China's "backwardness" in terms of economic development still leaves it far behind developed countries, Lin said, noting that in relative terms to the U.S., the country is at the level of Japan in 1951, Korea in 1977, and Taiwan in 1975. He said that in the 20 subsequent years after each of those dates, the economies of those three Asian countries expanded at rates of 9.2%, 7.6% and 8.3%, respectively.
"China has the potential to achieve another 20 years of 8% growth," Lin said, addressing an audience at a conference on the Asia-Pacific economy sponsored by the Federal Reserve Bank of San Francisco. "By that time, China's per capita income measured in purchasing power parity may reach about 50% of U.S. per capita income." He added that China's economy would then be twice the size of the U.S.'s when measured in purchasing power parity and the same size as the U.S. when measured in market exchange rates.
World Bank Chief Economist Justin Yifu Lin spoke at the Beijing Forum on the topic China’s Economic Development and Cultural Renaissance in the Multipolar Growth World of the 21st Century
However, China faces challenges in achieving this objective, Lin said, highlighting what he described as the "triple imbalances." First, it needs to give consumption a bigger role in driving economic growth, which is seen as increasingly necessary now that the weakness of the U.S. and European economies is hindering exports. Second, it needs to address a growing income inequality inside the country, which not only threatens social stability but also limits economic growth. Third, Lin said, China needs to balance its growth against environmental risks.
To address such concerns, it is "imperative" that China remove distortions in the finance, natural resources and services sectors that currently leave too much power and borrowing capacity in the hands of big corporations and rich citizens and very limited access to credit for low- and middle-income Chinese, Lin said.
Specifically, he said, these changes include "removing the financial repression and allowing the development of small, and local financing institutions,...reforming the pension system [by] removing the old retired workers' pension burden from the state-owned mining companies and levying appropriate royalty taxes on natural resources, and encouraging entry and competition in telecommunications, power and financial sectors."
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