Enumerating the reasons why the Chinese economy will sustain its high growth rate for another two decades, he says: "There are basically two reasons. One is that there is still a lot of surplus labor in agriculture. The engine for high growth is still there. The second is that the Chinese economy has diversified very rapidly. It's quite flexible and entrepreneurial."
But a recent report of the Chinese Academy of Social Sciences surprised many by saying the most populous country in the world will actually suffer from a shortage of labor from 2009.
Spence, who won the Nobel Prize for Economics in 2001 for his contribution to the analysis of markets with asymmetric information, however, says: "The economy is more global in every dimension and it just seems to me that there is lot of potential. The reason I am optimistic is that I don't see anything in the way; your government seems to understand perfectly the dynamics (required for sustained high growth)."
The only way to stop China's high growth would be to shut the economy off from the rest of the world. "It's just not going to happen." Even 20 years later, China will continue to grow because its currency will appreciate, helping raise the income level and increase the wealth of the people.
Spence, who now visits China frequently, and is scheduled to attend a meeting on urbanization in Beijing this month, is concerned about the country's problems too, with the environment being right on top of his list.
Claiming to be more on the Chinese side on trade surplus and currency issues, Spence sees China's huge trade surplus as a likely cause of protectionism both by the US and the Europe Union. The high proportion of China's trade surplus is unprecedented in the world, he says. To balance the huge trade deficit, Spence hopes China would boost domestic consumption and bring down the saving rate.
He acknowledges, though, that the relatively high-income younger generation is spending more despite the fact that East Asians traditionally are good at saving. A solution to the trade imbalance could also be found by increasing social security and the pension system, making them available to everybody, improving the medical coverage in the rural areas and making education at all levels affordable.
Spence comes from a family that lays strong emphasis on education, and hence he believes it to be a vital driver of economic growth. Years ago, he joined China's top education official Wei Yu in Beijing to talk about education, human capital and the country's economic future.
He has also written articles in major business newspapers, criticizing ignorant and protectionist views on China's trade and economic issues because he says he understands the Chinese Government's pragmatic and experimental approach toward the currency issue. He thinks a measured appreciation of the yuan could be done with balanced and coordinated efforts. "I think it is good if this could be done more quickly."
Though the widening income gap and corruption are his other concerns, he is optimistic of the future because the Chinese leaders are aware of the problems and are trying to solve them. People should have been worried if Premier Wen Jiabao hadn't dealt with the problems in hisFive-Year Plan.
