Justin Yifu Lin: The logic of China’s rise

The renowned economist says China’s forty years of growth reflect a simple logic: use the latecomer's edge and align state capacity with market forces.

Justin Yifu Lin is Dean of the Institute of New Structural Economics, Honorary Dean of the Institute of South-South Cooperation and Development (ISSCAD), and Honorary Dean of the National School of Development (NSD) at Peking University.

In a recent speech at the NSD, the former Senior Vice President and Chief Economist of the World Bank quipped that he has spent three decades making an unfashionable claim: China’s economy will continue to grow. For him, China’s rise is more method than miracle. Many transition, late-industrialisers were advised to privatise, liberalise and balance budgets, yet the results were often collapse, stagnation and recurring crises, accompanied by rising inequality and worsening corruption. China’s “dual-track” approach, on the other hand, kept state-owned firms operating under the old rules and subsidies, while opening space for private and foreign entrants in sectors where China had comparative advantages. This mix preserved stability and channelled dynamism into competitive industries, turning latecomer advantages into sustained growth. The record, Lin adds, speaks for itself, with four decades of expansion and no systemic crisis.

Looking ahead, Lin maintains that China still has ample catch-up potential in traditional sectors and opportunities to lead new sectors of the Fourth Industrial Revolution despite an ageing population and American pressure. As its economic scale converges with, and perhaps surpasses, that of the United States and as the technological gap narrows, probably by the mid-21st century, containment will no longer pay while cooperation will. Peaceful coexistence would follow, and a China strong enough not to be constrained will finally be left in peace.

The speech, available since September 23, 2025, on the NSD’s official WeChat blog, was delivered on April 28, at a book launch event at NSD for the updated Chinese edition of Lin’s book, 《解读中国经济》 Demystifying the Chinese Economy.

Lin reviewed and revised the following translation.

林毅夫：中国经济的内在逻辑与新挑战

Justin Yifu Lin: The Internal Logic of China’s Economy and Its New Challenges

The book Demystifying the Chinese Economy originated from my course “Topics on the Chinese Economy,” which I began teaching at Peking University in 1995. The book was first published in 2008. At that time, I was preparing to assume the post of Senior Vice President and Chief Economist of the World Bank and could no longer continue teaching, so I compiled the lecture notes from 1995 to 2008 into a book under the same title, Topics on the Chinese Economy. In 2012, after returning from the World Bank to Peking University, I resumed teaching the course. During the period from 2008 to 2012, China’s reform and development entered a new stage, and while at the World Bank, I observed the international community’s intense interest in China’s economy, but also its difficulty in understanding it. For these reasons, I decided to update the book to reflect new challenges and opportunities, and, with the aim of reaching global audiences, I reissued it under the English title Demystifying the Chinese Economy.

The book covers many issues, yet its internal logic runs consistently throughout all chapters and sections, without alteration despite the discussion of different topics, reflecting logical coherence. Moreover, its arguments align with historical facts, and its analysis of the transformation process is broadly consistent with China’s developmental trajectory. Many of the views I expressed were controversial at the time, and I was often a lone voice, but subsequent developments have largely conformed to the arguments and descriptions in the book. This demonstrates that the book’s interpretation of China’s economic reform and development has basically achieved theoretical coherence, historical coherence, and practical coherence.

The Internal and External Effects of China’s Rapid Economic Growth

Since I began speaking about China’s economic reform and development in 1995, thirty years have now passed. These three decades have borne witness to China’s trajectory of development and reform and opening up.

Looking back to 1995, the year I first offered this course, China had already recorded a remarkable run of sixteen consecutive years of economic growth averaging 9.7 per cent annually since the onset of reform in 1978. Yet by World Bank metrics, China’s per capita GDP in 1995 was only USD 609.6. Sub-Saharan Africa registered a per capita GDP of USD 1,143.6 that same year, meaning China’s level was roughly 53 per cent of that. In short, despite nearly two decades of rapid expansion, China in 1995 still ranked among the world’s poorest economies.

