209106029- Shierly Anggraeni

1. What are the questions asked in his speech?

ANSWER: The question that asked in his (Yifu Lin Professor) speech are:
1) Why was it possible for China grow so rapidly for such a long time?
2) Why couldn’t China grow that fast before 1979?
3) Will China maintain the economic growth in the coming decades? especially
in 13th-5year plan period?
2. What are his answers?
ANSWER: The answer of Yifu Lin Professor:
1) The ability to utilize the advantage of backwardness. But China was giving up
voluntarily to use that advantage of backwardness, because we know that socialist
government took over 1949 and starting in 1950. China wanted to modernize its
nation, but at that time, ideal modernization was catch up with U.S in 15 and
overtake Britain in 10 years. China want develop the most advanced modern
industry immediately in 1950s. But, those kinds of modern industry still under
patent protection of high-income countries, they just invented that. Moreover,
most of industries related to national security defense, so high income countries
would not transport those kinds of technology and if want develop those kinds of
industry, need to re-invent the wheel. So, voluntarily give up potential of
advantage of backwardness. Not only so, the kind of industry very capital
intensive, required a lot of capital input. But China in 1950 was poor agrarian
country and capital was not advantage of China.
- For developing country, if want to have a continuous increase in their per capita
income, they need raise their productivity, they need to have technological
innovation and industrial upgrading. However, their technology is old and their
industry value added is low. So, their situation is within global technology and
industrial frontier.
- China had abundant supply of labor force but cannot ask abundant supply labor
force to create money in the field. So, as a result, in open competitive market,
those kinds of industry were not consistent with China comparative advantages.
Firm in those kinds of sectors were not viable in open competitive markets. So,
unless government protected them, subsidized them, mobilized resources to invest
in those kinds of sectors, it was impossible to establish those kinds of sectors.
- To establish industries, the government can only directly mobilize and allocate
resources to develop these industries which violate comparative advantage,
namely direct intervention in the market. Relying on this way of development
certainly allowed China was able to test nuclear bombs in the 1960s, and launch
satellites into the sky in the 1970s. However, due to market intervention and price
distortion, it will inevitably lead to a misallocation of resources. In this situation,
on the one hand, the advantages of new entrants are lost, and on the other hand,
there is a misallocation of resources, and the benefits of economic development
are low. As a result, China remained poor.
 Only after 1979, the de-collectivization, China started to develop the sectors which
China have comparative advantages in that was light manufacturing sectors. They
used a lot of labor and China’s labor cost were low and so they could be competitive.
And with the competitive, they start to a large domestic market and International
market to make a lot of profit. China accumulated capital and after capital
accumulation, China certainly needed to upgrade industry and in process of industrial
upgrading, China could benefit from advantage of backwardness.
2) Wrong strategy. If a wrong strategy, it means give up the possibility to use those
kinds of potential. In 1950-the post war period, all developing country following
similar strategies. All social countries followed Stanlist Model tried develop heavy
industries, ried to develop larger scale industry up to their independence, they got rid
of colonial power. They develop modern heavy industry, but could not function. They
use all protection, subsidies to help those kinds of sectors and result in 1960s and
1970s even can build modern industries, but their economy very inefficient.
- By 1980s, all countries are in transition, when they are in transition, there will be
chaotic economic fluctuations at the start of the transition. After the fluctuations, even
though government intervention began to stabilize, the protection subsidies that were
provided were actually lower than their efficiency, so that the development was worse
than before, and the proportion of crisis incidents was higher.
- All those reform program look individually, all very desirable, when country adopts
those kinds of Washington consensus, the advice at time was implement in “shock
therapy”. after shock, most countries collapse, stagnate, and a crisis visit frequently. It
was because this distortion and kinds of protection were there for some purpose that is
protect older priority sectors which very capital intensive. And if remove all
protections and subsidies, those kinds of sectors will go bankrupt.

3） Yes, China will maintain the economic growth in the coming decades, especially
in 13th-5year plan period. China will continue to be driver of global growth in years
to come. There has some reason:
- China still has great investment opportunities: One of the prerequisites for
realizing our growth is to rely on domestic demand, which is investment on the
one hand and consumption on the other. Maintains its investment growth rate,
then will create jobs, create income to household, and household will contribute to
increase income, increase consumption growth, and then China will able maintain
high growth rate. Because China is a middle-income country. China can continue
to invest to upgrade industry. China government also can use investment to
leverage private sector investment. So, our good investment is the most important
indicator. That not only means that there can be investment in the industry, but
also in infrastructure
- As a developing country, even though China have done a lot of infrastructure in
the past few years, the infrastructure in the past generally connected one city to
another, that is, the high-speed railways, expressways, and airport. But inner-city
infrastructure is very poor. And so those they are areas for good investment. Then
issue of the environment. Environmental improvement requires investment, as
well as urbanization.
- Therefore, as a developing country, China are tapping the growth potential. When
external demand is relatively insufficient, China look at it from the perspective of
domestic demand. This is the biggest difference between China as a developing
country and other developed countries. When the economy of a developed country
is facing downward pressure, it is difficult for they to find investment
opportunities, because they industry has already taken the lead in the world. China
are different, and the industrial upgrading has great potential here. The
infrastructure in developed countries has been perfected, and the rate of return on
investment in old infrastructure is different from that of China without
infrastructure. The environment in developed countries is generally good and their
urbanization has been completed. Therefore, when the developed countries are
facing economic downturn, it is often difficult to find investment.
- China has very good resources, fiscal debt, government debt for central and local
combined is only 56% of GDP, it’s less of 100%.
- China government is relatively good position to continue to use fiscal stimulus,
and also monetary policy. Interest rate and reserve nation in China are extremely
high, so there is room for monetary policy.
Yifu Lin Professor believe that it is entirely possible for China to fully tap the 8%
growth potential this year and in the next five years or longer. Even when the external
conditions are relatively bad, China can maintain a growth rate of around 7%. Believe
that the actual result is likely to be around 7%. If this is the case, the Eighteenth
National Congress proposed that by 2020 China GDP will be doubled on the basis of
2010, and the per capita income of China urban and rural residents will also be
doubled on the basis of 2010.