Growth from rabbits past

China's rapid economic rise had already started when the last Year of the Rabbit began in 1999. But will the next, in 2023, see it overtake the US as the world's number one?

Fireworks explode over the Xinghai Square in Dalian to celebrate the Chinese Lunar New Year, also known as the Spring Festival. Feng Li / Getty Images

When China recently rang in the Year of the Rabbit, no doubt some of the 1.3 billion population allowed themselves a moment to think back to the last time the bunny represented the Chinese zodiac.

The last Year of the Rabbit was in 1999, a year when Jiang Zemin firmly held the levers of power and the current president Hu Jintao was the new kid on the block the analysts predicted would eventually be China's paramount ruler.

Back then, China's economy was already caught up in the growth that has transformed the world's most populous nation.

Deng Xiaoping, the architect of modern China's economic miracle, had died two years earlier leaving behind cities such as Shenzhen that were unrecognisable from the way they looked when reforms started in the late 1970s.

In 1999, the American fast-food chain KFC was named in a survey as the best-regarded foreign brand in China - a dramatic rise since the company entered the mainland in the previous Year of the Rabbit, 1987.

The economic development was such that by 1999 the Chinese economy was the seventh largest in the world and set to move further up the charts.

But for all of the achievements a number of issues were causing concerns in 1999, including the large number of layoffs as ailing state companies were dismantled in favour of private enterprise.

Because of worries about overheating earlier in the decade, the brakes had been put on economic growth to the extent that the 7.1 per cent GDP increase recorded in 1999 was the lowest figure since 1990. This represented seven consecutive years of slowing expansion.

Economists were concerned foreign direct investment would continue to drop, after falling in 1998 and 1999.

Coupled with a clampdown on the growing Falun Gong movement, the indifferent economic figures led some to wonder whether China was about to enter a turbulent 2000s in which acceptance of Communist Party rule, dependent on delivering prosperity, would be increasingly questioned.

Instead, the past decade has seen growth of at least 8 per cent every year, sufficient for China to last year overtake Japan as the world's second-largest economy.

With the country's GDP expanding by 10.3 per cent last year, the country faces another juncture at which talk centres on overheating.

Experts such as Professor Frank Song of the University of Hong Kong's school of economics and finance believe growth is likely to lessen slightly.

"After the financial crisis, the model that relies on exports is no longer valid," Prof Song says. "China has to transform from [an] export-oriented to a domestic-driven economy. That's a big transformation.

"The cost of labour, the cost of resources - all these are going to go up in the next few years. This will also slow down the growth in China."

Growth rates are likely to decline to 7 or 8 per cent a year, Prof Song predicts. Together with appreciation of the yuan, he says this could see the dragon economy overtake that of the US in the next 10 to 15 years, perhaps even in time for the next Year of the Rabbit.

Per capita GDP, at about US$4,300 (Dh15,793), is another factor likely to cause growth rates to be reduced, says Ren Xianfang, an analyst at IHS Global Insight in Beijing. It would be "quite unlikely" for current expansion rates to continue for another five to 10 years.

"It would be incredibly difficult to continue to grow at double-digit growth," Ms Ren says. "That's a technical reason."

Declining demand for Chinese products overseas will also cool the economy, she adds.

Another issue before the next Year of the Rabbit in 2023 is whether the benefits of the economic miracle that has transformed so many coastal provinces will be shared by a greater proportion of the population, at a time of disquiet over inequality.

The Gini coefficient, which measures financial disparities on a scale of nought to one, has reached about 0.47, above what is considered the danger figure of 0.40.

"It's become a much more urgent issue than 10 years ago. The policymakers are very serious about this," says Prof Song.

A key aim is spreading economic development countrywide, as the coastal regions have enjoyed most of the growth benefits in recent decades.

There were further signs last year that this was taking place, with labour shortages in some of the coastal factories blamed on migrant workers staying in their home provinces because of better opportunities.

Manufacturers have been investing hundreds of millions of dollars away from coastal areas to take advantage of the lower labour rates, with Intel, Foxconn and Hewlett-Packard among the high-profile names to set up plants in provinces such as Henan and Sichuan.

The advent of high-speed railways has been cited as a vital force behind the further development of western and inland China and the government aims to double the network to 25,000km by 2020.

Even so, superfast trains cannot completely remove the effects of geography. Ms Ren believes only a handful of provinces, among them Sichuan and Inner Mongolia, will rival the coastal regions for development and prosperity.

"The coastal provinces are close to international markets," she says. "Transport and logistics costs to western markets are very, very low.

"The inland provinces have much lower costs for labour and land, but if you take into account the much higher transport costs it offsets the advantages."