Zhang yongjun: Will China’s Per Capita GDP Reach the Level of A Moderately Developed Country by 2035?

  • Date:2021-01-13
  • Source:CCIEE

The release of the “Proposal of the Central Committee of the Communist Party of China on the Formulation of the 14th Five-Year Plan for National Economic and Social Development and the Goals for the 2035 Vision (hereinafter referred to as the “Proposal”) has attracted wide attention at home and abroad. Many experts and scholars have put forward their views on the prospects of certain goals in the “Proposal” and I would like to share some of my thoughts as well.

1. The two major development goals in the “14th Five-Year Plan” proposal.

The “Proposal” suggests that China’s per capita gross domestic product (GDP) will reach the level of a moderately developed country by 2035. In the explanatory draft of the “Proposal” by General Secretary Xi Jinping, it is proposed that China will reach the level of the current high-income countries by the end of the 14th Five-Year Plan, and double the total economic output or per capita income by 2035. These two goals are rather practical and achievable.

Economists and research institutions have no objection in reaching the standard of the current high-income country by the end of the 14th Five-Year Plan. The World Bank’s demarcation line for high-income countries is US$12,535 per capita national income (GNI), China’s per capita GNI has already reached US$10,252 in 2019. To reach US$12,535 by 2025, China’s average annual growth rate for the next five years only needs to be slightly higher than 4%, which should not be a problem. Even if the World Bank raises the standard for high-income countries in the next few years, China should be able to achieve it.

However, some economists consider it a very challenging task for China’s per capita GDP to reach the level of moderately developed countries by 2035. Ding Anhua, chief economist of China Merchants Bank, recently published an article in “New Fortune” magazine, saying that due to an aging population and an increasingly severe external environment, it will be extremely challenging for China to double its economic aggregate by 2035 and reach the level of a moderately developed country. Can China can double its per capita income by 2035, will its per capita GDP reach the level of a moderately developed country by 2035? These two issues will be discussed in this article.

2. International organizations do not have a clear and unified standard for “developed countries”.

The terms “developed and developing countries” appear in newspapers frequently, but there is no clear and unified definition and standard. Thus, different international organizations define them differently and adjustments will be made according to the changes of each country.

Among the international organizations that classify countries and regions in the world according to their development, one is the International Monetary Fund (IMF) and the other is the UN Department of Economic and Social Affairs. In its annual outlook report, the IMF divides the world’s countries and regions into two major categories, advanced economies and emerging markets or developing economies. The 39 advanced economies identified by the IMF now include 19 Eurozone countries, 4 EU member states (Czech Republic, Denmark, Latvia, Sweden), 4 European countries (UK, Switzerland, Norway, Iceland), United States, Canada and Puerto Rico, 7 countries and regions in Asia (Japan, South Korea, Singapore, Israel and Hong Kong SAR, Macau SAR, Taiwan Province of China), Australia and New Zealand. Among the 39 developed economies mentioned above, Latvia has the lowest per capita GDP in 2019, and the average per capita GDP released by the World Bank is US$17,829.

In the “World Economic Situation and Prospects” report issued by the United Nations Department of Economic and Social Affairs, members are divided into three types: developed economies, transition economies and developing economies. Among them, the developed economies include the 27 member states of the European Union, the United Kingdom, Switzerland, Norway and Iceland, the United States and Canada in North America, and Japan, Australia and New Zealand. Among the 36 countries mentioned above, Bulgaria has the lowest per capita GDP in 2019, US$9,828 and Romania, which has the second-lowest rank, US$12,920.

World Bank classifies countries according to the per capita income. It divides countries and regions into low-income, low-middle-income, middle-high-income, and high-income economies. The three thresholds are adjusted every year. According to the 2020 standard, countries with per capita income less than US$1,036 are classified as low-income economies, between US$1,036-4,045 are low- and middle-income economies, between US$4046-12,535 are middle- and high-income economies, and higher than US$12535 are high-income economies.

The United Nations Development Program (UNDP) created the Human Development Index (HDI) in 1990, which is a comprehensive index based on the three basic variables of “life expectancy, education level and quality of life”. The index is calculated according to certain methods and released in the “Human Development Report”. The quality of life is measured by real per capita GDP (purchasing power parity dollars). UNDP lists countries or regions with HDI higher than 0.8 as high-level development countries or regions, and the media lists countries or regions with HDI higher than 0.9 as extremely high-level development countries or regions. It gives us a more comprehensive picture to assess the development of a country or region based on the Human Development Index. However, when compared with the IMF and the World Bank’s method of classifications, the problem is that countries with similar human development indexes might have very different per capita level if calculated by the exchange rate method of the IMF and the World Bank. For example, Kuwait and Serbia had the same Human Development Index of 0.806 in 2019, but Kuwait’s per capita GDP was US$32,000, while Serbia’s was US$74,12 only. At present, most of the economies with HDI higher than 0.8 have a per capita GDP of more than US$12,000.

