As the West Retreats, China Ascends

bdnews24 desk
Published : 2 July 2018, 01:09 PM
Updated : 2 July 2018, 01:09 PM

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© Andy Wong/Agence France-Presse — Getty Images

Turning Point: President Xi Jinping is reappointed to another five-year term during China's 19th Communist Party congress, establishing him as the nation's most powerful leader in decades.

In 2018 China will mark the 40th anniversary of its transition from a planned to a market economy. It comes at a unique moment in history: The United States' apparent retreat from globalization offers a distinct opportunity for China to accelerate its ascendance as a guardian of the global trading system.

Meanwhile, the nation's rise from poverty to a world power in the last few decades can provide valuable lessons for other developing countries, especially as the Trump administration continues to pursue anti-globalization policies.

In 1978 China's per capita gross domestic product was $154, less than a third that of the nations in Sub-Saharan Africa. China was an inward-looking country with a trade-to-G.D.P. ratio of only 9.7 percent, versus 32.7 percent today.

Since the late 1970s, economic growth has been phenomenal. In 2009 China overtook Japan as the world's second-largest economy; it replaced Germany as the world's largest exporter of merchandise in 2010; it became the world's largest trading country in 2013; and it overtook the United States in 2014 as the world's largest economy, when measured in purchasing power parity. During this period, more than 700 million Chinese people have escaped poverty. China's is the only emerging economy that has not suffered a homegrown financial crisis in the last four decades.

Today, China is an upper-middle income country where per capita G.D.P. is close to $9,000 a year and that figure is likely to cross the $12,700 threshold, the hallmark of a high-income country, around 2025. China is also the world's largest producer of goods, and one of the most competitive countries in the world.

And China embraces globalization. The country has championed the ambitious Belt and Road initiative, which proposes to connect it with markets in Asia, Europe and Africa through infrastructure development. Despite open opposition from the United States at its inception, the Asian Infrastructure Investment Bank, proposed by China as a vehicle for the Belt and Road initiative, has 77 member countries today, making it one of the largest multilateral development institutions in the world.

In 2015 the renminbi was listed as one of five currencies in the International Monetary Fund's special drawing rights basket, alongside the American dollar, the Japanese yen, the euro and the British pound. This designation moved the renminbi one step closer to becoming an international reserve currency.

It is worth noting that after embarking on their own economic transitions, the former Soviet Union and Eastern Europe both suffered economic collapses, while China has seen much more success. The primary reason has been a difference in approach.

In the transition's early years, China had a large number of nonviable state-owned enterprises in capital-intensive industries, such as heavy-equipment manufacturing and steelmaking. In the open and competitive market, such industries could not have survived without protection and subsidies. Therefore the Chinese government subsidized these enterprises, but opened up investment in labor-intensive industries, in which China enjoyed comparative advantages. This dual-track approach allowed China to maintain stability and achieve rapid development.

A similar strategy was applied to opening up China's broader economy. China restricted the inflow of foreign capital to capital-intensive industries, which consisted mainly of state-owned enterprises. Labor-intensive industries, on the other hand, were opened up to attract foreign investment.

The dual-track transition came at a cost. Market intervention and distortion gave rise to corruption and inequitable distribution of income. Pollution worsened with the rapid development of manufacturing. To cope with these issues, during his first five-year period as national leader between 2012-2017, President Xi Jinping engaged the assistance of his ally Wang Qishan in a sweeping anticorruption drive; proposed allowing the market to play a decisive role in resource allocation by eliminating the distortions of the dual-track reform; and advocated for tight environmental regulation, which would balance high growth and "green" growth.

As China's economic clout grows, so will its influence in global governance. During China's 19th Communist Party congress in October, Xi won a second five-year term and emerged as the country's paramount leader. He is now tasked with completing China's transition into an efficient open market economy and contributing to a new order of international peace and development.

The nation will continue to pursue programs that eliminate poverty and hunger, not only within its own borders, but around the world. Instead of following the Western practice of imposing its values and ideologies on other developing countries as a precondition for humanitarian aid, China will continue to offer aid, trade and investment opportunities to developing countries while adhering to a principle of noninterference.

Since the late 1970s, China has been able to achieve dynamic growth through a combination of strong leadership and pragmatism. With continued foresight and openness, China is positioned to resume its historical role as a leading power in the world.

Justin Yifu Lin is director of the Center for New Structural Economics, dean of the Institute for South-South Cooperation and Development and honorary dean of National School of Development at Peking University. He was formerly senior vice president and chief economist of the World Bank.

© 2017 Justin Yifu Lin
Distributed by The New York Times Syndicate
Toufique Imrose Khalidi
Editor-in-Chief and Publisher