The most fundamental change in the world economy over the past 40 years has been China, which is effectively catching up in a smart,normal, peaceful and rule-based way, said Jeffrey Sachs, Director of the Center for Sustainable Development at Columbia University and senior United Nations advisor, during a keynote speech at an event co-hosted by the China General Chamber of Commerce–USA and the Standard Chartered Bank in New York City on May 2. Sachs said he's a huge fan of developing the Belt and Road Initiative, adding that China should use it to showcase the way real sustainable development in the 21st century should be done. Edited excerpts of his speech follow:

China, for many reasons, lost a lot of time historically. By 1978, it was one of the poorest countries in the world, which was very odd, because China had led the world for about 1,000 years. From roughly A.D. 500-600, up through at least A.D. 1500, China was the preeminent technological, economic and geopolitical power in the world. We've seen for the past 40 years the fastest economic development in the history of the world. The reason is smart policies combined with catching up from a disastrously poor situation.

Today, China remains—like the government rightly says—a developing country, about one fifth of the U.S. per-capita income calculated at market exchange rates and one third of the U.S. per-capita income calculated at purchasing power adjusted exchange rates. So the catching-up period continues.

As the gap between China and the U.S. and between China and Europe narrows, growth in China is slowing down. This is a normal part of catching up; what used to be consistent 10 percent annual growth is now about 6 percent. That's just what is to be expected from this kind of successful catching up, which has two reasons. First, the technological frontier has significantly closed and second, the surplus labor from the countryside has basically been depleted. There isn't a huge stream of young workers coming from the countryside anymore, so the easy gains from a constant GDP increase are no longer there.

I mention this because the U.S. vision that China cheated its way into economic development and rapid growth is simply false. It's a completely uneducated understanding of China's development.

China is effectively catching up and it's doing it in a smart, normal, peaceful and rule-based way. I reject the narrative that this is somehow insidious industrial espionage and cheating; this is good economics. We should feel very gratified that China went from being 80 percent poverty-stricken to almost poverty-free and that it will end extreme poverty by next year. And that's not just hype; that's literally the case. If you go to the poorest counties in China, they look rich compared to the poorest areas in other parts of the world. There is electricity, television, and basic services. It's not that development is exuberant in such places, but extreme poverty really has ended. This is a great triumph of economic development.

As China makes up for lost time, the world should be happy, not alarmed. China has done it peacefully, and I expect China to continue to do it peacefully.

Wrong mentality in U.S.

The right wing in the U.S. is panicked by all of this right now. But there is a structural problem in the U.S. mentality. Since China is more than four times the size of the U.S. population, and as long as China is more than 25 percent of the U.S. income, China will be a bigger economy. That's just arithmetic. Even if China is relatively poor, it will be a larger economy. In terms of purchasing power, those curves already crossed sometime around 2012, according to International Monetary Fund data.

Currently, China is a larger economy, four times as populated, one third the income—that's four thirds aggregate GDP and 30 percent bigger than the U.S. This freaks people in the U.S. out because from their point of view, the U.S. is supposed to be No. 1, and suddenly it's not the largest economy. Of course, in market terms, at market exchange rates, the U.S. will remain the largest economy for a little while longer. But even that will not persist because the only way it can persist would be if China fails, which would be a disaster for the world, not just for China.

From the U.S. perspective, this is structurally a psychological and geopolitical issue. U.S. foreign policy doctrine is based on U.S. primacy in all parts of the world; that's its goal. Its primacy is being threatened because China is a big modern economy with a huge population and strategic weapons, which means the U.S. can't have the primacy it has long had. That is the basis of the trade war, not any of the specifics, but this idea of China challenging U.S. primacy.

Trade frictions may continue because these are U.S. strategists' perceptions that U.S. foreign policy is based on its predominant power in all theaters of the world, militarily, strategically, and economically.

