Can China become the next
economic superpower
Zhihong Yu
GEP, School of Economics
University of Nottingham
Quand la chine s'éveillera,
le monde tremblera
When China wakes up,
the world will shake
Napoleon , early 19th century
Outline
1. China’s rise and integration into the world
economy
2. Drivers behind China’s economic miracle
3. Challenges to China’s sustainable
economic growth
4. The current financial crisis and China’s
role in the world economy
Outline
1. China’s rise and integration into the
world economy
2. Drivers behind China’s economic miracle
3. Challenges to China’s sustainable
economic growth
4. The current financial crisis and China’s
role in the world economy
The rise of Chinese Economy
1839: Opium War
1978:Reform and open policy
NB: GDP measured in real terms (PPP)
The rise of Chinese Economy
Source: Goldman Sachs
GDP AT MARKET PRICES ($bns)
$100,000
$10,000
$1,000
$100
2000
2010
China
2020
India
2030
Germany
Japan
2040
UK
US
2050
The rise of Chinese Economy
GROWTH OF REAL GDP PER HEAD (per cent a year)
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
-2.0%
-4.0%
Source: World Bank
1971-80
1981-90
1991-2000
China’s integration into the world Economy
China’s integration into the world Economy
RISE OF CHINESE EXPORTS
(rolling 12 months, $bn)
$900.0
$800.0
$700.0
$600.0
$500.0
$400.0
$300.0
$200.0
$100.0
$0.0
US
Japan
Germany
France
UK
China
Canada
China’s integration into the world Economy
RISE OF CHINESE IMPORTS
(rolling 12-months, $bn)
$1,400.0
$1,200.0
$1,000.0
$800.0
$600.0
$400.0
$200.0
US
Germany
Japan
UK
Canada
China
France
Jan-03
Jul-02
Jan-02
Jul-01
Jan-01
Jul-00
Jan-00
Jul-99
Jan-99
Jul-98
Jan-98
Jul-97
Jan-97
Jul-96
Jan-96
Jul-95
Jan-95
Jul-94
Jan-94
Jul-93
Jan-93
Jul-92
Jan-92
Jul-91
Jan-91
Jul-90
Jan-90
$0.0
China’s integration into the world Economy
Source: UN World Investment Report
INWARD FDI STOCK 2002 ($bn)
$1,600
$1,400
$1,351
$1,200
$1,000
$800
$637
$600
$452
$448
$433
$401
Germany
China
Hong Kong
France
$400
$200
$0
US
UK
China’s integration into the world Economy
OFFICIAL FOREIGN CURRENCY RESERVES, AUGUST 2003 ($bn)
$535.5
Japan
China
$1,049.9
Taiwan
Korea
Hong Kong
$364.7
Singapore
India
Rest of Asia
$185.7
$130.5
$82.6
$86.7
$111.8
$135.4
Rest of world
China’s integration into the world Economy
Top Foreign holders of U.S. Treasuries (March 2009)
Holder
China
Japan
Total
$767.9 Billion
$686.7 Billion
Caribbean
OPEC
Russia
United Kingdom
$213.6 Billion
$192.0 Billion
$138.4 Billion
$128.2 Billion
Poverty reduction in China
Source: Qian Yingyi , 2009
Summary
China
 is the world’s third largest economy, and top
three largest exporter in manufacturing
 has uninterrupted growth (average 10% per
year) since 1979
 has the world’s largest foreign exchange
reserve (most in US dollars)
 has lifted hundreds of millions of people
above poverty
The Puzzle of China’s Rise

China’s economic miracle is not anticipated by
economists
“ No observer,participant,or analyst, either in Beijing or
elsewhere , anticipated China’s enormous surge, now
entering its fourth decade, which has rocketed the People’s
Republic to unprecedented global prominence”
- Thomas Rawski
Outline
1. China’s rise and integration into the world
economy
2. Drivers behind China’s economic
miracle
3. Challenges to China’s sustainable
economic growth
4. The current financial crisis and China’s
role in the world economy
Drivers of China’s rise


