Chapter Two　China’s Economic Take-off:Challenges and Solutions

I.A Fascinating Economic Boom

The rapid growth of economic aggregate is the most significant achievement of China's economic development.From 1978 when the policy of reform and opening-up was launched to 2010,China's GDP skyrocketed from 364.52 billion RMB as the world's 7th to 40.1202 trillion RMB(5.88 trillion US dollars) as the 2nd,with its proportion to the world GDP increasing from 1.8% to 9.3%.In the past three decades,China's economy has grown at an average of nearly 10% a year,which is over three times more than the world's average level.Especially since the official access to WTO in 2001,China has been enjoying a sustained and rapid foreign trade growth with export as a strong impetus for the overall economic growth.China's total export-import volume increased from 20.64 billion US dollars in 1987 to 2972.76 billion US dollars in 2010.Except for the distinct downturn due to financial crisis in 2008,China maintains the growing momentum of foreign trade,thus becoming the largest exporter in the world.On this basis,China's foreign reserve accumulates continuously,possessing the biggest foreign reserves totaling 3197.491 billion US dollars up to June 2011.

As for the investment in foreign countries,China's achievement is also remarkable.As is shown in the 2010 Statistical Bulletin of China's Outward Foreign Direct Investment co-issued by the Ministry of Commerce,National Bureau of Statistics and State Administration of Foreign Exchange,China's outward foreign direct investment (OFDI) value in 2010 stroke a historical high of 68.81 billion US dollars,2.3 times as much as the total OFDI value in the whole period of“the Tenth Five-Year Plan”. The bulletin indicates that in 2010,China's net OFDI (flow) enjoyed a year-on-year growth rate of 21.7% and an average annual increase of 49.9%,maintaining the growing momentum for a consecutive 9 years.According to relevant statistical calculation provided by United Nations Conference on Trade and Development,China's OFDI in 2010 ranked 5th in the world,surpassing traditional outward foreign investment powers such as Japan and the UK for the first time.Besides,the 2011 World Investment Report issued by United Nations Conference on Trade and Development shows that with the increase of economic aggregate,China's international direct investment inflow and annual outward foreign investment have both been growing in a large scale,reaching 11% and 17% respectively.China's foreign capital inflow rose to 105.7 billion US dollars in 2010,generally restoring to the high-order status before the financial crisis.Such achievements benefit from the overall industrial structure optimization,as well as the inter-regional industrial upgrading and transfer. There￣fore,China is further viewed as a promising land to absorb foreign capital.The investigation conducted by United Nations Conference on Trade and Development reveals China as the first choice of global investment for multinational enterprises in the following two years.

Based on its ever growing economy,China has already become a staunch force in maintaining and promoting world economic stability and development.Taking the 2008 financial crisis as an example,China alone contributed 20% to the world economic growth in that very year,and even over 50% in the following year.China has a huge domestic market which contributes to the absorption of world products.Its accelerating foreign investment creates job opportunities for the country in which it invested.China provides infrastructure construction for other developing countries.All in all,as the second largest economy in the world,China is undertaking corresponding Great Power's responsibility with a brand new international image.

In addition to economic accomplishments,China impresses the world with its amazing improvement of people's livelihood.The variation of per capita income is a significant indicator of the improvement of China's living condition.In China,per capita disposable income of urban residents increased from 343.4 RMB in 1978 to 19109 RMB in 2010,and the per capita net income of rural residents increased from 133.6 RMB to 5919 RMB in the same period.The proportion of GNI per capita to the world average level rose from 24.9% in 2005 to 46.8% in 2010. With the increasing income,the residents' living quality improved obviously.Engel's coefficient on urban and rural households decreased from 57.5% and 67.7% in 1978 to 35.7% and 41.1% in 2010 respectively.Such change can be notably seen in the increase figure of durable consumer goods for urban residents (see Table 2—1). Taking domestic automobile as an example,before 2000,the number of car ownership out of every 100 households was close to zero; in 2009, however,the number has already reached 10.89.Up to the end of 2010,China's civilian vehicles amounted to 90.86 million (including 12.84 million three-wheel automobile and low speed lorries),increasing by 19.3% compared with the end of 2009,among which the number of private vehicles was 65.39 million,an increase of 25.3%.The number of civilian cars is 40.29 million with an increase of 28.4%,among which private cars take up 34.43 million, which is an increase of 32.2%. In the area of communication,by the end of 2010,China's annual fix-line telephone users reached 294.38 million,among which 196.62 million are urban telephone users and 97.76 million are rural telephone users.There are 111.79 million newly-added mobile phone users,making the total 859 million users at the end of 2010,where 47.05 million are 3G mobile phone users.The total number of fixed-line and mobile phone users was 1153.39 million,which is an increase of 92.44 million compared with the end of 2009.And the telephone popularizing rate was 86.5 sets per 100 people.As for the Internet,there are 457 million Internet users in China,with 450 million using broadband.The Internet popularizing rate is 34.3%.On tourism,in the statistics of 2010,the tourists traveling within China reached 2.1 billion person-time,an increase of 10.6% compared with the year 2009; domestic tourist income increased by 23.5% to 1258 billion RMB.On the other hand,there were 57.39 million Chinese residents traveling abroad,increased by 20.4%.The number of non-official trips was 51.51 million with an increase of 22.0%,taking up 89.8% of the total.

