By LIN YIFU

THIS year marks the 40th anniversary of Chinas reform and opening-up policy. Looking back， China has seen numerous advancements， especially in its economy. China has made use of technological gaps with developed counties as sources of technological innovation and industrial improvement， elevating its production standards. Today， the country has many advantages in its industrial advancement. In addition， Chinas financial system is stable –capable of maintaining six percent annual growth over the next decade， and there is a very real possibility that it will become the worlds largest economy around 2030.

How impoverished was China 40 years ago？ At the exchange rate in 1978， Chinas per capita GDP averaged only US $155. It is usually assumed that sub-Saharan Africa is the poorest place in the world， however， its per capita GDP the same year averaged US $499. Chinas per capita GDP in 1978 ranked third from the bottom on a list of over 200 countries. This was the reality 40 years ago when Deng Xiaoping – the grand architect of Chinas economic transformation – proposed policies of reform and opening-up.

At the beginning of Chinas reform and opening-up Deng Xiaoping set the goal of quadrupling the gross annual value of industrial and agricultural output in 20 years， which required an average annual growth of 7.2 percent. It was achieved very early on. However， at the time， I never believed China could achieve such a high growth rate.

Contribution to the World

Ive been very lucky to have experienced the China miracle over the last 40 years， witnessing firsthand Chi-nas earth-shattering transformation. Chinas per capita GDP in 1978， US $155， has grown to US $8，836 in 2017， and the country is now classified as an upper-middleincome country. From a macro-economic perspective， in 2009， China surpassed Japan to become the second largest economy in the world， and in 2010， surpassed Germany to become the worlds largest exporter. In 2013 Chinas trade surpassed the United States and it became the biggest goods trading nation on the planet. Throughout this process， over 700 million Chinese people have been lifted out of poverty.

I served as senior vice president and chief economist of the World Bank， which is commonly viewed as the top position for economists in the world. I was the ninth chief economist at the World Bank， and those before me were all renowned economists with ample political experience. A major reason why I was qualified to hold such a position was Chinas development and enormous contributions to world poverty reduction.

I believe that Chinas greatest contribution to the world is its stable and rapid economic development. Over the last 40 years， the global economic situation has been unstable. For example， Asia， the fastest growing region after World War II， suffered a sudden financial crisis in 1997. At the time， many international observers believed that Asian economies would need 10 to 20 years to regain their former vitality. However， after the year 2000， they had recovered and continued to grow rapidly.

Why did these economies exceed expectations？ Because nobody predicted Chinas response. First， as a responsible power， China did not devalue the Renminbi， allowing the economies affected by the financial crisis to avoid a so-called competitive depreciation – this was the major reason behind the stability of the entire Asian economy. In addition， at the time China scored an eight percent growth rate， helping revive the economies of other Asian countries.

The international financial crisis of 2008 was the first massive financial crisis since World War II， and also the most severe global financial crisis since the U.S. stock market crash of 1929. Many people thought the fallout from this crisis would be felt for years to come. Here we are a decade later， and although many developed countries have not completely recovered， most national economies stabilized in 2009 or 2010， though not to full strength. The key to this is the China factor.

In 2009， China introduced proactive fiscal policies that revitalized its economy from the first quarter on– its recession lasted for only one quarter （the fourth quarter of 2008）. Under the influence of the Chinese economy， other emerging markets started to recover in the second quarter of the year. In the decade since 2008， China has contributed over 30 percent to the worlds economic growth.

A 40-Year Economic Miracle

Over a 40-year time span， China maintained an average annual growth of 9.6 percent， a growth never before achieved in human history. Income growth is not nearly as simple as currency valuation， it is about the increase of purchasing power； it represents real growth. The steady improvement of productivity is a necessary precondition for real growth. This requires continual innovation in industrial technologies so that every worker can produce more and better products. This is the first method of increasing income. The second is to create new industries that have a higher added value so that labor resources move from low-added-value sectors to high-added-value sectors of the economy， which is a necessary mechanism for maintaining long-term income growth. In other words， sci & tech advancement brings economic development. Both developed and developing countries must adhere to the aforementioned mechanisms in order to maintain long-term income growth.

