"Trap" And "High Wall": The Real Challenge Facing China'S Economy

According to international experience, countries in the middle income stage may face slower economic growth.

In 2010, China's total GDP exceeded Japan, becoming the second largest in the world.

Before the end of the rapid development of industrialization, China fell into "middle-income" similar to Latin American countries.

The real and severe challenge facing China is whether it can effectively resolve the various structural contradictions and financial risks accumulated during the period of the rapid development of industrialization, and shift the growth of low cost factor driven growth to innovation driven growth, and smoothly across the threshold of high-income countries.

"Trap" and "high wall": different challenges facing industrialization at different stages

China Economic Times: in 2010, China's total GDP exceeded Japan, becoming the second largest economy in the world.

According to international experience, countries in middle income stage are likely to face a series of challenges such as slowing economic growth and intensifying social contradictions, thus falling into the "middle-income trap" and developing stagnated for a long time. While other countries with rapid economic development are developing at a level of around ten thousand yuan per capita GDP, the potential growth rate of the economy will be significantly reduced due to the backwardness of the advantage, which will be faced with the dilemma of "high income wall".

Will China follow suit?

How do we view China's current challenges?

Liu Shijin: as a developing country, China has some development conditions that other middle income countries do not have, and also faces different challenges from most developing countries.

By collecting a large amount of historical data, we sum up the experiences of more than 30 large economies that have started the process of industrialization and have over 10 million population at present, and conclude their similarities and differences.

On the basis of theoretical analysis, we compare the two positive and negative international experiences with China's situation. The basic conclusion is that China's fall into the "middle-income trap" similar to that of Latin American countries is less likely before the end of the rapid development of industrialization.

The real and severe challenge facing China is whether we can effectively resolve the various structural contradictions and financial risks accumulated during the period of the rapid development of industrialization, and shift the growth of low cost factor driven growth to innovation driven growth, and smoothly leap over the threshold of high-income countries.

China Economic Times: how to accurately grasp the essence and difference between "trap" and "high wall"?

Liu Shijin: looking at the history of global economy, we can find that although many countries have initiated industrialization and realized the early economic take-off, there are not many countries that have successfully responded to risks and challenges at all stages, successfully completed industrialization and finally entered the high-income society.

Latin America, Southeast Asian countries like Latin America and the former Soviet Union and the East countries once fell into the "middle income trap" after a period of rapid growth.

Among them, the typical characteristics of Latin American countries and Latin American Southeast Asian countries are technical backwardness, most of which are vast and fertile land and rich high-grade mineral resources.

With these favorable conditions, these countries have achieved rapid economic catch-up for a period of time, especially after World War II, creating the "Latin American miracle" that the world is paying close attention to.

However, in the late 70s of last century, when the per capita GDP reached only 4000 to 5000 international yuan and had not yet crossed the threshold of high-income countries, the industrialization of these countries was in a predicament, and the economic growth rate dropped significantly, and most of them fell into the "middle income trap".

It should be pointed out that falling into the "middle-income trap" does not mean that development is in a continuous pause.

In fact, some of these countries have achieved better development performance since the beginning of this century, and economic growth is accelerating.

Europe's latecomer countries and East Asian newly industrializing countries and regions are the countries that successfully turn to innovation and service driven economy after the catch-up stage.

Europe, Germany, France, Italy and Spain, though they belong to the old capitalist countries, have experienced a process of catching up with the advanced countries, especially after the Second World War.

The characteristics of these countries are that they have experienced a rapid "catching up" stage after the war.

In the late 60s of last century, when the per capita GDP reached around 10500 yuan, the economic growth rate began to slow down, and gradually approached and reached the level of the frontier countries.

In the process of rapid growth into medium speed growth, these economies have also encountered some economic, social and ecological environment crises, but through their efforts, they have maintained a sustained development in a period of moderate speed.

In view of the above phenomenon, some scholars in the world have put forward the concept of "high income wall", which refers to the threshold of income per capita corresponding to the high income ranks.

