One of China’s leading economists sees the country’s per capita GDP rising to 70% of that of the United States by mid-century, as long as it can avoid a financial crisis.
Speaking at the 2017 Sina Golden Unicorn Forum held in Beijing on 22 November, David Li Daokui said that his forecasts indicate China’s per capita GDP will rise to 50% of America’s by 2035, and 70% by 2050.
China’s total economic volume will be twice that of the United States’ by 2030, and 2.8 times greater by mid-century.
Li is one of China’s most respected economics commentators, holding the position of the Mansfield Freeman Professor of Economics and Director of the Centre for China in the World Economy at Tsinghua University’s School of Economics and Management.
Li unveiled the forecasts in relation to the targets outlined by the recent 19th National Chinese Communist Party Conference, which proposes “modernisation” of China’s economy by 2035, and the establishment of a “modernised strong nation” by 2050.
Li said that there were three prerequisites for China achieving these targets – the first being complete avoidance of a financial crisis, the second being improvements to the “human quality” of the population and better employing the human resources advantages provided by older members of society, and the third would be resolving the problem if imbalance development.
With respect to potential triggers for financial crisis, Li said that he is less worried about the high leverage levels in China that are such a keen source of concern for other market observers.
“Our macro-leverage ratio is roughly consistent with that of the United States, at around 265%,” said Li. “While this is the basic, generally-accepted figure, our savings rate is high, at over twice that of the US.
“The US has a domestic savings rate of just 15%, while our data indicates that China’s is at least 38%, while the National Bureau of Statistics estimates that it is 48%. Given our high savings rate, of course slightly higher leverage isn’t a major problem.”
According to Li the biggest risk factor for the China’s economy is the excessively high liquidity of assets and capital flight.
“Our primary financial assets aren’t stocks or bonds, but bank deposits + cash, that we refer to as broad money, comprising 200% of GDP, or USD$23 trillion yuan according to current exchange rates.
“If just one sixth of Chinese citizens lose confidence in the renminbi or lose confidence in financial stability, and want to switch to the US dollar to flee, given that each individual can convert a maximum of USD$50,000, our foreign reserves would be far from adequate.
“How can $3 trillion meet liquidity in excess of 423 trillion? Consequently this is the biggest financial risk, as well as the primary financial risk.”
Li sees tighter monetary policy as the solution for this dilemma, in tandem with the expansion of other asset classes.
“We need to gradually resolve the problem of the excessive liquidity of financial assets by means of comparatively tight monetary policy,” said Li.
“If you look at the past two years, we’ve already started to walk this path. Broad monetary growth over the past two years has been lower that the targets of the government work report.
“Last year the target was 13%, while the actual figure was just above 11%. This year the target is 12%, while at present broad monetary growth is under 10%.
“Consequently, [we should] appropriately slow down the lending volume and appropriately increase the debt development level, because debt has comparatively lower liquidity and is harder to run away from.
“This is a major direction for development.”