Six Myths about China and the Century of Development
Jianmao Wang
Professor of Economics and Associate Dean
China Europe International Business School (CEIBS)
(Spanish version published on the July 2008 issue of "Hermes" of Sabino Arana Fundazioa)
Two and half decades ago, Deng Xiaoping proclaimed that China would achieve its goal of
modernization in three steps: The first step is to double China’s GNP (gross national product) per
capita in 1981-1990, the second step is to double China’s GNP per capita again in 1991-2000, and
the third step is to “approach the level of developed countries” in the first half of the twenty-first
century. At that time, most people, including many in China, believed that China would not
succeed in even the first step as Deng planned.
Around the turn of the century, after China had succeeded in Deng’s first and second steps ahead
of schedule, Deng’s successors developed his third step into a new three-step plan. The new first
step is to double China’s GDP per capita in 2001-2010, the new second step is to double China’s
GDP per capita again in 2011-2020, and the new third step is to quadruple China’s GDP per capita
in 2021-2050.
In 2008, China is expected to succeed in the new first step, again ahead of schedule. However,
there are numerous “myths” that cast doubt on the possibility of China’s fast growth in the future.
This article is to present some of the latest developments in China in light of six of these “myths”
to enrich our understanding of China and the twenty-first century.
Myth 1: China’s fast growth in the future will be impossible because no economy has ever
sustained fast growth for more than three decades.
When the East Asian Tigers (South Korea, Taiwan, Hong Kong and Singapore) started their
economic take-off, their GDP per capita was around US$ 1,000. Their growth slowed down when
their GDP per capita exceeded US$ 10,000 after three decades of fast growth of above 7% per
year. When China started its economic take-off in 1978, its GDP per capita was only US$ 187 at
the 2004 exchange rate. China’s GDP per capita exceeded US$ 1,000 in 2001. Therefore, starting
from the same level of GDP per capita instead of the same speed of GDP growth, a
straightforward analogy with the East Asian Tigers would predict at least two more decades of fast
growth for China. Besides, as a newcomer, China can learn the best practices of more advanced
economies and avoid their mistakes, such as the financial crisis in South Korea or the asset
bubbles in Japan.
Moreover, China’s urbanization level is expected to reach 50% seven to eight years later than the
time when its R&D intensity (gross domestic expenditure on R&D as a percentage of GDP)
reached 1.1% (half of the OECD average in 1991-2004) while South Korea’s urbanization level
reached 50% seven to eight years earlier than the time when its R&D intensity reached 1.1%. This
positions today’s China favorably against yesterday’s South Korea because China is lagging
behind South Korea in urbanization for about 15 years at the same R&D intensity—or in other
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words, China is forging ahead of South Korea in R&D intensity for about 15 years at the same
urbanization level.
Forging ahead in R&D intensity means that China will be able to break through the resource and
environmental bottlenecks by tapping into the largest talent pool in the world. Lagging behind in
urbanization means that China has saved not only huge amounts of capital and foreign exchange
but also opportunity of fast growth driven by fast urbanization. In the next two decades, China is
expected to be able to maintain an annual urbanization rate of 1.4 percentage points, which was
the average during 1996-2005. The fast and sustained urbanization process will create lots of job
opportunities in not only the manufacturing sector but also the service sector, generate abundant
domestic demand from not only investment but also consumption, and enable the majority of the
population to enjoy better infrastructure and public services in a more efficient way.
The South Korean experience showed that urbanization and innovation can be two powerful
engines driving the development of an emerging economy and the decades before and after the
time when an emerging economy’s urbanization level reaches 50% and the time when its R&D
intensity reaches half of the OECD average can be a “medium-level growth plateau” characterized
by a high and stable growth rate.
China’s R&D intensity reached half of the OECD average in 2003 and its urbanization level is
expected to reach 50% around 2011. Therefore, China is currently half way on its “medium-level
growth plateau” and its potential GDP growth rate in the next twenty years is expected to be at par
with that in the past decades. The coming ten years, in particular, is expected to be a golden age
for the economic development of China because savings rate will remain high and dependency
ratio (the ratio of the non-working-age population to the working-age population) will remain low.
Myth 2: China’s fast growth in the future will be impossible because of resource bottleneck.
Although China’s farmland per capita is only one third of the world average, it is self-sufficient in
most of farm produce and keeps a huge grain reserve. By protecting and upgrading farmland and
developing high-yield varieties of crops, China will continue its success in feeding its already
slow-growing population.