We borrow the concept of "high income wall" to describe such a phenomenon, that is, at the development stage of GDP per capita of about ten thousand yuan, the industrialization and urbanization stage characterized by large-scale production and consumption of energy heavy chemical products and social production mainly meeting the basic consumption needs of the residents are basically over, and the potential growth rate of the economy will come down significantly, resulting in a series of difficulties, contradictions and challenges.

At this stage of development, only by carrying out corresponding institutional changes and policy adjustments and forming a new growth mode can we effectively cope with all kinds of challenges and achieve sustained development under medium speed conditions; otherwise, development will regress or remain in a state of wandering.

The fundamental reason for the falling economic growth rate of the trap is that the basic framework of the industrialization of the countries concerned has significant defects, so that the industrialization process can not be sustained, especially the rapid growth process can not be completed smoothly, which is an "abnormal fall".

The growth rate decline after the success of the "high wall" is a "natural fall" when the backwardness advantage basically releases and industrialization is at a high speed.

"Trap" and "high wall": "abnormal fall" and "natural fall" after rapid economic growth

China's economic times: same slowdown in development, there seems to be a lot in common between "trap" and "high wall".

How can we distinguish between the two different types of economic growth?

Liu Shijin: the analysis shows that the growth patterns and trajectories of those countries that once fell into the "middle-income trap" do have some similarities with those across the "high income wall". For example, they have experienced high-speed "compression" growth of different periods, and then the economic growth rate has dropped.

But in-depth analysis is not difficult to find that the nature, reason and meaning of these two types of growth decline are quite different.

First, the stages of occurrence are different.

The time window for the growth rate to fall into the "middle income trap" is about the development stage of per capita GDP reaching 4000 to 7000 international yuan; but the time window for the growth rate to fall behind the "high income wall" is the development stage with the per capita GDP reaching 11000 yuan.

Secondly, the nature and causes are different.

The slowdown in the growth of the "middle income trap" took place on the precondition that the latter advantage of industrialization has not yet been fully released.

The fundamental reason is that there are major defects in the basic framework of the industrialization of the countries concerned, so that the industrialization process can not be sustained, especially the rapid growth process can not be completed smoothly.

And the growth rate decline after the success of the "high wall" is basically a "natural fall" when the late release advantage is basically released and the industrialization is at a high speed.

From this we can see that on the one hand, whether or not we fall into the "middle income trap" in the process of industrialization is not the fate of the latecomer. If the strategy and policies are right, the trap can also be avoided.

On the other hand, the economic growth of the latecomer countries after the success of the "high income wall" is regular and inevitable.

The fundamental reason is that when the development level of the latecomer countries is close to the frontier countries, in terms of supply, the space of low cost technology imitation is narrowed and the pace of technological progress slows down, which makes the economic growth of the latecomer countries close to the level of the frontier countries. Correspondingly, in demand, the demand for large-scale construction, which is brought by the rapid industrialization and urbanization, is basically released. In addition, the expansion of the total economic volume and the same growth rate demand greater demand than ever before.

It is possible for China to successfully surmount the "middle income trap" that Latin America and the former Soviet Union countries have experienced more smoothly. However, it will face severe challenges when crossing the "high wall" into the high-income society, which is unique to China.

Compared with the countries falling into the trap, China has a series of favorable conditions to support the "middle income trap".

Compared with the industrialized countries that have successfully crossed the "high wall", China is faced with a more severe challenge to the pformation of development mode.

Crossing the "high wall": the real challenge facing China's economic development

China's economic times: according to historical and foreign experience, how likely is China encountering the "middle income trap" and "high income wall"?

Liu Shijin: a comprehensive analysis of the historical process and development prospects of China's industrialization and comparing with other countries with reference significance, we can see that China may have successfully crossed the "middle-income trap" that has been encountered in Latin America and the former Soviet Union and Eastern countries, but will face severe challenges when crossing the "high wall" and entering the high-income society.

This is unique to China. It is different from Latin American and Soviet Eastern countries, but also different from Germany, Japan and Korea.

China Economic Times: why is China less likely to fall into the trap?

Liu Shijin: first of all, at present, China's per capita GDP has exceeded the level of "middle income trap" in Latin America and the Soviet Union and East countries.

