Tao Ran: How to understand China`s growth model and its limitations?


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Tao Ran: How to understand China`s growth model and its limitations?


On the evening of April 11, RDCY Seminar Series No.109 was held in Chongyang Institute for Financial Studies at Renmin University of China (RDCY). Tao Ran, a professor at the School of Economics and associate dean of Hanqing Advanced Institute of Economics and Finance at Renmin University of China was invited to give a lecture on the achievements during China`s 40 years reform and opening up and the challenges facing China, deeply interpreting China’s growth model.

In his speech, Professor Tao explained the starting point of China`s reform and opening-up. He said it is generally acknowledged that Chinese reform and opening began in 1978, but in fact, since 1972 and 1973, due to the Sino-US relations have eased and global environment China faced has became better, China has begun to adjust its industry development priorities, transferring its attention from heavy chemical industry, which focuses on the military industry, to light industry and agriculture. In 1978, the government stimulated household consumption by augmenting financial subsidies. Therefore, in the 1980s, China’s purchase and sales of consumer goods were booming.

He said that the development pattern formed during the process of reform and opening up has greatly promoted China`s economic growth, but now this model is also facing several challenges, such as the decline in economic growth rate and the increase of financial risks. In addition, China’s income gap continues to increase with the development of the economy and the Gini coefficient is very high, which will constitute an important variable for China’s future development if it is not solved as soon as possible. Finally, China`s real estate bubble and the ever-increasing pressure of RMB devaluation have brought new threats to China`s future development.

Professor Tao noted that China`s development pattern is similar to that of the East Asian countries in the 1990s. In terms of the proportion of investment in GDP, the main world`s economies generally devoted 20-30% of GDP to the investment, and Japan and South Korea reached 30%-40% in the period of rapid development, but China has reached a ratio of 40-50%. Although this proportion has changed slightly since 2008, China is still relying too much on exports and investment, and domestic demand is insufficient.

From the late 1990s to 2008, China`s development path was that the major consumer goods had been privatized, market-oriented, and the economic growth highly depends on the export. After 2009, due to the financial crisis and the limitations of this model itself, it is difficult for China`s external exports to continue growing. So Professor Tao proposed that we need to fully study the economic growth model in China`s transition process and the political economic context behind it.

All in all, the various economic sectors are interconnected. If the government is not fully understand its wealth creation mechanism in the past, ignoring its power and limitations, the adjustment of the economy in the future may bring about more risks instead of solving the current problems, and ultimately has an impact on the sustainable growth of the economy, he added.