Will China Grow Fast Enough to Overtake the U.S.?
Bloomberg's John M. Berry says no way:
China's Booming Economy Will Never Surpass U.S., by John M. Berry, Bloomberg: China's economy is growing so fast that estimates of its long-term prowess are bordering on the absurd. After Chinese statisticians recently sharply revised up their estimate of economic output in 2004 ..., some analysts said that in 35 years it would overtake the U.S. economy. No way, no how. ... Even if China's GDP were to grow indefinitely at 11 percent a year -- 9 percent real growth plus 2 percent inflation -- and the U.S. experienced 5.5 percent growth -- 3.5 percent real and 2 percent inflation -- it would take the Chinese 40 years to catch up in terms of nominal GDP. Sustainable nominal GDP growth of 5.5 percent annually is well within the capability of the U.S. Eleven percent growth, about what Chinese authorities expect in 2006, isn't remotely possible in the long run. ...
Partly as the result of continued immigration, legal and illegal, U.S. population is increasing by 0.92 percent a year... With no net immigration and with its government's harsh rule of one child per family, China's population is expanding at a much smaller 0.58 percent rate. Surprisingly, given the enormous difference in current populations, Census Bureau projections show that between now and 2050, the U.S. population will rise by 124 million while the Chinese population will increase slightly less, by only 118 million. If those projections prove accurate, the Chinese likely would have no great advantage in terms of a burgeoning labor force as an ingredient for economic growth.
China does have an advantage in the rapid movement of workers from rural agriculture into higher productivity jobs in industry and services. On the other hand, it is a process that can only occur once, just as it was largely completed in the U.S. more than half a century ago.
The other principal source of China's economic growth is its extraordinarily high share of GDP going to investment. "China's investment-to-GDP ratio is still rising -- we estimate it at 47 percent in 2005 -- and this has resulted in a significant build-up of production capacity in many industries,'' Lehman Brothers economists told their clients ... "...there are symptoms of oversupply... "There is an urgent need to rebalance GDP from investment to consumption...'' ... [A]s Chinese incomes rise, so will consumption as a share of GDP, with a more or less corresponding decline in the investment share. ...
Aside from these reasons to question the sustainability of continued annual increases of 11 percent in Chinese nominal GDP, there is the overriding issue of authoritarian rule by the Chinese Communist Party. ... Prospects for U.S. growth generally look good, even though eventually the country is going to have to deal with its low savings rate and huge current account deficit. China will remain a formidable economic competitor. Nevertheless, of necessity its growth will slow before too many more years pass and the U.S. economy will remain the largest in the world.
Posted by Mark Thoma on Thursday, December 29, 2005 at 03:10 AM in China, Economics |
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