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Economics and Business Exchange Supported by Deloitte.

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2 Economics and Business Exchange Supported by Deloitte.

3 Can China Really Become the Next Superpower? Professor Shujie Yao China Policy Institute Leverhulme Centre of Globalisation & Economic Policy University of Nottingham Nottingham NG7 2RD

4 What constitutes a superpower Chinas emergence: An awakened dragon China may fail Constraints & challenges China may fail Constraints & challenges Hu-Wen Policies Possible scenarios of evolution

5 What constitutes a superpower Absolute size Per capita income and entitlement Justice and fairness Science, technology and human capital Military strength and foreign diplomacy Democracy, freedom, controlled corruption

6 3. Chinas emergence: an awakened dragon 3.1 What has China achieved in 30 years of reforms? Fast growth for a prolonged period (Table 1) Enormous improvement of peoples living standards Worlds largest producer/consumer of key A&I products Worlds third largest trading nation Worlds largest/second largest recipient of FDI (Fig 1) Growth engine of the world economy Significant political influence after the cold war

7 Table 1Key indicators of world powers, USJapanGermanyUKChinaIndiaRussia Total GDP and trade volume 2004 (trillion US dollars) GDP Trade GDP annual growth rate % n/a n/a GDP as % of the USs n.a

8 Figure 1 FDI inflows into China

9 3.2 Why China succeeds? Institutional reform White-Black Cat Theory: changing plan to market Touching Stones to Cross Rivers Theory: gradualism, experiment, timing, scale Development strategies Export-push vis-à-vis import substitution Globalization vis-à-vis close-door

10 Development theories From SPOT to AREA (yi dian dai mian, ) Figure 2Economic growth and linkage to a growth centre Growth centre A B D A < D min D B > D min

11 Foreign technologies to serve China (yang wei zhong young, ) Walking with Two Legs for S&T (liang tiao tui zou lu ) Figure 2 Technological progress and FDI Y Y ft Y dt Y f0 Y d0 PF A PF B

12 4. China may fail? Constraints and challenges High growth but low quality Unfairness, injustice, inequality, corruption Insecurity of citizens: social unrest health, education and social security Stickiness of poverty Politics and democracy

13 5. Hu-Wen new strategies Reducing inequality Improving growth quality Fighting corruption Fighting poverty Protecting environment Building a harmonious society

14 6. Possible scenarios of evolution 6.1 Most pessimistic scenario Hu-Wen policies do not work Slow growth – high unemployment Corruption unchecked – social unrest Banking reform fails – financial crisis Unstable, highly polarised, stagnant society

15 6.2Medium scenario Hu-Wen policies work reasonably well High growth – low quality Rising inequality Corruption partially controlled People unhappy, but the country is stable Similar to the present situation

16 6.3 Most optimistic scenario Hu-Wen policies work extremely well High growth – high quality Reduction of inequality Reduction of poverty Fuller employment Sustainable growth with high security China becomes a real superpower in 30 years

17 Economics and Business Exchange Supported by Deloitte.

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