China is experiencing impressive growth rates and is quickly becoming the biggest economy in the world. We sat down with Yao Yang , Director of China Center of Economic Research, to get an inside perspective on the chinese development. Anders Møller: So, Yang Yao, what do you see as the most important strategic goals for China in 2020? Yang Yao: Internationally, China should have a clear perspective and strategy for its role in the world. The very high expectations from outside China will only increase, asking China to play a more foster role in the international system. China becomes the no. 1 economy in the world which will make the world demand a lot more from China regarding for instance international aid and maintaining world peace. Domestically we can see how rich Western societies are and that they are governed not by the government, but by the society. This is actually very, very good and China has a long way to go. I think even today the government should think seriously about their way of ruling. On top of that China needs to think about how to approach reforms. Of course we don’t want to see changes like the so-called Arab Spring. We see such tragic situations in Egypt, Libya and now Syria. That’s a mess! We want to see smooth transitions. The current regime has been quite good at promoting economic growth. It has been doing a wonderful job but that is not enough. You can see that the economic growth is not spread equally to the whole population. The society is becoming more and more complex and there are so many internal conflicts. The current framework to govern society is not working properly. The governments take all too much responsibility to solve every problem emerging in the society. Although China is not a full democracy voices do matter, but if you shout the government will take care of you. That is not sustainable. We need to have more institutionalised ways for people to voice their concern. The government or the whole Chinese system need to find a way to go from this governmental control model to a mixed model between society and government. AM: What do you think will be the driving force of the economy in 2030? YY: China’s contribution to global growth is going to be the largest, but the growth of India is going to increase dramatically by that time and become the driving force of global growth. But we also need to think about Africa. The African countries are catching up very, very quickly. I suppose African countries will have big growth progress between 2020 and 2030. When we hit 2030 China will get into big problems due to purely demographic transitions. However, China has room to manoeuvre and is not going to have a pension crisis in the first half of this century. Basically because the government owns a lot of assets, with a total value of 15 trillion RMB ( $2,4 trillion). The government can just sell of these assets to cover pension. Another instrument of the government is the retirement age that is ridiculously low. Female workers can retire at the age of 50 (male 55). 50 is still young. Retirement age could easily be raised to 60 years in a country where people can live until they are 90 years. It is a rule from the 1950’s when the workers needed to do manual work. Today everyone works with machines. AM: What about the creativity of Asia? YY: I think it has a lot to do with the institutions, not people nor culture. Korea is doing a wonderful job. Samsung is becoming the largest Intellectual Property company in the world and is doing a lot of innovation. But then again, if you look at Japan you will say Asians do not innovate. I think the problem with Japan is primarily their institutions. You are not rewarded or encouraged to innovate. Secondly it is about aging which is basically killing Japanese economy. In the foresee of the future, I think China is still going to copy technologies from the West and other countries. Our income level is still going to be low and our innovation system and institutions are not prepared for innovation. AM: What should happen before they are ready for innovation? YY: The reason why the United States has been the most innovative country for decades is the fact that they have these cruel institutions. They fire people not by individuals but by groups, eliminating whole departments together with the efficiency of the US financial sector. China has a long way to go but I am not sure China wants to go along the US road. Why should China be a technological leader like the United States? It is so hard and people work like crazy every day. Many people get up at five o’clock in the morning and goes back home at eleven o’clock in the evening. Do we really want that kind of life? That is the cost the United States are paying. AM: Which other ways are there? YY: I think the German model can be much better. People have lot of vacations and the industry is well thought. Maybe it is not as innovative as the American model, but German engineering is very good and Germany are making a lot of innovations, not very high tech, but medium range innovations. It is always told that we have a critical view upon the European Union and Europe, saying that this is a failed project. I don’t think that is the right perspective. Saying so, you miss the historical perspective. It seems to me that chancellor Merkel has this very long historical perspective and she is right. Europe has fought too many wars in the last 500 years. — Yao Yang is Dean of the National School of Development, Director of the China Center for Economic Research and Professor of Economics at Beijing University. He is moreover editor of China Economic Quarterly, with research and policy work focusing on economic development and institutional change in China.