China: powerhouse or pauper?

The IHT asks the question, is China a soon-to-be world-beating economic powerhouse and superpower, or is it just a large developing country struggling with hundreds of millions of poverty-stricken peasants? It is, of course, both.

Despite the breath-taking economic statistics of the past two decades, it must be remembered that China essentially started from scratch. In 1979 China accounted for 1% of the global economy, that figure didn’t change for many years. Recently, however, it climbed to 6%. In addition, the shackles of Maoist economic folly were lifted from the backs of China’s citizens, unleashing the drive and entrepreneurial skills of the people. Even today, China is a country under construction. Fixed asset investment still accounts for over 50% of China’s total economic investment. China is still far from being a mature economy.

China’s economy has developed so quickly by importing existing technologies. Technology transfer was an important pre-condition imposed on foreign companies either wishing to manufacture in China and/or gain access to the domestic market. Mostly within the last decade, with the help of foreign technology and both foreign and domestic investment, China’s factories now produce state-of-the-art electronic equipment cheaper than anywhere else in the world.

However, once China completes this technological quantum leap it will be impossible for China’s economy to continue expanding by borrowing established practices and technology. Then it will have to compete head-to-head with Japan, Korea, the United States and Europe and China’s economic growth will inevitably slow.

In 2004, the World Bank ranked China’s economy seventh in the world last year, in dollar terms, or about one-seventh of the US economy. If China keeps growing at 8% a year, and the US grows at 3%, China won’t surpass the US until 2046. However, if China’s annual growth slows to 6%, it will take until 2066 to catch up.

This weekend, behind closed doors, China’s leaders will hammer out details for the 11th Economic Five-Year Plan. It is expected that, for the first time, China will move away from an ‘economic growth at all costs’ policy to a more sustainable model that better addresses widespread economic equalities, the growing gap between rich and poor and improves social services. The plan is also expected to pave the way for higher government spending on health care, education and farm subsidies. It will be interesting to see how China reconciles a slowing economy with higher public spending and a bulging workforce.

The Discussion: 3 Comments

My apologies to everyone. I deleted the comments on this post by accident, including my own. Hopefully, it won’t happen again.

October 8, 2005 @ 1:08 pm | Comment

To repeat my earlier comment, Jing, check the article, the 2046 prediction does actually take prices into account. I don’t usually like such future predictions as it’s madness trying to forecast economic growth over decades. Also, comparing the US and China is like comparing bananas and cabbages – different circumstances, conditions and what might work for the US might not work for China and vica versa.

I only used that 2046 prediction from the article to give a bit of perspective.

October 9, 2005 @ 12:12 am | Comment

I fully support higher government spending on health care and education. Probably for many Americans, it’s diffcult to imagine why north European countries are most competitive in term of economy. Anyway I think now Chinese can have some excuse to have a bigger government in the future. However, if we intend to make an inefficient bigger government instead of an inefficient small government later on, we then will have another disaster. Sadly the governmental reform initiated by the former prime minister Zhu Rongji has completely failed except having created tens of millions of middle class who are sleeping over the institution and comfortably tax paid by others. If 11th Economic Five-Year Plan misses this point, ordinary people still won’t win benefits they deserve even if there will be bigger whatever spending…

October 9, 2005 @ 2:19 pm | Comment

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