Preface The Time from 2010 to 2040 Sees a Path to the Peak of China's Economy

If development is compared to climbing the hills, China's economy has been on the halfway after rapid growth over few decades. As magnificent scenery will be viewable in the perilous peak, will China's economy standing on the “hillside” move forward successfully and continue to challenge the new “peak”? Of course, there is no ending for the development. The metaphor “peak” seems inappropriate. Please allow me use it to describe the possible status where China's economy might stand. First of all, China's economy has been evolved into a developed economic entity from a developing one in terms of income level; secondly, with regard to economic system, China's economy has gradually stepped into a relatively stable and perfect system from an unstable and uncertain structure of “crossing the river by touching stones” and realized transition from “giving priority to efficiency and balancing equity” to “equal attention to efficiency and equity”; thirdly, with regard to economic growth, China's economy has been stable growth and slight fluctuation after rapid growth and sharp fluctuation. Meanwhile, economic growth tends to be more inclusive and sustainable and gratifies common people's pursuit for happy life more effectively. Please be noted that here I have never mentioned any gross index or ranking based on economic aggregate. In other words, what I have mentioned “peak” implies that China's economic aggregate is expected to go beyond a standard, rather than rank top in the world.

What Will China's Economy Become After 30-Year Reform?

“Thirty” was a magic figure in China's history. The thought described in the Chinese proverb of “Thirty years on the east side of the river, thirty years on the west side of the river” is perfectly reflected in China's modern history. Taking thirty years as the basis of intervals, China's modern history can be divided into three stages after the May 4th Movement, with a unique theme for each: self-rescue during the thirty years before the establishment of the PRC (1919-1949); self-reliance during the thirty years after the establishment of the PRC (1949-1979); self-reform during the thirty years of the reform and opening-up (1979-2009). At pivotal turning points between all the periods of thirty years, Chinese nation went through the transformation of being independent, wealthy and strong, and China's economy made headway by self-reliance, rapid growth and transcendence. During the thirty years of the reform and opening-up, China's economy has completed transformation from planned economy to market economy, from closeness to opening up, with amazing wonder of unprecedented growth. By the end of 30-year development, an unprecedented financial crisis hammered global economy, and globalization that supports rapid growth of China's economy is confronted with major uncertainties. However, China's economy has shaken it off, stepped up and leaped to the second place in the world, with a momentum to become the world's largest economic entity. With further improvement of the opening-up strategy, China also started to lead globalization to a new height. At the critical moment of national rejuvenation, China's leading nucleus has also gone through major changes over the past three decades. The atmosphere of governing the country has taken on a new look.

Where would China's economy be oriented in the next 30 years that might cover a new generation? What China's economy would be like in 2040? And, what will happen to China's economy in 2049 of the 100th anniversary of China? If the “13th five-year plan” is completed successfully, will the target of “a well-off society” after five years be realized? Then, will China's economy be “European style” or “Latin American style” after one or two decades? To answer the question of the future development direction of China's economy, we must be clearly and objectively aware of the following aspects: Above all, what stage of current China's economy is in by vertical and horizontal comparisons? Or, where are we? Secondly, what economic achievements have been obtained by China? Why such achievements can be obtained? In other words, what previous measures that we have taken prove right? Thirdly, what are major problems of current China's economy? And, what influence of internal and external changes are imposed on current China's economy? In other words, what else do we need to do? The understanding of the former two questions has led to our “self-reliance”, while the understanding of the last one has motivated our “self-reform”. Both are not contradictory.

