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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 E-mail: Shujie.yao@nottinghamShujie.yao@nottingham

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, 1981-2004 USJapanGermanyUKChinaIndiaRussia Total GDP and trade volume 2004 (trillion US dollars) GDP Trade 11.7 2.34 4.6 1.02 2.7 1.63 2.1 0.81 1.6 1.15 0.7 0.17 0.6 0.28 GDP annual growth rate % 1970-812. 1980-903. 1990- 2000- GDP as % of the USs 1981100.039241795n.a. 2004100.04023181465

8 Figure 1 FDI inflows into China 1979-2004

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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