From 1995 to 2024, on the basis of that earlier 16-year annual average growth of 9.7 per cent, China achieved nearly 30 additional years of average annual growth at 8.3 per cent. At such a growth rate, China’s per capita GDP in 2024, calculated at current U.S. dollars, reached USD 13,445. According to the World Bank’s 2024 threshold, the income level for high-income countries is USD 14,005. Although there are minor statistical differences between per capita national income and per capita GDP, they are essentially equivalent. Thus, China’s per capita GDP is only about 4 per cent short of the high-income country threshold.

I have consistently argued that China’s economy will continue to develop. For this reason, I am often labelled as an “optimist.” But I do not consider myself an “optimist,” but rather an “objectivist.” Optimism, in essence, implies expectations that exceed reality, a somewhat unrealistic wishful thinking. By contrast, many of my forecasts have been borne out, and some were even underestimates.

Looking back over the 46 years since 1978, or the 30 years since 1995, China has indeed been the fastest-growing country in the world over the same period, and the only country that has not experienced a systemic financial or economic crisis. Moreover, China has not only avoided such crises itself, but when other countries and regions encountered crises, China’s rapid growth helped to pull them out. For example, prior to the Asian financial crisis, the “Four Asian Tigers” had experienced 30 years of rapid growth. But when the crisis struck in 1997–1998, the international community generally believed that East Asia faced a “lost decade”. Instead, China’s decision to hold the renminbi steady provided a currency anchor, and its own rapid growth helped neighbouring economies recover within just two years.

Similarly, after the outbreak of the 2008 global financial crisis, many believed that the United States and other countries would face an economic depression similar to that of the 1930s. Although developed economies such as the United States and Europe have not yet returned to their pre-2008 growth rates of 3 per cent, the U.S. has been able to sustain annual growth of around 2.5 per cent, and the EU about 2 per cent, thanks in large measure to China’s contribution of 30 per cent of global growth annually. In Europe, Germany recovered particularly quickly after the 2008 crisis, a phenomenon described as the “German miracle.” Nobel laureate Michael Spence has written that Germany’s strong post-crisis recovery was due to the demand created through trade by China’s rapid growth.

China’s development has thus not only brought about a remarkable increase in domestic income levels and rapid improvements in living standards, but also spurred growth abroad and aided global recovery from crises. It remains the only major economy never to have experienced a systemic crisis. Yet despite this record, the so-called “China collapse” theory repeatedly resurfaces. Why, then, does the international community persist in doubting China?

Three Fundamental Questions:

I would like to explore three overarching questions:

Why has China’s economy been able to sustain long-term rapid growth since the launch of reform and opening up, particularly from 1995 onward?

Why, in spite of this record, do pessimistic views of China’s prospects persist both at home and abroad?

With new headwinds such as population ageing and frictions with the United States, what lies ahead for China’s development?

I. The Internal Logic to China’s Sustained Rapid Growth

Why has China’s economy been able to sustain such rapid growth since reform and opening up? To answer this, one must first return to the essence of development itself.

Development ultimately shows itself in rising incomes. For incomes to rise, productivity must rise—and this requires the continual emergence of new productive forces. How can this continuous improvement of productivity and the emergence of new productive forces be realised? It requires ongoing technological innovation in existing industries and the continual emergence of new industries with higher value added. This is the source of new productive forces, and it is the fundamental determinant of development. This principle holds for both developing and developed countries.

However, there is a major difference between developed and developing countries. Since the Industrial Revolution, developed countries such as the United States and those in Western Europe have long maintained the most advanced technologies and industries in the world. For these countries to continue innovating, they must rely on inventing new technologies and creating new industries themselves. Such an invention demands enormous investment and carries extremely high risks: if successful, the returns are enormous, but most invention attempts end in failure.

Consequently, from the Industrial Revolution to the early 19th century, per capita GDP growth in developed countries averaged only 1 per cent annually. Taking population growth of 1 per cent into account, average overall economic growth was about 2 per cent. From the mid-19th century to the present, although the vast majority of new inventions and industries have originated in these countries, their per capita GDP or average labour productivity has grown only about 2 per cent annually, and including population growth, only about 3 per cent. Since the 2008 financial crisis, growth has not fully recovered, with rates generally falling below 3 per cent.

