China after the Crisis：What Can We Learn from the Impressive GDP Acceleration of the Last Decades to Sustain and Enhance a Harmonious Economic and Social Development？
Guido Ferrari[1]
“China is likely to resume its role as
the largest world economy by 2015.”
OECD，2010
Prime Minister Deng Xiao Ping：
“to get rich is glorious.”
Abstract：In this paper an analysis of China’s GDP growth is undertaken aiming at verifying the reasons that made the country’s economic growth it to hold on in global economic slowdown and whether it is sustainable and can lead China’s to enhance its prominent world economic role.It is shown that China’s GDP growth was very high during the crisis too and that in 2009 and 2010 is re-taking the size as before，with rates around 9%-10%.Conditions for are discussed for sustainability to be achieved and for China to enhance and definitely keep the leading position in the world economic system.
1 Introduction
1.1 Roughly enough，the starting point of the world financial crisis can be dated back to 2006-2007，with the “housing bubble” that gave the first impulse and the subsequent across country bank system suffering，that nearly took the appearance of a rout，that has followed it at once[2].
This has dragged out the real economy，that entered a phase of huge crisis from which it did not recover yet，despite some recent symptoms that seemed to open the hope for a re-launching towards a new economic development.
Instead，recovery was but a fancy and the situation seems now to plunge more and more，without the appearance at the horizon of a next John Maynard Keynes to show the way for going out from the tunnel.
Indeed，the western economies，traditionally development engines and places of widespread well-being，are experiencing a crisis that seems not to have precedents；even more serious，mutatis mutandis，of that that hit the US in 1929，with generalized stagnation although fortunately with no high inflation and hence，without the combination of the two negative phenomena into stagflation.
Youth unemployment，new poverty，deep social discomfort and conflicts，birth of xenophobic or neo-nationalist movements and groups are the main consequences of the crisis，the hinges on which a theoretical and operational debate is being started that failed to produce the expected benefits.
All that，in the framework of globalization that brought with it across-country displacements of huge population masses that caused employment struggles and social frustration，along with the de-localization of productive activities.The unfinished and only partly implemented，and that part quite inefficiently and nearly wrongly，globalization that increased the labor problems of the western countries，without not even contributing to ameliorate，if not to solve，the economic problems of the recipient countries，which hopefully should have been the propellant for a new，more balanced and socially more even global economic order，that seems instead to stress the existing problems and add new ones.
The heavy problems that have been raised led to an overall re-think of the global development model that has involved economists，entrepreneurs，governments，as well as financial international organisms such as the International Monetary Fund（IMF），the World Bank（WB），the international statistical offices such as Eurostat，Organization for the Economic Cooperation and Development（OECD），United Nations Statistics Division（UNSD）.A re-think that unfortunately did not lead to significant results yet.
1.2 Despite the above global economic slowdown，the impressive China’s Gross Domestic Product（GDP）growth has continued，more or less at the same rates as in the previous years.
This means that the Chinese economy was not affected，or at least was only very weakly touched，by the phenomenon and maintained its high rate of development.
Which might be the reasons for China to hold up？
It should be remembered that the Chinese economic system，although exhibiting an overall vitality，with sector that already reached a prevailing level in the world arena both from the technological and the economic point of view，despite being placed in the group of the big economies，remains the system of a country that is still classified as a developing one，and with remarkable imbalances that still exist between urban and rural areas.
Which are the elements that can be identified to keep in a sustainable way this growth rate？
How can China achieve the objectives set up by the central government of a harmonious economic development towards a more balanced income distribution，in a so changed world context，economically unstable and without the perspectives of the ever bright growth of the past and the certainties that had led to believe that the development model would have not failed and economic growth never would stop？In the meantime，by safeguarding the achievements reached so far and ensuring employment outlooks to the youngest population not to the detriment of the already employed population and therefore keeping the social cohesion.
And how to enhance the international economic leading role of China up to bring it to the prominent level it is entitled to？
A response to these questions may open bright days to the hope for China to sustain and enhance its harmonious social and economic development，to achieve the objective of constructing a country where people may live peacefully in a right and friendly society.
