China still has plenty of room for economic development

The economic rise of China is a hot topic however, according to the author's research the 'rise of China' is mainly reflected in the gross profits of the Chinese economy. However, if it is viewed in terms of per capita economic growth, the Chinese economy is far from rising. China has the greatest trade surplus in the world. The export summit in Japan and Germany after World War II enabled the per capita exports of those countries to exceed US$8000 and per capita trade surplus to reach over US$1500. If the population in China is 15 times that of Germany, the trade surplus may surpass US$2 trillion. Therefore, the 2005 trade surplus, more than US$100 billion, has not appreciated in real terms.

It is very likely that the Chinese trade surplus will grow constantly, for the per capita trade surplus is very low, less than US$100.

If China's economic growth is viewed from this aspect, it is apparent that China's economic rise is only in its infancy stages. China has enormous potential for economic growth. Economic growth needs time, and there is a tremendous capacity for expansion.

The potential of the Chinese economy to grow is mainly reflected in the fact that the per capita income of Chinese people is far lower than that of developed countries. In 2003 the average annual income of urban residents in China was 14,040 yuan (approximately US$1,708). If this figure climbs by 10 percent annually, it will reach 2003 US levels within 30 years. If it climbs at the present rate, which is 6 percent annually, and the per capita income in developed countries grows by 3 percent, it will take a whole century for China to catch up with developed countries.

During this period, the exchange rate will surely be adjusted. Even if the Chinese yuan appreciates three times before 2030, Americans will still be earning ten times more than the Chinese in 2030.

The cause of this huge income gap can be traced back to the Cold War. Wang Jian, Secretary-General of China's Macroeconomic Information Society, pointed out that the Cold War isolated the economic development of nations in the south and north for a long time. As a result, a price disparity in production factors occurred, prolonging the development of countries that were late bloomers, such as China. The traditional trade regulation mechanism of regulating the balance of trade through the exchange rate has become completely ineffective. Now the adjustment of the exchange rate can only change the relative price in a less-than-100-percent range, while the commercial price gap between developed countries and developing countries, which is determined by the price difference in production factors, is several thousand percent. If the adjustment of the exchange rate is less than 10 percent, its impact on the price difference of production factors will be less than 0.1 percent. Accordingly, adjustment of the exchange rate cannot effectively balance trade between developing countries and developed countries.

Aside from the cost of labor, the price of land in China is not yet high enough. In the US, the cost of per capita land resources which may be used for the development of industry is over 25 times higher than China. Although land prices in Chinese cities have skyrocketed, they are still three times lower than the average price of land in the US.

The low cost of labor and land indicates that China will retain its competitive edge in industry for the next 20 years, and the transfer of industry from developed countries will continue.

Chinese consumption commodities are widely available on the European and American markets. However, the consumption commodities industry only accounts for one third of the manufacturing industry in developed counties. The heavy manufacturing industry, which accounts for two thirds of the industry, is not able to be transferred on a large scale. Due to the big price difference in production factors, the metal industry, chemical engineering industry, mechanical equipment manufacturing industry and even auto and airplane manufacturing will inevitably shift to China in the next 10 or 15 years, and China will march into the international market at one quarter or one third of the current international price.

The tide of international industry transfer to China has only just begun. The development of China's heavy chemical industry will replay the story of the household appliance industry when it marched into the international market. In fact, the Chinese economy will take a much bigger step in the future ¨C China's economic rise is only just beginning.

By People's Daily Online