Although China has been importing large quantities of scrap metals in addition to ores, scrap
metals are still a small fraction of the raw materials for China’s metallurgical industry because
domestic supply of scrap metals is still limited. As China industrializes, domestic supply of scrap
metals will increase and China’s metallurgical industry will become less dependent on imported
ores, less polluting and more energy-efficient.
Measured in constant 2006 prices, China’s energy intensity (energy consumption per unit of GDP)
reduced from 361 tce (tons of coal equivalent) per million yuan1 in 1978 to 116 tce per million
yuan in 2006 and to 112 tce per million yuan in 2007.
1
Yuan is the unit of Chinese currency. At the end of 2007, 1 US dollar is about 7.3 Chinese yuan.
2
Research indicates that China’s exports have significantly higher energy content (700 million tce
per year) than China’s imports (300 million tce per year). Since this gap of 400 million tce is 15%
of China’s energy consumption, China’s plan to reduce exports and increase imports of energyintensive products will lower its energy intensity significantly.
China is not only the No. 2 consumer of oil but also the No. 6 producer of oil and only a small
fraction of China’s imports is oil. Although China’s oil deposit is limited, China has the option of
producing oil with its huge deposit of coal (No. 2 in the world) if the technology of CO2 (carbon
dioxide) sequestration becomes reliable and economical.
In the past, China invested a lot in resource-intensive modes of transportation but not enough in
resource-efficient modes of transportation. During 2003-2007, the total length of China’s
superhighways increased by 28,000 kilometers to 53,600 kilometers, a growth of 15.9% per year
on average. During the same period, the total length of China’s railways in operation increased by
6,100 kilometers to 78,000 kilometers, a growth of 1.6% per year on average. In 2007, with 6% of
the world’s railway length in operation, China’s railway system carried 25% of the world’s railway
cargo volume. Moreover, only 3% of the cargo transported by Chinese railways is containerized
while 30% of the cargo transported by American railways is containerized. In the future, China
will build more and better railways (double-track railways, “super-railways” exclusively for
passengers, railway container depots, etc.) and this will improve the energy efficiency, land
efficiency and environmental efficiency of its transportation system.
China’s Medium- and Long-term National Plan for the Development of Renewable Energy (20062020) stipulates that renewable energy will account for 15% of energy consumption by 2020.
According to this plan, China’s installed capacity of power generation in 2020 will include 300
gigawatts of hydropower, 30 gigawatts of wind power, 30 gigawatts of biomass power and 1.8
gigawatts of solar power. China’s Medium- and Long-term National Plan for the Development of
Nuclear Energy (2006-2020) stipulates that total installed capacity of nuclear power will reach 40
gigawatts by 2020. Since China’s installed wind power capacity increased by 3.45 gigawatts in
2007, a growth of 156% over 2006, the Chinese Renewable Energy Industrial Association even
forecasts an installed wind power capacity of 50 gigawatts by 2015.
China is the world’s largest producer, exporter and user of solar water heaters. In 2007, China
produced 23.4 million square meters of solar water heaters and had 108 million square meters in
use. The Medium- and Long-term National Plan for the Development of Renewable Energy
stipulates that China will have 300 million square meters of solar water heaters in use by 2020, ,
enough to substitute 60 million tce.
By the end of 2007, 27.1 million households in rural China were fueled by biogas for cooking,
heating and, if electricity was not available, lighting. The Medium- and Long-term National Plan
for the Development of Renewable Energy stipulated that 80 million households will be fueled by
biogas by 2020. If so, 30 billion cubic meters of biogas will be generated in 2020, enough to
substitute 48 million tce or firewood generated from 16 million hectare of forests.
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Biogas reduces the emission of not only CO2, SO2 (sulfur dioxide) and methane but also inhalable
particles of soot, which kills more than half a million women and children in developing countries
every year because of their exposure to kitchen smoke. Biogas also provides a safe and
environmentally sound way to dispose off a variety of organic wastes, thereby improving
sanitation and preventing the spread of infectious diseases. Moreover, biogas residue is highquality organic fertilizer, which can reduce the application of chemical fertilizer and farm
chemicals by 20% or more.
The ultimate resource is knowledge workers. Since China has a huge potential in renewable
energy and other resources and is cultivating a large number of knowledge workers, it will be able
to break the resource bottleneck.