According to the 1990 international yuan computing, China's per capita GDP in 2010 has reached 7864 international yuan, exceeding the level of GDP4000 per capita in the Latin American countries and the per capita GDP6000 international level in the Soviet Union and the East.

According to the current growth trend, in 3 to 5 years, China's per capita GDP will reach the 11000 international yuan level when the successful catching up countries surmount the "high wall".

It can be seen that unless there is a major setback or repetition, the possibility of China's falling into the "middle-income" trap that has been experienced in Latin America and the former Soviet East countries is very small.

Secondly, China has a series of favorable conditions to support the "middle income trap" compared with the countries falling into the trap.

Unlike Latin American countries, China has implemented the strategy of opening to the outside world and export-oriented development at a low level of per capita GDP.

Although China has implemented the import substitution strategy for a long time before the reform and opening up, it has rapidly changed its development strategy and policies since the reform and opening up, and implemented an open oriented strategy with an emphasis on exports.

This not only expands the market space of Chinese products, but also brings pressure to Chinese enterprises in international competition, and brings a lot of applicable technology and management experience to China.

The rapid growth of export processing sector in coastal areas has also effectively promoted the development of urbanization in China.

Unlike the former Soviet Union's Eastern European countries, China started a market-oriented reform at a relatively low level of development, and the rapid development of industrialization was accompanied by market-oriented reforms.

Active and active market-oriented reform has effectively promoted the growth of national wealth stock and effective allocation of material and human capital, enabling China to achieve more than 30 years of "squeezed" rapid development in the stage of catching up with industrialization.

Besides, the potential space of China's market is huge, and the combination conditions of development elements are good.

China has the largest population scale in the world, more than the total population of all the high-income countries. In a sense, China itself is a "world".

Through continuous reform and opening up, the liquidity of Chinese products and factors has been strengthened, and the degree of market integration has been gradually improved.

It should be pointed out that domestic development imbalance is a drawback, but objectively complementing the supply of factors and industrial development, which has increased the leeway and sustainability of China's economic growth.

In short, China's market advantage has not only surpassed Latin America and the Eastern European countries of the former Soviet Union, but also to a certain extent surpassed those pnational unified regional markets.

China's economic times: the possibility of China falling into "trap" is not a fortunate conclusion.

But China and the high-income countries that have successfully crossed the "high wall" have similar features in the time window of "natural decline". Whether there is a success in climbing the "high wall" and whether the steady growth in the new growth platform will continue for a long time after the growth rate falls is uncertain.

What are the challenges facing China's economic development?

Liu Shijin: compared with the industrialized countries that have successfully crossed the "high wall", China is faced with a more severe challenge to the pformation of development mode.

International experience has shown that the per capita GDP reaches the "high wall" level, and the growth rate after the release of the advantage is basically a regular phenomenon, with few exceptions.

If China's economic growth process will follow this rule, the growth rate after the per capita GDP reaches the "high wall" level will fall down. In a sense, it is an important sign of successfully passing the period of rapid economic growth.

However, the timely adjustment of China's economic development pattern with the growth environment will become a key factor.

Generally speaking, China's current development mode seems to be effective in the period of rapid growth of industrialization, and there are still some unique advantages in some aspects.

The pace of growth and the accompanying structural changes indicate that the fundamentals of China's rapid economic growth over the past 30 years will undergo important adjustments and regrouping.

If we continue to maintain this development mode, China's economy will face severe challenges in two aspects when economic growth falls naturally.

First, once the speed is reduced, a large number of problems of low efficiency will be exposed as a result of the high liquidity and economies of scale in the past.

Such as corporate profits and financial revenue decline, asset valuation shrinkage, long-term credit recovery difficulties, and even some form of financial and financial crisis.

Second, with the continuous development of China's development level, the problems of limited market development, insufficient supply incentives, slow accumulation of human capital, and unsmooth channels for workers to participate in modernization will become increasingly prominent.

These two problems will make China face serious difficulties in crossing the "high wall".

