Wang Mengkui

Thanks to more than two decades of reform and development, China’s society and economy have undergone phasic changes of major historic significance. The main phasic features of such changes can be summarized in the following five basic aspects.

1. The economic system has undergone fundamental changes. The socialist market economic system is by and large in place and the initial transition of economic system has been realized. An overall evaluation indicates that by the end of the 1990s, more than 50 percent of the Chinese economy had been marketized. In another word, China has turned from a planned economy into a market economy.

2. China has opened to the outside world in an all-round way and its economy has evolved from a closed or semi-closed one into an open one. There have been three fundamental changes: the opening has covered all areas instead of limited areas, has been conducted in keeping with long-term development goals and international practices instead of short-term needs, and has been targeted to the entire world trade system instead of a limited number of countries. With its foreign trade ranking ninth in the world in 2000, the internationalization of the Chinese economy has become increasingly tangible.

3. The economic structure has undergone major adjustments, with the process of industrialization accelerating from the initial stage to the medium stage. The facts are as follows: First, the proportions of the primary, secondary and tertiary industries have demonstrated a visible change, from low level to high level and from serious imbalance to basic rationality. During the 1978-2000 period, while agriculture posted rapid growth and the supply of agricultural products realized a historic change characterized by a basic aggregate balance and a surplus in good years, the proportion of the added value of the primary industry dropped from 28.1 percent to 15.9 percent, that of the secondary industry rose from 48 percent to 50.9 percent and that of the tertiary industry went up from 23.7 percent to 33.2 percent. In addition, the “bottlenecks” that had long constrained China’s economic development, such as raw materials, energy and transport, were basically eased, and modern service industries were growing vigorously. Second, while the total population increased by 300 million during this period, the proportion of farm labor fell from 70.5 percent to less than 50 percent and that of the secondary and tertiary industries rose to more than 50 percent. Third, a relatively comprehensive system of industries has been established. The manufacturing industry boasts of a fairly strong capacity, the contributions of structural adjustments and scientific advance have become more visible, the industries of high and new technologies have become a major driving force for the growth of industries and even the entire economy, and industrial production has been more adaptable to the changes of demand. Fourth, while the export of primary products such as agricultural products has expanded rapidly, they account for a drastically smaller proportion in export commodity composition. From 1980 to 2000, the proportion of primary products dropped from 50.3 percent to 10.2 percent, while that of industrial products rose from 49.7 percent to 89.8 percent. Starting from scratch, the products of high and new technologies account for more than 15 percent of the total exports. Judging from China’s industrial structure, manufacturing capacity and export structure, we may say that China has realized initial industrialization. If the criteria for industrialization classification put forward in the 1960s by Channery, World Bank economist, are converted into the 1998 rates, the per capita GDP at the initial stage of industrialization should be 1,200-2,400 U.S. dollars. In that sense, China has not yet entered the initial stage of industrialization. If calculated on the basis of purchasing power parity, the per capita figure at the initial stage of industrialization should be 3,010-5,350 dollars. In that sense, China has just entered the initial stage of industrialization. This obviously does not conform to China’s actual conditions. China is a country whose development is grossly uneven. It has a population of more than one billion. It has unique historical and cultural traditions as well as a unique system background. All these factors must be taken into account when international comparison is conducted. While many indicators would be distorted, many aspects are not comparable.

4. The economic strength is visibly increased. From 1981 to 2000, the Chinese economy grew at an average annual rate of more than 9 percent, the fastest in the world. Its GDP in 2000 was more than six times that in 1980. While its population increased by 300 million, its per capita GDP quadrupled during this period, which in fact surpassed the targeted GDP growth set at the beginning of the reform. The chronic shortage of commodity supply has become something of the past. This change in market demand-supply relationship is of fundamental significance. It indicates that economic growth has moved from the stage that supply was the main constraint to the stage that demand is the main constraint. This results from the development of productivity and system transition.

5. The people’s livelihood has realized two historical transitions, namely from poverty to having enough to eat and clothe and further to being better off. Overall, the Chinese people today can be classified as being better off. We say “overall” because China still has 30 million people who are not having enough to eat and clothe, a greater number of people have not been better off even though they have enough to eat and clothe, and the nationwide disparity in development is taken into account. In both rural and urban areas, a considerable number of people are still living in difficulty and deserve special care and attention.

To summarize the above five major changes, we may conclude that China has completed the first two of the “three steps” envisaged by development strategy for modernization. The country has started to take the third step. These phasic changes are characteristic of the specific development stages of the socialist period. Today, China is still in the initial stage of socialism. We should never forget this just because of the great achievements made in the past two decades. Completing the first two of the “three steps” does not mean we have covered two-thirds of the entire modernization process. Roughly we still need to work hard for half a century, or by the middle of this century, to basically realize modernization. We should be fully conscious of the long time and difficulties associated with our modernization drive.

When examining the Chinese economy, we should pay attention to two issues.

One is the relationship between “aggregate amount” and “per capita amount”. In 2000, China’s GDP reached 8,900.4 billion yuan, which was equivalent to more than 1,000 billion U.S. dollars at current exchange rate. This ranked China the sixth largest economy in the world. The total amount of the economy was very impressive. But China has a population of more than 1.2 billion. As the “denominator” is too large, the per capita amount is less than 1,000 U.S. dollars, which places China at the lower end of the middle-income countries. China’s economic aggregate is undervalued if calculated in the existing exchange rate-based method. However, if calculated in purchase power parity (international common price), the exchange rate of RMB against the U.S. dollar would be 2.5:1. Then the aggregate of China’s economy would be 3,500 billion U.S. dollars and the per capita amount would be 3,000 U.S. dollars. Even so, China should still be classified as a developing country. World Bank data indicate that if calculated on the basis of purchasing power parity, China has become the world’s second largest economy, next only to the United States and listed before India and Japan. As a matter of fact, the method based on the purchasing power parity is imperfect, too. The method based on exchange rate is still prevailing in the world. No matter what method is adopted, both “aggregate” and “per capita amount” are important indicators for examining a country’s economy. The fact that the economic aggregate of China ranks sixth in the world means the country has a considerable economic strength; the fact that the per capita amount is small means China is still a relatively poor country.

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