According to Joseph Schumpeter’s definition, technological innovation refers to the adoption in the next production cycle of technologies that are more advanced than those currently in use. Industrial upgrading refers to the entry, in the next investment cycle, of industries whose value added is higher than that of current industries. Developed countries must engage in invention and creation precisely because their technologies are already the most advanced in the world. Without invention, they cannot acquire new technologies; without invention, they cannot establish new industries.

Developing countries, by contrast, also need to pursue innovation and upgrading—but here the logic shifts. Since their current technologies are behind the frontier and their industries are less advanced, they can borrow. Why not draw on the advanced technologies and higher value industries already pioneered by developed countries?

For developing economies, then, there are two possible routes. One is the hard road of indigenous innovation. The other is the latecomer’s advantage: importing, digesting, and adapting existing advanced technologies and industries, and then re-innovating on that foundation. The former entails immense cost and high risk. The latter is cheaper, safer, and more reliable because the technologies and products have already been proven mature.

From the above, it follows that if developing countries know how to harness their “latecomer’s advantage,” they can often innovate and upgrade more quickly than the advanced economies. In principle, their growth can outpace that of the developed world. Exactly how much faster, however, is not something theory alone can quantify—it must be judged in light of historical experience.

Since World War II, many developing economies have aspired to catch up with the developed world. Only 13 have managed it, sustaining annual growth of 7 per cent or more for a quarter century or longer—over twice the pace of the advanced economies. China joined this select group after 1978, when reform and opening up began. From then until 2024, China’s GDP expanded at an average of 8.9 per cent per year for 46 straight years, nearly triple the developed-world average. On a per capita basis, China’s growth averaged 8 per cent in the past 46 years, four times the developed-world rate.

Understanding this logic and experience makes it clear why China has been able to sustain remarkable growth since reform and opening up for such a long period of time.

But this raises a further question: if the latecomer’s advantage explains China’s success, why did China not grow rapidly until reform and opening up in 1978—indeed, ever since the Industrial Revolution, when the advantage first existed? The answer is that, after the founding of the People’s Republic in 1949, China deliberately set aside this potential in light of the domestic and international conditions of the time.

At the founding of the People’s Republic of China in 1949, national rejuvenation—and with it a determination to narrow the gap with advanced economies—was set as a central objective. At the time, the leading economies were distinguished by high productivity and technologically sophisticated, capital-intensive heavy industries organised on a large scale. At the same time, sustained development was impossible without national defence security, and these advanced sectors formed the foundation of the defence industrial base. Accordingly, motivated both by the aspiration for rejuvenation and by security imperatives, the country therefore prioritised heavy-industry development on par with developed countries.

However, those heavy industries were capital-intensive, while China at that time was a capital-scarce economy. Developing those industries thus violated the principle of comparative advantage. This meant that China’s production costs were higher than those of advanced countries with a comparative advantage. Therefore, to establish these industries, the government had to provide protection and subsidies.

China wished to develop the same advanced industries as developed countries, but developed countries were unwilling to easily transfer advanced technologies, especially those protected by patents. Even if patent fees were paid, developed countries might still refuse to provide them. This situation was similar to today’s “technology chokehold” imposed by the United States on China. If technologies could not be introduced, assimilated, and absorbed, China could only rely on independent R&D. Yet, given that China’s overall foundations were weaker than those of developed countries, this meant bearing R&D costs equal to or even higher than those of advanced economies. In effect, China voluntarily gave up the latecomer’s advantage.

Moreover, in order to protect and subsidise these industries that lacked a comparative advantage, the government inevitably engaged in various interventions and distortions, resulting in misallocation of resources. On the one hand, China chose to abandon the latecomer’s advantage; on the other hand, distorted resource allocation led to inefficiency. Thus, although the potential of the latecomer’s advantage existed, it was not utilised, and development remained slow.

It was only after reform and opening up in 1978 that China began to develop labour-intensive industries in accordance with its comparative advantage, through introduction, assimilation, and absorption. This was the fundamental reason why China was able to achieve rapid development after reform and opening up.

II. Why Does the “China Collapse” Theory Repeatedly Resurface?

Given that China’s achievements since reform and opening up are evident to all, why is it that there are always voices predicting failure, with the so-called “China Collapse” Theory resurfacing every few years?