I will discuss in the following paragraphs these issues.
2 The analysis of the GDP growth in the last thirty one years
In order to try to reply to the above questions，and therefore to draw the due precept and learn more，an analysis of the impressive GDP of China growth after the opening policy will be performed.
I will focus on the GDP evolution of the last 31 years，thus conducting the analysis in time frame.
A comprehensive analysis of China’s GDP growth has been performed by Angus Maddison，who，in order to understand contemporary China，took a long comparative perspective.
Indeed，according to OECD（2010），a comparative analysis of Chinese performance can provide new perspectives.In fact，as claimed by them，“In many respects China is exceptional.It is and has been a larger political unit than any other.Already in the tenth century，it was the world’s leading economy in terms of per capita income and this leadership lasted until the fifteenth century.It outperformed Europe in levels of technology，the intensity with which it used its natural resources and its capacity of administering a huge territorial empire.In the following three centuries，Europe gradually overtook China in real income，technological and scientific capacity.In the nineteenth and first half of the twentieth century，China’s performance actually declined in a world where economic progress greatly accelerated”.
Maddison（2008）re-estimated Chinese performance by recalculating the annual change in real GDP at 1987 prices from 1952 to 1995，based on the PPP converter derived from Ren（1997）updated to 1990：This converter was further updated beyond 1995 to 2003，based on 1990 international Geary-Khamis US dollars using a “correction coefficient” derived by applying the ratio 0.7586 of the Maddison estimates to the official growth rate for 1978-95 to correct the official figures beyond 1995.
A time-space comparative analysis was performed by Ferrari and Zhao（2002）who compared China’s and Italy’s GDP from 1978 to 2000 by converting the Chinese GDP into 1986 international US dollars using the Maddison（1998）converter，a Geary-Khamis PPP for China/USA of 0.7926 in turn derived by averaging the Fisher estimate of Ren（1997）.
Then，they used the OECD PPP of 1152 for GDP for 1986 for Italy/USA（OECD，2001），to transform Italian Lira into international Dollars.
There was evidence of Italy’s GDP higher than China’s one from 1978 to 1995：from 3.2 times bigger in 1978 to equality in 1995；then China GDP becomes slightly higher until 2000.This path confirms the more rapid growth rate of China’s GDP，that accounted for 9.1% yearly against 2.1% of the Italian one，in the whole period.
For a recent historical analysis of the long run GDP growth 1952-2009，including sectors，see also Chinability，（2010）.
In this paper，I will analyze and discuss the evolution of China’s GDP from 1978 to 2009 on the basis of the data released by the National Bureau of Statistics（NBS）of China（NBS，2009）.
In Tables 1 and 2 China’s GDP at current and constant prices from 1978 to 2009 and 2007 respectively are reported.
GDP at 1970 prices have been obtained in the following way.
First，the GDPimplicit price indexes，IGDPt，70（t=1978，…，2007）have been calculated for each GDP at constant price base change：
，（s=1970，1980，1990，2000，2005）as reported in column 4 at Table 3 below；
Table 1 Gross Domestic Product at current prices（100 million yuan）
Table 2 Gross Domestic Product at constant prices（100 million yuan）
Second，these implicit price indexes have been all re-based to 1970 through chaining：
to obtain the GDP price deflators（the results are reported in column 5 at Table 3 below）；
Third，GDP at constant prices from 1981 to 2007 have been obtained by deflating the GDP at current prices：
The deflators for 2008 and 2009 have been estimated through a first order autoregressive model IGDPt=ρIGDPt-1+εt（t=1978，…，2007），with
εt=N（σ，σ2）.
As a result，Table 3 has been obtained.
Table 3 Gross Domestic Product at current and 1970 prices.
Table 3 Gross Domestic Product at current and 1970 prices.-Continued
For the sake of having an immediate perception of the GDP growth as it has been obtained，it is worth considering Figures 1，2，and 3 below.
