Global Times Interview: China's 'economic miracle' was forged under conditions of openness

Editor’s Note (Global Times):

As the Chinese economy, along with the entire global economy, has been confronted with considerable challenges in recent years, some Western officials and media outlets have stepped up their long-standing smear campaign against the world’s second-largest economy. They cherry-pick information and even distort facts to hype various specious narratives such as “Peak China,” while turning a blind eye to China’s considerable strengths and vast potential. 

As part of the Global Times’ multimedia project to set the record straight, the opinion page is publishing a series of in-depth interviews and signed articles with economists, experts and scholars from different countries and regions who share their views on the prospects of the Chinese economy and debunk the Western rhetoric.

In the eighth article of the series, Global Times (GT) reporter Qian Jiayin talked with Sourabh Gupta (Gupta), a senior fellow at the Washington-based Institute for China-America Studies. Gupta noted that China’s “economic miracle” was forged under conditions of openness, and high-quality development of the economy too will need to be carried out under open conditions. China has already made strides on these fronts but the pace, at the moment, needs to be accelerated.

GT: The Communist Party of China (CPC) will convene the third plenary session of its 20th central committee on July 15 in Beijing, which will focus on further comprehensively deepening reform and promoting high-quality development. How do you think of China’s pursuit of high-quality development and its accomplishments in this regard? 

Gupta: The transition from high-speed growth to high-quality development – a process that has been ongoing since the 19th [CPC] Party Congress of October 2017 – is both timely and necessary. No non-natural resource-endowed economy that has made the difficult transition from middle income to high income advanced economy has managed to do so without switching its development focus from “extensive growth,” based on quantitative increases in land, labor and capital, to “intensive growth” based on gains from overall total factor productivity. To realize a high-quality development framework and its 2049 modernization goals, China must continue shifting to a more rebalanced economic structure driven by consumption and services-led growth. It must continue upgrading its industrial structure to a more science and technology-led and diffused advanced manufacturing ecosystem. And it must continue moving toward high-standards international opening that organically combines the domestic and international cycles. China’s “economic miracle” was forged under conditions of openness, and high-quality development of the economy too will need to be carried out under open conditions. China has already made strides on these fronts but the pace, at the moment, needs to be accelerated. 

Ultimately, it is high-quality development that will propel China to or near the head of the front rank of nations. But this journey is just beginning; it is an arduous one, and it will require perseverance over the next quarter century and beyond for its successful accomplishment.  

GT: International investors are still very interested in investment opportunities in China. As the Chinese economy is undergoing a process of transformation and upgrading, what investment opportunities do you think China offers? 

Gupta: China is a roughly $18 trillion economy today. By 2040, it could well be within touching distance of the $40 trillion mark. The difference represents a huge commercial opportunity for businesses and investors, both domestic and foreign. Just in the past few years, China has adopted a liberal foreign investment law that accords pre-establishment national treatment to foreign investors, and has instituted a number of sectoral liberalizations ranging from the auto and financial services sectors to the exploration of oil and gas and breeding of new varieties of wheat and production of seeds. At this time, value added telecommunications services are also being liberalized. Furthermore, as the Chinese people become wealthier and, at the same time, China becomes a more aging society, vast opportunities will open up that cater to the leisure, lifestyles, financial retirement, and medical needs of the Chinese people. Already, foreign investment-linked pilot projects are on the drawing board in the field of biomedicine and application of genetic diagnosis and treatment technologies. As the CPC’s own philosophical juxtaposition of social forces observes, the “principal contradiction” in China today is no longer between one of fulfilling basic material and cultural needs with a production structure that is backward but rather one of satisfying the “ever-growing needs for a better life” and standard of living of the Chinese people with a production and development structure that remains as yet unbalanced and inadequate. Foreign investment has an important role to play in rebalancing and upgrading this production and development structure.

GT: With the expectation of China’s economic recovery further strengthening, some international organizations have recently raised their forecasts for China’s economic growth. What impact do you think China’s economic growth has on the global economy? 

Gupta: Much like the rise of the American economic behemoth a century-and-a-quarter ago transformed global economics and politics, China’s rise and footprint within the global economy today is similarly transformational. China has been the leading contributor to global growth over the past two decades, and its contributions as a pillar economy within the global system will only get magnified over the next quarter century. With China itself becoming a more consumption and domestic demand-led economy, its role in the global economy will gradually shift from being a global producer of first resort to also becoming a global consumer of final resort. This will add a layer of stability to the global economy. China will also continue to be the most dynamic and cost-effective global supplier of green goods, such as lithium-ion batteries and electric vehicles – in turn, contributing positively to the bending of the climate warming curve to below dangerous levels. That being said, there are understandable fears internationally that the imbalances in the Chinese economy, particularly its ‘excess savings’ and domestic under-consumption, will macroeconomically manifest itself in the form of domestic overproduction that is redirected to overseas markets. And because a component of this overproduction is the product of trade-distorting industrial subsidies, this would amount to unfair competition in international markets. As such, it is not just important to the global economy that China grows, but how China grows is also just as important.

