Pessimistic Views of China’s Economy are Unconvincing

By Jim O’Neill, Visiting Research Fellow at Bruegel, and previously Chairman of Goldman Sachs Asset Management (GSAM). Originally published at Breugel.

In late 2001, I first used the phrase BRIC to discuss the likely rise of Brazil, Russia, India and China as growing shares of the world economy and outlined a number of scenarios in which it seemed pretty inevitable that their share would rise sharply by the end of that decade. In 2003, along with some Goldman Sachs colleagues, we first projected what the world might look like by 2050 if the BRIC and other large emerging economies reached their potential, a world that would be dramatically different than the one prevailing at the time.

It was these two papers that led to the beginning of the focus on the phrase BRIC and indeed, my own central role in the story that since unfolded. What is especially noteworthy over the subsequent 13 and ½ years is just how dominant China has become within the BRIC group in terms of economic size, as well of course, it’s increasing importance to the world economy. At the end of 2014, China’s economy surpassed $10 trillion in current US$ and according to the World Bank, in purchasing power parity terms (PPP), actually was larger than the US. At $10 trillion, China is around one and a half times the size of the other three BRIC countries put together. It is also bigger than the combined size of France, Germany and Italy. It is about twice the size of Japan (in the 2003 Paper, we thought it might take China until 2015 to reach the size of Japan, never mind twice). Its economic size has nearly risen tenfold since I first mentioned the word “BRIC” and since the 2008 global credit crisis, China has doubled its own size.

In terms of size and growth, perhaps it is especially important to point out that not only did China grow at lot more than expected in the last decade, which was also true for the other three BRIC countries, but so far, in this decade, it is the only one that has–so far–surpassed my expectations. The other three, Brazil and Russia in particular, India less so, have disappointed my expectations notably. Back in 2010, I assumed China would grow by 7.5 percent over the decade 2011–2020. After four years, it has averaged 8.0 percent.

All of this means that China is still on track to achieve the 2027 dateline for when it could surpass the US in current US$ terms, and also, due to China’s dominance , the BRIC countries collectively could become as large as the G7 countries collectively. Of course, 12 years is a very long time and a lot of things could develop differently, but if China carries on the way it has been developing, it will occur. Importantly in this regard, I would like to emphasise that I assumed China would slow in terms of its real GDP growth rate, so unless it slows dramatically, this slowdown is consistent with China becoming the world’s largest economy. I will turn to the critical issues facing China below.

It is of course, exceptionally important to point out that nominal GDP growth in its own right is not necessarily so key for China’s inhabitants as it is their individual wealth that matters to all of them (along with probably their health and happiness). Given that China’s population is widely regarded to be reasonably stable, or if anything, declining modestly, the country’s average GDP per capita–the simplest measure of wealth–should probably still broadly follow the path of its nominal GDP. Importantly again, GDP per capita has jumped sharply to nearly $8 thousand per head, reflective of the large growth rate. While measures of inequality suggest that the gap between the richest and lowest has risen, it is also the case, that hundreds of millions of Chinese have been taken out of poverty in the last 13 and ½ years, a key contributor to the UN achieving its millennium goal of halving poverty by 2015. In fact, this goal occurred by 2010, five years earlier, and has led to UN and World Bank researchers suggesting that the acceptable level to escape poverty might need to be raised. China has been easily the most important country contributing to these remarkable developments.

So what are China’s prospects now? What does it need to focus on as policy priorities? And how should it deal with its international importance and role in global governance, including the use of its currency, the RMB?

In recent years, I have participated in many debates with other well–known commentators who are much more sceptical about China’s future, and while of course, I may be blind to the validity of their concerns, I find many of the arguments unpersuasive. Much of this is due to one simple fact, and that is the urbanisation of China’s citizens. According to official data, just over 50 percent of China’s people today live in cities, a vast rise compared to 20 years ago, but still significantly below the 70 percent that is typically found in more advanced and wealthy economies. As I shall explain, if China were already 70 percent urbanised today, then I would share, at least some of, the concerns of others. There is however a significant amount of evidence going through history going as far back as the industrial revolution in the UK, that urbanisation is a huge force that propels economic growth as urban dwellers drive all sorts of positive economic forces, both as consumers and producers. The OECD has recently published a very interesting study, consistent with this, that suggests the largest urban areas are typically associated with the strongest improvements in productivity.

If it were true that China is closer to the 70 percent norm, then some of the powerful forces that are so natural would cease, and I would be less optimistic. Of course, it is possible that the official statistics about the level of urbanisation today in China underestimates the actual true figures, and I know some that believe this, but I don’t see the evidence as compelling.

Linked to this simple observation, the most important policy that I believe China needs to pursue is to go ahead with stated plans to give so called migrant workers the same citizen rights as those that originate from urban areas. While I can see the challenges that may be raised by a sudden mass conversion in all cities, if true urban dwellers who have moved from the country can’t get the full rights, it follows that the conceptual benefits of urbanisation–starting with the very basic desire to own a property, and then to furniture it with consumer durables–cannot occur. It also follows that these migrant workers will be likely to maintain high levels of personal savings that they may need to help them to achieve some of the available resources that modern policies are making more available to recognised urban dwellers such as healthcare and insurance.

I have met some China sceptics that argue that due to the success of the one child policy, there are not enough male urban migrants to participate in the presumed further urbanisation process assumed above, which if true, would be an issue. In this regard, I also view the decision to formally dismantle the one child policy as very sensible. Economic growth is driven by two factors over the long term, the number of people that work, and their productivity. If China had not relented, then it was highly likely that China would face a serious demographic challenge in the future. I also believe that as individual parents become wealthier, they are likely to derive great comfort from deciding how many children they might want. There is quite a bit of evidence that as people get wealthier (and more informed), they typically choose to have less children anyhow, so any fears that some policymakers may have of a renewed population explosion are probably not valid. So as I say, dismantling the one child policy in a non–disruptive manner is highly welcome.

