Opinion
China's model creates economic miracle
By Shujie Yao (China Daily)
Updated: 2009-10-17 11:38
As celebrations of its achievements over the past 60 years subside, China can look forward to its next milestone: surpassing Japan as the world's second largest economy before the year is out. Another target reached ahead of schedule - and further evidence that China is emerging from the financial crisis as the big winner.
Based on past records, and taking into account China's expected growth rate over the next two decades, China will overtake the United States to become the largest economy in the world within five years measured in purchasing power parity-terms, and within 20 years measured in nominal terms.
It could be even sooner. These predictions are based on the assumption that the US economy will grow 3 percent per year and the Chinese economy 9 percent per year, assuming constant nominal exchange and inflation rates for both countries.
But if the yuan continues to appreciate against the dollar as it has done in the past decade, and/or if China's domestic inflation rate is higher than that of the US, China will gain ground even quicker.
Much will depend on China's ability to adjust its economic growth model in the face of huge environmental pressures. China had become the largest producer of many key industrial and agricultural products by 2007, including rolled steel (566 million tons), coal (2.5 billion tons), chemical fertilizers (58 million tons) and personal computers (121 million, or 30 percent of the world's output).
It produces two-thirds of the world's photocopiers, microwaves and shoes, 60 percent of mobile phones and 75 percent of toys. In 2009, China may well overtake the US to become the world's largest consumer and producer of motor vehicles. This huge leap in production and consumption has caused serious damage to the environment.
But one of the opportunities brought about by the financial crisis - and subsequently declining exports - is that Chinese companies have been forced to increase their competitiveness by moving up the technological ladder. Many are rebalancing their geographical distribution and becoming more efficient in their use of resources and energy.
Also to China's advantage - in the short term at least - are the depressed oil and material prices, which has helped China sustain high economic growth as it is the largest importer of such commodities.
The gradual shift away from an economy reliant on low-cost exports will be tough but China has a clear national strategy to become a powerful world business leader. The government has been supporting and fostering a large number of gigantic State-owned industrial groups. These selected groups have been allowed to grow rapidly in size and profitability domestically, and then encouraged by the State to expand globally.
State-owned banks are providing strong financial support for them to make foreign acquisitions and deepen foreign market penetration. Through capturing market share and making acquisitions overseas, they are competing directly with, or working alongside, the world's most powerful transnational corporations.
There have been unforeseen setbacks. China National Offshore Oil Corporation failed in a bid to acquire Unocal in 2005, and in June 2009 the Chinalco-Rio Tinto deal came to a sorry end for the Chinese.
China has learnt from these disappointments. Recent overseas successes include Sinopec's $7.5 billion acquisition of the Canadian oil company Addax in August and Minmetals' $1.38 billion purchase of Australia's Oz Minerals in June. Chinese firms have embarked on their new Long March in the global economy - and they will come back stronger after every defeat.
For all the criticisms of its political structure and one-party rule, China has time and again demonstrated to the rest of the world that its political and economic model can be an effective tool for economic success.
The key to this model is not down to its capacity to copy from the Western development model, but to its ability to take the advantages of the Western model and modify them to suit the reality of Chinese culture and society.
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The resilience of the Chinese economy during the worst months of the financial crisis has added significant weight to this development model and provided a further boost to Chinese confidence.
The author is professor of Economics and head of the School of Contemporary Chinese Studies at the University of Nottingham in the UK.??
