Over the past decades, China has transformed from one of the poorest countries to the second largest economy in the world. Can this development go on, or will China face serious economic problems in the future? Justin Yifu Lin, former Chief Economist of the World Bank and now Professor at Peking University, is optimistic about the future. He expects that China will be the largest economy worldwide by 2030, he said at a Policy Lecture at Goethe University on the 21 of January. The Policy Lecture “The Economics of China´s New Era” was part of the First Goethe Asia Forum and a commemoration of the 10-year anniversary of the Interdisciplinary Centre for East Asian Studies (IZO) at Goethe University. The event was co-organized by IZO, SID Chapter Frankfurt and SAFE.
Justin Yifu Lin explained that for China’s continuous growth it was crucial to maintain stability. “China has been the only country in the world in the last 40 years without a financial crisis”, he said. In his view, the keys for Chinas success were a pragmatic course of reform and the continuous investment in better infrastructure. Lin stated that, for the future, China could not stop to implement reforms and to invest in its infrastructure because it has to adjust to the changing economy. On the negative side, he warned that income disparities and corruption could rise, causing growing discontent in China´s population.
Protectionism and trade conflicts
Despite the high growth in the last decades, Lin still sees huge potential for China to grow. According to him, developing countries have advantages compared to high-income countries as they can learn from them, for instance, related to technology. Those “late-starter advantages” are one of the reasons why China continues to have such high growth rates. He pointed out that in 2008, Chinas Gross Domestic Product per Capita (GDPPC) was only 21 percent of the GDPPC of the USA. According to Lin, this was the same amount for Japan in 1951, for Singapore in 1967 and South Korea in 1977. All of these countries continued to grow with a yearly rate of 8-9 percent for another 20 years. Lin expects China´s potential growth rate to be the same for at least the next 10 years.
Lin also emphasized that China’s growth depends on global economic development. “Ten years after the financial crisis, high-income countries like the US have not fully recovered”, he said. Protectionism and trade conflicts could pose challenges for China. Nevertheless, Lin thinks that China will maintain a yearly growth rate of 6 percent and will belong to the group of high-income countries in the world until 2025.
With the improving economic situation, the role of the country will also change: “China will have to shoulder more responsibility in the world,” Lin said. Looking at programs of high-income countries for developing countries, Lin said that these programs had good intentions but often were not successful. China would also give money but make sure that is effective. In Lin´s view, China is well prepared for that because it understands the needs in developing countries as it reduced poverty tremendously itself. China’s investments, especially in infrastructure, would help other developing countries to grow, Lin said.