It is believed that China is on track to achieve its goal of becoming a high-income economy by 2035. But it will have to sustain labor productivity growth of at least 5% annually for the next 15-20 years – an outcome that will depend on rising urbanization and deepening technological progress.
The key to success will be a Chinese leadership that adapts effectively to changing internal and external conditions and manages the risks that have accumulated in recent decades. For example, it must tackle growing income inequality, driven largely by the massive disparity between urban and rural incomes, though the income gap among urban residents is also widening. In 2014, per capita income was CN¥53,300 ($8,024) for the top 5% households and just CN¥1,600 for the poorest 5%.
According to China Household Financial Survey data, China’s Gini coefficient – the most common measure of inequality – climbed from 0.283 in 1983 to 0.491 in 2008, reaching highs of 0.61 in 2010 and 0.60 in 2012 (much higher than the official figures of 0.481 and 0.474, respectively). Though the Gini coefficient dropped to 0.465 by 2016, that still exceeds the 0.24-0.36 range for major developed economies.
China also faces increasing wealth disparity. In 1988 and 1995, China’s Gini coefficient of household wealth was just 0.34 and 0.4, respectively. But the coefficient has grown, peaking at 0.739 in 2010. By 2014, the poorest 25% of households owned less than 2% of the country’s total wealth, while the top 1% owned one third.
If China fails to contain inequality, its long-term growth could suffer. But with a clear development blueprint and a powerful leader whose political clout all but guarantees continued reform, China might be in a strong position to address the challenges it faces and sustain its unprecedented economic success.
Yet, even if China achieves its goals for 2050, the challenge will not be over, as China’s leaders will then have to contend with an aging population. By 2050, 36.5% of China’s population will be over the age of 60, according to the 2017 revision of the United Nations’ World Population Prospects. The median age may be as high as 49.6, quite close to Japan’s 53.3 and higher than in the Sweden, the United Kingdom, European Union as a whole, and the United States. This makes it all the more crucial for China’s leaders to make the right decisions and put their country on a stable footing by 2050.
Zhang Jun is professor of economics and director of the China Center for Economic Studies at Fudan University, Shanghai.