Chinese economy in the new era

• DOI: http://doi.org/10.1111/1468-0106.12300
• Published date: 01 May 2019
• Date: 01 May 2019

ORIGINAL MANUSCRIPT

Chinese economy in the new era

Lawrence J. Lau

Lau Chor Tak Institute of Global

Economics and Finance, The Chinese

University of Hong Kong, Hong Kong

Correspondence

Lawrence J. Lau, Lau Chor Tak Institute of

Global Economics and Finance, The

Chinese University of Hong Kong, Hong

Kong.

Email: lawrence@lawrencejlau.hk

Abstract

The “new era”, a term introduced by President Xi Jinping,

may also be identified as the Xi era, during which China

will be transformed from a moderately well-off to a strong

and wealthy nation. In the new era, the Chinese Govern-

ment will deepen economic reform, widen economic

opening and enhance the quality of economic growth. /

Our projections show that by 2020, Chinese real GDP per

capita, in 2017 prices, will exceed US$10,000, an eco-

nomic development milestone. By 2031, Chinese real

GDP will surpass US real GDP (US$29.4 trillion vs US

$29.3 trillion), making China the largest economy in the

world. However, Chinese real GDP per capita will still lag

behind the US significantly, amounting to only one-

quarter of that of the United States. By 2050, Chinese real

GDP will reach US$82.6 trillion, compared to US$51.4

trillion for the United States. However, in terms of real

GDP per capita, China will still lag significantly behind, at

US$53,000, slightly less than the current level of US real

GDP per capita, compared to US$134,000 for the United

States.

1|INTRODUCTION

1.1 |The new era

What is the meaning of the “new era”? The new era refers specifically to present-day China. Three

distinct eras may be distinguished in the history of the People’s Republic of China since its establish-

ment in 1949:

1. 1949–1978, the Mao Zedong Era, during which the People’s Republic of China was established

and consolidated;

Received: 31 January 2019 Revised: 12 April 2019 Accepted: 17 April 2019

DOI: 10.1111/1468-0106.12300

Pac Econ Rev. 2019;24:187–207. wileyonlinelibrary.com/journal/paer © 2019 John Wiley & Sons Australia, Ltd 187

2. 1979–2012, the Deng Xiaoping Era,

1

during which economic reform was undertaken and the

Chinese economy was opened to the world; and

3. 2013–, the Xi Jinping Era, during which China was transformed from a moderately well-off to a

modernized, strong and wealthy nation.

Today, China is already the second largest economy in the world. At its current average annual

rate of growth of approximately 6%, it is expected to catch up with and overtake the United States to

become the world’s largest economy some time before 2035. Nevertheless, even then, Chinese real

GDP per capita, at a projected US$20,000 in 2017 prices, will still be less than one-quarter of the

projected then US real GDP per capita.

In the new era, the principal driving force of the economy is the contradiction between “unbal-

anced and inadequate development”of the economy and “the people’s ever-growing need for a better

life”. The economic tasks in the new era are aimed at enabling the economy to better serve the peo-

ple’s needs. Thus, the Chinese Government will undertake to deepen reform, widen opening and

enhance quality. It is also expected to share prosperity and reduce risks to the economy. The Deng

era was one in which some of the people would become wealthy first. In the Xi era, all people will

become wealthy together. In the Thirteenth Five-Year (2016–2020) Plan, the only mandatory targets

have to do with the preservation, protection and restoration of the environment and the alleviation

and elimination of poverty. In the Xi Era, the economic policies will be people-centric. A modern

socialist market economy with Chinese characteristics will be established under the leadership and

stewardship of the Communist Party of China.

1.2 |The Chinese economy in 2017

We begin with a brief review of the Chinese economy in 2017. The rate of growth of real GDP was

6.9%, its first year-on-year increase since 2011 (see Figure 1). (The rate of growth of real GDP in the

first quarter of 2018 was 6.8%.) This signals the end of the vertical portion and the beginning of the

horizontal portion of the “L-shaped”recovery. The monthly rates of growth of the real value-added

of the Chinese industrial sector also confirm that the rates of growth of the economy have stabilized

and are no longer declining (see Figure 2). The rate of growth of the consumer price index (CPI) was

1.6% compared to 2% in 2016. In contrast, the producer price index (PPI) increased by 6.3%, the first

increase in years, indicating that the reduction of excess production capacities had begun to have

some success.

In 2017, employment increased by more than 13 million. The urban unemployment rate at year-

end was 4.98%. The disposable income per capita increased by 7.3%, more than the growth of real

GDP and real GDP per capita. The renminbi exchange rate remained stable. The level of official for-

eign exchange reserves was little changed, amounting to US$3.14 trillion at year-end 2017, equiva-

lent to almost one and a half years’worth of annual imports (US$2.21 trillion in 2017). The energy

consumed per unit of real GDP declined by 3.7%, indicating an improvement in the quality of

growth. The capacity utilization rate in industry rose to 77%, reflecting the progress in the supply

side structural reform and the reduction of excess production capacities.

2|DEEPENING ECONOMIC REFORM

The most important economic reform is the supply-side structural reform, aimed at the prevention of

new and the reduction of old excess production capacities in many industries (steel, cement, plate

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