After World War II, most developing countries—whether socialist or capitalist—emerged from colonial or semi-colonial rule under the leadership of their first generation of revolutionaries. They aspired to catch up with the developed world. The prevailing view was that to do so required matching the advanced economies in productive capacity, which meant building the same advanced industries. Socialist states prioritised heavy industry, while others pursued import-substitution strategies that prioritised capital-intensive heavy industries. But because these countries were short on capital, they had no comparative advantage in such industries. To sustain them, governments had to provide protection and subsidies—essentially giving up the latecomer’s advantage. Excessive state intervention and subsidies often led to misallocation of resources, rent-seeking, and corruption. As a result, growth was sluggish. Since World War II, only 13 economies have managed sustained growth of 7 per cent or more, while most have fallen into the “low-income” or “middle-income” traps.

China launched its reform and opening up in 1978, while many other developing countries that had gained political independence after the Second World War had not, despite a generation of effort, undergone a fundamental transformation. When China embarked on reform, these countries faced similar challenges: low income levels, economic stagnation, and a range of socio-economic and political problems. They likewise initiated reform and opening up, generally at a slower pace than China, but with a growing consensus around this trajectory.

For these countries, reform and opening up required theoretical guidance. The dominant international view at the time was that the poor performance of these post-independence countries stemmed from excessive government intervention and distortions, which caused resource misallocation and rent-seeking, widening the gap with developed countries. The mainstream view held that the reason developed countries had succeeded since the Industrial Revolution was that they had established well-functioning market economies in which prices were set by markets and property rights were privately owned. Market-determined prices facilitated efficient resource allocation; private property rights incentivised enterprise initiative; and government responsibilities were largely confined to education, defence, and security. Consequently, the mainstream perspective emphasised the importance of marketisation, privatisation, macro-stabilisation, and liberalisation. Theoretically, these arguments appeared logical and coherent.

China, however, did not follow that script. Instead, it pursued a dual-track approach—“old rules for incumbents, new rules for newcomers.” For state-owned enterprises, the government continued to provide protection and subsidies according to established standards, without privatising ownership. For new industries consistent with China’s comparative advantage, township and village enterprises, private enterprises, and foreign-funded enterprises were allowed to participate. In these new industries, the price mechanism was largely liberalised and determined by market supply and demand. Under this framework, the government both maintained intervention in some areas and, to a certain degree, unleashed market forces.

In the 1980s, when China initiated reform and opening up, the international consensus was that planned economies were inferior to market economies and must transition to market systems. The common view was that such a transition required the establishment of essential market institutions: market-determined prices, private ownership, and the limitation of government functions to education, defence, and security. These principles lie at the core of the Washington Consensus and neoliberalism.

There was also a prevailing consensus that China’s dual-track system—allocating resources both through markets and government planning—was worse than a planned economy. The argument was that planned prices were set too low while market prices were higher, creating vast opportunities for rent-seeking and arbitrage, thereby fueling corruption, widening income disparities, and degrading social norms. This view was even supported by theoretical models published in top academic journals, and thus became widely accepted.

Yet after reform and opening up, China’s economy grew rapidly, achieving an average annual growth rate of 8.9 per cent over the past 46 years. It should be noted that this figure is an average: in some years growth reached 10, 11, or even 12 per cent, while in others it was slightly below. Whenever the international community observed growth falling below the long-term average, especially for two or three consecutive years, the “China Collapse” theory would reappear. Critics would argue that China’s system was incapable of sustaining growth and would conclude that the system itself was unsustainable. Such arguments spread in international media and academia, seeming persuasive. Consequently, when the Chinese economy faced downward pressure and greater difficulties, international opinion often influenced domestic sentiment, leading to wavering confidence.

In reality, however, those countries that adhered to the Washington Consensus—emphasising marketisation, privatisation, macro-stabilisation, and restricting government functions mainly to balancing budgets—generally encountered collapse, stagnation, and persistent crises, with even more severe corruption and worsening income inequality. Although the theoretical framework appeared elegant, the practical outcomes diverged sharply from expectations.

