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What is China's present stage of economic development?

posted 29 Apr 2011, 05:02 by Admin uk   [ updated 29 Apr 2011, 05:15 ]

Accurately assessing China's present stage of economic development is important. It determines what can realistically be expected from its economy and provides a yardstick for international comparisons.

The aim of this article is to provide this yardstick not in abstract statistics but in comparison to the development of Asia's two large industrialised economies – Japan and South Korea. Such comparison vindicates the Chinese government's realism, provides encouraging indicators of China's company development, and clears away confusions introduced by some commentators.

To assess China's stage of economic development it is important not to confuse the size of its total GDP with the best indicator of an economy's productivity – its GDP per person. The latter, not the former, determines how developed an economy is.

It is officially recognized that China will overtake the US to become the world's largest economy within 10 years. At market exchange rates this will take place around 2019. On the IMF's latest calculations it is likely in 2016, if the comparison is made taking into account different prices in differing countries.

China overtaking the US to become the world's largest economy will certainly be a turning point in world history – ending 140 years of the US holding that position. But China's huge GDP growth has led some non-Chinese commentators to mistakenly claim that China is no longer a developing country. For example Gideon Rachman, the Financial Times chief foreign affairs columnist, claimed earlier this year: "Anybody who talks regularly to Chinese officials will be familiar with the mantra that 'China is a developing country'. But Shanghai, which I visited last week, mocks this modest description."

The claim that China is a developed, and no longer a developing, country is also used to spread a myth that China's economy is not "creative" – allegedly proved because China has not yet created brands as world famous as Apple or Google. According to British economist Will Hutton, for example, not only China but all of Asia outside Japan is unable to achieve this "creativity". He claims: "The reason why so few Britons can name a great Chinese brand or company… is that there aren't any." And: "Asia, except Japan, remains in essence a subcontractor to the West... China's... is an economy that does not innovate – it is the great copier and counterfeiter of Western technology. This may change over the next 200 years, but not during the lifetime of most of the people reading this column.... Not one of this century's general-purpose technologies will be made outside the West and Japan, which have held a monopoly for 300 years. Their lead will widen rather than narrow."

Actually the reality is China's government is entirely accurate in insisting that China is still a developing country. Even when China's GDP is as big as the US, given that China's population is more than four times that of the US, China's GDP per capita will still only be 23 percent of that of the US. China's very large GDP is important, for example in military defence, but even when China's GDP is the same as that of the US it will still be less developed than the US.

To make a real comparison of the present stage of economic development of China it is useful to take its present GDP per capita and see in which year other countries achieved that level. Taking internationally recognised statistics produced by the University of Pennsylvania, China's GDP per capita today has reached the same as Japan's in 1966 or South Korea's in 1986.

These are illuminating comparisons. Japan in 1966 and South Korea in 1986 were no longer primarily agricultural. But the glory days of the international impact of Japanese and South Korean industrialisation still lay ahead. By 1966 Japan's Toyota, protected by tariff barriers and restrictions on inward investment in a way China's car companies are not, was a significant force in the domestic car market but not yet a large scale exporter. South Korea's Samsung in 1986 was entering the high tech market, becoming a leading manufacturer of memory chips, but it was a decade before it became the style leader it is now.

By the mid-1960s and 1980s, the sectors Japan and South Korea had built themselves on were heavy industry, steel and shipbuilding, and domestically competitive motor cars. In short they precisely resembled China's economy today!

A significant difference to 1966 or 1986 is that the world's leading economy, the US, was less developed than today. The gap between the US and China now is bigger than that between the US and Japan and South Korea in 1966 or 1986.

To put numbers on this, in 1966 Japan's GDP per capita was 50 percent that of the US, and in 1986 South Korea's GDP was 30 percent that of the US. China's GDP per capita today is however only 19 percent that of the US. China today faces much more advanced competition from the US than Japan or South Korea did.

What, therefore, would we expect from this comparison? First, in terms of the industries in which China is strong you would expect it to look more or less as it does today – at its present stage of development you would not expect China to have brand names with the global recognition of Apple or Google. At this stage of their development Japan or South Korea didn't have them either. But within two decades Japan and South Korea did achieve them in Toyota, Honda, Sony, and Samsung.

Today, China's Haier is the world's largest domestic appliance manufacturer, Huawei is likely to overtake Ericson as the world's largest telecoms equipment producer in the next two years, and China is already the world's largest manufacturer of high speed trains.

In short, China's development today is entirely equivalent to Japan or South Korea at a similar stage of their economic growth. And in the following two decades of their economic development Japan and South Korea's brands stormed the world.

To make a real comparison of the present stage of economic development of China it is useful to take its present GDP per capita and see in which year other countries achieved that level. Taking internationally recognised statistics produced by the University of Pennsylvania, China's GDP per capita today has reached the same as Japan's in 1966 or South Korea's in 1986.


The author is a columnist with China.org.cn.

John Ross is Visiting Professor at Antai College, Shanghai Jiao Tong University. From 2000 to 2008 he was Director of Economic and Business Policy in the administration of the Mayor of London Ken Livingstone, a post equivalent to the current position of Deputy Mayor. He was previously an adviser to major international mining, finance and equipment manufacturing companies.

Opinion articles reflect the views of their authors, not necessarily those of China.org.cn
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