Myth 3: China’s fast growth in the future will be impossible because of environmental
bottleneck.
In the 1990s, the Yellow River, China’s second largest river, dried up for weeks or even months
every year because so many water-intensive manufacturing enterprises were established along the
river banks, including the most polluting business of paper making from straw pulp. Now, most of
those paper mills have been demolished and a huge flood-control facility keeps the river flowing
all year round.
The Sixth National Forest Resource Inventory (1999-2003) reported forest coverage of 18.21%,
significantly higher than 12.36% reported by the Second National Forest Resource Inventory
(1977-1981) and the estimated forest coverage of 8.6% in 1949. China has the largest planted
forests in the world and is the only country that has doubled its forest coverage in the past half
century.
After the floods of 1998, China launched the Grain for Green Project to convert low-yield
farmland and wasteland in ecologically vulnerable areas to forests and orchards. With government
subsidies of grain and cash, 20.87 million hectare, including 8.68 million hectare of farmland, was
converted during 1999-2005. As a byproduct of the Grain for Green Project, fruits yield
skyrocketed to 145 million tons in 2003, 108.8% higher than 2002, and 21 times higher than 1978.
Since the mid 1990s when shortage economy was replaced by surplus economy in China, the
government started to demolish old production facilities, replacing them with new facilities of
higher efficiency and less emission. In the twenty-first century, such upgrading accelerated
because the central government made the demolition of old facilities a prerequisite for the
construction of new facilities in every province. In 2007, 2,322 small coal mines, 553 small
thermal power generators with a total capacity of 14.38 gigawatts, old iron-making facilities with
a total capacity of 46.6 million tons, old steel-making facilities with a total capacity of 37.5
million tons, and old cement plants with a total capacity of 52.0 million tons were demolished.
End of 2007, about 50% of the thermal power generation capacity in China was equipped with
FGD (flue gas desulfurization) units, up from only 2.1% end of 2000. As a result, China’s
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emission of SO2 reduced by 4.7% in 2007 while GDP grew by 11.9% and incidence of acid rain
started to decline. China is expected to have 90% of its thermal power generation capacity
equipped with FGD units by 2010 and to extend FGD application to other coal-burning industrial
activities. Thanks to its investment in clean coal technology, China can produce FGD units at 2030% of the cost of developed countries and its FGD technology is already sophisticated enough to
upgrade FGD units imported in earlier years.
Statistics from IEA (the International Energy Agency) indicates that China’s per capita CO2
emissions from fossil fuel combustion were 3.65 tons in 2004, equivalent to only 87% of the
world average and 33% of the level in OECD countries. Measured in constant 2000 prices,
China’s emission intensity (CO2 emission per unit of GDP) fell from 5.47 kgCO2/US$ in 1990 to
2.76 kgCO2/US$ in 2004, a 49.5% decrease. During the same period, emission intensity of the
world average dropped by 12.6% and that of the OECD countries dropped by 16.1%.
As China’s investment in clean energy and environment continue to grow rapidly, it will be
possible for China to reduce its discharge of main pollutants, such as SO2 and COD (chemical
oxygen demand), and to keep its per capita emission of greenhouse gases below that of developed
countries while maintaining fast growth.
Myth 4: China’s fast growth in the future will be impossible because of decelerating exports.
The Chinese economy has been driven mainly by consumption and investment and the biggest
market for “made in China” has been China and will continue to be China. This can be proved by
the fact that during 1999-2007, final consumption expenditure accounted for 48% of China’s
growth, gross capital formation accounted for 42% and net exports of goods and services
accounted for 10%. This can be further proved by the fact that in constant domestic currency,
China’s exports growth slowed down from 32.0% in 2003 to 14.7% in 2007 while its GDP growth
speeded up from 10.0% to 11.9%.
China’s exports to developing countries have been growing much faster than China’s exports to
developed countries in recent years. By raising the prices of raw materials and lowering the prices
of capital goods, China is creating a golden age for the economic take-off of other developing
countries. As more and more developing countries start their economic take-off, the demand for
power generation and transmission equipment, environmental protection equipment,
telecommunication equipment, transportation equipment, construction equipment, mining
equipment etc. made in China is expected to expand rapidly.
