Melbourne University’s Faculty of Business and Economics has an impressive track record of arranging notable speakers to deliver the annual David Finch lecture.
This spectacular growth, although admirably lifting millions of people out of poverty, has also had its associated problems
This year’s lecture, delivered on 4th June on ‘Demystifying the Chinese Economy’ by Professor Justin Yifu Lin, drew an attentive audience but also represents a sign of the times. A confident China straddling the world stage has accomplished spokespeople that can deliver its success story.
Professor Lin has had an extraordinary life. Born in 1952 in Taiwan, Lin is a graduate of the elite National Taiwan University. He entered the Republic of China’s Military Academy where he completed an MBA under a defence scholarship. While posted on the outlying island of Quemoy, in May 1979 Lin defected to China by swimming 2.3 kilometres to the Chinese mainland, using two basketballs as flotation devices and leaving behind a pregnant wife and three year old son.
Lin defended his actions by stating that “based on my cultural, historical, political, economic and military understanding, it is my belief that returning to the motherland is a historical inevitability; it is also the optimal choice”.
To this day there is still a warrant out for his arrest on desertion charges that the Taiwanese authorities refuse to lift. After completing a master’s degree in Marxist political economy from Peking University in 1982, and a PhD in economics from the University of Chicago in 1986, Lin’s reputation as an economist has gone from strength to strength. He was the first Chief Economist to be appointed at the World Bank from an emerging economy or developing country and was the founder of the China Centre for Economic Research, an economic think tank at Peking University.
Lin firmly believes that China can continue to grow at rates of 8 per cent for at least another 20 years. He bases this assumption on the fact that there is still a very large technological gap between China and the developed world. In 2008 China’s per capita income was a mere 21 per cent of that of the United States in terms of purchasing power parity. The East Asian states of Japan, Taiwan, Korea and Singapore, which had undergone similar economic take-offs and enjoyed high single digit average growth for around two decades, reached a stage where their per capita income was between 50 to 66 per cent of that of the US before growth normalised.
His optimism is based on the policy options the Chinese government still enjoys. So far, growth has been driven to a large extent by trade expansion, merchandise exports fuelled by FDI (foreign direct investment). Even if this was to slow down, incentives can be used to stimulate demand in China’s large domestic market whose consumers have an extremely high saving propensity.
The public debt of the Chinese government is also very low, around 20 per cent. Even if one includes debt at the provincial and municipal level, overall public debt is still a very low 40 per cent. This compares quite favourably with average OECD debt levels which border on 80 per cent and individual countries surpassing the 100 per cent threshold.
Increased government spending on social welfare and infrastructure projects remains an option if growth begins to falter. Lin is no utopian and readily admits that this spectacular growth, although admirably lifting millions of people out of poverty, has also had its associated problems. Massive income disparity, corruption, environmental degradation, an imbalance between savings and consumption, and a widening rural-urban divide have been some of the challenges that need to be addressed.
Reform still has a long way to go, with reform of the financial sector being a top priority. Most production in China derives from small and medium-size businesses in rural areas that find it difficult to access financial services.
That the China growth story is still unfolding and is unlikely to end in the near horizon as China continues to play catch-up represents an enormous opportunity for Australia. It is an opportunity for Australia to more deeply engage in areas where it has a comparative advantage – education, tourism, quality food, green technology, business services – and to move away from its minerals-led model that has also caused internal economic dislocations.