Successful transition reform planned to
market economy
Opening up to the world under in the
new era of globalisation
Transition from Planned to market economy

Problems of the planned economy pre-1978
Coupons of the Planned economy
Transition from Planned to market economy


Problems of the planned economy pre-1978
Reform strategy : options faced by Deng


Gradualism v.s. Big Bang
Economic reform first vs. Political reform first
Transition from Planned to market economy


Problems of the planned economy pre-1978
Reform strategy : options faced by Deng
 Gradualism v.s. Big Bang


Economic reform first vs. Political reform first
Unusual path of transition based on experimentalism

1979-1992: the first stage, reforming the planning system


Agriculture, market price liberalisation, profit incentives in state
enterprises, special economic zones, financial reform
1993-present: the second stage, building the market
system

Privatisation of state enterprises, FDI and trade liberalisation,
constitutional amendments on private ownership , WTO entry
Transition from Planned to market economy
Transition from Planned to market economy
China’s opening up to the world economy

Trade liberalisation
China’s opening up to the world economy
China’s opening up to the world economy


Trade liberalisation
Foreign direct investment liberalisation
China’s opening up to the world economy
China’s opening up to the world economy
China’s opening up to the world economy
“Forward” truck (1980s)
Shanghai General Motor(2008)
Outline
1. China’s rise and integration into the world
economy
2. Drivers behind China’s economic miracle
3. Challenges to China’s sustainable
economic growth
4. The current financial crisis and China’s
role in the world economy
Problems of China’s sustainable growth

Low GDP per capita and rising inequality
Problems of China’s sustainable growth
Problems of China’s sustainable growth
Problems of China’s sustainable growth


Low GDP per capita and rising inequality
Heavy state intervention and the rule of law
Problems of China’s sustainable growth
Problems of China’s sustainable growth
Problems of China’s sustainable growth



Low GDP per capita and rising inequality
Heavy state intervention and the rule of law
Growth mainly depends on inputs/capital
accumulation, rather than innovation and
technology
SAVINGS AND INVESTMENT 2001 (share of GDP)
US
Latin America
South Asia
India
Eurozone
Europe and Central Asia
Japan
Middle East & North Africa
East Asia & Pacific
China
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
Gross domestic savings rate
30.0%
35.0%
Gross capital formation
40.0%
45.0%
Problems of China’s sustainable growth
Source: Qian 2009
Problems of China’s sustainable growth




Low GDP per capita and rising inequality
Heavy state intervention and the rule of law
Growth mainly depends on inputs rather than
technology
Political reform lagging behind economic
reform
Problems of China’s sustainable growth
Political conflicts increased by seven folds in the last decade
according to police record
 Poor ability of the government to manage conflicts
 Long run growth at risk in the absence of a stable political
environment

Outline
1. China’s rise and integration into the world
economy
2. Drivers behind China’s economic miracle
3. Challenges to China’s sustainable
economic growth
4. The current financial crisis and China’s
role in the world economy
Financial Crisis and China



Effects of the financial crisis on Chinese
economy
China’s response to the crisis
China’s role in stabilising the world economy
during the current crisis
Effects of the crisis
Response to the crisis
China’s role in stabilising the world economy
GDP growth rate (%)
16
14
China
12
10
8
United
Kingdom
United States
6
4
2
0
-2
-4
-6
European
Union
Japan
China’s role in stabilising the world economy
Conclusion
• China has achieved unprecedented economic success in the
last three decades .
• China is already a major economic power, but still not a
superpower
• There are many severe pitfalls which China has to overcome
before it can become an dominant player in the international
economic scene on a sustained basis
• China can not save the world from the crisis , but it can, and
should, help by playing a responsible role in the stabilising the
world economy in the years to come.