Why did such a situation arise? As I mentioned earlier, under the planned economy, the government had to provide protection and subsidies to support the development of certain industries. These industries, being inconsistent with the principle of comparative advantage, were non-viable without government support. Once such subsidies were withdrawn, they would decline, leading to unemployment and social instability.

Moreover, certain industries could not be permitted to fail—most notably the power grid and telecommunications networks—which required massive capital outlays. Although in the 1980s and 1990s these sectors did not align with China’s comparative advantage, they constituted indispensable national infrastructure. Consequently, telecommunications and electricity received strong protection during that period.

In domains implicating national defence and security, withholding necessary protective support would jeopardise national security, as demonstrated by the war in Ukraine. Hence, even under privatisation, while subsidies may appear to be withdrawn, in practice, various mechanisms must still be used to ensure such industries receive necessary support. However, when private firms receive subsidies, rent-seeking behaviour may become more pronounced, since entrepreneurs can legitimately treat the transfers as part of their income. By contrast, in state-owned enterprises, the conversion of subsidies into private gain constitutes corruption and, if uncovered, is subject to legal sanction.

On this basis, I characterise the phenomenon as a “policy burden”. To some extent, a state-owned system can mitigate rent-seeking and corruption. In natural-monopoly sectors such as electricity, experience in Eastern Europe, the former Soviet Union, and Latin America shows that privatisation has often produced oligarchs that leveraged monopoly power to extract excess profits, thereby distorting the political environment.

Therefore, since the 1980s, those countries that undertook transitions in line with mainstream theories have not achieved the efficiency gains and rapid growth predicted to follow from reducing government intervention, eliminating price distortions, and privatising state-owned assets. On the contrary, their economic growth slowed relative to the 1960s and 1970s, and the frequency of economic crises increased.

By contrast, China pursued a dual-track strategy of “old rules for incumbents, new rules for newcomers”, thereby preserving economic stability. At the same time, this approach leveraged the latecomer’s advantage to combine stability with rapid growth. Rapid capital accumulation followed, and within three to four decades, many industries that had initially diverged from the country’s comparative advantage came into alignment. Once industries align with comparative advantage, protective subsidies are no longer needed. This logic underpinned the Third Plenary Session of the 18th CPC Central Committee’s call to “comprehensively deepen reform” and to assign the market a “decisive” role in resource allocation. In this way, China’s gradual, dual-track reforms sustained economic stability and rapid growth while laying the material foundations for a smooth transition to a market-based economic system.

III. What Are China’s Prospects for Future Development?

Contemporary doubts about China’s prospects centre on two issues: an ageing population and frictions with the United States. These concerns have fuelled a “China peak” rhetoric internationally.

What, then, is the outlook? In my view, it ultimately hinges on China’s underlying development potential. If policymakers remain open-minded and pragmatic, there is little reason why China cannot continue to grow at a rapid pace.

How should China’s growth potential be assessed? As previously discussed, much of its past success derived from a “latecomer’s advantage.” Critics, however, question whether that advantage remains operative after more than four decades of rapid growth. One view notes that the Four Asian Tigers sustained roughly 20 years of 8–10 per cent growth by leveraging the latecomer’s status, whereas China has already recorded about 45 years with average annual growth of 8.9 per cent, suggesting that the reservoir of potential may be nearly exhausted. Another view holds that countries which once expanded rapidly on the back of latecomer’s advantages typically slowed to around 3 per cent, similar to advanced economies, once per-capita GDP (in purchasing-power-parity terms) reached about USD 14,000. On this basis, some predict China will follow a similar path. If China’s growth were to settle at roughly 3 per cent a year, convergence with high-income economies would become unattainable. This reasoning underpins a prominent strand of the “China peak” thesis.

In reality, whether China still enjoys a latecomer’s advantage depends neither on how long it has been exploited nor on the country’s current level of per capita GDP. What matters is the remaining distance from the developed economies: that gap is the very source of the latecomer’s advantage. One should attend to fundamentals rather than appearances.