Of the 29 years after the beginning of reform, the Chinese government run a moderate budgetary
deficit of 1%-3.3% of GDP in 12 years and run a small budgetary surplus or deficit of less than
1% of GDP in the remaining 17 years, including a budgetary surplus of 0.7% of GDP in 2007
when its tax revenue increased by 31.4%. The government owns huge assets in state-owned
enterprises, infrastructure, land and natural resources. It also enjoys sizable and fast-growing
seigniorage gains that will expand further when the Chinese currency becomes one of the world’s
reserve currencies. Since the Chinese government has a very strong fiscal position and
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infrastructure in interior and rural areas is still underdeveloped, it can adopt the proactive fiscal
policy of large-scale investment in infrastructure to minimize the impact of a slowdown in exports
growth, as it did in the aftermath of the Asian Financial Crisis.
By the way, although the appreciation of the Chinese currency will continue to slow down exports
of resource-intensive and labor-intensive products, it will make imports of R&D instrument,
overseas study of Chinese students and international filing of Chinese patents less expensive and
make the Chinese wage for knowledge workers more attractive.
Myth 5: China’s fast growth in the future will be impossible because of aging population.
If China had not adopted a stringent birth control policy in the early 1980s, it would have 300-400
million more people, face much worse unemployment, consume much more resources and
generate much more pollution now.
However, China’s one-child policy was strictly enforced only in urban China. The one-child
policy has never been applied to areas inhabited by minority nationalities and the policy for rural
China has been one-and-half children—one child if the firstborn is a boy; two children if the
firstborn is a girl. When the “one-child generation” started to have their own children, the Chinese
government modified the policy to allow a couple to have two children if both the husband and the
wife are the only child of their parents. Hence, China will continue to have its working-age
population bigger than its non-working-age population.
When the “one-child generation” started to leave secondary schools, the Chinese government
engineered an explosive growth of tertiary education. From 1998 to 2007, annual enrolment of
full-time undergraduate education increased from 1.08 million to 5.66 million, an average growth
rate of 20.2%; annual enrolment of postgraduate education increased from 73,000 to 420,000, an
average growth rate of 21.5%. In 2007, more than 20 million were studying at Chinese universities
and colleges and the gross enrolment ratio of tertiary education in China reached 23%%.
In 1979, Foreign Language became a required subject of the College Admission Examination and
all secondary schools had to teach English or another foreign language to prepare their students
for colleges. After making English education universal in primary schools in large and medium
cities, the government decided in 2001 to gradually make English a required subject of primary
schools in small cities and towns. English literacy plus rising household income made studying
abroad an option for more and more Chinese youths and the number of students leaving China for
foreign education at the college level and above increased from 17,600 in 1998 to 144,000 in 2007,
an average growth rate of 26%.
In the 1980s and 1990s, studying abroad was a “one-way ticket” for most of those lucky Chinese.
In the twenty-first century, sending students overseas is more of “brain gain” than “brain drain”
for China. Of the 554,500 Chinese students who had left foreign institutions after study by the end
of 2007, 319,700 (58%) returned to China. More than 50,000 returned students have established
their own businesses in China, mostly in high-tech industries. In recent years, many non-
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Mainland-born Chinese have joined their Mainland-born counterparts after overseas study.
Since the “one-child generation” will have much more human capital as well as physical capital
than their parents, it will be possible for China to sustain a fast growth by moving up the value
chain and replacing labor-intensive industries with knowledge-intensive and capital-intensive ones.
Myth 6: China’s fast growth in the future will be impossible because of internal disparities.
China’s internal disparity is multidimensional: between urban and rural, between coastal (eastern)
and interior (central and western), between knowledge workers and non-knowledge workers, and
between the privileged and the non-privileged. I would like to focus on the coastal-interior
disparity but would like to point out that other disparities are being narrowed or are going to be
narrowed soon.
The coastal-interior disparity was the result of one of China’s development strategies—“allowing
some areas to become rich first.” Such a strategy concentrated limited financial, physical and
human resources on where the highest return could be achieved so that China as a whole could
move forward as fast as possible. It also enabled a few coastal cities to offer working and living
conditions comparable to those in developed countries, attracting knowledge workers needed for
breaking the resource and environmental bottlenecks when China as a whole was still very poor.
However, the worst coastal-interior disparity has already passed. During 2001-2005, the average
growth rate of nominal GDP per capita of 20 non-eastern provinces of China was 14.5%, higher
than 13.4% of 11 eastern provinces. Since the growth rate of investment in fixed assets was 19.9%
for eastern provinces, 33.3% for central provinces, and 28.2% for western provinces in 2007, noneastern provinces will continue to grow faster than eastern provinces, further narrowing the
coastal-interior gap.