It is estimated that the potential growth rate of China's economy will have a great possibility before and after 2015, and the distribution of time windows is from 2013 to 2017.

Through the analysis of three methods, the result shows that if China's economic growth path is close to the historical experience of successful catch-up economies, China's potential economic growth rate will probably slow down at the end of 12th Five-Year, and the next step will be in the "13th Five-Year" period.

China will enter the time window of growth rate "natural fall" in 2015 or so.

China Economic Times: since the countries with high growth rate will inevitably usher in a fall period, when will the time window for China's economic growth slow down?

Liu Shijin: drawing on the historical experience and the laws of economic growth of different industrialized countries, we have adopted three different but mutually corroborated methods to analyze the historical process and Prospect of China's economic growth. It is estimated that the potential growth rate of China's economy will probably go down to a higher level before and after 2015, and the distribution of time windows is from 2013 to 2017.

The first method is to directly analyze the experience of successful catching up economies in Japan, Korea and Germany by directly using the overall data of China's national economy.

According to the 1990 international dollar computation, China's per capita GDP reached 7864 yuan in 2010.

Assuming that China's GDP can continue to grow rapidly in the past 30 years in the next few years, and combined with the UN's projections for China's population growth, by 2016, China's per capita GDP will reach 11608 international yuan, which is roughly the same as the growth rate of the international successful catching up economies.

After 2016, according to the experience of successful catch-up economies, if the potential growth rate of China's economy is reduced by about 30% compared to the period of high growth in the past, the GDP growth rate will be reduced by about 3 percentage points.

In this way, the GDP growth rate is expected to average 9.7% in 12th Five-Year and 6.5% in 13th Five-Year.

The second method is to take account of the fact that most of the provincial level administrative regions in China are similar to a large or medium-sized country in the world from the perspective of population size. Each provincial administrative region of China is taken as a separate economy, and the historical experience and rules of different international economies are selected according to different provincial conditions. The changes in the potential economic growth rate of each provincial administrative region are predicted, and then the total growth rate of the whole country is calculated.

The three municipalities in Beijing, Tianjin and Shanghai compare the experience of two cities in Hongkong and Singapore. The other 22 provinces compare the experiences of successful catching up economies such as Japan, Korea and Germany, and make appropriate adjustments according to the factors such as per capita GDP, industrial structure, urbanization, division of labor expertise, resource endowments and export-oriented degree. The other 6 natural geographical conditions are not suitable for provinces with large-scale industrialization and urbanization.

Based on the current per capita GDP level of each province, assuming that the gross domestic product of each province maintains its average growth rate over the past 30 years, and combined with its respective population projections, it is estimated that the average per capita gross domestic product of each province will reach the level below the growth rate of the economy. After that, it is assumed that the GDP growth rate of each province will be reduced by about 30%, and finally the total growth rate of the whole country will be calculated.

The results show that the potential growth rate of China's GDP will be reduced to less than 8% after 2014. The potential growth rate of GDP will be 8.2% in 12th Five-Year and 7.3% in 13th Five-Year, respectively.

The third method is to predict the time point of China's economic growth rate under the relationship between consumption of commodities (or output) and per capita GDP level, so as to confirm each other with the results of the first two methods.

The analysis of the three methods shows that if China's economic growth path is similar to that of successful catching up economies, China's potential economic growth rate will probably slow down at the end of 12th Five-Year, and the next stage will be obvious in the "13th Five-Year" period.

Before the economic potential growth rate falls, there should be substantial progress in the pformation of development mode.

The successful pformation of China's economic development mode should mainly focus on two aspects, namely, prevention and control of risks and the formation of new growth drivers.

Solving many problems in economic pformation depends fundamentally on substantive breakthroughs in the reform of related fields, namely, promoting the "participation oriented reform".

Making substantial progress in promoting the pformation of development mode through "participation in promoting reform"

China Economic Times: according to your analysis, before and after 2015 is the time window for China's economic down stage. In the face of the approaching "time window", we should seize the opportunity to make preparations for better crossing the "high wall" to be encountered.

