Making the big transition

By Andrew Moody and Hu Haiyan (China Daily) Updated: 2014-09-01 06:44

Whether Wuxi is an example of where China is heading by 2020 is a matter of debate.

Zhu Ning, deputy director and professor of finance at the Shanghai Advanced Institute of Finance.CHINA DAILY

In Beijing, Zhu Ning, deputy director and professor of finance at the Shanghai Advanced Institute of Finance, actually hopes not.

He says there is a nouveau riche attitude in places such as Wuxi that is largely absent in more developed countries in the West.

"I think Chinese people who travel to the US and Europe have this strong shock when they don't see this conspicuous consumption of flashy cars and expensive iPads. I think this is because what you have in the West is a more mature income distribution that prevents this."

Ruchir Sharma, head of emerging markets and global macro at Morgan Stanley Investment Management.CHINA DAILY

But Ruchir Sharma, head of emerging markets and global macro at Morgan Stanley Investment Management, based in New York, does not see pockets of wealth in places such as Wuxi as necessarily a problem.

"You always get inequality between regions. We all know that development tends to be much faster in coastal areas. That has been the experience of all economic development and it was true of the United States as well."

The much bigger question is whether China will succeed in joining the high-income club and meet the target likely to be set in the 13th Five-Year Plan (2016-20).

Many emerging nations have fallen into the so-called "middle income trap" from where they have found it impossible to achieve full development.

This has been true of many Latin American countries, which suffered a major debt crisis in the 1980s and had to be bailed out by the International Monetary Fund.

Brazil, host of this year's soccer World Cup and a large emerging economy, has never succeeded in breaking out of the trap, with many of its citizens living in abject poverty.

Russia and South Africa are other BRICS economies that are also not in the top league.

Justin Yifu Lin, former chief economist at the World Bank and professor at the National School of Development at Peking University.
CHINA DAILY

Justin Yifu Lin, former chief economist at the World Bank and professor of economics and honorary dean of the National School of Development at Peking University, is one who is confident China will meet the target of becoming a high-income country.

He believes that its economy has huge scope for fast growth over the next 15 years without even changing its existing investment-led model, which others argue might itself cause a bust.

His view is based on the fact that China reached a per capita income of 21 percent of that of the United States in 2008. Japan achieved that level in 1951, Singapore in 1967 and South Korea in 1977 and all grew at above 7.5 percent or more annually for 20 years thereafter.

"What drives income levels is an improvement in labor force productivity. This requires continuous technology innovation and industrial upgrading," he says.

China, according to Lin, has what he terms a late development advantage in that it does not need to develop its own new technology but can just copy that which exists elsewhere.

"China has realized this advantage in its first 30 years of development after reform and opening-up and there is no reason why it shouldn't continue to do so. It can innovate and upgrade its industry (and boost incomes) by imitating the technology of developed nations. It involves much lower costs and risks than developing its own technology."