The paper highlighted this week starts with an important point. If China doesn’t continue to grow at a high rate that’ll suck for China AND the rest of the world.
We’re not that far away, so most will remember, from the period after the Global Financial Crisis when China’s bold stimulus produced the largest component of global growth for several years.
As I highlighted last week the IMF and most external observers don’t think China will be doing much better in the decade ahead, in terms of growing its top-line GDP, than it’s doing now. Most, in fact, think it’ll be doing steadily worse. Planners at home though think 5~5.5% growth per annum should be possible.
The paper picked over today is from Tianyong Zhou at the Dongbei University of Finance and Economics and although somewhat dense makes clear and intuitive points on all this:
- China has achieved rapid growth in the past. So what was it doing then? That’d be a good starting point to address what it should do again.
- China runs a two-track economy now, private and govt. controlled. There’s no doubt which part of the economy is doing better.
- Easy to compare then what works with what works less well. In the simplest terms this is a good place to assess bottled up potential.
- Calculation of potential becomes straightforward if we just compare the better performing assets with the poorer non-marketized portion.
- The definition of Total Factor Productivity (TFP) is different for a developing economy compared to a mature one.
- TFP in a developing economy consists of education, technology, production efficiency AND transition benefits. Outsiders miss this.
- There remain massive economic surpluses in land. That which can’t be easily transferred has no value. The countryside needs most work.
- The period from 2011 to 2023 stands out as one in which reform and growth have slowed. This has to change.
So what to do:
- Make it easier for the countryside to continue to migrate to the towns.
- Consolidate the management of SOEs to promote greater efficiency
- Unify land transfer procedures between town and country
- As it gets better off encourage the population to spend/consume more.
The work usefully reminds that China ALREADY has the capital necessary to achieve higher growth if it can only find ways to release it.
My two-pennyworth would be to add, on top of ‘release-gains’ if China can at the same time progress the TFP gains that come with technology, education and the rest, progress could/should be awesome (again).
You can access the work in full via this link Only through Market-Oriented Reforms.
Happy Sunday.