I’ve said many times ‘China isn’t near half-way done’; but the paper I’m highlighting this week, from Justin Yifu Lin and Fan Zhang, both professors at Peking University, suggests I’m wrong. China may not even be near one-third done.
They take a simple metric, China’s per capita GDP as a percentage of the same number for the U.S., and highlight China, in 2008, was where Japan was in 1951, Taiwan in 1975 and Korea in 1977. We all know from those starting points each economy went on multi-year high growth expansions. Why should China be any different?
China has three still-deep seams of growth fuel that are far from mined out.
First is what the authors call ‘the advantage of backwardness’. If you don’t have vested interests to address you can make big, and therefore highly productive, leaps in technology. There are to date no high-speed trains running in the U.S. for example.
Second, infrastructure. China still needs an awful lot of this. Contrary to a lot of uninformed views China does not suffer the ‘bridges to nowhere’ problem Japan made famous. I have never, never in over 35-years of visits, seen spare capacity in infrastructure in China that wasn’t on a subsequent visit being more fully utilized. Yes, open a new highway and on day one not many vehicles. Come back in three years and look at the jams. [Incidentally, I wrote something specifically on this after a recent visit to a provincial capital and nearby smaller town So Much More To Do]
Finally, structural adjustment. The inefficiencies, in all manner of Chinese institutions, are not there because that’s the way everybody likes it. ‘Fixing’ the SOEs, the legal system, financial markets, social problems, the environment and so on are all projects in hand in one way or another. Cynics doubt many of these issues can be addressed but that view is to deny the lessons from examples elsewhere and China’s own track record of the last 30-years. Very few developed nations progressed reforms at a similar stage of economic development as profoundly as China appears to be now doing.
If the plan Japan, Taiwan and Korea worked to is followed in China the paper concludes China can maintain high growth for a long time to come. How high? The authors produce low/high estimates for 2015~2020 and 2021~2028 which are 6.1%~8.0% and 5.4%~7.6% respectively.
Taking the low-end numbers and compounding those out to 2028 they seem to be predicting, worse-case, a near doubling of the size of China’s economy in the next 12-years.
You can read the paper (a tight 18-pager) in full via this link Sustaining China’s Growth.
Happy Sunday.