Liu Shijin: after more than 30 years of rapid growth, China's economy will be highly likely to touch the boundaries of high growth. The potential growth rate will enter the "natural time window" after the next 5 years, which means that the pformation of China's economic development mode or growth mode has entered a specific period.

The emergence of this condition has formed direct pressure on the "pfer mode", and put forward specific time requirements, that is, before the economic potential growth rate falls, there should be substantial progress in the pformation of development mode.

But to successfully achieve pformation, it is more important to form a mechanism to meet challenges, clear the main problems to be solved, and put forward and implement the "pfer mode" roadmap and even timetable.

The successful pformation of China's economic development mode should mainly solve the two problems of risk prevention and control and the formation of new growth momentum. In particular, we should focus on the following important issues: can we effectively prevent and resolve the accumulated financial and financial risks during the period of growth?

Can enterprises adapt to the environment of medium speed growth and gradually change the profit model of "speed and efficiency"?

Can we adjust the target of macroeconomic regulation with the growth rate down?

Can we form a fully effective market environment and create a large number of innovative large enterprises and a large number of innovative small and medium-sized enterprises on the basis of competition, so as to cultivate technology and knowledge intensive manufacturing and service industries with long-term international competitiveness?

Can we further open up the market and relax the monopoly industries, especially the access restrictions of the service industry, so as to provide space and power for the great development of the service industry?

On the basis of urban and rural co-ordination, can we speed up the process of entering the city's peasants into a "citizen" in a complete sense, and promote the optimal allocation of farmers' contracted land under the premise of safeguarding their rights and interests?

Can we form a university and scientific research system that meets the needs of an innovative society through reform and opening up?

Can we promote the rapid growth of middle income groups by promoting the reform of employment, entrepreneurship and income distribution system?

Can we build a modern financial system that meets the needs of new stage development and innovation, effectively dispersing and guarding against risks?

Can the government change from a growth led to a public service oriented one?

To solve many problems in the above-mentioned economic pformation, fundamentally, we need to make substantive breakthroughs in the reform of related fields, and strive to promote "participation oriented reform".

China Economic Times: what is "participation oriented reform"?

Why is it a fundamental measure to promote economic pformation?

Liu Shijin: the meaning of "participating in the promotion of reform" is to promote the wider scope, deeper and higher quality of the participation of members of society in the process of industrialization and modernization, and strive to make breakthroughs in the reform of related fields. The main points can be summarized as follows: expanding participation opportunities, enhancing participation ability, perfecting the system and policy of encouraging entrepreneurship and innovation, and creating a stable and expected participation in the rule of law environment.

An in-depth analysis of the many problems that need to be solved in China's economic pformation discussed before can be observed in one main clue, namely, to fundamentally solve these problems, and to varying degrees depend on further enhancing the breadth and depth of social members' participation in the process of industrialization and modernization.

At present, there are two highly concerned problems in the society, which are directly or indirectly related to many problems in the above pformation. One is to narrow the gap of income distribution, the other is to achieve innovation driven by the two.

These two questions seem to be relatively independent and the relationship is not very close, but in-depth analysis is not difficult to find that the two can be said to be the same problem in a sense.

To solve the important problems in the above-mentioned economic pformation, efforts should be made to promote "participation oriented reform" so as to fundamentally solve the problem.

China Economic Times: at present, the widening gap between the rich and the poor in China has already affected social harmony. The pformation from manufacturing in China to China has become a bottleneck in the sustainable development of the economy.

The "participation oriented reform" proposes expanding the opportunities for participation and perfecting the system and policy of encouraging entrepreneurship and innovation. Indeed, prescriptions for symptomatic prescriptions have been put forward. But in the face of all kinds of reform fields, where should we proceed from the "participation oriented reform"?

Liu Shijin: at present, promoting the "participation oriented reform" can be carried out in the following aspects:

First, to provide the members of society with as many jobs as possible.

First, eliminate employment discrimination against migrant workers, and create conditions to allow as many migrant workers to become "citizens" in a complete sense.

It is necessary to allow migrant workers and their family members who have been employed and living in cities for a long time on a voluntary basis to obtain the citizenship status of their cities and enjoy the same educational, medical, housing and social security services with other urban residents.

