To understand how mainland China will develop, look at the United States in the 1960s.
Six decades ago the US was driven by rising urbanisation and consumption. An economy dominated by car and steel producers was transforming into one led by disruptive technologies like semiconductors, computers and aeronautics. Mainland China’s plan for the next 5-10 years is not too different under its ‘dual circulation’ strategy.
While much of the world continues to grapple with COVID-19, mainland China is mostly back to normal. But with the recovery’s rapid pace set to slow, Beijing’s focus is now on higher quality development led by the ‘dual circulation’ strategy of building a mega-sized internal market similar to the US domestic market.
The Chinese economy today resembles different periods in US history. By GDP per head based on purchasing power parity, it is similar to the US level in the late 1970s to early 1980s; by household consumption expenditure, it resembles the US in the mid-1990s. And, today, mainland China is ahead of the US in terms of mobile payments.
However, the urbanisation rate and electric-power consumption per person are better indicators to reflect mainland China’s current development. There are still more than 600m people whose monthly income is barely 1,000 renminbi – USD150 – even though incomes are higher in major cities. China today thus looks most like the US did in the 1960s.
After a rapid recovery following World War II, the US economy grew solidly in the 1960s, averaging 4.53 per cent a year. GDP was boosted by warehousing and transport firms – the 41,000 miles of new interstate highways was America’s largest public-works programme – while advanced technologies like electronics, computers and aerospace increased labour productivity in the manufacturing and IT sectors.
Producer and consumer services, including healthcare and education, also developed. With more urbanisation, improved infrastructure and new technologies, demand rose for supermarkets, catering, films and theatres.
The US in the 1960s was at the late stage of urbanisation and large-scale commercialisation of new technologies. Large-scale infrastructure projects declined but an urban-led consumer-services industry emerged as demand rose for goods such as cars, housing and televisions.
US government policies also helped develop a mega-sized market. Besides road building, which improved logistics and population movement, promoting an environment that encouraged trade and investment meant large companies expanded abroad and established global supply chains.
We believe mainland China is now transitioning from a high-speed to a medium-speed economy. In the next 5-15 years, it will likely experience social and technological development trends similar to those the US experienced in the 1960s.
Mainland China’s current urbanisation rate is similar to the US then. But while traditional road and bridge projects are basically complete, unlike in the US, there remains scope for infrastructure, in the central and western regions. Meanwhile, consumption related to urbanisation growth will continue, with new demand for intelligent appliances, smart vehicles and new entertainment services.
We expect Beijing to prioritise urbanisation over the next 15 years. New technologies are the economic driving force, but mainland China is also facilitating supply-side structural reforms, increasing investment in key areas while cutting taxes and raising low incomes.
First published 8 December 2020.
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