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August 23, 2011

University of Sydney's Dr. Salvatore Babones makes pessimistic case for China Economic Growth

Salvatore Babones is Senior Lecturer in Sociology and Social Policy at the University of Sydney, in Australia.

China’s economic growth has been unprecedented, even miraculous. But the country is unlikely to keep up its breakneck pace. Instead, China’s growth should level out soon, returning to rates more like those of comparable middle-income countries, such as Brazil, Mexico, and Russia. Salvatore is more pessimistic than other predictions about China economic future.

Nobel Prize-winning economist Robert Fogel believes that China will grow at an average annual rate of eight percent until 2040, by which time it will be twice as rich as Europe (in per capita terms) and its share of global GDP will be 40 percent (compared with 14 percent for the United States and five percent for the European Union). Other economists are slightly more cautious: Uri Dadush and Bennett Stancil of the Carnegie Endowment for International Peace predict that China will grow by 5.6 percent per year through 2050.

I disagree with Salvatore and have predicted continued strong economic growth in China. I believe that the 2-4% per year GDP boost from urbanization will continue for another 20 years.



Dr Babones, a lecturer in the Department of Sociology and Social Policy at the University of Sydney, believes: "When it comes to gauging China's future growth, economic modelling can offer only so much guidance. For one thing, economic models tend to downplay the fact that as countries grow, growth gets harder.

"There is no example to date of a state taking a very rapid growth trajectory to the top of the world economy, raising doubts about whether China can be the unlikely exception."

Babones takes issue with the perception that China's recent growth is often characterised as the country's deserved return to its historical place in the global economy.

"It is more reasonable to see China's famous can-do attitude as more of a has-done attitude: a legitimate pride in recent accomplishments rather than a harbinger of future success," he says.

He goes on to outline the one-time boosts that helped propel the country in the past and the political, environmental, and structural obstacles that will limit its growth in the future.

"China's dramatic rise over the past 20 years was propelled by two one-off bonuses: the population's declining fertility rate and its increasing urbanisation," Dr Babones said.

"Having boosted productivity and prosperity both factors are now presenting their accompanying downside; declining fertility in the 1970s created an aging population and fewer people to support them and shifting shantytown populations are a result of urbanisation.

"In addition it is difficult to imagine a dynamic knowledge economy emerging in a politically repressive one-party state and the environmental barriers to China's continued growth are well documented.

"I believe however that the greatest barriers to China's continuing rapid economic growth are structural. Creating more value than state industries did during the Cultural Revolution was not very difficult but creating more value than today's efficient Chinese firms do will be much harder."

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