Based on the current price and exchange rate, China's total GDP was up to USD 11 trillion in 2015, which was only secondary to the U. S. in the world. With per capita GDP about USD 8,000, China ranked nearly the 80th place. It only takes 17 years for China to reach per capita GDP of USD 8,000 from per capita GDP of USD 800. Its growth speed is without precedent. However, the influence on real purchasing power by exchange rate and inflation rate cannot be neglected. Besides, there is severe imbalance of income distribution in China's economy, which has caused big gap between the wealthy and the poor. A considerable number of Chinese people remain maintaining a lower living standard than international standard. Throughout the history, Chinese people's living standard had a leading role in the Mediaeval times. In the 18th century, Europe rose comprehensively and rapidly thanks to the Enlightenment Movement and the Industrial Revolution, while China declined speaking of relative and absolute meanings. From the perspective of “human history”, China has been on its way of “pursuing” western countries in recent few decades. It remains a long way for China to go before keeping pace with average living standard and even “surpassing” the leading role of western countries. Partial superiority is not absolutely impossible but is just happening. Efforts of several generations have to be made for comprehensive transformation for China from “following” western countries to “leading” them.

The rapid development and far-reaching influence of China's economy during the past 30 years of the reform and opening-up are unprecedented in world economic history. The history of China's economy since the reform and opening-up is a history of synergetic evolvement and joint promotion of economic transition (marketization), internationalization, industrialization and urbanization. There are many factors of politics, economy, society and culture that have led to “China Miracle”. Their occurrence depends on the overlaying of internal and external factors at different levels, which macroscopically involves in the resultant force for economic growth that the above-mentioned multiple transformations have brought. In contrast with India of relative comparability, some issues can be explained. Huge difference in all indexes has occurred to the two large developing countries, which were at similar economic level 30 years ago. Regardless of comparison with previous China's history or that with other countries, it is not exaggerative to emphasize the great influence of the 30-year rapid development of China on the fate of its state and nation. In this regard, the efficiency of China's development pattern turns out to be self-evident.

However, some major factors to determine rapid development of Chinese economy are changing. Back to the metaphor of “climbing”, China's economy standing on the “hillside” is confronted with unprecedented challenges after rapid growth at early stage. First of all, the climate has changed from the previous “sunshine” to “strong wind and heavy shower” till “continuous haze”. The U. S. Great Recession, breaking out in 2008, including financial, economic and debt crises, has brought great influence on global economy, only secondary to the Great Depression in 1929. In this recession, developed countries were “mainly affected” with its severity unparalleled after the Great Depression. More importantly, financial crisis respectively and alternately attacked American,European and emerging markets and brought the “second attack” to global and China's economy. Owing to continuous insufficiency in effective demand, the global economy maintained a slow increase. Meanwhile, globalization tended to be impaired after the Cold War. As Chinese “30-year change” occurred, global “30-year change” made its appearance. As for China striving for opening-up and development, obvious changes of external environment restricted its rapid economic development following its previous path, while protectionism and “de-globalization” involved insidious risks.

Secondly, the old pattern has become more tough and arduous—changing from its previous “gentle slope” to the current “muddy and abrupt slope”. With the gradual disappearance of internal advantages of China's economy, such as “demographic dividend” and abundant supply of low-cost factors, previous contradictions accumulated previously, such as environmental and social problems, have become more acute. In addition, previous development patterns driven by export and investment have been increasingly restricted, and extensive development road with high energy consumption and contamination has been gradually prohibited. Meanwhile, both paths and obstacles are not easily blazed and removed. In the process to explore the reform and opening-up and economic development model, China took gradualism guideline of “learning by doing” and “crossing the river by feeling the stones”, and adopted the measure of “bypassing” to avoid certain obstacles. Now, as China's reform and opening-up has entered the “deep-water area”, some problems that could previously be evaded have to be immediately addressed.

