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China’s Future Economic Growth Potential

Recently, the National Bureau of Statistics of China released the national economic data for 2021, and the results were very impressive. According to preliminary calculations, China’s GDP in 2021 will be 114 trillion. This figure is equivalent to the total GDP of the 27 EU countries, more than three-quarters of the GDP of the United States, and is expected to account for more than 18% of global GDP. And in terms of growth rate, China’s GDP growth rate in 2021 will be 8.1%, ranking among the top of the world’s major economies. Looking at per capita GDP, China’s per capita GDP in 2021 will exceed 80,000 yuan, or about 12,500 US dollars. According to the latest standards released by the World Bank in July 2021, the threshold for high-income countries is that the per capita GDP exceeds 12,700 US dollars, and China is very close.

However, the relevant data are not all optimistic. Only 10.62 million people were born in China in 2021, a further decrease from the 12 million births in 2020. This is the year with the smallest number of births in the past 70 years.

As soon as the population data came out, many scholars were very worried. The sharp drop in the birth rate will push China into a deep ageing population. According to historical experience, other countries will slow down their economic growth after they enter the aging process. They also believe that China has grown too fast in the past 40 years and belongs to a special stage of development. In the long run, China’s growth rate will return to the world’s major economies, that is, the annual growth rate will be around 3% to 3.5%.

Someone gave a comparative data: Germany reached a per capita GDP of 14,000 US dollars in 1971, and the average annual growth rate of Germany in the following 16 years was only 2.3%; similarly, Japan reached a per capita GDP of 14,000 US dollars in 1975, and Japan in the next 16 years. The average annual growth rate is only 4.4%. And China’s per capita GDP has now reached 12,000 US dollars, and if calculated by purchasing power parity, it has reached 14,000 US dollars in 2019. If we refer to Germany and Japan, it may mean that in the next 16 years, China’s economic growth can only be maintained at a low level.

However, Professor Yi fu Lin, a famous economist, opposed this view. He believes that if we want to judge how much development potential China still has, it is not meaningful to look at the absolute number of per capita GDP. People should pay more attention to the per capita GDP and developed economies, especially America’s gap. Because the gap in per capita GDP represents the gap in per capita labor productivity, and the gap in per capita labor productivity represents the gap in technology and industry, and represents how many late-mover advantages we have to use.

In 1971, when the per capita GDP of Germany reached $14,000, it was equivalent to 72% of the per capita GDP of the United States; in 1975, when the per capita GDP of Japan reached $14,000, it was equivalent to 70% of the per capita GDP of the United States. This means that they have already squeezed into the ranks of the most developed countries in the world, and the advantage of being a latecomer has disappeared. Technological progress and industrial upgrading can only rely on their own innovation, and growth will slow down.

But as far as China is concerned, in 2019, when China’s per capita GDP at purchasing power parity reached $14,000, it was only equivalent to 23% of the per capita GDP of the United States. This shows that China still has a lot of room to catch up in technology and industry, and has the potential for high growth.

And, despite more than 40 years of high growth, China still has a late-mover advantage. Because China has gained opportunities that other economies do not have in the process of catching up, that is, the opportunity of changing lanes and overtaking brought by the new economic revolution, such as the Internet, artificial intelligence, new energy and so on. Compared with the traditional industrial era, the R&D cycle in the new economic era is shortened. Instead of relying on accumulated process accumulation, it mainly relies on the technological innovation of high-end talents. For example, in the automobile industry, it is difficult to catch up with the technology accumulation of foreign car companies for hundreds of years in the era of fuel vehicles.

In the new economic era, China’s advantage in population size will be further magnified. Industries such as big data and the Internet naturally need the support of a large market. In the era of high-end talent, population size is the foundation. By the rule of nature, the number of geniuses in a country is 1% of the total population. The population base plus a good national education system are the most important competitiveness in the future.

By Demi Zhang

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