(Beijing) – Standing up to a wave of pessimism about China's prospects for continuing high-level economic growth is no easy task.

But economist Lin Yifu, who recently retired as a senior vice president and chief economist at the World Bank, is holding his ground with a prediction that China's gross domestic product will grow by 8 percent in 2012.

Underpinning Lin's sometimes controversial position is what he calls "new structural economics" – a theoretical framework that emphasizes the importance of a state role in shaping and directing an economy.

Lin says he doesn't mind stirring controversy or clashing with the pessimists as long as he is allowed, as he says, to "engage in deep discussion and not just stay on the emotional surface."

Lin made this and other comments August 24 during an interview with Caixin in which he explained his theory of structural economics and recommended government policies that could benefit China well into its next stage of economic development.

Since graduating with a doctorate from the University of Chicago in 1986, Lin has focused on integrating modern economic theory with his homeland's real-life challenges. His has been a quest for the most suitable development strategy for China.

Among the critics of Lin's structural economics theory are those who think the Chinese government's participation in the economy has already gone too far. But in fact, he argues, the state will and should always participate in economic activities. So what's needed are formulas for maximizing the positive effects of government involvement and minimize what's bad.

China's economy can continue growing at relatively high rates, Lin says, as long as the government plays a positive role by leaning on what's been called the nation's "two-track system" of fast and stable GDP growth.

Lin thinks China has to adjust its development model in light of changes in the economy's comparative advantages, such as its ability to keep wages low in the manufacturing sector, promote technological innovation and move up the industrial development ladder.

None of these steps are easy. But Lin is standing his ground as an optimist for rapid growth – an optimism seen through a realistic lens and underscored by his Caixin interview, which follows.

Caixin: What is the theoretical framework for the "new structural economics," and how is it connected to your previous work on a theory of comparative advantages?

Lin: New structural economics involves a deeper inquiry into the essence of modern economic growth. Adam Smith's Wealth of Nations explored the nature and origin of national wealth. Economists should explore the nature and origin of issues they are studying, rather than simply research existing theories.

A nation's factor endowments determine its industrial structure. As factor endowments change, technological innovation occurs and an industrial structure improves. This is the essence of modern economic growth.

Because endowment structure differs from one country to the next, differences can be found in the areas of opportunity costs and budget constraints, as well as technological and industrial capabilities. The institutional and infrastructure requirements for supporting an economy – including roads, ports, electricity, education, legal systems, financial systems, etc. – also vary.

I have proposed analyses of industrial structure and development policies based on the micro-foundation of a firm's production capabilities.

New structural economics and the theory of comparative advantages are closely inter-related. The best way to upgrade a nation's endowment structure at any given moment is to develop an industry in line with the comparative advantages provided by the existing endowment structure. Sustainable economic development is achieved by continuing to transform factor endowments, along with accompanying technological and industrial innovation.

New structural economics also offers a better explanation of the interactions between infrastructure, both "hard" and "soft," and the real economy. If there are no improvements in infrastructure, transaction costs increase, inhibiting development of the real economy.

At the same time, the economy of a country that slowly climbs up the industrial ladder witnesses changing infrastructure requirements. There is no such thing as optimal infrastructure; what matters is to best meet the needs of an economy at any particular stage of development.