Chinese buildings STR | Stringer via getty images

Why China Can Grow According to Plan

One of the key questions about China’s 13th five-year plan, which covers the period from 2016 to 2020, is whether the country can achieve its target of doubling its GDP and average rural and urban household income from their 2010 levels. Despite major challenges, there is good reason to believe that it can.

BEIJING – China’s recently finalized 13th five-year plan maps out its economic strategy and ambition for the 2016-2020 period. Among its objectives are a doubling of GDP and average rural and urban household incomes relative to their 2010 levels.

These targets would require China’s economy to grow at an average annual rate of at least 6.5% during the next five years. While this pace would be significantly slower than the 9.7% growth the country has averaged since 1979, it is undeniably fast by international standards. And, given that China’s growth has decelerated every quarter since the beginning of 2010, some have questioned whether it is achievable. I believe that it is.

Economic growth results from increases in labor productivity caused by technological advance and industrial upgrading. High-income countries, already on the cutting edge of productivity, must earn their increases through technological and organizational breakthroughs; as a result, their typical growth rate is about 3%. Developing countries, however, could potentially accelerate productivity growth, and thus GDP growth, by borrowing technology from advanced countries – that is, tapping the latecomers’ advantage, as China has done.

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