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Reinterpreting China's economic success to understand its future

China capitalized on its huge population and geographic size to become the world’s most efficient assembler and exporter of manufactured goods, but the country’s transformation is now reaching a critical turning point.

Published on November 10, 2010

WASHINGTON, November 10—China capitalized on its huge population and geographic size to become the world’s most efficient assembler and exporter of manufactured goods, but the country’s transformation is now reaching a critical turning point.

In a new paper, Yukon Huang explains how China relied on lower transportation costs and a concentration of economic activities to foster rapid—albeit unbalanced—growth. If China builds on its recent success and adopts a more flexible exchange rate system, the four major policy questions that are now dominating the debate over China’s economic future can be answered as follows:

  • Will China’s economic growth slow down in the coming years? Lower investment rates and reduced trade surpluses point to slower GDP growth, but if China can increase productivity and consumption, the decline will be modest. Such an outcome would be more sustainable and beneficial to workers.
  • Is an appreciation of the yuan in the interest of the United States or China? A major one-time revaluation of the yuan would not be in the interests of the United States or China, but greater flexibility—in both directions—is in the interests of China and indirectly of America and the rest of the world.
  • Will China’s growth be driven by exports, investment, or consumption? A healthier balance between all three will be restored in the years ahead. Wages and consumption rise as a share of income, with investment declining to more sustainable levels. Trade surpluses will moderate but remain positive.
  • Can China continue to grow quickly while also reducing income inequalities? As growth centers shift gradually inland, poorer rural inhabitants move to the cities, and wages rise, income disparities will decline.

"Forces are now coming into play that will reshape China’s economic landscape during the coming years in ways that should help harmonize the impact on the global economy of China’s growth, which currently is rattling global trade and commodity markets," writes Huang.

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NOTES

Click here to read the full paper

Yukon Huang is a senior associate in the Carnegie Asia Program, where his research focuses on China’s economic development and its impact on Asia and the global economy. Previously he was the World Bank’s country director for China (1997–2004) and Russia and the former Soviet Union Republics of Central Asia (1992–1997). Earlier he served as lead economist for Asia and chief for Country Assistance Strategies. He has also held positions at the U.S. Treasury and various universities in the United States, Tanzania, and Malaysia.

The Carnegie Asia Program in Beijing and Washington provides clear and precise analysis to policy makers on the complex economic, security, and political developments in the Asia-Pacific region.

The Carnegie–Tsinghua Center for Global Policy is a joint U.S.–China research center based at Tsinghua University in Beijing, China. The Center brings together senior scholars and experts from the United States and China for collaborative research on common global challenges that face the United States and China.

Press Contact: Kendra Galante, 202-939-2233, pressoffice@ceip.org

Carnegie does not take institutional positions on public policy issues; the views represented herein are those of the author(s) and do not necessarily reflect the views of Carnegie, its staff, or its trustees.