Although China's economy is confronted with difficulties and obstacles, there is a certain fact that China will finally exceed the U. S. in economic aggregate. The “overtaking” consists of two stages of “following” and “surpassing” at gross and per capita levels. As previously mentioned, the “peak” status that I put forward, in fact, has far surpassed the goal of economic aggregate, which puts more emphasis on economic system, per capita income and living standard. The “peak” is also the metaphor for the content concerning mentality and perception, with the cognition evolution detailed as follows: from the pursuit of GDP figure and economic aggregate to stressing the inclusiveness and sustainability of economic development and sense of happiness and qualify of people's lives, from pressure of lagging behind to composure in keeping abreast, and from sparing no efforts to obtain sharp increase of “modernization” to maintaining stable growth of “post-modernization”. In fact, China's GDP became top in the world “in advance” in 2014 on the basis of PPP (purchasing power parity). Of course, economic scale based on PPP is obviously overestimated. However, China remained the country possessing GDP more than ten trillion only secondary to the U. S. even though actual exchange rate is taken for calculation. Now, we have to face another question: what China's economy would be like in the next thirty years?

Decelerated Growth and Accelerated Transformation

In December 2009, I published the comment titled Growth Goal of China's Economy Should Go on Proper Downward Regulation and pointed out that the growth goal of China's economy from 2010 to 2020 shall be reduced to 7%. My appeal to slow down the economic growth might be earlier than others. Later, I was happy to know that my advice came true, as the estimated goal of annual average economic growth rate was determined as 7% in the “12 th five-year plan” (2011-2015). Especially in the recent two years, proper decelerated growth has become common sense among decision makers and also the main contents of the “new normal” of China's economy. Besides, I also threw light upon necessity to lower acceleration of economic growth and additionally emphasized contradictions between “maintaining economic growth”, “optimizing economic structure” and “preventing economic bubbles”. Although circumstances and problems confronted by China's economy have obviously changed, the basic logic of my article remains available for the current situation of China's economy. Decision makers ought to have an objective knowledge of the restrictions of internal and external economic environments, formulate feasible goals of economic growth and avoid strong stimulation for economy. I composed this article in 2009 out of temporary fears for debt, capacity and expanded bad debt caused by excessive economic incentive measures at that time, which also presents my personal reflection on the future 30-year development of China's economy against the backdrop of unexpected external environment.

Looking forward to the year of 2040, China's economy is expected to realize the “growth platform” for three continuous ten-year periods, respectively at a medium-high rate of 6% to 8%, a medium rate of 4% to 6% and a medium-and-low rate of 2% to 4%, presenting a long-periodic “L-shaped” trend (Figure 0.1). The law that the speed of economic growth diminishes as income increases in the long term, in theory, can be expounded from different perspectives in terms of macroeconomics, development economics and international economics. On the other hand, it can be verified through real evidence, such as historical data of developed economic entities and catching-up economic entities, which are exemplified by the Four “Asian Tigers”. However, historical experience also indicated that maintaining long-term growth was not inevitable. Against the backdrop of major crisis and structural drawbacks, negative growth and secular stagnation could possibly occur to economy. Therefore, structural improvement in the long term and major crisis avoiding are believed as the important prerequisite of the “growth platform” hypothesis. Under this premise, uncertainties of domestic and international economy, together with relevant influence on economic growth, are basically reflected by three hypothetic scenes of economic growth at an “ideal rate”, a “medium rate” and a “low rate”.

The per capita income of China made China's economy growth among the economic entities of “upper middle income”. The new challenge for China is how to make further progress in the group of “middle income” of USD 6,000 to USD 12,000, surpass the “middle-income trap” and become a high-income economic entity. Comparing economy of China and the U. S. on the basis of unchanged exchange rates, given the U. S. economy goes on a continuous rise at the rate of 2%, if China's economic growth maintains at a “ideal rate”, the per capita income of China will break through high income of USD 12,000 in 2025, with its aggregate GDP surpassing that of the U. S. in 2030; if China's economic growth maintains at a “medium rate”, it would be five years later than what was expected for the overall scale of China's economy to exceed that of the U. S. . The “route map” of degressive growth seems conservative, but is a highway leading China's economy to the “peak” instead. Based on the data in 2009, as long as China's economy follows the aforementioned route and maintains a stable state, the “peak” is promising in the 2040s.