Table 2—1 Number of possession of durable consumer goods for every 100 urban households

In the deposit sector,we can see that the balance held on deposit of Chinese urban and rural residents rose from 21.06 billion RMB in 1978 to 30716.6 billion RMB in 2010.By 2009,balance on fixed deposit had increased from 12.89 billion RMB to 16023.04 billion RMB,while current deposit balance grew from 8.17 billion RMB to 10054.13 billion RMB.

On the whole，with the dramatic growth of economy,the living standard of Chinese residents improved apparently,which in reverse fuels economic sustainable growth through consumption.After all,among the troika for economic growth,which are consumption,investment and export,consumption plays a fundamental role.Therefore,the improvement of Chinese citizens' living standard is both the driving force and final objective of China's economic development.

In the area of infrastructure construction,China has enjoyed a rapid development as well.Infrastructure construction is the premise of the rapid and steady growth of a country's economy.The initial infrastructure construction of New China dated back to the beginning of its founding when Soviet Union provided a lot of assistance.Though more than a half century has past,the infrastructure built then still plays vital role in today's economic development.The First Yangtze River Bridge—Wuhan Yangtze River Bridge,whose construction was aided by the Soviet Union,is the key to linking China's North and South main arteries.It remains to be an important section on Jingguang Railway.Since the reform and opening-up,China has stood on its own feet in the infrastructure construction instead of depending on foreign aid,making remarkable achievements.

From 1949 to 2008,the length of railroad lines in service in China stretches from 21800 km to 79700 km.Nearly half of the newly-added length was contributed by electrified length of railroad lines in service adopting advanced technologies and equipment.In 1962,China only had 100 km of railway electrified length,while in 2008 the number soared to 25000 km.Shanghai maglev train project and Guangshen high-speed railway project have been established.In terms of road mileage,an increase from 80000 km in 1949 to 3.73 million km (including rural roads) has taken place.Highway extended from 200 km in 1988 to 60300 km,which was an increase by 602 times.In addition,China's civil aviation construction has gained remarkable development.By the end of 2008,there had been 152 civil airports,an increase of 70 compared with that of 1985; there had been 1532 airlines,which was 1095 more than that in 1990; there had been 2.46 million km of civil air transportation length,216 times as that in 1949.

What the infrastructure construction brought was the dramatic growth of volume of goods transported.The total amount of goods transportation in 2010 as a whole reached 32 billion tons,which was an increase of 13.4% compared with the year 2009.The flow of goods transportation increased by 12.4% to 13.7 329 trillion tons km.Within the whole year,above-scaled ports achieved a port capacity of 8.02 billion tons,increasing by 15.0% compared with the previous year.Among them the port capacity of foreign trade goods increased by 13.6% to 2.46 billion tons,while container handled at ports increased by 18.8% to 145 million base boxes.

To such a large country with billions of people and 9.6 million km² of land,China's infrastructure construction is not only of economic importance,but also of deep political meaning.For example,while high-speed railway brings up transportation speed,it also strengthens the communication among remote places in China,thus enhancing the sense of national identity.As a result,powerful basic industry and infrastructure construction will definitely provide endless motive power for China's sustainable development.

In terms of industrialization,China has witnessed its leap and bounce greatly.At the beginning of the founding of New China,the projects on heavy industry aided by the Soviet Union marked the starting up of China's industrial construction,some of which still play significant roles in the current economic construction.Taking the economic center in central China—Wu Han as an example,thanks to its important regional advantage of Nine Provinces' Thoroughfares,many of the Soviet Union-aided projects were invested in Wuhan,leading to a series of industrial enterprises named after“Wu”—Wuhan Steel,Wuhan Heavy Duty Machine Tool Works,Wuchang Shipyard,Wuhan Boiler Factory,etc.Among them Wuhan Steel ranks 340th on the 2011 Global 500 list as one of the top 10 steel enterprises in the world.What's more,it turns out to be the factory possessing most ore resources among all the steel makers in the world.Since the reform and opening-up,China's industrial accomplishment has won the world's attention.“Made in China”has become a prior driving force for promoting global economic development.