Fig.1 Base 1970 implicit deflators path
Fig.2 Comparative growth of GDP at current and 1970 prices（100 million yuan）
Fig.3 Yearly growth of the GDP at 1970 prices
Base 1970 GDP implicit deflators show an expected increasing trend，with a first wave from 1978 to 1996 characterized by a substantial lull during the first 7 years，and a second，shorter wave from 1997 to 2008，with no increasing during the first 7 years.This witnesses a stability of the level of prices of GDP until 1985，a rekindling of the overall inflation for the decade 1986-1996 and again，a 7 year period of stability of overall price level followed by 6 years of overall inflation.
3 The analysis of GDP’s growth from 1978 to 2009
3.1 Discussing the GDP growth rate evolution
The average 1970 price based GDP growth rate of 9.6% from 1978 to 1990 fully confirms the result of 9.1% obtained by Ferrari and Zhao（2002）.
The average GDP growth rate for the whole period has been 9.6%.It is an impressive rate，with no equal in the recent economic world history，and probably with no precedent in the entire world economic development，with values above 10% in several years and peaks in 1984-1985（15.2% and 13.5% respectively），and in 1992，1993，and 1994（14.2%，14.0%，and 13.1% respectively）.Particularly low values have been recorded in 1989，4.1% and in 1990，3.8%，most likely as a consequence of the social organization afterthought that has taken place in those years.
In the first 20 years，there is evidence of a cyclic behavior of the rate of growth that in the following 10 years seems to repeat itself in a much more smoothed way，with the whole path characterized by being a strong stationary process around the mean of 9.0%.
In the eight year period 2000-2008 the GDP growth rate seems to start a decline due to the crisis that affected the world economy，but in 2009 a sharp GDP growth rate increasing seems to confirm that China has been affected slightly only.
It should be stressed that，even in presence of the slight contraction that has characterized the recent three years，after a four year boom of achievements all above 10%，it is however a question of recording absolutely remarkable growth rates，above all if compared to those of European Union’s countries，lined up around a 1-2% range and of USA，not much higher.
However，it cannot be denied that GDP growth，after it started to cough in 2007 and 2008，reflecting the mistress of the whole economy of which it is the mirror and because of the global economic recession，in 2009 recovered，as the whole economy has responded strongly to the crisis.
2009 GDP growth rate paints the sky pink again for China，and seems to open the door to future increasing country’s welfare，although one should not forget that GDP reflects and measures the economic development，not the wellbeing，as it is being debated since more than a century and has been stressed recently by the Sarkozy-Stiglitz Commission Report.
Optimistic expectations are confirmed by the most recent data that show a 9.6% GDP growth rate in the third quarter of 2010，compared to 10.3% in the second quarter and 11.9% in the first，but at the same time consumer price index（CPI）inflation hit a two year high of 3.6% in September，according to Trading Economics（2010）.
3.2 The reasons for GDP to hold on and for economic recovery
Which the reasons might be for China’s GDP to hold on，in presence of the global economic slowdown？
I think we may agree on the belief that the beginning of the new era of economic development is to be retraced in the opening policy set up by China’s government by the second half of the 70s.
This policy has meant for China to enter the market economy and give up the centralized economic system.
As a result，the economy started to develop at and increasing rapidity，under the combined push of several factors which jointly dragged the whole system.
I identify the following as the most relevant，but not the only ones：
（Ⅰ）young and highly motivated people；
（Ⅱ）huge quantity of labor force available at low cost；
（Ⅲ）people skill；
（Ⅳ）under-exploited productive capacity；
（Ⅴ）political and social stability which made it attractive to invest from abroad；
（Ⅵ）potentially highly remunerative domestic market and highly favorable conditions created by the government for foreign enterprises to enter China’s economy.
This was tantamount to adopt Yifu Lin’s（2006）theoretical framework suggesting the abandon of the Comparative Advantage-Defying（CAD）strategy in favor of the Comparative Advantage-Following（CAF）strategy.
