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China's Move into the High-Income Category

April 12, 2019

Min Zhu, Chairman, National Institute of Financial Research, Tsinghua University and former Deputy Director of the International Monetary Fund and Johns Hopkins SAIS alumnus
Moderated by John Lipsky, Peter G. Peterson Distinguished Scholar at the Henry A. Kissinger Center for Global Affairs

In the midst of the U.S.-China trade war, China’s long-term growth potential is a topic of heated debate. Zhu, former Deputy Managing Director of the IMF from 2011 to 2016, was invited to discuss the country’s economy and its vast structural changes.

While China has been contributing more than 30% of global growth over the past ten years, Zhu posed two questions that remain a challenge to the country’s ability to fully enter “high-income” status: 1) Can China surpass a gross domestic product (GDP) per capita of $10,000? and 2) Can China sustain its current growth rate of 5-6%?

Zhu discussed China’s role in historical shifts of the global economy from agriculture to manufacturing and now into the services sector. In this way China has followed in the footsteps of nations like Germany, Belgium, Spain and South Korea. However, China’s ongoing transition from industry to services, combined with its sharp demographic changes, are expected to impose downward pressure on growth. Zhu added that reforms can moderate the slowdown by improving within-sector productivity.

Zhu remarked on the lack of improvement in education and healthcare within the sector over the past fifty years. By examining productivity convergence in China’s major industrial and service sectors, he predicted future shifts and their impact on aggregate productivity. He suggested that China will likely be focusing on the non-market service sector’s labor productivity (i.e. education, health, administration) to contribute to its economy. Furthermore, he argued that China continues to lack in the IT sector where further study is needed.

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