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Lin Yifu: China’s Economy Enjoys 8% Growth Potential for At Least a Decade to Come

Source: Economic Daily Date: 2015-03-24

According to a report by journalist Ou Yangyou from Economic Daily on 22 March, China is now just a medium-level developed country, with huge technological and industrial gaps with developed countries. But the gaps are also China’s advantages of backwardness, which will be turned into the driving force for sustained economic growth in China.

After the Chinese economy entered the new normal, how high a growth rate will it sustain? At the China Development Forum 2015 Economic Summit, Lin Yifu, Honorary Dean of the National School of Development at Peking University was upbeat, saying that “for a decade or more to come, China will enjoy the potential for 8% annual growth, remaining the most important engine for global economic growth

Lin Yifu said that to have a good understanding of a country’s economic growth, the first thing is to understand how much growth potential it has and whether it has the conditions to tap the potential and transform the potential into growth reality. To him, the advantage of backwardness is the key. “For both developed countries and developing ones, the improvement of labor productivity lies in technological innovation and industrial upgrading. Developed countries are leading the world in terms of technology and industry, and so they will have be make self inventions to realize technological innovation and industrial upgrading. But China’s current per capita income is 7,500 US dollars, and it is just a medium-level developed country. It still has huge technological and industrial gaps with developed countries. But the gaps are also advantages of backwardness for China, which will be turned into driving forces for sustained economic growth in China.”

That said, how great are the advantages of backwardness? How can we measure them? Per capita GDP is a measurement for the gap between China and developed economies. As Lin Yifu indicated, China’s per capita GDP in 2014 was just 13% to 14% that of the United States and just 25% that of the United States on a PPP basis. History shows that Japan and the ROK achieved 8% to 9% growth rates in a similar process of catching up. Likewise, with its advantages of backwardness, China enjoys the potential of over 8% growth.

According to Lin Yifu, capital abundance is also one of the advantages of China in economic development. He said that China’s current government debts are less than 50% of GDP, and private savings rate 50%, plus the 4 trillion US dollars of foreign exchange reserves providing ample funding for imports. Those factors make the biggest difference between China and other developing countries. “If we can make good use of these advantages, we will better bring out the potential for economic growth”, said Lin Yifu.

Based on such analysis, when talking about the 7% GDP growth target in this year’s government work report, Lin Yifu further stated that “this target is well within reach and very probably the rate will turn out even higher.” He also predicted over 7% annual growth rate during the 13th five-year plan period from 2016 to 2020.