Another aspect of openness that creates these competitive domestic markets goes back to FDI. One way to look at this is how important are foreign firms in any economy in terms of their contribution to output? In the large manufacturing sector, foreign companies in China-joint ventures, wholly foreign-owned companies, etc.-produce roughly a third of the output. In the EU, where they have been promoting cross-border integration, capital flows, and mergers and acquisitions back to the 1950s, the average industrial output produced by foreign companies is 25 percent. So China is ahead of the EU in the importance of foreign companies producing domestically. For the United States, the figure is about a fifth. Singapore is higher, but China's is a high share for a large, continental-sized economy.

China's openness means that over time, Chinese companies have had to compete successfully internationally. They are competing not only with imports, but also with foreign firms that have moved their operations to China.

A third growth factor is the high savings rate. In any economy, growth is ultimately determined by two factors: How much it invests and how efficient it is at investing. These govern the productivity gains you achieve over time. China has a very high investment rate. Not just households, but also companies and the government, save a lot. Adding these up, you get the national savings rate, and China saves about 50 percent of what is produced, the highest of any country in the world. Its rate is almost twice that of India and several times the rate in the United States. The great majority of these savings is invested; some is used to invest in foreign financial assets. So they are able to build their capital stock.

Sustainability

China has already grown more rapidly for a longer period of time than even its most successful East Asian predecessors. First Japan and then South Korea and Taiwan grew extremely rapidly in the 1960s and '70s, but China has been growing as rapidly as any of those countries and regions for nearly three decades.

China will increasingly become a market economy. The manufacturing sector is the largest part of the economy, but a large service sector is also being marketized. A factor driving this is that, under its 2001 commitment to come into the World Trade Organization, China agreed to open up its service sector. At the end of 2006, foreign banks were able to compete on an equal basis with domestic banks, and there was increased competition in insurance, securities, asset management and telecommunications.

We should see more competition and further expansion of the role of international trade. Tariff levels are now extremely low-the average tariff in the Chinese tariff schedule is slightly under 10 percent, and China exempts so many of its imports from actually paying tariffs; much comes in duty free. Actual tariff collections relative to the value of imports are only 2 percent. That contribution of the external sector to competition in the domestic economy will continue, as will the savings rate, until about 2015, when China's population is anticipated to begin to age fairly rapidly. If what has happened in most other economies happens there, many people who have been saving a lot will retire and spend down their savings, so even if the savings rate at every age stays the same, the national savings rate will fall.

Implications for global economy