Actually，as postulated by Lin and Liu（2006），development strategies can be broadly divided into two mutually exclusive groups：（i）the comparative advantage-defying（CAD）strategy，which attempts to encourage firms to deviate from the economy’s existing comparative advantages in their entry into an industry or choice of technology；and（ii）the comparative advantage-following（CAF）strategy，which attempts to facilitate the firms’ entry into an industry or choice of technology according to the economy’s existing comparative advantages.
To carry out a CAD strategy，many governments of least developed countries subsidize the firms in priority sectors by distorting capital prices，foreign exchange，and other inputs；and use administrative methods to allocate price-distorted inputs to the firms.The functions of performance will be poor and the income distribution issue will worsen.Foreign trade will also be retarded.Only if governments of less-developed countries adopt a CAF strategy make following their economy’s comparative advantage the basic principle for promoting the economy’s industrial development，will the economy have an open and well-functioning market，maintain a high rate of capital accumulation，upgrade its endowment structure quickly，and see a more equitable distribution of income and fewer poor.
All this soon pushed the economy which has started to achieve goal after goal in a very short time.
Initially，it was the sector of the building constructions that greatly benefitted from the favorable existing conditions，such as the labor force availability at a very low cost，and from the huge flows of foreign investments.Then other sectors，first of all the trade sector，have benefitted from its impulse，as always happens when the development engine is building construction
In the meantime，an infrastructure investment policy i.e.，highways，ports，airports，railways，with high speed trains and adequate railway stations has been given life that，together with massive investments in education，namely at university level with consequent focus on research，as well as in real services joined by an exponential development of efficient and effective financial services，have modernized the country and increased the income and the wellbeing of large sectors of population.
Agriculture found it hard to keep the step and dropped behind，even though its productivity has significantly augmented.
In the meantime，unfortunately and perhaps partly unavoidably，a very high cost has been paid in terms of environment damage，that has become one of the hinges on which leans on the future country’ development.
Indeed，while on one hand it’s solution represents just an inescapable field of challenge for the government，on the other hand it can become in turn a powerful vehicle for further economic development，because of the new jobs creation and new specialized enterprises birth cleaning and waste abatement may stimulate.I will revert below on this question.
More than 20 years later the open policy，the event that has permanently consecrated China’s role as big world economic power-although，as said above，quite ironically and contradictorily remaining in several respects a developing country-and further consolidated the GDP growth，was China’s World Trade Organization（WTO）entry[3].
Globalization contributed for China’s to cope fairly well.As explained by Lin（2010），China had strong external balance sheets and ample room for fiscal maneuver before the crisis，which allowed it to apply countercyclical policies to combat external shocks.
It has also nurtured industries in line with its comparative advantage，which has helped it weather through the storm.Indeed，Lin claims，comparative advantage-determined by the relative abundance of labor，natural resources，and capital endowments - was the foundation for its competitiveness，which in turn underpins dynamic growth and strong fiscal and external positions.
3.3 How to make GDP growth and economic recovery sustainable
Sustainability of China’s GDP growth and of economic recovery after the global economic slowdown - but if I had in mind the situation still alive in the western countries I would say “in the face” of a global slowdown instead of “after” as is more proper to say for China - is but a problem to cope with easily.
There has been no shortage of skepticism on China’s overall policy to pursue fast economic growth to sustain it.
China’s GDP economic growth has been widely debated.In 1994 Paul Krugman judged it “unsustainable.Premier Wen Jabao in 2006 talked about “extensive pattern of growth” and expressed concern on over-reliance on massive investment as an engine of economic growth.Both of them meant growth driven by massive input with limited technological progress or Total Factor Productivity（TFP）growth.
“The pattern of China’s economic growth was characterized by very high rates of saving and investments，massive transfer of unskilled labor from the agricultural to urban non-agricultural sectors（which was the main source of TFP growth），low labor cost，low level of employees education，low level of technical innovation，large income inequality，heavy dependency on external demand，inefficient energy consumption，heavy environment pollution”（Wang，Fan and Peng，2006）.
“While it is now widely understood that China was the first globally significant economy to begin to recover from the crisis，critics nonetheless increasingly charge that the stimulus program has substantial flaws and that China’s early economic recovery cannot be sustained.
