True level of development

However, the country's exports have long focused on labor-intensive products with low added value, which is in sharp contrast to the US, Germany, Japan and other developed nations whose exports are dominated by technology and knowledge-intensive products with much higher added value.

China's foreign reserves, which now exceed $3 trillion, are also considered by some to be evidence of its developed nation status. However, unlike developed economies, China's official foreign reserves cannot be regarded as its national wealth or fiscal revenues as many believe. Purchased by China's central bank via commercial banks or other channels, these foreign reserves have increased yuan liabilities while becoming the central bank's assets. However, this enormous volume of assets can be used neither as national wealth nor for financial outlay.

Compared with some developed countries, China's per capita foreign reserve is still at a low level, $2,140 in 2010, about a quarter that of Japan. In fact, for the US and Britain issuers of international currencies, the foreign reserves are not an index to reflect their national wealth. For example, the volume of dollars circulated within the US is more than the foreign reserves of all countries combined.

China's ever-bulging foreign reserves have also not changed its inadequate capability in outward investment. By 2009, the country's direct outbound investment value was $245.75 billion, only 1.3 percent of the world's total. However, the direct foreign inward investment to China during the same period was much larger, adding to its foreign reserves. The inadequate outward investment capability makes China a country only able to buy some low-return foreign national debts, compared with other developed countries that have benefited more from their direct large-scale outward investment.

China's economic scale is second only to the US and the gap between the two will further narrow considering China's current economic growth momentum and the dollar's continuous depreciation. But that will not change China's low per capita economic value and it will take time to improve people's livelihoods.

As its economic scale continues to expand, China will unavoidably undertake more international responsibilities and play a bigger role in international affairs. However, the increased responsibilities do not alter the country's current economic level as a developing nation and its national strength.

The author is deputy director of the Development Research Center of the State Council. The article first appeared in the latest issue of Qiushi magazine.

(China Daily 06/07/2011 page8)