Economy

A bold vision that changed China

By John Ross (China Daily)
Updated: 2011-06-01 11:21

Thirty years ago, Deng Xiaoping set out an economic vision which seemed astonishing - a 70-year policy to transform China into an advanced economy. However, the targets for its first 30 years have already been exceeded and China's economic achievements are probably the most extraordinary in world history.

No major country has ever achieved an 8.5 percent a year increase in GDP per capita for over three decades. As Professor Danny Quah of the London School of Economics notes, China has lifted 630 million people out of internationally defined poverty - the single greatest contribution to human welfare in any country.

"We give ourselves 20 years," Deng said then, "from 1981 to the end of the century, to quadruple our GNP and achieve comparative prosperity. By the middle of the next century we hope to reach the level of the moderately developed countries."

Deng's goal was that by the mid-21st century China would have a GDP equal to the United States. It will take until the middle of this century for China to achieve the per capita income of a developed economy - China's GDP per head is still less than 20 percent of the US.

But China has already outperformed even Deng's predictions of its overall rate of development. The IMF's latest calculation is that at internationally comparable prices, China's economy will be as large as that of the US in 2016. At market exchange rates, China's GDP is likely to equal the US' in 2019.

Sometimes an interpretation is given that China's policy to achieve such extraordinary economic successes was purely pragmatic. But this is false. It applies to methods, not goals.

No country can achieve the world's most rapid growth for 30 years without an underlying economic approach. China rejected the "shock therapy" that proved a catastrophe in the former USSR. Outside China, intense economic discussions in China have simply not received the attention they merited. The goal to create a "socialist market economy" provided stability to China's economic policy.

China abandoned a planned economy, opened itself to the world and adopted more and more of the institutions of a market economy. The establishment of a stock exchange in 1990, the addition of a Nasdaq-style start-up exchange in 2009, the expansion and increasing sophistication of China's banking system and the increasing internationalization of China's currency are the symptoms of this.

But the State, while abandoning administering the economy, remains powerful enough to respond to crisis and maintain economic growth - as shown in the $586 billion stimulus package which successfully maintained China's economic momentum during the international financial crisis. The huge inflow of foreign investment shows how welcome this stability and growth is to foreign companies.

Deng Xiaoping's vision seemed astonishing. China's economic reality has been even more so.

John Ross is a visiting professor at Antai College of Economics and Management, Shanghai Jiao Tong University. From 2000 to 2008, he was then London mayor Ken Livingstone's Policy Director of Economic and Business Policy.