One prominent critic has gone so far as to suggest that the stimulus has created a debt-fueled bubble that will collapse，causing China’s growth to plunge to only 2 percent.But the empirical analyses suggest these critics are exaggerated “（Lardy，2010）[4].
This skepticism still persists，fueled also by the scandals over the safety of China’s products，as well as revelations on how badly damaged the natural environment is as a result of China’s headlong push to economic growth.
Investment is in the spotlight，both as regards its level and as far as its composition is concerned.
There is agreement that there is excess investment and that it should be curbed.It doesn’t as heavily depend on households’ high saving rate as it was in the past，when it overstepped 50% and consequent households’ saving surplus，and even less on government.State-Owned Enterprises（SOEs）do have instead，therefore curbing excess investment may require restructuring the governance of the SOEs（Hendrick-Wong，2007）.
Excess investment is responsible for China’s dependence on export，as global demand，although being increasing，doesn’t still reach the adequate level[5].
Investment composition is also discussed as there is a concern on China’s “quality of GDP”.That’s，one should beware of the sources which produce GDP or，in other words，of the “reasons” which GDP comes from.
As Chovanec（2010）writes，“a large chunk of China’s GDP is coming from investment in fixed assets such as factories，real estate projects，and infrastructure（in 2009，fixed asset investment accounted for 90% of China’s net GDP growth）.GDP only measures how much is being invested，but not the return on those investments，i.e.，whether they are good or bad.Given how much has been invested so quickly，there’s a lot of concern that many of these investments will prove to be poor ones，the cost of which could come back to haunt China’s economy.”
Inflation is before the bar as well.As China’s growth is being supported by easy credit and money creation it could be inflationary（Chovanec，2010）.
These two warnings “mean that China’s sky-high GDP growth is not necessarily as good news as it might seem”（Chovanec，2010）[6].GDP sustainability might be heavily affected by them.
The issue of long term sustainability of China’s economic growth is important not only to China，but increasingly for global market too.This is simply because of China’s rising economic weight in the global economy both as a supplier and a consumer（Hendrick-Wong，2007）.
There is a quite common belief among economists that TFP is the engine for sustainability.As evidence suggests that TFP gains were behind China’s high rate of economic growth，this can be sustained if TFP can be increased up to reach about 3%，so that firms can continue to enjoy raising profit margins in spite of higher costs.If TFP level increasing is pursued，then curbing excess investment becomes a must than should include also curbing local governments’ investment，that is，moving local governments out of business，as well as to continue to reform SOEs，particularly the large ones.
Increasing TFP for GDP growth sustainability implies continuing and strengthening financial sector（namely banking sector）reform，as well as maturing entrepreneurship，as entrepreneurs started 20-25 years now only，are young and，despite being enthusiastic，they lack in experience in comparison with western entrepreneurs.Continuation in the industrial park creation policy is crucial，both to this respect，and because of the positive atmosphere with it can surround the production sector，both as regards entrepreneurship and as regards workers.
Strengthening Research & Development（R&D）acquires even more relevance than ever，in the above model.In recent years，R&D investment has reached 1.4-1.5% GDP.It should be increased further，to stimulate and strengthen the already existing innovation-driven tendency of enterprises.Rising R&D investment will involve，in turn，a revival of the attention on intellectual property protection.
Urbanizationkeeps a crucial role in TFP driven China’s GDP growth sustainability model.It is estimated that some 15-20 million people are urbanized each year and by 2020 it is expected that by 2020 the urban population will reach about 60% of the total.
Keeping GDP growth sustainability after the global economic slowdown is a matter of controlling many factors that may have a negative influence on the virtuous circle.
There is quite a general agreement in identifying environmental damage as the most relevant one.Ecological degradation is largely due to country’s industrialization，in turn an irreplaceable step for economic growth.It’s crucial curbing the deterioration of air and water quality in order to create a urban and rural healthy environment.Somewhat paradoxically，environment protection might transform into a wheel for growth as pollution abatement activity can create additional employment and specialized enterprises，with final positive returns on economic growth.
