War ‘will not halt’ China’s run to world No 1 economy
The war in Ukraine will not halt China’s rise to surpass the United States as the world’s largest economy by 2030, according to a senior Beijing adviser, who noted that the conflict would impact all countries.
Justin Lin Yifu, a former World Bank vice-president and now a professor at Peking University, has long maintained that China has the potential for an average annual growth rate of 8 per cent until 2035.
“I’m pretty confident in my estimate that China will surpass the US by 2030,” he said.
“The Russia-Ukraine war will have an impact on China, but it will also affect the US. All countries will see a slower pace of growth,” Lin said during the ongoing “two sessions” political gatherings in Beijing.
Lin has based his economic growth estimates on what he calls China’s unfulfilled potential, which will guarantee at least 2-3 percentage points of growth more than the US in coming years.
“China has the room to upgrade its traditional industries. As the most populous country, it has comparative advantage and a large domestic market,” he said.
“In the area of the new economy, China also enjoys the advantage of being able to change lanes to overtake.”
China’s economy approached three-quarters of the size of the US economy last year. Washington already views Beijing as a strategic rival and has escalated efforts at technological containment and economic decoupling.
Russia’s invasion of Ukraine comes during these rising tensions between China and Western powers, as well as amid global economic pressure and uncertainties caused by the coronavirus pandemic.
Washington and its allies have strengthened sanctions on Russia, including the exclusion of some Russian banks from the Swift financial messaging system, while they are also considering cutting off Russian energy imports.
That has pushed Brent crude oil prices to 13-year highs recently and could drive them up further, creating huge uncertainties for the global economy, particularly the prospect of surging inflation.
A sign of uncertainty has, however, crept into China’s bond market.
Overseas investors made the rare move of slashing holdings by 67 billion yuan (HK$83 billion) last month to 3.67 trillion yuan, despite the yuan exchange rate to the US dollar nearing a four-year high.
It remains unclear who has cut their holdings as no breakdown of the figures was provided, but ANZ Bank estimated earlier that Russia’s central bank and sovereign fund, which have both been sanctioned, may hold US$140 billion worth of Chinese bonds.
Lin, a former Taiwanese military officer who defected to the mainland in 1979, also believes China’s inflation will not rise quickly despite the increasing cost of oil and food.
On Saturday, Premier Li Keqiang set a target for the consumer price index (CPI) growth for the year of “around 3 per cent” while delivering the government work report for 2022.
The country is set to announce February’s CPI figure today, with expectations that it will remain unchanged at 0.9 per cent growth compared to the same period last year.
“We hope the war ends soon. If so, the impact [on the Chinese economy] will be limited,” Lin said.
Beijing set a gross domestic product growth target of “around 5.5 per cent” this year, compared to actual growth of 5.1 per cent over the past two years and a 4.8 per cent estimate for 2022 by the International Monetary Fund.
The Development Research Centre of the State Council, a governmental think tank, has previously estimated that China’s economy would overtake that of the US by around 2032.
Separately, Lin criticised the US for using the global financial infrastructure – including Swift and the US dollar system – as a sanctions tool, which was a threat China faced in 2019.
“Business and politics should be separated,” he said. “It will bring shocks to the international financial system.”
Beijing has strengthened the construction of its home-grown yuan cross-border payment and settlement system and has continued to push for more overseas use of the Chinese currency.
Lin also said that the internationalisation of the yuan should be in line with the country’s rising economic power, but even if it were to overtake the US in terms of the size of its economy, this would not guarantee the yuan would also replace the US dollar.
“It should be a rather long process,” he added.
China has the room to upgrade its traditional industries. As the most populous country, it has comparative advantage and a large domestic market
JUSTIN LIN, PEKING UNIVERSITY