In 2010,China's total industrial added value reached 16.003 trillion Yuan,which was an increase of 12.1% compared with the previous year.The added value of above-scaled industry increased by 15.7%.Among the above-scaled industry,the increase rate of state-owned and state-held enterprises,collective enterprises,corporate enterprises,foreign and HK,Macao and Taiwan invested enterprises and private enterprises was 13.7%,9.4%,16.8%,14.5%,and 20.0% respectively.We can see from the figure that the structure of ownership in China's industrial economy has become more and more rational with private economy becoming an important part in China's industrial growth.Private enterprises such as Huawei,Shagang Group,Sany Heavy Industry,BYD,and Geely have already taken the primary or even leading position in areas vital to national economy and the people's livelihood such as iron-steel,communication,equipment manufacturing and automobile.Under their propelling significance,China's industrialization will definitely embrace a more diversified and dynamic future.

In 2011,61 Chinese enterprises entered the Fortune Global 500,which was the first time China has surpassed Japan in this figure.While in 2003,only 11 Chinese enterprises had their names on the list.In the foreseeable future,with China's overall economic growth,especially the power of science, technology and education,China's industrial economy will not only be stronger,but also be more proactive in“going global”for the international competition.It will not only stimulate China's economic sustainable development,but also help pull the world out of the shadow of financial crisis.

As for the emerging economy in China,we can see it is starting to sprout.In 2007,the UN's Intergovernmental Panel on Climate Change released its 4th evaluation report,making climate change as a wholly global issue as one of the most important topic for international political discussion.Together with 2008 global financial crisis,climate change issue has stimulated the formation of current world economic trend: emphasizing on the new industry and realizing economic structural upgrading,in order to cope with the worsening bottleneck of energetic,climate and environment.So,the most important new industry lies in new energy.As a result,according to the standard of market demand,economic effectiveness,and industrial ripping effects,Chinese government has stipulated a strategic development planning for the new industry and science and technology with new energy as its core priority.The purpose is to“set our strategic objective of establishing an innovation-oriented country,our strategic direction of achieving sustainable development,strategic focal point of grasping economic, scientific and technological commanding height,thus making strategic emerging economy to be a dominant force promoting economic and social development.

Supported by sufficient capital,the industry of new energy and renewable energy in China is flourishing,ranking first class in terms of investment for the consecutive years.The current Chinese industry of new energy and renewable energy bears the following features: first,the exploration degree of key river valleys for hydropower plant is continually intensified.The expected scale of new construction will be more than 20 million kw,with the total installed capacity of 220 million kw. Second,the construction of nuclear power generating unit is progressing rapidly.The second phase of No.2 unit of Ling'ao Nuclear Power Plant has already been put into operation,whose nuclear power generation capacity will reach 11.74 million kw.Third,a series of wind power generation projects have come into operation,including plants in Xinjiang Hami,Inner Mongolia,Jilin Tongyu,Gansu Jiuquan,Jiangsu Haishang,and so on.It was estimated that the newly added wind power installed capacity would strike over 14 million kw in 2011.Fourth,the concession tender project of photovoltaic power station in west area is proceeding,and is estimated to be equipped with a 500 thousand kw newly added installed capacity in 2011.Fifth,industry of biomass energy tends to be more diversified,more accelerated in cultivating innovative patterns and industrial chains.It can be made use of to a larger extent and with a higher level.

Apart from capital investment,China's development in new energy industry also depends on its independent research and development strength.With the support of the Ministry of Science and Technology as well as the financial sector,China has officially launched a key national research plan called“Global Change Research”whose aim is“to target at the prior area and key issues in global change research,to arrange a series of projects,and to carry out fundamental,strategic and forward-looking research,in order to comprehensively promote the capability of our global change research and our international competitive strength,thus providing scientific support for maintaining national interests and realizing sustainable development.”This shows that China's innovation in low-carbon technology has already been fully started,which will dramatically promote the ability to mitigating and adapting to climate change.

Just because of such rapid development of new energy and renewable energy industry,China has successfully completed the target made in the Medium and Long-Term Renewable Energy Development Plan which specified that the consumption of renewable energy should take up around 10% of the total energy consumption.Now we are heading toward the goal of 15% by 2020.