In any event，it is advisable to focus on Green GDP，or as some started to name it Green Domestic Product，and make any endeavors to estimate it，instead than GDP.
Green GDP growth is more sustainable and any measures aiming at implementing it should be supported by government.
Of course，this would imply a basic modification of people and policy makers mentality；in other words，in society’s mentality and habits.
Resource shortage is a historical question in China.Inefficient resource utilization have characterized economic growth and aggravated resource shortage，particularly as far as saving driven water utilization is concerned.China fresh water endowment，already poor at the beginning，has greatly been worsened up to reach the alarming current level.
Keeping health and safety standards is a concern that has increasingly gained popularity in recent years.Actually，recent scandals of China’s export products have hardly damaged the image of China abroad.The central government should decidedly take measures to enforce standards，especially in the informal sector enterprises.Indeed，so far companies objective was to sell as much as possible under a no-name arrangement without any brand protection and they have not been concerned in brand-building in growing their business.
A still endemic problem in China is corruption，in spite of the government full concern and the many government-led anticorruption campaigns.
There is no evidence of significant effects on economic growth up to now，but there is a sharable belief that a worsening of corruption could have a negative impact on social stability and on environment deterioration，and finally to become an intolerable constraint to economic growth.
Let’s now pay the due attention to the one family one child policy.Although a consensus on its positive effects on China’s economic and social growth through the re-adjustment of the demographic patterns should be shared，it seems now likely that to rigorously persist in this direction might have a negative impact on labor market and social organization and finally on economic growth.Excessive population young class contraction may cause labor force shortage when the growth challenges will demand enforcing endeavors for increasing production.
Low wages persistence may reveal negative too.Not only the social stability may be affected in the medium run，but also the labor productivity may dramatically stagnate if not retreat with negative dragging over TFP.
THP increasing model，despite being very well motivated，articulated and comprehensive is not the only approach to the attainment of a sustainable GDP growth，that is，for sustainable economic growth.
One can rely directly on aggregate demand side and work on consumption，exports and investment to set up a model where domestic consumption play a central role.
Then，China’s GDP growth sustainability can be achieved by stimulating household consumptionbasically，but also government consumption（public staff wages and salaries）.
To stimulate domestic consumption demand，disposable income increase higher than the inflation rate would be necessary.This is not at all an easy task as it involves increasing remunerations in both private and SOEs and in government as well，which requires a very comprehensive economic policy to prop up enterprises.This also may affect firms profit margins in presence of no TFP growth and implies monitoring and controlling the inflation rate.
In this frame，a prominent place is kept as a negative element，by the increasing unemployment that hits the young generations，even those with higher education level，and creates serious social and economic maladjustment and frustration that increasingly impact on China’s GDP growth sustainability up to likely represent one of the key influencing factors in the medium-long run.
To the above aims，a realignment of the rate of changeYuan RMB-US dollar to the Purchasing Power Parity（PPP）might be beneficial.This comes into the rate of change US dollar-Yuan RMB question that has nourished the recent controversy with the USA，with interventions at the highest political levels.
Keeping the current high rate of change Yuan RMB-US dollar（despite the realignment undertaken last June 2010），i.e.，a weak Yuan RMB is good for China’s exporters；to realign again，i.e.，a stronger Yuan RMB might trouble them[7].But if one looks at the general interests，a weak Yuan RMB may be good for China’s economy as a whole，not only because of the stimulating effects it may have on the domestic demand as regards the imported goods，as the international currency is the US dollar[8].
Actually，an increasing and well monitored realignment to the PPP，which better reflects the economic price level difference，may in the medium-long run reveal positive as a stimulus to firm competitiveness that in turn can drag innovation and entrepreneurial emulation models that will have a beneficial influence on China’s economic growth sustainability.Currency appreciation will also force the pace of structural adjustment in the low value-added export sector，which is a necessary part of domestic rebalancing.
