As China’s Communist Party turns 100, has it delivered what the people want?

Not only has the party helped transform China into a moderately prosperous society, it has delivered public goods – from raising the literacy rate to boosting life expectancy
With the wealth gap growing, the focus should now be on boosting the incomes of those who are not yet rich

Lawrence J. Lau

Published: 9:15am, 1 Jul, 2021

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The Chinese Communist Party is 100 years old. It is one of the few political parties in the world that has stood the test of time (this group includes the British Conservative Party and the Democratic and Republican parties in the United States). Since the founding of the People’s Republic of China in 1949, the mainland has been under the continuous rule of the Communist Party.

Overall, the Chinese people have also done very well under the Communist Party. Between 1949 and 2020, real gross domestic product has grown from 315 billion yuan (US$48.4 billion) to 101.6 trillion yuan (in 2020 prices). During the same period, real GDP per capita has grown more than 120-fold, from 582 yuan to 71,965 yuan.

Has the Communist Party delivered what the Chinese people want? Clearly, it has successfully solved the problems of feeding China’s large population and keeping people adequately clothed. It has achieved for China a xiaokang, or moderately well-off society.

But it has also excelled in the provision of public goods. Traditionally, for millennia, the Chinese people have greatly valued education, in large part because it was one of the very few channels for social mobility.

The literacy rate, which must have been way below 50 per cent in 1949, increased from 66.4 per cent in 1964 to 97.3 per cent in 2020, thanks in part to the simplification of the Chinese characters undertaken in the 1950s.

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The simplification has been subject to much criticism, but it did reduce the number of years of schooling required to read a newspaper from eight to four years, a major accomplishment. The tertiary enrolment rates of graduates of secondary schools was 24.6 per cent in 1989 and rose to 94.5 per cent in 2016.

Almost everyone who wishes to attend a tertiary educational institution is now able to do so. The proportion of the total population with tertiary education, which was only 0.42 per cent in 1964, rose to 15.47 per cent in 2020, and is expected to increase further with time.

Similarly, China has also made great strides in public health. Life expectancy, which was only 35 years in 1949, and 67.8 years in 1981, grew to 77.3 years in 2019. And the population mortality rate has declined by more than half from 2 per cent in 1949 to 0.71 per cent in 2020.

The Covid-19 epidemic has infected less than 112,000 people (excluding imported cases) and has resulted in less than 5,500 deaths on the mainland, with about a quarter of the world’s population. By comparison, the entire world has to date a cumulative total of 182 million infected cases and almost 4 million fatalities.

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But China has been most successful in the eradication of poverty. The Chinese poverty standard of 2010 defines a family to be in poverty if the per capita annual income is below 2,300 yuan (in 2010 prices). This is equivalent to around 2,930 yuan in 2020 prices.

In 1978, before the beginning of the economic reform and opening up, the poverty rate according to this standard was a whopping 97.5 per cent. By 2019, it was down to 0.6 per cent; by 2020 it was supposed to have reached zero. Granted that this is not a very high level of per capita income, but it is more than US$1 per person per day.

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Despite the volatility of the growth rates during the 20 years from the late 1950s to the late 1970s, the average annual rates of growth of real GDP and real GDP per capita for the entire period from 1949 to 2020 are respectively 8.47 per cent and 7.02 per cent, a truly remarkable achievement over such a long period of time.

We can attribute this success to the long time horizon of the Chinese economic policymakers and the single-minded focus on economic growth. With a long enough planning horizon, one can afford to undertake investment in development-leading infrastructure, that is, infrastructure whose demand has not yet materialised but remains to be created by the supply.

The Chinese national savings rate rose from 21.1 per cent in 1952 to 36.8 per cent in 1979 and 45.7 per cent in 2020. It will remain high and provide the resources for additional investment in infrastructure, human capital, and research and development.

Household consumption will rise as household income continues to rise. While the growth of the total population will slow, and may even turn negative (this is the legacy of the one-child policy), there is unlikely to be a serious shortage of labour.

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The demand for labour will be satisfied by continued urbanisation, the gradual raising of the mandatory retirement ages – which have officially remained at 55 for women and 60 for men, an anachronism inherited from the early 1950s when life expectancy was much lower – and automation and robotics.

The private sector is today the largest employer in the urban areas, accounting for more than 70 per cent of the employment, compared to practically zero per cent back in 1979. The growth of the private sector has also created many US dollar billionaires in China – supposedly more than 600, as many as those in the US.

Income distribution has become quite unequal on the mainland. The Communist Party’s mission should be to make those who have not yet become rich, rich too.

Despite unprecedented progress since 1979, the Chinese economy is still at a level of real GDP per capita (less than one-sixth of the US’) that will permit relatively rapid growth. Its national savings rate will remain high.

For the coming decade, the Chinese economy should have no difficulty growing at an average rate of 6 per cent per annum and overtaking the US to become the largest economy in the world by 2030.

Lawrence J. Lau is the Ralph and Claire Landau Professor of Economics at the Chinese University of Hong Kong, and the Kwoh-Ting Li Professor in Economic Development, emeritus, at Stanford University