China's Ascent

• Author: Keyu Jin
• Position: Director of the Global China Center and professor of economics at the London School of Economics and Political Science
• Pages: 36-37

The rise of China in the coming decades will have far-reaching

consequences—the world should get ready

Keyu Jin

AS IT TRANSFORMS from an economic backwater

to the most connected hub in the global ec onomy,

China is driving seismic changes, within its own

borders and beyond. It is the second time in recent

history that a developing economy is on the fast t rack

to becoming the world’s largest, but it is the first ti me

this has happened in suc h an interconnected world.

How China—a unique countr y in transition—

designs its financia l liberalizat ion and opening-up

policies will be of para mount importance to

all. So will the mantle the countr y is bound to

assume in the realm of global economic coopera-

tion. Contemporary think ing on the future of the

international financia l order does not yet focus on

the new paradigm cre ated by China—but it should.

China in 2040 wi ll look on the face of things

to be a mighty economic power. Under plausible

projections, it will have firmly est ablished itself as

the largest economy in the world, with 60 to 70

percent of the US income level. But in 20 years,

China will st ill be a developing economy by many

measures—its fi nancial development will la g its

economic development, and many economic and

policy distortions may sti ll persist.

In that scenario, the world must be prepared

for China to be its first systemic emerging m arket

economy. It should brace for greater volatility a nd

uncertainty a s China becomes more intermeshed

with global fina ncial markets. It should prepare for

a China that emits shock s distinctive to developing

economies—but on a much larger sca le and with

greater thrust a nd impetus.

Every significant policy move, stock market panic,

and cyclical upswing or downswing in China can

plausibly diffuse and propagate through the web of

financial networks that links nations. In China today,

70 percent of investors in capital markets are retail

investors, quick to react to noise and changes in senti-

ment. Mercurial stock markets and volatile exchange

rates may become the rule, not the exception.

China’s Ascent

36 FINANCE & DEVELOPMENT | June 2019