As regards momentous or medium-long run events，it’s worth stressing their character of relative concepts and reminding that，when asked about the impact of the French Revolution，China’s Premier Zhou En Lai allegedly replied：“it’s too soon to say” and that John Maynard Keynes，when discussing the long run concept said：“in the long run we are all dead”.
4 Conclusion
To conclude，to take again the question put in this paper title，what can we learn from China’s GDP impressive growth，not even slacken，or only slightly slacken by the global slowdown？
The first conclusion is that it is commonly agreed that its starting point seems to be retraced in the country’s opening policy set up by central government in 1978.
This decision，in presence factors “intrinsic” to China’s economic and social system has pushed China’s GDP towards a great leap forward.
A progressive adoption of the CAP strategy and a parallel huge investment policy in infrastructures have then fueled the GDP growth，by opening the way to its sustainability.
Further，China’s joining WPO represented the final consolidation of the path.In fact，in the frame of globalization，China，due to its strong external balance sheets，was in a position to combat external shocks，and moreover，to benefit from comparative advantages determined by the abundance of labor.
Sustainability of this growth is a question that intrigued economists and politicians，and opened a wide debate.Most of it focused on TFP rate，that is largely reputed the engine of China’s GDP growth.Economists quite commonly believe that it should be further increased；as it is reputed to be based on massive transfer of unskilled labor from the agricultural to urban non-agricultural sectors，it should be re-qualified，by curbing excess investment and local government’s investment，reforming SOEs，strengthening financial sector，maturing entrepreneurship，continuing industrial park creation，strengthening R&D，continuing urbanization.
On the other hand，negative effects such as environmental damage should be neutralized.This concern open the way to the discussion about Green GDP，whose strengthening should be pursued.Water utilization should be rationalized and health and safety standards kept.Corruption has to be reduced to a “physiological” level and the one family one child policy mitigated.Wages represent a very crucial point：low wages should be increased，but the many problems this increasing would bring with it suggest to be very cautious in implementing it.
As an alternative to the TFP model for ensuring sustainability，an aggregate demand model focusing on consumption can be adopted，consisting of stimulating households’ consumption，controlling the inflation rate and solving the unemployment problem，particularly affecting young people.
To this regard，a progressive re-alignment of the rate of change Yuan RMB-US dollar might play a positive role.
Last but not least，the question of the enhancement of China’s economic position in the international scenario and its current situation.
It may be worth leaving the floor to the WB President，Robert B.Zoelnick（2009）who writes：“The current assumption is that the post-crisis political economy will reflect the rising influence of China，probably of India，and of other large emerging economies.Supposedly，the United States，the epicenter of the financial crisis，will see its economic power and influence diminish.
There are good reasons for this perception.China has responded strongly to the crisis，both in terms of stimulus and monetary policies，and it seems to have a deep treasure chest to back up its first moves.China has enjoyed a rapid recovery，which has assisted others，underscoring China’s growing influence.
Indeed，today，China acts as a stabilizing force in the global economy.Together，China and India account for 8.5 percent of world output.They and other developing countries are growing substantially more rapidly than developed countries.”
And yet：“…China’s future is not yet determined.Its rapid recovery in 2009 was fueled by an expansion of credit of 26 percent of GDP in the first eight months of this year.This flood is now easing，and authorities are likely to limit it further for fear of effects on asset prices，asset quality，and eventually general inflation.China still faces big uncertainties in 2010.
China’s leaders recognize these risks，including the continued dependence of China and other emerging economies on export-led growth.It will not be easy for China to shift to increasing reliance on domestic demand，especially to greater consumption that could help balance world growth while contributing to China’s goal of a “harmonious society.” China’s protected service sector，including financial services，limits opportunities for entrepreneurs and increases in productivity.
The biggest winner？Ferguson（Aspen Institute）suggests it may be China，who will supplant the U.S.as the global hegemon，as the U.S.replaced a similarly heavily-indebted Britain at the end of World War II.”
And again，Dani Robrik（2009），“I agree with Niall Ferguson that the U.S. and the other advanced countries will not resume rapid growth anytime soon.With so many trillions of asset destruction，consumption growth will remain slow for a while，as will the process of finding another engine of growth to replace finance.
