Sustainable Growth In China Essay

1464 words - 6 pages

Chinese economic growth in the past few decades has been truly remarkable. Gross Domestic Product (GDP) growth per annum on average reached 9.4% in the period 1978 to 2002, the total GDP in 1998 was 6.4 times the GDP in 1978 . Official stats may overstate growth by understating inflation but growth of at least 6% a year is still quite impressive. Prior to 1949, GDP per head was no higher than in 1820 and between 1949 and 1978, growth was only around 2.3% per capita per annum . China’s Gross National Product (GNP) grew 7.2% annually from 1978 to 1990, averaging 9.7% per capita from 1982 to 1988 and was among the best in the world . However, “past growth is a poor predictor of future performance” and the considerable volatility in China’s economic growth has prompted the question whether this growth is genuinely sustainable. China’s high savings rate, its advantages as a developing country, as well as its disciplined and literate labour force should prove its critics wrong. However, there are other underlying factors which determine the sustainability of growth such as the type of growth, the state of the environment and the transition of the economy from planned to market. China’s growth may not appear to be as sustainable when these factors are also taken into account.
The Chinese economy has some of the highest saving rates in the world, it averaged 37% of GDP between 1978 and 1995 . The stable and high savings rate supports vigorous rates of investment and capital accumulation – crucial for economic growth. Households currently contribute half of total savings. The rapid rise in GDP per capita has reduced the level of subsistence consumption. Rising aspirations have led to people saving a greater proportion of their income. Examples include the increasing availability of imported consumer goods and the desire to provide a better education for their children. Another explanation for the rise in the savings rate is the change in demographics. As life expectancy rises, there is a strong incentive for workers to save for their retirement as pension benefits may be inadequate due to rising living costs. In addition, declining fertility and the one-child policy has meant an absence of children to depend upon financially in old age. Trends like these will most likely continue as the Chinese economy becomes more open and as the dependency ratio rises. Therefore, the Chinese economy can expect economic growth which results from a high savings rate far into the future.
As China is a developing economy, it has a “backwardness” advantage. According to World Bank estimates, poor countries have tendencies to grow more rapidly than rich ones, controlling differences in educational attainment, savings and population growth . A developing country such as China has technological levels lagging far behind that of developed countries. It is then possible for China to adapt technological knowledge from advanced economies at a relatively lower cost in order to...

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