Two, we should pay more attention to equal employment opportunities and break the pattern of "no relationship, no opportunity" to a certain extent.

We should establish an open and pparent recruitment and recruitment mechanism, especially to break the relationship between certain sectors of the public sector and decide the opportunities.

Three, we need to further open up the market, reduce access barriers, encourage self startups and improve the support system for SMEs.

We should further implement the "non-public 36 articles", stimulate the enthusiasm of private investment, improve the policies and service systems supporting the development of private enterprises and small and medium-sized enterprises, improve the supporting policies of individual entrepreneurship, give full play to the doubling effect of entrepreneurship and employment promotion, and promote the driving effect of entrepreneurship and innovation.

Secondly, improve the public service system, so that members of society can have more opportunities for human capital accumulation.

First, we should improve the medical and health system and improve the national health quality.

We should reform the medical and health system, promote the rational allocation of medical resources, strengthen the construction of public health service system, implement the policy of prevention oriented health work, strengthen the popularization of medical and health knowledge, advocate healthy lifestyle and improve the physical fitness of the whole people.

Two, we should give everyone equal access to education.

We must strictly implement the compulsory education law, promote the balanced allocation of basic education resources, and improve the financial and financial arrangements for the national scholarship to grant scholarships, so as not to let a child drop out of school due to poverty and prevent the pmission of differences in quality and ability between generations.

Three, we should strengthen vocational education, especially for migrant workers.

We should strengthen the construction of practice and training bases and train full-time teachers in vocational education, encourage the adoption of school enterprise cooperation and order form training, so as to cultivate high-level professional talents for the upgrading industry.

We should reform the way of government subsidy for vocational education, introduce competition mechanism, improve the actual effect of vocational education and training for migrant workers, and enhance the employment and entrepreneurial ability of migrant workers.

Four, we should implement targeted Poverty Alleviation Policies for the poor.

The poor sectors should be included in the social security system such as pension, medical care, housing and so on to help poor families improve their educational level and vocational skills through their own efforts, and prevent poverty from being locked in a cycle.

Thirdly, we should establish and improve the system of encouraging entrepreneurship and innovation so as to provide the members of society with as many opportunities as possible for entrepreneurship and innovation.

First, we must break the monopoly and encourage competition.

To monopolize industries and fields, we should relax restrictions on entry, support and promote the fair competition of all kinds of ownership enterprises, on the other hand, we must break the administrative monopoly and encourage enterprises to improve their vitality and efficiency through innovation in competition.

Two, we should promote the reform of university education and scientific research institutions.

We should reverse the tendency of administration and bureaucracy of scientific research institutions, create a climate of democracy, equality and openness in the field of scientific research and education, create conditions for professionals to lead research and education activities, and change the pattern of allocation of scientific research funds and selection and promotion of scientific research personnel by administrative mechanisms.

Three, we must establish a modern financial system supporting innovation.

We should encourage and guide financial institutions to speed up the establishment of professional credit management system and special incentive assessment mechanism to support innovative activities, actively promote financial innovation such as intellectual property pledge financing, expand the financing channels for innovation activities in various ways, and actively play the financing function of multi-level capital market, and formulate special regulatory policies.

Four, we should deepen the reform of government functions and improve government services.

For entrepreneurship and innovation activities, we should reduce access control, reduce examination and approval links, and optimize the acceptance process.

At the same time, to ensure effective supply of common key technologies, we should set up an information exchange platform for innovation and entrepreneurship so as to provide support for entrepreneurs and innovators to optimize portfolio elements such as capital, technology and talents.

Finally, we should improve the rule of law environment and strengthen the protection of property rights, especially intellectual property rights.

The property rights protection system can provide stable development expectations for entrepreneurs and innovators, stimulate their investment enthusiasm and enhance their innovation power (310328, fund).

To this end, we should further improve China's civil and commercial legal system and property rights protection system, in particular, establish a sound legal system for intellectual property rights, strengthen law enforcement supervision, and improve the effectiveness of law enforcement.