If China in the 1980s and 1990s was like a single-locomotive train pulled forward by eastern
provinces, China in the twenty-first century is like a multi-unit train driven by powerful engines of
all units. With the 31 provinces distributed across different levels of development with some
degree of specialization based on comparative advantage in labor-intensive, resource-intensive,
capital-intensive or knowledge-intensive industries, competition among provinces has reduced
while complementarity among them augmented.
If the Chinese economy could grow in the past with enlarging disparities and more internal
competition, there is no reason why it cannot grow in the future with narrowing disparities and
more internal complementarity.
The Century of Development
In his Special Message to the Congress on Foreign Aid on March 22, 1961, President Kennedy
made the following proclamation: “The 1960s can be—and must be—the crucial ‘Decade of
Development’—the period when many less-developed nations make the transition into self-
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sustained growth—the period in which an enlarged community of free, stable, and self-reliant
nations can reduce world tensions and insecurity. … We must say to the less-developed nations, if
they are willing to undertake necessary internal reform and self-help … that we then intend during
this coming decade of development to achieve a decisive turnaround in the fate of the lessdeveloped world.”
Unfortunately, only the East Asian Tigers succeeded in such a transition, taking advantage of
generous US Cold War foreign aid programs and/or astronomical US spending on the Vietnam
War. Although the United Nations launched the Second Decade of Development in 1970, the
Third Decade of Development in 1980 and the Fourth Decade of Development in 1990, a majority
of developing countries were lagging further and further behind developed countries, suffering
from depressed commodity prices, economic/political instability, population explosion, etc.
It was China in the late 1970s and India in the early 1990s that started a decisive turnaround in the
fate of the less-developed world. By undertaking necessary internal reform and self-help, China
and India have demonstrated that fast growth can be achieved at a very low GDP per capita with
very limited foreign aid.
When China cut its foreign aid in the late 1970s and early 1980s to start its economic take-off,
Deng Xiaoping promised that China would be in a better position to help its friends when the right
time would come. This is in fact another of China’s development strategies—“allowing China to
become rich first.” After the success of this strategy, it is time for China to deliver Deng’s promise
by a combination of investment, trade and aid as well as communication and interchange of ideas.
The twenty-first century will be the century of development. Just as the success of the Chinese
outside the Mainland and the success of the Japanese and the South Koreans inspired and helped
the Mainland Chinese embark on the road of reform and development, the success of China will
inspire and help other developing countries embark on their road of reform and development.
However, China and its developing friends face much more stringent environment and resource
bottlenecks in the twenty-first century than the East Asian Tigers did decades ago. Therefore, they
will have to be more innovative and the twenty-first century will have to be the century of green
development.
The development of China and other developing counties can not only reduce world tensions and
insecurity and solve many other problems but also induce positive changes in developed countries.
In a written testimony prepared for a hearing before the Subcommittee on East Asian and Pacific
Affairs of the United States Senate on June 7, 2005, David Lampton, director of China Studies at
the Johns Hopkins School of Advanced International Studies, observes that “China is turning out
language proficient, culturally adept and scientifically and technically capable people at home and
abroad in ever-greater numbers. We must do the same. If Chinese competition motivates us to do
what we should be doing, this is positive.”2 This can be an excellent example of such positive
changes
2
Lampton, David (2005), What Growing Chinese Power Means for America
(http://bulk.resource.org/gpo.gov/hearings/109s/25358.txt)
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However, such positive changes may not happen automatically because part of human nature is
aversion of risk and avoidance of change and I can feel that aversion and avoidance under the
surface of all these “myths” about China—if China’s fast growth in the future will be impossible,
then there will be no need for making change and taking risk.
But the truth of the century of development is “no change, no survival.”
References:
Wu, Jinglian (2005): Understanding and Interpreting Chinese Economic Reform
Anderson,
Jonathon
(2006):
How
to
Think
about
China
(www.ceibs.edu/library/new/newresources/images/20070301/5342.pdf)
Izraelewicz, Erik (2005): Quand la Chine change le monde (When China Changes the World)
Maddison, Angus (2007): The Chinese Economic Performance in the Long Run 960-2030 AD
(2nd edition updated)
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