To determine a proper growth rate on the basis of long-term development goal, interim periodical change and short-term potential growth rate will be a problem always confronted by decision-makers for China's economy. If determining short-term “potential growth rate” is perceived as one of the tactics concerning the management of economic growth rate targets, the prediction of the long period of economic growth and “great momentum” is related to strategic issues. Long-run forecast for future trend is required by economic entities of all kinds to make decisions. Undoubtedly, the economic operation following the degressive “growth platform” will be ideal for China's economy growth, which can be taken as the long-term instruction for development strategy formulation and macroeconomic regulation, as well as an important tool to lead and stabilize social expectations. In any case, whether the outbreak of major crises in economy, finance and society can be avoided is critical to the future development path of China's economy. In a few decades after the high-speed growth, China's economy ought to be better balanced between “speed” and “stabilization”. Meanwhile, basic policy ought to focus on “maintaining stability” rather than “pursuing high speed”. Moreover, as the internal and external environments of China's economy have been greatly changed, favorable conditions have been increasing and unfavorable factors have been decreasing. In this regard, the “steersmen” of China's economy shall actively “shift” gears, properly slow down and reduce “driving” risks. In the long run, periodical speed reduction and sectional stabilization are also a reasonable and feasible choice of policy.

Historical experience revealed that developing countries'journey to catch up with and surpass developed countries was not smooth. The upgrade of middle-income and low-income countries to high-income ones was often arduous. Being caught in the “most underdeveloped predicament” for a long time, a large number of low-income countries were all the time afflicted with poor economic development and national long-lasting poverty. Even though they went beyond the middle-income threshold, fewer countries were successful in dodging the “middle-income trap”. Similarly, high-income countries might also suffer from the “trap”. Japan was a typical example. Its nominal GDP has stagnantly remained JPY 500 trillion since the middle of the 1990s. Successful transition and upgrade of China's economy is essential for it to evade the “trap” and move towards the “peak”. Looking forward to the forthcoming 30-year of China's economy, innovation and multiple transition of economy will unceasingly release the impetus for economic growth. The “traditional transition” in marketization, internationalization, industrialization and urbanization starting from the beginning of the reform and opening-up will be intensified. Besides, the “new transition” with regard to consumption growth, development of service industry, green economy and digitization (intelligentization) will exert greater influence.

Transformation of China's economy involves all-round adjustment of relations between urban and rural areas, consumption and investment, service industry and manufacturing industry, economy and environment, together with unceasing expansion of new impetus for economic growth. Confronted with hindrance and difficulties, we must plan in advance by “making a big turn” with prospective and strategic perspectives and avoid “taking a sudden turn” in case of emergency. Enhancing contributions of consumption and service industry to economic growth is the key issue to relieve imbalance of Chinese economic structure. The further growth of both contributions will drive the rise of the Bourgeois in a large scale. Transformation from “world factory” to “world market” is an opportunity for both China and the world. Succeeding to “Chinese workers”, “Chinese consumers” will play a decisive role in world economy. Obviously, the “new transition” of China's economy is of global and historic significance in its entirety, which is an important link in world economic structural adjustment after global financial crisis.

China's development pattern proves to be effective according to the comparisons between countries in development performance. However, the existing problems in this pattern ought to be rethought, especially in the environmental and social costs in economic development. In addition, it should be stressed that the development path of China's economy ought to be evolved and optimized, rather than stereotyped and inflexible. Successful China's development rests with hard work, learning and flexible solutions. An important experience during the process is pragmatism, practice-orientation and hard work. If the Chinese Mode is to summarize development experience in the past, the “Chinese path” is to explore future development strategy. Before deciding China's development strategy and choosing China's development road, successful lessons of other countries ought to be drawn on by widely quoting and fully proving. Meanwhile, proactive adjustments shall be made to deal with internal and external changes, which would make China prepared for all alternations. Meanwhile, it is also important for China to act in accordance with changeable situations and promote reforms, which require China to expand influence on governance structure of world economy and play an impellent and leading role in globalization. Indeed, with the processing of new economic opening up and acceleration of enterprise globalization, “Chinese capital” has become a critical drive for globalization. It means, to some extent, the extension of Chinese Mode and “Chinese path” outside national borders, and also the sharing of China's development experience in international community.