But as far as the developing nations are concerned，this need not be a tragedy.After all，their growth depends on their ability to import and deploy the stock of knowledge that already exists in the rich world，a stock that will not disappear or dissipate just because growth there has slowed down.
And as long as the de-globalization in question is simply a reversion to something like what we experienced in the 1960s and 1970s rather than the 1930s，the opportunities for convergence will still be there.
What will be ruled out of course is the kind of strategy that depends on external demand to increase the supply of domestic non-traditional tradables（manufactures，tradable services，and non-traditional agricultural products）.This kind of undervaluation-cum-trade surplus strategy needs to be replaced by one that relies much more on domestic demand.
It is possible to spur the production of tradables without generating a trade surplus.The country that will need to undergo the largest adjustment of this type is China. And it is not clear that China is ready to undertake that transition.”
The above remarks does anything but to confirm the analysis performed in this paper.
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[1] Guido Ferrari，Professor of University of Florence，Italy，and Renmin University of China.This paper has been implemented during my first term teaching period at the International College（Suzhou Research Centre），Renmin University of China.
[2] The global financial crisis manifested itself initially in the credit and money markets in the US，UK and Euro area and has since evolved into an economic crisis comparable to the Great Depression about 80 years ago.It is possible to hold that the consequences could be of almost equal historic significance（Reddy，2010）.
[3] To this regard，it is worth quoting Chow（2001）：“Joining WTO is a very important event for the development of China at the beginning of the 21st Century.This important event is preceded by the establishment of permanent normal trade relations with the United States in 2000，twenty one years after the normalization of diplomatic relations between the two countries.These two events are significant because they mark the Chinese economy coming of age as China is recognized by the United States and the world economic community as an equal partner.They also signal the continued forward movement of the economic globalization process.China has become an important member of the world economic community and plays an important role in the global economy.
WTO membership opens up China’s market for more international trade and investment，and opens up the world economy for China’s exports.Some observers see it as a positive force for China’s economic development while others are concerned that the competition of foreign imports and foreign enterprises in China might destroy important domestic enterprises in China’s agricultural，manufacturing and service sectors.”
[4] China faces major challenges in sustaining its economic growth in a period of weak global recovery，particularly in Europe.In 2009 China’s net exports of goods and services dropped precipitously，resulting in a substantial drag on economic growth.To overcome this drag China launched a massive stimulus program，financed largely with bank credit.Contrary to repeated criticisms，this stimulus had a substantial consumption component and directed investment primarily toward infrastructure rather than expanding capacity in traditional industries such as steel（Landry，2010）.
[5] This has caused a vicious effect as China’s exporters，in order to compete successfully have been transforming into capital intensive to the detriment of labour，in a country conversely characterized by huge labour supply and massive unemployment in rural areas，which in turn has created an industrial structure is losing comparative advantages.
[6] His comment is：“Consumer inflation is running at 2.4%.That already exceeds the regulated deposit rate of 2%，which means that Chinese savers are effectively losing money by keeping it in the bank.But a lot of economists are wondering why the inflation rate isn’t even higher.I think there is very high inflation out there，in the form of asset inflation in real estate and the stock market，where a lot of that cheap credit has been channeled-it just hasn’t worked its way through the rest of the economy yet.（The fact that China’s central bank has to constantly strive to counteract the inflationary effect of the new RMB it is forced to issue to maintain the US dollar peg isn’t helping，either）.
[7] Very recently，China’s government leaders publicly declared of not considering negatively a further realignment of the rate of change towards the PPP；only，they claimed for to make it very gradually and not in a short time，for the overall effects it has on the whole economy.
[8] “The exchange rate policy has propped up poor performing exporters at the expense of the broader economy，It’s important to ask why exporters are currently doing well or remaining in business.Many of them can only do so because they’re able to exchange the dollars they earn for yuan at the peg.That’s great for exporters but the central bank has to buy all those dollars at the peg，invest them，and neutralize the inflationary effect.That’s a significant burden.”（Chovanec，2010）.