While a latecomer’s advantage can deliver faster development, the attainable pace is best judged against historical experience. When I first examined this question in 2019, China’s per-capita GDP (in purchasing-power-parity terms) was about 22.6 per cent of the U.S. level—roughly where Germany stood in 1946, Japan in 1956, and South Korea in 1985. Germany’s real GDP grew by 9.4 per cent annually over 1946–62, with population growth of 0.8 per cent, implying per-capita growth of about 8.6 per cent. Japan expanded at 9.6 per cent a year over 1956–72; and with population growth of 1.0 per cent, its per-capita GDP also rose by roughly 8.6 per cent. South Korea grew by about 9.0 per cent on average during 1985–2001, despite a recession during the Asian financial crisis; with population growth of 0.9 per cent, per-capita GDP increased by around 8.1 per cent annually. By analogy, given China’s current income gap with the United States, it is reasonable to expect a further 16 years of per-capita GDP growth potential averaging about 8 per cent, starting from 2019.

As for the impact of population ageing, in fact, all developed countries have entered an ageing stage, yet over the past century, their per capita GDP growth has not been significantly affected. Why is the impact of ageing on per capita GDP so limited? The primary effect of ageing is to slow the growth rate of the labour force. However, it must be recognised that the decisive factor for economic growth is not simply the number of workers, but the quantity of effective labour.

Effective labour is the product of labour quantity and labour quality, the latter being determined primarily by educational attainment. Even if population ageing slows the growth of headcount, rising education levels among new entrants can prevent effective labour from declining. Moreover, ageing is not an unforeseeable “black swan”: it can be anticipated a decade or two in advance. The state has, therefore, ample time to increase educational investment ahead of demographic shifts, helping to keep effective labour broadly stable.

At present, average educational attainment in China’s workforce is about 10.4 years; among retirees, it is roughly 6 years; and among new labour-market entrants, it is around 14 years. This pattern helps explain why advanced economies, despite widespread ageing, have sustained stable per-capita GDP. By the same logic, China should be able to maintain potential per-capita GDP growth of about 8 per cent per year from 2019 to 2035 by leveraging its latecomer’s advantage.

In addition, China now possesses an advantage that Germany, Japan, and South Korea did not enjoy in their periods of rapid catch-up: the Fourth Industrial Revolution. Its core features are artificial intelligence and big data, whose development cycles are relatively short. Short cycles imply relatively lower capital requirements. For example, DeepSeek required only a few hundred people and three to four years, with relatively small capital input.

At present, China’s per capita income is USD 13,445—still below the high-income threshold and far below the U.S. level of USD 85,000—but in the Fourth Industrial Revolution, the short R&D cycles and low capital requirements make human capital the critical factor, while the relative scarcity of financial capital no longer constitutes a disadvantage. Human capital encompasses abilities derived from education in fields such as science, technology, engineering, and mathematics, which are central to the Fourth Industrial Revolution. Each year, China produces more than six million university graduates in these fields, exceeding the total of the G7 countries, thereby giving China a clear talent advantage.

Furthermore, China has the advantage of a vast domestic market. By purchasing power parity, China’s domestic market is the largest in the world, making it possible for new products and technologies to achieve economies of scale quickly.

In addition, China possesses the world’s most comprehensive industrial ecosystem. Take Tesla as an example. As a pioneer in new energy vehicles, Tesla operated in the U.S. for more than a decade but never produced more than 30,000 vehicles annually and once verged on bankruptcy. After establishing a plant in Shanghai’s Pudong in 2019, its output reached 480,000 vehicles in 2020. This rapid scale-up drove Tesla’s market valuation to USD 1,000 billion. By contrast, the combined market valuation of Chrysler, General Motors, and Ford—the three major U.S. internal-combustion automakers—was roughly USD 150 billion, about one seventh of Tesla’s. Tesla’s rapid expansion in China has been enabled by the country’s comprehensive industrial ecosystem. In software as well, four of the five most-downloaded apps in the United States currently originate from China.

All told, China has the potential to sustain 8 per cent growth before 2035. This is not an inflated claim. Some may question whether, under U.S. technology restrictions, China can still leverage its latecomer’s advantage if technology acquisition is impeded. In fact, most of the technologies China seeks are not supplied exclusively by the United States; other advanced economies possess them and are willing to trade. Genuine chokepoints exist, but are relatively few. Under these conditions, and drawing on the new “whole-nation system”, there is good reason to expect that breakthroughs in most of these areas can be achieved domestically within three to five years. Huawei offers a salient example: despite being the first company placed on the U.S. Entity List, it has continued to operate in robust health.

