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Justin Yifu Lin, Former World Bank Chief Economist and Senior Vice President, speaks at Tsinghua University

On the evening of September 20th, 2012, Justin Yifu Lin, former World Bank Chief Economist and Senior Vice President, spoke at Tsinghua University in a lecture series hosted by the Rural China Institute of Tsinghua. A member of the Steering Committee of the Rural China Institute and the Founder Emeritus of the China Centre for Economic Research (CCER) at Peking University, Professor Lin delivered a speech entitled, “The Current International Economic Situation and China’s Future Economic Development.”

Lin, who stepped down from his post as World Bank Chief Economist and Senior Vice President in June of this year, after taking up his post in 2008, has a deep understanding and a wealth of international experience. He believes that in the next five to ten years, or even longer term, the international economic situation will not be very optimistic. The current economic focus is on the European sovereign debt crisis. He believes European countries should implement structure reforms, or else any loan assistance provided by the European Central Bank or the International Monetary Fund will only be short-term painkillers. But in fact, he noted, it remains very difficult for southern European countries to implement structural reforms.

Lin pointed out that the European Central Bank recently announced unlimited purchases of government debt; the United States immediately announced to implement the so-called QE3; and Japan also announced the introduction of monetary easing, which is basically a disguised devaluation measure in order to continue increasing the money supply. The consequences of this policy, Lin said, is to encourage short-term speculation, affecting the stability of the financial markets in developed countries, as well as the volatility of commodity market prices in the international market and the emerging economies. The ups and downs of the stock market and the real estate market prices will bring new challenges to macroeconomic management for developing countries. Lin suggested that this new international scenario may become the norm, and that one should be psychologically prepared for these changes.

In the current complex and volatile international economic environment, China’s economy is described as thriving. Despite the slowdown of China’s economic growth rate in the last year, which has triggered some concerns about the Chinese economy, Lin said that this did not affect the confidence in China’s economic development. He believes that China’s declining economic growth rate over the past six quarters is cyclical, and that as long as the government is able to take the appropriate counter-cyclical macro-control measures, the declining growth rate can be mediated. He further proposed that China’s economic development still needs investment to stimulate and promote the further improvement of the level of productivity through technological innovation and industrial upgrading. Meanwhile, he said, China should learn from past experiences and lessons from other countries. He emphasized that the government can play a positive role in future economic development.

Since the reform era began, China has created a miracle of 32 consecutive years of rapid economic development, and people’s living standards have improved significantly. Combined with the history of economic development of Japan, Korea, Singapore and other countries, Lin said that economic development in accordance with the theory of comparative advantage can increase the economic growth in developing countries to 2-3 times the speed of economic growth in developed countries, which can be maintained for 10-20 years or even longer. He believes that, if China can deepen the reform, according to comparative advantage, and make full use of that advantage, then China’s economy will maintain high-speed growth of about 8% for over the next 20 years. China has room for growth and has the resources for it, Lin emphasized. The biggest problem facing China now, Lin said, was the issue of the income distribution gap, to which the country must pay great attention. He stressed that one should be prepared, and remain calm and objective at all times, in order to seize the opportunity to accelerate development.

Lin concluded his speech by noting that the current generation of students lives in a particularly good era, as generations of Chinese intellectuals before have pursued national strength and development – and this may be achievable in the current generation. He encouraged students not to be armchair social critics, but to get up and find solutions to problems and solve them, in order to create a better society. Lin then answered questions from a standing-room only crowd in Tsinghua’s auditorium. His speech was received favorably by all in attendance.

Justin Yifu Lin took up his World Bank position in 2008 and remained through June 2012, after serving for 15 years as Professor and Founding Director of the China Centre for Economic Research (CCER) at Peking University.