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January 08, 2010

A Pessimist View of China Economic Future

Gordon G. Chang,author of The Coming Collapse of China, indicates why he thinks China will not have a $123 trillion economy in 2040

This related to previous articles at this site and are directed at 1993 nobel prize winning economist Robert Fogel predicting China to have a $123 trillion economy in 2040 (Note: others like Goldman Sachs predict China to have a $57 trillion economy in 2040

First, he neglects to mention that China’s educational system, despite all the money it receives, remains inappropriate for a modern society.

Second, Fogel is right to note that migration of labor to cities has been the engine of Chinese growth, but that process has stalled in the global economic downturn. Yes, China still has cheap labor, but not mentioned in the article are the generally accepted projections that the labor force will level off in a half decade and then shrink.

Third, it’s true that Beijing’s National Bureau of Statistics does not fully account for the output of the fast-growing service sector. That’s why its estimate of 13.0% growth for 2007 is low by about two percentage points. Then, small businesses were the most vibrant part of the economy. Today, the failure to properly assess the output of small business is resulting in an overestimation of GDP because these enterprises, which tend to be more dependent on exports, are suffering more than the larger ones.






Fourth, Fogel’s views of the political system are questionable. He neglects to say that Hu Jintao has presided over a seven-year crackdown and that the Communist Party tolerates less criticism today than it did two decades ago. Economic reform has stalled because China has progressed about as far as it can within its existing political framework. A true market economy, for example, requires the rule of law, which in turn requires “institutional curbs” on government.

Fifth, Fogel apparently knows almost nothing about Chinese consumer spending. Historically, consumption contributed about 60% of China’s economic output. Today, it accounts for about 30%--and that number is going lower. Why? Beijing’s stimulus spending, about $1.1 trillion last year, is devoted almost entirely to building infrastructure and industrial capacity. As a result, the role of consumer spending is decreasing.


Nicholas Consonery is a China analyst at Eurasia Group also has a more negative view on China's future economy

The most important reason why we won't see 1.4 billion Chinese earning an average of $85,000 per year is simply that the Earth can't sustain such rapid growth. The biggest environmental challenge for China's leadership will be in securing enough water to keep the economy afloat.

Fogel warns that Europe faces some serious demographic challenges. True enough, but as Fogel only briefly acknowledges, China has an aging population of its own to reckon with. Chinese statistics show that the country's birthrate fell 42 percent from 1990 to 2007, and government projections suggest that by 2025, nearly a quarter of China's population will have celebrated its 60th birthday.


China can rely less on cars and planes and more on high speed rail.

Also, advanced electric bikes will also be part of China's transportation solutions.

China is developing cleaner energy with a plan that is compatible with high growth

China is building grand canals to address water shortages and is also building up desalination capabilities.

China is now ranked second in scientific research output.

An annual report by data analyst Evidence, published today by the Department for Business, Innovation and Skills, shows that China has moved into second place after the US in a ranking of nations by their research output.

Although the UK published 91,273 papers in 2008 – an average of 2.3 per researcher and up more than 11,000 on 2007 – it was not enough to keep pace with the most populous country in the world, which has experienced a four-fold rise in its output over the past decade.

China produced more than 110,000 papers in 2008 – an increase of about 30,000 on the 2007 figure.

The Evidence data show that the UK was responsible for 7.9 per cent of the world’s research papers in 2008, down from an average of 8.5 per cent over the past five years. The US retained its lead, although its world share has also dropped, from 34 to 29.5 per cent over the period.

The report notes an “exceptional” global increase in the number of papers published this year, driven largely by China, Brazil, India and Iran.

Despite the drop in its share of publications, the UK’s share of the world’s citations – formal references of papers by fellow academics – increased. It rose from an average of 11.2 per cent over the past five years to 11.8 per cent in 2008, putting the UK in second place after the US.





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