But the U.S. has 4.2 percent of the world's population, making it very difficult and abnormal for 4.2 percent of the world to imagine that it will be the primacy power forever, because it would have to be an extremely imbalanced world for that to happen. In an open, rules-based world, that kind of imbalance cannot persist. China won't replace the U.S. as a world leader. A multipolar world lies ahead where China is one power, Europe another, the U.S. a third and India a fourth.

This change underway is natural, but Washington—at least the neoconservative wing—does not think so, it views this with alarm. Some pundits repeat what they hear and have started calling China an enemy even in mainstream newspaper columns. They probably have never been to China, but the rhetoric is heated up. This view is quite dangerous and really needs to be resisted. People who are not engaged in normal U.S.-China ties are going back and forth. They don't know, but they hear things that sound very alarming. In the U.S., people are used to being No. 1 in everything, and China is an affront to that psychology.

When it comes to specific aggravating factors, a bilateral trade deficit is not one of them. President Donald Trump is the first U.S. president to focus on a bilateral trade deficit, an idea that went out of fashion sometime in the late 18th century. The U.S. should not make its policies based on bilateral trade.

The reason the U.S. has a trade deficit is because people don't save very much in this country. A current account deficit is not a measure of trade policy; it is a savings-investment imbalance. It's literally savings minus investment equals the current account. That means that a country will run a current account deficit precisely when it is saving less than it is investing.

If you cut corporate taxes, like the U.S. does, you get more consumption and more investment, and fewer saving. So the savings-investment gap worsens and the trade deficit also predictably worsens. Then the headlines go like this: Trump is failing on his trade negotiations, which is completely the wrong place to address the savings-investment imbalance. The right place would be in a smaller budget deficit.

The U.S. could have any current account surplus that it wants, if it would raise its national savings rate, for example. But government savings is probably at least -3 percent of the GDP today. It has government investment of 2 percent of the GDP, so it is chronically running deficits of about 5 percent of the GDP. It's not surprising the U.S. has a chronic deficit; once you lower the savings rate, don't expect it to recover again and don't expect fast growth on low savings. Part of China's high growth rate is due to the fact that China is a high savings economy.

Green Belt and Road

The Belt and Road Initiative is another area where the U.S. accuses China of hegemonic rule, quasi-imperialism or neo-imperialism. These are completely empty words. The initiative is a very good idea for a country as large as China, as advanced with a savings surplus, a need for more integration with its neighbors in Southeast Asia and Central Asia, and the desire for active trade relations with Europe, East Africa and Latin America.

How to build 21st century infrastructure that is really going to tie Eurasia together efficiently and sustainably? It's a great project, but by the way, too big for China alone. And that is what President Xi Jinping said in a recent speech. And he's absolutely right. He said something very important, which needs to be realized and is not being realized yet: that this should be a green initiative.

We can decarbonize the world energy system quickly. China has the lead on it by virtue of its size and the fact that it is the world's largest emitting country. Roughly 28 percent of global emissions come from China, which will make or break world climate. And so we really need China's leadership to decarbonize the energy system. China can do it.

It has a lot of renewable energy. There's also a wonderful Chinese project, the Global Energy Interconnection Development Cooperation Organization, created by China State Grid to propound the idea of connecting the world through renewable energy. It's based on China's own experience. China's reality is that its good renewable energy—wind, hydro and solar—is in the west or the northeast of the country, but not in the populous coastal region. So for China to have a zero-carbon energy system, it has to transfer renewable energy from the west to the east. What State Grid figured out was how to do this technologically with high voltage direct current and long distance transmission. This is what the whole world needs, not just China.

In terms of the Belt and Road Initiative, there are a lot of politics and the coal lobby is very powerful. Pakistan says they need electricity and they want coal. This is not the way to build the initiative. China should demonstrate that it's going to lead the 21st century smart grid, clean energy and smart transport. It will do it in an open process together with partners. But it's going to be green; it's going to be sustainable.

Copyedited by Rebeca Toledo

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