As China's economy has set sail again, its development orientation will depend on the following relations: firstly, relations between economy, environment and society; secondly; relations between the market and the government, the most important problem in economy; thirdly; relations between substantial economy and finance, which requires much attention in the market sector. “The toughest problem is insidious with unexpected danger behind peaceful circumstance.” Internal contradictions can be covered by favorable external environment, while structural contradictions might be concealed by rapid growth. Nevertheless, previous problems, disadvantages and contradictions will be gradually conspicuous against the “new normal” of China's economy. In a short time, it is important to avoid “Latin American sickness” caused by economic stagnation at middle-income level, with successful economic transition as the key to solution. In the long run, “Japanese sickness” caused by economic stagnation at high-income level shall be taken into account, which requires China to keep pace with world-class fundamental research, financial strength, human resources and other aspects. Decision makers of China's economy must pay much attention to later concerns and existing trifles. Both critical questions and core variables shall be closely focused on. In addition, efforts shall be made to conceive and prevent “black swan events”. We ought to optimize economic and financial security mechanism and strengthen capability to deal with risks, so as to control and prevent all risky factors at cause level and evade formation and expansion of systematic risks at result level.

New Layout, Competition and Path

On November 29,2012, Xi Jinping visited the “Road to Revival” exhibition in the National Museum of China and said that “the destiny depends on the path”. Indeed, path selection decides the destiny of both China's economy and Chinese nation. The road to lead national economy to the peak will also lead Chinese nation to rejuvenation. Confronted with uncertainties, how can China's economy move forward stably and reach the peak smoothly? When facing vital moments during the past 30-year reform and opening-up, China succeeded in mobilizing internal resources and taking advantage of external opportunities to overcome difficulties and take new steps. At present, China's economy is also at the critical moment of making breakthrough. The winner will take all and the loser will fall in backwater. Throughout China's economic history since the 30 years of the reform and opening-up, China was heavily remodeled in a comprehensive manner in globalization. Looking forward to the next 30 years, China is expected to benefit from globalization and lead new trend accordingly. With the advent of the year of 2040, the prospect and development path of China's economy will be closely interwoven with that of globalization.

It is of paramount importance more than ever to understand the impact of external environment on exploration of “Chinese path”, which is also more difficult than ever. Just as early as the outbreak of global financial crisis, I emphasized the gradual weakening tendency of globalization. Such judgment was verified via global economic situation of finance, trade and investment. It is noted that the world economy has changed from high-speed growth to low-speed growth as globalization increasingly weakens, which has brought rigorous challenges to China's development. First of all, confronted with weakened globalization and low-speed world economic growth, how could China maintain long-term and stable growth at a reasonable rate? Secondly, owing to “de-globalization”, tendency of reverse flow of resources and impact of financial risks, China is forced to make preparations for preventing outburst of major crisis and safeguarding existed development achievements. As a whole, the evolution of globalization as well as international economic and trade relations turns out to be in a more complicated and variable situation. As international finance, trade, investment and other aspects are undergoing profound changes, the “new layout” is picturing and modeling the future 30 years for economy of China and the world. To be more specific: What significant changes are involved in the above-mentioned fields? What has happened? What is happening? What is going to happen? What impact will these changes exert on China's development? How to adapt to external changes and catalyze them to realize long-term development goal is undoubtedly an important issue for China's economy moving towards the “peak”. To probe into global economy and pave the way for China's development is the purpose why I have written this book.

