since 2008, the Chinese have consistently been the world’s leading auto purchasers, surpassing Americans. In 2018, more than 150 million Chinese traveled abroad.

For China’s authorities, fostering the emergence of such a formidable middle class was a crucial strategic opportunity. As Liu He, Chinese President Xi Jinping’s top economic aide, wrote in 2013, the goal for China, prior to the crisis, lay in becoming a global production center; achieving it would attract international capital and knowledge. After 2008, China’s strategic imperatives shifted to reducing debt risk and boosting aggregate demand, while deploying massive economic stimulus to encourage domestic consumption and investment, thereby decreasing China’s vulnerability to external shocks.

As part of this initiative, China pursued large-scale infrastructure investments, such as building nearly 30,000 kilometers (18,600 miles) of high-speed railway. Increased connectivity – last year alone, that railway network carried nearly two billion passengers – facilitated much closer regional economic ties, propelled urbanization, and enhanced consumption substantially.

Thanks to such efforts – together with mergers and acquisitions to acquire key technologies and lucrative infrastructure investments in developed economies – China’s economy almost tripled in size from 2008 to 2018, with GDP reaching CN¥90 trillion ($13.6 trillion). Whereas China’s GDP was 50% smaller than Japan’s in 2008, by 2016, it was 2.3 times larger.

To be sure, difficult challenges emerged. Land and housing values soared, with urban real-estate prices rising so fast that many feared a bubble. Credit growth raised further risks. Overall, however, expansionary policies supported China’s rapid emergence as a global economic power globally.

But China’s leaders did not plan one crucial feature of this growth pattern, let alone bring it about with industrial policy: the consumption-focused innovative industries that barely existed in 2008 and that are increasingly propelling the Chinese economy today.

China is now the global leader in e-commerce and mobile payments. In 2018, mobile payments in China amounted to $24 trillion – 160 times the US figure. The state-owned banks and petrochemical companies that were China’s top-ranking firms in 2008 have been surpassed by e-commerce and internet giants Alibaba and Tencent. Internet and technology firms are now creating tens of millions of jobs per year.

Meanwhile, the performance of the manufacturing sector – long the main engine of China’s development and still the country’s largest employer – has weakened, undermined in part by rapid wage growth. The result has been a fundamental change in the structural composition of China’s economy.

Yet rather than exploring this shift – which is not captured in traditional measures of GDP – many economists have focused on trying to poke holes in China’s growth narrative. A recent Brookings Institution study, for example, estimates that China’s economy is about 12% smaller than official figures indicate.

This does little good. The changes China’s economy has undergone over the last decade are sweeping, unprecedented, and essential. The world would be far better served by an effort to understand them than by attempting to prove that the country’s achievements are less impressive than they are.


Zhang Jun is Dean of the School of Economics at Fudan University and Director of the China Center for Economic Studies, a Shanghai-based think-tank.  Copyright 2019 Project Syndicate, here with permission.

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6 Comments

Zhang Jun is too defensive. The article seems to have been written because he objects to the Brookings Institute suggesting that China's GDP is overstated by 12%. Even 12% off (if true) would still be very impressive. NZ during the same period since 2008 has had almost flat GDP per capita and dropping exports as a fraction of GDP so we have to admire what China has achieved.
The changes to China's economy being unprecedented - maybe not compared to the previous 20 years in China nor to NZ during Victorian times. Obviously the writer is correct in saying we need to understand China's achievements. Using his own data there are problems still to be fixed: why boast about almost 2 billion train journeys when that is the same as the UK. If you mention 200-300 million middle class Chinese on 1st world incomes buying the majority of the world's luxury goods you are leaving out the almost 1 billion who are living on comparatively little. Would you rather be a peasant farmer in China or Taiwan?
No one debates that China is a 1st world power, its immense size and population and booming economy make that a certainty. It is sharing the wealth and giving that new middle class political power that will determine whether China is respected or just feared.

Globalisation is the key. China's GDP rose significantly since 2001 after the WTO accepted her as a member; the fundamental changes started from there; then it was the 4 trillion yuan stimulation in 2008. The problem is the Beijing leadership seems still to be haunted by the collapse of the Soviet Union, though the history has indicated China will be better off if it works with the West. It is a worry.

Good comment. Globalisation for China, Japan, S,Korea, Taiwan, Singapore means bigger and more competitive markets and they have flourished but for NZ and some European countries it has meant importing 3rd world wages and the immigrant's rational desire to get to a OECD country with welfare benefits (schools & hospitals, not the dole) has lead inevitably to rorts and corruption. The places with big immigration have seen GDP rise in line with population but little actual growth in wealth for lower and middle class natives. China's continuing growth has been a revelation.

China is spreading by throwing money. Short term gain n long term pain

https://m.timesofindia.com/world/rest-of-world/djiboutis-rising-debts-to...

It is true, there is a lot going on in China. It is so big & is moving so fast it is hard to keep up with all the details. As with anything big comes caution, especially when you're not the big. It is also unique in the sense that is has combined the communist (central power) with the capitalist (which they always were) which has created this beast (Dragon) of frightening proportions & at the same time unparalleled opportunities. What's worse is that the goodies (that's us) are currently infighting so badly that they can't focus on the rising of the Dragon enough to confront it. However, Trump's got them at the table. That's a start. When you consider the capabilities of each sides destructive powers, at the table is good. We know communism breaks down when the people realise that they're being ripped off. Many in China know that already but are held in check by brutality. Sooner or later the Chinese people will mobilise. They are in places now.
If this part of the great Chinese dream falls over (debt) then we will all pay the price, sadly.

With China's population rapidly ageing and its young women reluctant to become breeding machines, their own opportunity for further growth lies in other countries, those countries will be in Africa where a population surge is predicted (I sincerely hope avoided for the planet's sake). They will become parasites off that growth.