There is an important difference between developed and developing countries in this process. The income level of developed countries was consistently high after the industrial revolution， meaning that the quality of labor productivity was the highest in the world and their industrial technologies were also the best in the world. Pushing forward technological innovation and industrial upgrading is dependent on original invention， which is difficult. Developing countries have a “l(fā)ate-comers advantage” in this regard， because they can tap into the worlds existing advanced technologies as their source of technological innovation and industrial upgrading. The “l(fā)ate-comers advantage” is an economic term： The“l(fā)ate-comers” have a lower income level and a backward economy， which is not good； however， from the perspective of technological innovation and industrial upgrading， those countries can import， imitate， and learn from the innovations of others at lower costs and risks associated with original invention， and this is the“advantage.”

Theoretically speaking， since the costs and risks are lower， the speed of progress can be much higher. Practically speaking， by 2008， 13 of the over 200 developing economies after World War II understood how to use technology and productivity gaps as sources of technological innovation and industrial upgrading， enabling them to achieve an average annual growth of seven percent or higher for 25 years or more. This rate is more than double that of developed countries. This kind of sustained development narrowed their gap with developed countries.

China was one of these 13 economies. Since the kickoff of its reform and opening-up， its growth rate has been over three times that of developed countries and has sustained for 40 years. This is because of Chinas“l(fā)ate-comers advantage.”

The China Theory

What does Chinas 40 years of reform and openingup give to the world？ Looking at the success of Chinas economy， there is a definite logic to it. As an economist， I have a duty to explain the rationale behind Chinas miracle. This rationale is not only a contribution to China， it also has great significance for providing guidance to other developing countries.

Until now， I have never seen any developing country thrive by implementing policies according to the theories of developed countries. Relying on Chinas 40-year experience with reform and opening-up and the practical success or failure of China and other developing countries， we create a new theory， one that is different from the theoretical structure of developed countries. I call it “new structural economics.” This theory emphasizes the structural nature of difference between developed and developing countries， indicating that this difference produces differences in their needs of industries， institutional and financial organizations， and human resource capital.

For example， Ethiopia， one of the poorest countries in Africa， has recently begun to borrow from Chinas reform and opening-up， creating a beneficial environment for economic growth， and centralizing its forces to start large-scale projects. With rudimentary infrastructure， it has established industrial parks and introduced implementing onestop services to attract investment. Over the last 10 years， Ethiopia has maintained a 10 percent growth， and is now the top destination of foreign investment in Africa.

This theory applied not only to poor countries in Africa. Poland has also reaped the benefits. A few years ago， Poland was in a better situation than some of its neighboring countries， however， it still had not established new industries， and had no way of creating employment. Therefore， much of its workforce sought employment abroad in places like Spain， France， and Ireland. In 2015， the Polish government published its national development plan. The outside world was very nervous， wondering if Poland was reverting to the era of planned economy. The answer was “No，” the Polish people said， “We are designing our national development plan according to Lin Yifus new structural economics.”

It is said that after the Opium Wars， Chinese intellectuals had never developed theories that other countries could use as a theoretical foundation for economic development. The person responsible for formulating development policy in Poland was the then Vice Prime Minister and Minister of Finance and Development Mateusz Morawiecki. He dared to implement an economic theory from a developing country. In December 2017， he became Polands Prime Minister， and in January 2018 I met him at the Davos Forum. In his speech， he talked about Poland making up a 10th of the population of the EU， while it was creating 70 percent of the employment opportunities in the region. These results are instantaneous because the government changed its way of thinking. The country has an efficient market and a capable government that makes targeted policies for industries of comparative advantages to effectively mobilize local resources.

Chinas 40 year reform and opening-up has brought about earth-shattering changes， but the biggest accomplishment is the betterment of the quality of life of its 1.4 billion people， and its potential to better the lives of even more people worldwide.

Today 85 percent of the worlds population lives in developing countries. Even if China becomes a highincome country by 2025， 66 percent of the worlds population will still be from the developing world. They share the aspiration to live a good life. As we have already mentioned， there are no examples of developing countries successfully following the path of developed countries. Therefore， as a developing country， China can， based on its own successes， provide theoretical assistance to other developing countries.

The reason for whether a theory is applicable or not has nothing to do with the internal logic of the theory， but rather it is based on whether the theorys preconditions exist. Theories from developed countries are derived from the experience of developed countries； they all assume certain economic preconditions that do not exist in developing countries. Moreover， the conditions of developed countries also change， and theories from these countries are in continual flux， with some rising and some declining in influence in different times. If theories from developed countries cannot be applied to all ages， then they cannot be used uniformly across the world. Therefore， these past 40 years of reform and opening-up have allowed China to develop a theory from its practice， which has not only allowed the country to learn from its past and present to guide the future， but has also allowed other developing countries to realize the same prosperity as China.