Development Drivers and Limitations
Global Development Network series
Edited by Natalia Dinello and Shaoguang Wang
Chapter 1: Perspectives on China’s Economic Growth: Prospects and Wider Impact
Linda Y. Yueh China has been a remarkably successful economy since its adoption of marketoriented reforms in 1978. As Figure 1.1 shows, China’s real GDP growth has averaged over 9 per cent per year from 1979 to 2005. China rapidly propelled itself to become the world’s fourth-largest economy (see Figure 1.2). When adjusted for purchasing power parity (PPP), China is currently the world’s second-largest economy. It is also the world’s largest country in terms of population (and potential market), a leading destination for foreign direct investment (FDI), and one of the three largest traders. At the same time, China is a developing country with a per capita GDP which only recently exceeded $1,000 and still has a substantial amount of poverty. Despite its aggregate size, China’s per capita GDP suggests that it has sizable growth potential, as China’s average income is substantially below that of Organization for Economic Cooperation and Development (OECD) countries of comparable size. China’s record, however, masks structural problems in its economy. The progress and nature of market-oriented reforms will in large part determine its growth prospects. Specifically, China will need to address the large portfolios of non-performing loans held by state-owned banks (SOBs), rising unemployment in various forms, and institutional frailties. These challenges are a consequence of the ‘gradualist’ reform path undertaken by China as it transitions from a centrally planned to a more market-oriented economy. They are also a result of China’s status as a developing country, needing to confront the challenges of economic...
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