International organizations do not have a clear definition and uniform standard for developed or developed economies, except the World Bank. Some economists regard countries and economies with a per capita GDP of US$12,000 as developed countries or economies. This standard is roughly equivalent to the high-income country standard defined by the World Bank, and I agree with that.

3. What is a moderately developed country or economy?

Regarding what is a moderately developed country or economy, international institutions have no clear standard, and the term is not used as much as developed or developing countries. Two terms related to this are often used in the media, the most developed countries and the least developed countries. The United Nations Economic Policy Committee has a list of the latter, which includes 46 countries in 2020. In the World Bank report, there are concepts and standards for middle-income countries, which are further divided into upper middle and lower middle income levels. In the UNDP report, countries and regions are also divided into very high development level and high development level, medium development level and low development level according to HDI.

It is important to determine the criteria for a moderately developed country or economy. Currently, there are two solutions. One is to name the countries in the middle level of developed countries as moderately advanced economies. The median per capita GDP (atlas method) of the 36 developed countries identified by the United Nations in 2019 is US$40,370, and the arithmetic mean is 40,796 dollars. In the 39 advanced economies identified by the IMF, the median per capita GDP (atlas method) in 2019 is US$43,592, and the arithmetic average is 45,637. According to this understanding, only countries with a per capita GDP above US$40,000 can be regarded as moderately developed countries or economies, no matter which indicator is adopted. In the article published by Ding Anhua, the standard of moderately developed countries is established according to the same method. However, such kind of understanding is sometimes incompatible with the prevailing classification. For example, Italy has always been regarded as one of the major developed countries, a member of the Group of Seven (G7), and sometimes even included in the list of the most developed countries. However, Italy’s per capita GDP only reached the $40,000 in 2008 and below 40,000 in all previous and subsequent years. In 2019, it was 33,228. From this point of view, the standard of moderately developed countries is too high because developed countries like Italy are far from meeting the standard of moderately developed countries. If the per capita GDP standard of moderately developed countries is determined according to the median level of developed countries listed by the IMF, then even major developed countries such as France and Japan will have a certain gap.

The second classification is to divide advanced economies into two categories: the most advanced economies with a per capita GDP of US$40,000 approximately and there are about 20 such economies. The other one is the economies with a per capita GDP between 12,000 and 40,000, and those in the middle level are regarded as moderately developed economies. Among the 36 developed countries identified by the United Nations, 18 of them are the most developed countries and 17 are moderately developed countries (excluding Bulgaria, whose per capita GDP is significantly lower than US$12,000). Among the 39 developed economies listed by the IMF, the number of the most developed and moderately developed economies are 24 and 15 respectively. The 17 developed countries defined by the United Nations are moderately developed countries, with a median per capita GDP of US$19,602, and an arithmetic average of US$21,350. For the 15 developed economies listed by the IMF, the median per capita GDP is $25,941, and the arithmetic average is $25,591. Based on these classifications, we can set the per capita GDP entry-level of moderately developed countries or economies at around US$20,000.

4. China’s per capita GDP is expected to reach the level of moderately developed countries by 2035.

According to General Secretary Xi Jinping’s interpretation of the “Proposal”, the long-term goal is to double the total economic output or per capita income by 2035. In 2020, China’s per capita GDP may reach 72,650 yuan or around 10,500 US dollars. By 2035, China’s per capita GDP will double again if calculated at constant prices. If calculated according to the price and exchange rate in 2020, China’s per capita GDP will double again and reach US$21,000 by 2035, equivalent to the level of a moderately developed country. If estimated at nominal level, assuming that the GDP price index will rise by an average of 1.5% every year from 2020 to 2035, and the RMB exchange rate against the US dollar will appreciate by about 5% to 6.57 yuan, China’s per capita GDP can reach $27,500 by 2035. If the renminbi exchange rate rebounds to 1:6.1, China’s per capita GDP may be close to 30,000 by 2035. Even if the international agencies raise the relevant standards at the nominal level, China’s per capita GDP can still reach the level of a moderately developed country.

The key to reaching the per capita GDP level of a moderately developed country by 2035 is to maintain a stable and healthy economic development and to double the GDP per capita. If China’s economy can grow by about 8% in 2021, and an average rate of about 5% in the following four years, 5.6% during the “14th Five-Year Plan” period, 4.5% between 2025 and 2030, 4.0% between 2030-2035, it will become a moderately developed country.


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