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Prof. Justin Yifu Lin: China's New Development Paradigm and Its Implication for the World

 

 Prof. Justin Yifu Lin, at 2021 ISSCAD Opening Ceremony, September 6, 2021  

 

Good evening. I’d like to welcome our new students of Class 2021 of ISSCAD. This will be a landmark in your journey for pursuing how to make a country turn from poverty to prosperity. On this special occasion, I’d like to share with you about some of my understanding about one very important paradigm that has been proposed by the Chinese government and received a lot of attention internationally.

 

Last year, Present Xi Jinping proposed that China should adopt a new development paradigm to make the domestic circulation as the main body and to have the international circulation as well as the domestic circulation to reinforce each other. This is certainly a policy statement that will indicate the way China is going in the coming years.  

 

As you know, China is now the largest trading country in the world. Being the largest trading partner for more than 120 countries in the world, and the 2nd largest trading partner for another 70 and plus countries in the world, for more than 90 percent countries in the world that China is either their largest or the second largest trading partner. For people in academics and international community who took China as an export-oriented country for years, the new statement is going to affect not only China, but also the world.

 

What’s the reason for China to make this new statement?

 

The first reason obviously is COVID-19. With the hit of COVID-19, almost every country retreated from their development, locked down their cities and borders and slowed down their economic development. As a large trading country, certainly China will be affected seriously. China has been the first country to recover from the crisis. While the production in China continues, the export market becomes smaller, so we need the domestic market to digest and consume all this production. The other reason is the tension between Chinese and the United States. With the extraordinary custom duties inhibiting China’s export to the US market, China surely needs to rely on domestic market to continue the growth. More importantly, the new statement reflects the basic principles for a country’s development. Although China was reckoned as an export-oriented country, but by the time of 2019, one year before the new statement, 82.6% of the GDP produced in China was consumed domestically. Due to the large economy scale and fast-increasing service section’s percentage and resident income, by that time the domestic circulation and market has been the main body of Chinese economy.

 

This new statement is important for the world, and for domestic economy as well. In the past, internationally, China was perceived as an export-oriented economy, therefore used to be accused for the global imbalances and US’s trade deficits. Not only internationally, but also domestically people think China adopted an export-oriented strategy before and, as such, external shocks will affect their confidence about China’s future development. However, in fact the domestic market is the main body of Chinese economy. As long as we can do our own work well, no matter what uncertainty or challenge comes globally, China can maintain the course of development. Just like if you are a small ship in the ocean, any kind of storm is going to hit you hard and may overturn you, but if you are a big ship, you can go through any kind of storms.

 

Nevertheless, the old statement of relying on domestic and international markets and resources for China’s development is as important as in the past. The economic growth in a country depends on its continuous technological innovation and industrial upgrading. The new structural economics provides the answer to make it successful, that is, to follow the country’s comparative advantages in the process of technological innovation and industrial upgrading. For China, to export goods with comparative advantages and to import goods without is the way of sustaining dynamic growth. That’s the reason why the new development paradigm on the one hand highlights the domestic market as the main body of Chinese economy, while on the other hand emphasizes on the reinforcement of the domestic and international circulation.

 

I think this statement has several important implications for the world.

 

The first one is that Chinese government has a very good understanding of economic principles and the economic situation in China, and by that certainly we have a confidence on its policies and China’s continuous growth. No matter what kind of global situation we face, as long as we can do our own work well, we can continue to grow dynamically, and we will continue to deepening reform and expand international cooperation. If China can continue to grow, it will be an anchor for the world.

 

Second, China will continue to embrace the globalization, which means China will continue to open the market. It will be good news for countries with comparative advantages such as nature resources, labour force and capital, for they can export more goods to China.

 

This new statement also has other implications. First, China will provide the inspiration. 42 years ago, China was one of the poorest countries in the world. I remembered the days well. In 1978, the per capital GDP in China was less than 1/3 of the average in Sub-Saharan African countries. This year, China’s per capital GDP is about $11,000. As the threshold for the high-income country is $14,535, I’m sure in 5 years, China can cross that threshold to become a high-income country. I see and experience within my lifetime the growth of a country from one of the poorest to become a high-income country. It’s a historical moment. So far, only 18% of the population in the world live in high-income country. If China becomes a high-income country, the population living in high-income countries will be doubled from 18% to 36% of the world population. China’s experience proves that it’s possible in your lifetime to achieve the same prosperity. But to make that happen, one needs to change the mindset.

 

I’m sure you are all elites in your country and are committed to the modernization of your nation and improvement of the wellbeing of your people. We have the obligations to turn our own country from poverty to prosperity. In the past we always thought we need to learn from the experiences and theories in the high-income countries. However, in fact, I have never seen a developing country who design their development policy according to the developed countries’ experiences and theories to become successful. For few successful catching-up developing countries, their main policies are always considered wrong from the mainstream theories in the textbooks from advanced countries. That is what I want in ISSCAD: the reasons of success, and the reasons of failures in so many developing countries. in spite of all those kinds of effort, by elites like you and me. We want that in ISSCAD. The spirit of ISSCAD is to exchange ideas and experience among developing countries. To be successful, there must be reasons, and to fail must also. We need to understand those reasons by ourselves. The theories from advanced countries are like fashions. They change from time to time. They are not eternal truth. Those theories are generated from the experiences of developed countries and take the conditions from the developed countries as preconditions. Once those preconditions change, those theories change as well. The conditions in developing countries are certainly not the same as those in developed countries. If so, how can we learn from the developed countries’ theories and experiences to make our country rich?

 

We all made the same mistake. Now I understand the secret of the failure of my countries in the past, and I know the secret of failure in my fellow elites’ countries. I still do not have a theory that can ensure you to be successful. But through the exchange of experiences and ideas here, you have a chance to find a way to make your countries as successful as China in the past 40 years, and if you are as lucky as I am, you may see your country transformed from poverty to prosperity in your lifetime. You will see your part in that successful story in your country.

 

Thank you!