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China’s Economic Transformation as New Impetus to Global Economy

Aug 14,2017

By Wang Yiming

Research Report Vol.19 No.3, 2017

I. Economic Globalization at an Intersection

At present, the world is experiencing an unprecedented shake-up. On the one hand, the economic globalization continues to expand and penetrate, science and technology advance rapidly, and material wealth keeps on growing. Global trade, capital investment and population migration have reached an unprecedented scale; the Internet is connecting more and more people, and the number of people who own mobile phones has exceeded the number of people who have access to basic utilities worldwide. On the other hand, some parts of the world are troubled by incessant wars, political conflicts, and social turmoil, which causes the growing population of refugees and more resources channeled to a small number of people. The advancement of information network technology did not create more opportunities for the poor and the working class as expected, while the rule of the game that “winners have it all” exacerbates the problem of unemployment and shrinks the middle class.

To attribute such global issues as refugee problems and income inequality solely to economic globalization is partial and at odds with the reality. Economic globalization has integrated the world market, promoted trade and investment, fostered global economic growth and prosperity, and facilitated the development of science, technology and productivity at an unprecedented pace. Globalization-driven economic development has also lifted more people out of poverty. According to the World Bank report that from 1990 to 2013, the population that lived on less than $ 1.9 a day reduced from 1.85 billion to 767 million; Gini coefficient of income disparities between countries was decreasing and the global income distribution was a more balanced curve.

The rise of anti-globalization and the fall of global economy into a “low growth dilemma” are inseparable. After the 2008 financial crisis, eight years’ low growth and some countries’ economic stagnation further exacerbate the global income disparity, which had great impact on the interests of some population, including the blue-collar workers of developed countries, and intensified various conflicts. In this case, to “brake”, to “reverse” or to propel globalization will have their respective influence on the recovery process of global economy.

II. The Recovery of Global Economy at a Critical turning Point

The adjustment measures taken in the recent past eight years after the financial crisis bring a new dawn to the world economy. Since the second half of 2016, the indicators of the major economies have shown positive improvement: the commodity market gradually picks up; the weights of G20 manufacturing PMI remain expanding; prolonged risk of deflation become lessened; bond yields are on the rise; financial market has better risk appetite. Driven by stronger confidence in investment and rising commodity prices, global trade shows signs of stabilization though at a weak level. According to the forecast issued by International Monetary Fund, the world economic growth will rise to 3.4% in 2017 from 3.1% in 2016. Overall, the economic growth is expected to stabilize after rebounding from the prolonged low volatility. The global trade growth is expected to turn the tide after chasing the economic growth rate for five consecutive years. However the anti-globalization movement, growing trade protectionism and geopolitical turmoil may still affect the recovery of global economy.

Under the current situation, if we, just for temporary interests, engage ourselves in trade protectionism behind closed door, impede the mobility of capital, goods and personnel, and seek the haven of exclusive privilege, we will create uncertainty to the global economic recovery. On the contrary, if we follow the trend of globalization, counter its negative effects, forge an upgraded version globalization, and promote a strong, sustainable, balanced, and inclusive economy, we will open up a brighter future for the global economy.

III. China’s Economic Transformation as New Impetus to drive Global Economy

China’s economic development has been deeply integrated into the process of globalization. From the initial reform and opening up, to a member of WTO, and then a big player in trade and foreign investment, China has been an active participant and promoter of globalization. Since the conclusion of 18th CPC National Congress, China has been actively promoting a new round of economic restructuring, where the economic growth relies less on the contribution from investment and export but more on consumption, service and innovation-driven business. In 2016, 64.6% of economic growth came from consumption and service industry accounted for 51.6% of GDP. Since the second half of 2016, with the further structural reform on the supply end, China’s economy has shown a series of positive changes, a slow but stabilized economic growth, rising industrial production prices and business efficiency, and a better than expected employment rate; especially the rebounds of endogenous indicators in the manufacturing industry, private investment and other market force dominated sectors, suggest that factors for a stabilized economy continue to accumulate. The economic growth is expected to advance from the stage of “deceleration” to “quality improvement” with a focus on quality and efficiency.

China’s economic upgrade is an integral part of the global economy. In the past few years, the Chinese economy has contributed more than 30% to the world’s economic growth. As “the prime engine” to the world economy, it is expected that China’s economic transformation will be a key impetus to drive economic globalization.

First, China’s economy is transitioning from “world factory” to “world market” and will continue to enhance global market demand. Inadequate demand is an important factor for the world’s sluggish economic recovery, and the greatest potential market demand lies in China. In terms of purchasing power parity, China’s consumption accounted for only 6.6% of global consumption in 2006, but rose to 15% in 2015. In terms of share of increment, in the past two years, China has accounted for one third of the growth globally. With the rapid growth of income and an expanding middle-income class, individual’s purchasing power will continue to increase significantly. According to the estimate of the Task Force of the State Council Development Research Center, China’s middle-income population is 280 million by the standard of “household expenditure of 10-100 US dollars per capita per day” set forth by World Bank, or over 270 million by the standard of “household annual income of 90-230 thousand per capita.”Both estimation measures yield similar result, suggesting that the middle-income population accounts for about one-fifth of the total population. But the proportion of middle-income group in China is not only significantly lower than that of developed countries but also lower than that of those countries at a similar stage of development as China. In the next period, with the growing middle-income group, China will become the market with the strongest growth and of the greatest potential. It is expected that in the next five years, China’s imported goods will reach 8 trillion US dollars, imported services trade exceed 2 trillion US dollars, and outbound travels total 700 million. Such large-scale cross-border trade of commodity and services will bring about more opportunities for economic development globally.


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