Magazine article Soundings

Deng Xiaoping and John Maynard Keynes: China's Economic Success Is Continuing Testimony to the Efficacy of Keynesianism

Magazine article Soundings

Deng Xiaoping and John Maynard Keynes: China's Economic Success Is Continuing Testimony to the Efficacy of Keynesianism

Article excerpt

The present international importance of China's economy is twofold. Firstly there is the significance of the scale of China's economic achievement, its global impact, and the consequences for the improvement of the social conditions of China and the world's population. Following on from this is a second major issue - China's success raises the question of the universalisable character of its economic system. Though no country can mechanically copy another - as China insists, its economy has unique 'Chinese characteristics' and there is no 'Chinese model' - the elements of which this economic system is composed are universal. As analysed below, China has succeeded in solving in practice problems that are stated in general macro-economic theory. For that reason these elements, in quite different forms and combinations, are of major importance for economic policy elsewhere. This article briefly looks at the nature of China's economic achievement, before going on to relate China's economic performance to more familiar Western economic theory.

China's economic and social achievement

In the last twenty-five years China has lifted more than 620 million people out of absolute poverty. According to the calculations of Professor Danny Quah of the London School of Economics, that is 100 per cent of the reduction in the number of those living in absolute poverty in the world. (1) No other country remotely compares to China's contribution to the reduction of world poverty - a fact that places legitimate and illegitimate criticism of China in an appropriate qualitative context.

Not only China's rate of GDP growth but also its increase of consumption - both individual and total consumption, including government spending on education and health - is the highest of any major country - see Table 1. The basis of the very high rate of increase in China's living standards is extremely rapid GDP growth. Average annual GDP growth since 1978 is 9.9 per cent on World Bank data. As is well known, over this thirty year period this is the highest of any major economy.

On conservative assumptions (annual China GDP growth of 8.0 per cent and US growth of 3.0 per cent) in 2019 China's economy will overtake the US, to be the largest in the world, in Parity Purchasing Power (PPP) terms. On current five-year moving average annual growth rates, China would overtake the US in PPP terms in 2017. The widely quoted Goldman Sachs estimate that China's GDP would overtake the US, at official exchange rates, in 2026 was made before the financial crisis, and is now outdated: the gap between the Chinese and US economies closed by $700 billion in 2009 alone. Pricewaterhousecoopers's estimate is that China's economy will overtake the US 'before 2020'.

Given such rapid rises in living standards it is unsurprising that in spring 2010, on being asked the question 'is the country's economic situation good or bad', more than 85 per cent in China answered 'good' - compared to less than 20 per cent in the US and UK, according to the Pew Global Attitudes Project. (2) The Economist Intelligence Unit, in a report published in August, found that 91 per cent of China's population were optimistic about the future. (3)

Annual Rate of Growth of Household Consumption and
Total Consumption 1978-2008

             Household Consumption  Total Consumption

China        7.9 per cent           8.5 per cent
Indonesia    6.7 per cent           6.0 per cent
Singapore    5.6 per cent           5.8 per cent
India        4.9 per cent           5.6 per cent
South Korea  4.6 per cent           5.6 per cent
US           3.1 per cent           2.9 per cent
UK           2.9 per cent           2.5 per cent
Japan        2.3 per cent           2.4 per cent
France       2.1 per cent           2.1 per cent
Germany      1.6 per cent           1.6 per cent

Source: Calculated from UN National Accounts Main
Aggregates Database/World Bank databank

China and macro-economic theory

China's 'reform and opening up' process under Deng Xiaoping was, of course, formulated in a Marxist economic framework. …

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