GT: Although the International Monetary Fund has raised its forecast for China’s GDP growth to 5 percent, the West continues to hype negative comments about the Chinese economy, such as the “China collapse” rhetoric. You have said that these derisive projections about the Chinese economy are off the mark. How do you arrive at forecasts for the Chinese economy? 

Gupta: The “China collapse” rhetoric is widely off the mark. Although China has made rapid strides economically over the past four decades and is a technology “overachiever,” the country judged in per capita income terms ranks just slightly above the global average today. This, in turn, means there is still an immense scope for productivity-led “catch-up” growth. China’s demographic dividend may have approached the point of exhaustion, but there is ample pent-up growth potential awaiting release in its ongoing transitions from state to market and from rural to urban. The country continues, furthermore, to grow at a rate that is somewhere between two to three times that of the US (averaged over a five-year time horizon), which is just beneath the norm that has held for much of the past few decades of reform and opening-up. 

Looking ahead, China’s growth and macroeconomy will broadly follow the trajectory of its East Asian peer, South Korea. In the early 1990s, South Korea’s per capita income as a percentage of the US’ was roughly close to where China’s is today. Over the next three decades as South Korea transitioned to a more productivity-led and consumption and services-oriented growth model, the economy recorded an average GDP growth rate of roughly 4-4.5 percent. As a result, South Korea’s per capita income, measured in current US dollars, is about 50 percent of the US’ today. A quarter-century hence, when China’s per capita income also is a shade under 50 percent of the US’, it will host an economy that is almost twice the size of the US. For this to be the case though, China must continue pursuing structural reforms, including of its growth model and its fiscal and taxation system. 

GT: Some US researchers believe that there are signs of “decoupling” between China and the US based on trade data for consumer electronics products. How do you view this? What consequences will the “decoupling” of the Chinese and American economies result in? 

Gupta: At this time, the signs of “decoupling” on the ground are still few-and-far-between in terms of the rupturing of supply chains. Reshoring, nearshoring and friendshoring have yet to materialize in any significant way. Rather, what one witnesses is a lengthening of supply chains, with final assembly of goods that are now exported from third country markets to the US still dependent on Chinese intermediate goods inputs. And so, while China’s trade surplus with the US has decreased by $100 billion in 2023 from 2022 numbers, a good deal of the difference in that figure represents merely this lengthening and re-routing of US-China trade flows rather than a “decoupling” of flows. That being said, there is merit in the researchers’ views that relative “decoupling” will inevitably settle into China-US economic ties, particularly as China becomes an advanced society and hosts an economic structure with comparative advantages similar to that of the US. With Washington intent on cutting all organic links commercially between the two nations in the chips, artificial intelligence, quantum technologies, biomedical, and green goods sectors, the scope for “coupling” in many of these frontier industries will never be allowed to materialize in the first place. This is unfortunate. It will lead to a duplication of supply chains, a less productive and less efficient global production structure, the rise of economic bloc-building, and a potentially steeper cost of dealing with the global climate emergency. 

GT: The US has imposed tariffs on Chinese new-energy products and continuously raised tariff barriers. What impact will this have on the global energy transition? Do these tariff policies also add burdens to the lives of Americans? 

Gupta: Tariffs are a tax on consumers and the Trump and Biden tariffs have already burdened the lives of Americans, particularly those at the lower end of the income distribution. With regard to the global energy transition, the impact of the Biden administration’s measures is more variegated. On the one hand, to the extent that a global tariff and subsidy war incentivizes the domestic overproduction of green goods, it will knock down the prices of renewables and new-energy products and enable them to be produced at scale – replacing, in turn, their more polluting counterparts at an earlier date in the marketplace. On the other hand, the setting-up of two duplicated and “decoupled” supply chains as a result of domestic tariff and industrial subsidy policies is clearly a suboptimal solution. The global economy and the global energy transition is clearly better off with the provision of green goods produced fairly and competitively within one efficient, integrated, and diversified global supply chain. Longer term, the real danger of tariffs and protectionism is that it creates politically powerful constituencies for populist half-solutions which, in turn, can lead to a breakdown of global trading rules, the rise of illiberal economic bloc-building, and a darkening shadow over the world economy that could easily tip it toward geopolitical conflict – both hot and cold.

A lightly edited version of the original article was published by Global Times on July 10, 2024.