Still, potential is not the same as reality. Turning that 8 per cent potential into 5 to 6 per cent actual growth before 2035 will require China to manage challenges, including population ageing. Although ageing will not reduce growth potential, it will exert a significant social impact, necessitating proper care for the elderly population. Likewise, although the U.S. “chokepoint” will not leave China without options, confronting these constraints will require the mobilisation of sufficient resources for mission-oriented technological breakthroughs. At the same time, China must pursue high-quality development and address the challenges posed by global climate change.

From my perspective, despite these headwinds, China can plausibly achieve 5–6 per cent annual growth through 2035. Looking further ahead, over 2036–2049 (the centenary of the People’s Republic), China should have growth potential of around 6 per cent, yielding realised growth of roughly 3–4 per cent. On this trajectory, China’s per-capita GDP would reach roughly half of the U.S. level by 2049.

Once China’s per capita GDP reaches half that of the United States, the great goal of national rejuvenation will be achieved. China’s present target is to build China into a great modern socialist country by 2049. Although the 20th National Congress of the Communist Party of China (CPC) did not specify the precise per capita GDP level that would constitute such a goal, a reasonable inference is possible. In 2019, there were 70 high-income countries globally; among them, 28 had per capita GDP at or above half of the U.S. level. These included the historic industrial powers of Western Europe, the U.S., Canada, as well as Japan, South Korea, Singapore, and Israel, along with small high-income countries such as Monaco and Liechtenstein. By this reasoning, if by 2049 China’s per capita GDP reaches half that of the United States, China will rank among the world’s great powers.

By that stage, Sino–US relations are likely to improve. The current trade and technology wars rest on Washington’s technological and military edge. By 2049, however, if China’s per-capita GDP reaches half the U.S. level, the country’s most advanced regions—Beijing, Tianjin and Shanghai, together with the coastal provinces of Shandong, Jiangsu, Zhejiang, Fujian, and Guangdong—could attain per-capita incomes on par with the U.S. With a combined population exceeding 400 million—above America’s roughly 330 million today and, even with immigration, plausibly still under 400 million by 2049 given its ageing demographic—these three municipalities and five provinces would together surpass the United States in aggregate economic size while matching its average labour productivity and technological capability. In that scenario, China would enjoy a modest advantage in scale alongside technological parity, leaving the United States with limited scope to impose effective technological restrictions. This is the first consideration.

Second, by that time China’s economy would be roughly twice the size of the United States’, and U.S. high-technology firms could not dispense with the Chinese market. High-tech industries require very large R&D outlays; when projects succeed, subsequent profitability is determined chiefly by market scale. Because China’s market is about twice as large as America’s, losing access to it could shift U.S. high-tech firms from high profitability to low profitability, or even into a loss. Sustained unprofitability would likely trigger corporate leadership turnover. High-tech companies require sustained, large-scale R&D investment, and robust profits are the necessary underpinning for that commitment. Given the intensity of competition in these industries, access to China’s market is, for U.S. high-tech firms, a matter of survival.

Third, if American consumers cannot access high-quality, affordable Chinese products, their living standards will fall directly. Moreover, it is widely understood that trade is mutually beneficial, with smaller economies often realising larger proportional gains. Washington’s turn to trade conflict largely reflects China’s approach toward economic parity with the United States. By purchasing power parity, China’s economy is approximately 1.3 times that of the United States, whereas by market exchange rates it is about 65 to 70 per cent. Thus, the question of which economy is larger remains unsettled. Nonetheless, the current U.S. advantage in high technology has enabled it to impose restrictions on China. By 2049, however, the United States will no longer be able to block China in advanced technologies. With a smaller economic scale than China, the benefits it derives from trade with China will outweigh those accruing to China.

By then, the United States will be unable to constrain China, and maintaining a cooperative relationship will better serve its interests. Under these conditions, peaceful coexistence is achievable, and the stable relationship between the world’s two largest economies will be a cornerstone of global stability and growth.

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