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23 chapter tw0 Economic Development: Past, Present, and Future The rise of China has become a hot topic of discussion across the globe. China’s huge population and labor force have ensured that its economic development evolves differently from the experience of other countries. At present there are four nations with a labor force in excess of 100 million people: China (786 million), India (448 million), the United States (157 million ), and Indonesia (111 million).1 In only two countries does the number of scientists and engineers engaged in research and development (R&D) exceed 1 million: China (1.82 million) and the United States (1.4 million).2 One economic implication of China’s rise is that the proportion of the world’s total GDP accounted for by China will increase; at the same time, its GDP, its imports and exports, and its domestic consumption will approach U.S. levels. As the most populous developing country, China will, by 2020, overtake the United States, to become the world’s preeminent superpower. China’s ascent to such prominence will not only demand worldwide attention but will also influence human development worldwide. Britain’s Industrial Revolution was termed a revolution because, for the first time, it was possible for average per capita incomes to double within a few generations. In the heyday of U.S. development, incomes more than doubled in a single generation.3 During the thirty years between 1978 and 2009, China’s GDP grew 18.6 times, averaging annual growth rates of 9.9 percent. In addition, China’s per capita GDP grew 13.1 times, growing at an average rate of 8.7 percent a year.4 Put another way, per capita income doubled in just eight years. Despite having a much larger population than 02-0487-2 ch2.indd 23 3/22/11 4:01 PM 24 economic development either Britain or the United States had during their respective periods of rapid development, China was able to achieve similar, if not better, results. Thus the PRC’s growth should be considered the Chinese economic revolution. The outcome of this revolution is that the PRC has risen swiftly from the most populous and destitute nation in the world to an economic power ranked among the world’s elite in terms of aggregate GDP. Using market exchange rate measures to compute GDP, China’s economy was the world’s tenth largest in 1978, eleventh largest in 1990, sixth largest in 2000, fourth largest in 2005, and third largest in 2009, trailing only the United States and Japan.5 Furthermore, China has become the world's second-biggest economy, according to data released on August 16, 2010—Japan's economy having fallen behind China's in the second quarter of 2010.6 China’s economy, measured by PPP, was the fifth largest in 1980, following the economies of the United States, the Soviet Union, Japan, and Germany. By 1992 the Chinese economy had overtaken those of Germany, the Russian Confederation, and Japan, becoming the world’s second-largest economic power based on the PPP method, a position it has maintained to the present day. Over that same period of time, the gap between China’s GDP and that of the United States narrowed by a factor of 4.37 in 1978, 1.86 in 2000, and 1.06 in 2008. It is estimated that China will overtake the United States at or around the year 2020—or even earlier.7 This chapter addresses the following questions: What is the history of China ’s economic growth? How has China managed to catch up so quickly in the domains of industrialization and modernization? How will China overtake the United States, becoming the world’s biggest economy? What impact will China’s rise have on the rest of the world? What impact will the global financial crisis have on China’s economy? What is the likely development trajectory for China’s economy? The U Curve: The Historical Trajectory of China’s Economic Growth The history of world modernization is equivalent to a race to industrialize. The evolution of world economic development shows that, through the process of modernization, many countries that began the process of industrialization late have since caught up to, or have overtaken, their forerunners. Prominent examples of this phenomenon include the United States, Japan, Asia’s four Tigers (Hong Kong, Singapore, South Korea, and Taiwan), and now the PRC. The United States began its economic takeoff in 1870, five years after...

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