Competitors will have to adjust as China continues to grow

• Pages: 153-154

Page 153

Over the past two decades, China's role in the global economy has increased sharply. Its GDP has grown at an average annual rate of over 9 percent, and its share of world trade has risen from less than 1 percent to 5 percent (see Chart 1). China's economic weight in, and integration with, the world economy are likely to increase further as structural reforms are implemented in key areas (see box, page 154). The WEO team researched the likely effect of these developments on different countries, sectors, and socioeconomic groups. It focused on three key questions:

- How does China compare with other countries that have also experienced rapid growth and integration?

- How will developments in China affect the rest of the world in the years to come?

- How should individual countries respond to increased competition from China?

China in a historical perspective

China's growth experience does not differ fundamentally from the postwar experience of Japan, the newly industrialized economies (NIEs)-a group that includes Hong Kong SAR, Singapore, and Taiwan Province of China-and the ASEAN-4, which comprises Indonesia, Malaysia, the Philippines, and Thailand. China's rate of output growth is not unprecedented (see Chart 2), and while its share of world GDP has been rising, it is still significantly below Japan's, and not much above that of the NIEs or the ASEAN-4 at corresponding phases of their development (see Chart 3). China's exports and imports and inflows of foreign direct investment reveal a similar pattern (see Chart 4).

That said, the past is not necessarily a reliable guide to the future. There are good reasons to think that China will continue to grow rapidly and that it will eventually play a much larger role in the global economy than any of the countries mentioned above. First, China has consistently had a high saving rate (see Chart 5). Even if it were to decline somewhat due to demographic change, China would still be able to main tain high levels of investment over the medium term (see Chart 6). Second, human capi tal (as measured, for instance, by literacy rates) remains relatively low and can also be expected to improve further (see Chart 7). Third, economic growth has been driven to a large extent by the reallocation of labor from agriculture to the more productive urban indus trial sector, and this process still...