Confronted with “global changes”, how should we plan “Chinese path”? On the one hand, we must more energetically promote globalization and oppose “de-globalization”. On the other hand, we must promote economic growth based on internal and structural factors in a more practical way. Obviously, the fundamental solution is continuous upgrade of economic activities with high technology, high additional value and high-end value chain, namely the “three high”. As new economic activities characterized by the “three high” increase, traditional low-end activities will relatively decline in proportion and even absolutely reduce in quantity. Relying on such increase and decrease of economic activities of microcosmic body, economic transformation has been presented from macro and middle perspectives, both of which are cause and effect for each other. In policy aspect, the above-mentioned “traditional transition”, especially new industrialization, urbanization and four aspects of “new transition”, shall be thoroughly considered. The formulation and implementation of specific policy and measures require the augmentation of the “new economy” with high efficiency, high additional value and high sustainability, and restriction of the “old economy” with low efficiency, low additional value and high environmental and social costs, so as to look for “new balance” with higher efficiency, competition and development momentum.

China's selection of its development path was based on the objective understanding of its target, own situation, international cooperation and competition pattern. With transition and upgrade of China's economy, the creation and achievement of more value inevitably lead more fierce international competition. As a middle-income country, China will be “besieged” by developed countries and low-income countries, which means competing with low-income countries in the field of low additional value and high-income countries in the field of high additional value. The former is competition in “comparative advantage”, which implies advantages decrease as income increases; the latter depends on the “competitive edge”, which is strengthened with the rise of corporate strength. Population structure, factor supply and institutional factors have important influence on long-term reconstitution of China's pattern of industry and value chains. Optimized automation and technical factors with wide application of robot can offset the globalization element of disinvestment and capacity relocation caused by rise of production costs, which is vital to maintain and enhance the dominant position of China's manufacturing industry. It is an important issue about industrialization upgrade from quantity level to quality level, closely related to the overall transitional digitization (intelligentization) of China's economy.

From the perspective of interaction between politics and economy in the world: comprehensive national strength is entirely raised with the rise of China's economy. The emergence and development of a rising power seem to be inevitably curbed and prevented by existed developed countries. As for China, the full rise means fresh start, self-improvement and self-breakthrough in a comprehensive manner, and the resumption of its historic resplendence as well. Nevertheless, western countries believe that it is the first time in world history for “non-western civilization” to gain such a high status since the 15th century, which might mean the gradual weakening of western civilization. Even ideology and international relations are neglected, divergence of civilization also indicate objective existence of annoyance and anxiety. In such context, the U. S. has spared no efforts in safeguarding its world leading role, which is revealed by its economic influence. The new international cooperation and competition pattern will impose a far-reaching impact on China's selection of development path, and China's economy also needs new strategies of international cooperation and competition to smooth its way ahead. Throughout the global economic governance system, China is confronted with the realistic choice from positive participation to initiative promotion, from submissiveness to making rules. Meanwhile, establishing “new great-power relationship” with the U. S. has become inevitable requirement for it to evade the “Thucydides'trap”.

To explore the new path for China's development, all problems must be considered in historical and global views and comprehensively investigated based on technology, system, culture and other aspects. After such observation dimension is established (Chapter 1), the book discusses history of economic globalization and its correlation with China's development and analyzes variations, dynamic condition and prospects jointly confronted by globalization and China's economy (Chapter 2). Next, this book elaborates the relationship between international economy and trade and China's development from the perspective of macro economy (Chapter 3), international finance (Chapter 4), international trade (Chapter 5), attraction of foreign capital (Chapter 6), investments abroad (Chapter 7) and others. After analyzing the “30-year reform” that globalization and China's economy are confronted with, the six chapters also express expectations to the next three decades. Chapter 8, beyond economic field, explores major issues that might affect development and rise of China and predicts an imminent “China's century”.

Decelerated growth, accelerated transformation, risk aversion and sustainable development, the four phrases summarize strategic choices that lead China's economy to the “peak”. The “new path” requires “new thoughts”. It is necessary to see China from the perspective of a third party in a global vision, which requires comparison between China and the external world, exploration of mutual relations and analysis of mutual effects. With a focus on the last two points, I expect this book to help readers get better understanding of our country, the era where we live and the road where we stand.