The impact on a changing China at home

Together this well-integrated, self-reinforcing set of reforms promises to provide economic growth in China of at least 7% a year, even despite the domestic restructuring sure to take place and changes from abroad likely to come. More importantly, this will be more assured, higher quality growth. The move to a market economy will generate better data that more can trust and that will give investors the information and confidence they need to invest intelligently. It will give consumers lower cost, higher quality, more competitive products and services that will accelerate the desired domestic demand and consumption and move China toward developing the modern service economy that most of its G20 colleagues have.

On the supply side it will boost high-quality, domestic-driven growth as well. It will enable the almost half of China’s citizens who still live in rural areas to become property owners and entrepreneurs, thus adding a surge in rural economic growth to that in the cities and coastal areas that China has long counted on. People who move to the cities will become better educated and housed, improving the human capital of a workforce that will still age, even as more children arrive. The enhanced social services and personal freedoms for the urban middle class will enhance their human capital. The Chinese economy will be able to move from its longstanding reliance on cheap labour moving in from the farms to smart labour, capital and management producing higher up the value chain. These reforms will assist China’s great transformation from being the world’s factory to become the head office of the global village in an intensely interconnected twenty-first century world.

Here China has several advantages. One is its vast array of post-secondary educational institutions, students and graduates, whose quality is steadily improving as they internationalize. A second is China’s condition as a completely connected society, as internet connectivity has gone from nearly non-existent to nearly complete over the past ten years. A third is its relatively low level of central government fiscal deficit and debt and its willingness to address the large local government and off-balance sheet liabilities that lie beyond. A fourth is its location among several countries that can and wish to offer the low-cost labour in internationally integrated value chains to sustain China’s ascent up the production scale.

In all, China is now poised to become the world’s first major modern economy to escape the so-called “middle income trap.” With an annual per capita average income of about $6,000.00 per capita at present, China is currently entering the critical zone when rapid growth rate tends to stall. The reform package’s prospects of propelling China through this period is promising not just for China but also for the world as a whole.