Against the background of these two critical steps, I admire the government’s desire to grow the share of consumption in overall economic affairs. Indeed if the above two key steps are adopted with confidence, awareness and sincerity, they might be the biggest steps necessary to achieve what many often think is an elusive goal for China. From what I can tell, based on the official data, it is probably the case that the share of consumption in overall GDP has risen modestly in recent years, to somewhere between 35 and 40 percent of GDP. It needs to be much higher, not to the unsustainable level of 70 percent that the US reached–and probably contributed greatly to the global credit crisis–but something in the 50 to 55 percent vicinity at least. Indeed, something around 60 percent would be quite normal and sustainable.

In addition to pursuit of full urban rights for migrant workers, steps to ensure a credible social security and healthcare system and the development of a pension scheme of some sort are other necessary ingredients for helping the rise of the consumer, as this would allow for a decline in China’s too high personal savings rate. Other normal cyclical factors such as employment and strong real income growth are obviously necessary too but it is these structural forces that need to change more.

It is possibly the case that, already the true level of personal consumption might be actually higher than is generally captured in aggregate economic data , due to the peculiarities about how investment estimates are made. Further improvements to all official economic statistics are an obvious necessity for Chinese policy (as indeed is true virtually everywhere in the world). But even with any revisions, it is important that China does make progress to raise the role of its consumer.

Part of this rationale is simply due to the fact that it is quite hard to believe that the remarkable growth of each of exports and investment spending of the past 20 years or so, can continue. Exports have already slowed significantly since the global credit crisis, which is not surprising given that the main determinant of export growth is usually domestic demand in export markets as well as the relative price of exports, of which a nation’s currency is usually critical. With the weakness of demand in many developed countries and the steady appreciation of the RMB, the days of rampant export growth for China are almost certainly over. This doesn’t mean China cannot export or cannot compete, but it’s seemingly never ending rise as an exporter was not sustainable in a world where many others like to export, and in some cases, have urgent need.

It is important that China does make progress to raise the role of its consumer.

Currently it is the high level of investment spending that is more concerning, both because it is not sustainable but also because if, as the last few years suggests, the same amount of investment is producing less additional GDP than before, then this is something that is not desirable and likely to involve economic losses. Luckily as with a number of other challenges, policymakers recognise this dilemma and seem eager for investment to grow more slowly, and make room for consumption to rise.

Consistent with these themes, I am a big fan of the focus on the “quality” of growth, the desire for a more knowledge based economy and society, and these are mutually consistent as is the necessary desire for a shift to less polluting and more efficient energies so that the quality of the urban and rural environment can be maintained in China.

Which brings me to the last two topics, finance and the role of China in global economic governance.

In this regard, I applaud the recent decision of the UK government to choose to be one of the first countries to sign up to be a member of the newly formed AIIB.

I am not as convinced as many as the need for the RMB to be fully floating currency as that of the Dollar or Euro, at least the urgency of the need, and think it is much more important that China develop its domestic interest rate and other capital markets before it opens up completely the use of its currency.

Next year, 2016 promises to be a hugely historic moment for the world and China when China becomes the chair of the G20 in January. This is a chance for China to show that it is both capable and eager to take more global responsibility, consistent with its economic might. China should seek to lead the G20 by placing policies on the agenda that it would not face opposition from the rest of the world. In this regard, I am pursuing dialogue with friends and acquaintances in policy circles to suggest that China should place the topic of antimicrobial resistance (AMR) front and centre of that agenda. I am currently leading a Review for the UK Prime Minister to find a solution to this massive, global and shared problem and am eager for this challenge to be elevated to becoming a G20 issue. we are all heading to an environment where we are going to be resistant to antibiotics which will endanger the health of society around the world as we know desire including in hospital treatments as well as for common modern procedures.In a paper, my Review team published in December 2015, we showed that if not solved by 2050, there could be at least 10 million people dying a year, more than one million of which would be in China. We simultaneously showed that there could be a loss of an accumulated $100 trillion of global GDP, and that China and other leading emerging powers would be the most negatively affected. I cannot think of a more fitting development than for China to lead the world through its first G20 hosting and help us all avoid this unnecessary outcome.

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About Lambert Strether

Readers, I have had a correspondent characterize my views as realistic cynical. Let me briefly explain them. I believe in universal programs that provide concrete material benefits, especially to the working class. Medicare for All is the prime example, but tuition-free college and a Post Office Bank also fall under this heading. So do a Jobs Guarantee and a Debt Jubilee. Clearly, neither liberal Democrats nor conservative Republicans can deliver on such programs, because the two are different flavors of neoliberalism (“Because markets”). I don’t much care about the “ism” that delivers the benefits, although whichever one does have to put common humanity first, as opposed to markets. Could be a second FDR saving capitalism, democratic socialism leashing and collaring it, or communism razing it. I don’t much care, as long as the benefits are delivered. To me, the key issue — and this is why Medicare for All is always first with me — is the tens of thousands of excess “deaths from despair,” as described by the Case-Deaton study, and other recent studies. That enormous body count makes Medicare for All, at the very least, a moral and strategic imperative. And that level of suffering and organic damage makes the concerns of identity politics — even the worthy fight to help the refugees Bush, Obama, and Clinton’s wars created — bright shiny objects by comparison. Hence my frustration with the news flow — currently in my view the swirling intersection of two, separate Shock Doctrine campaigns, one by the Administration, and the other by out-of-power liberals and their allies in the State and in the press — a news flow that constantly forces me to focus on matters that I regard as of secondary importance to the excess deaths. What kind of political economy is it that halts or even reverses the increases in life expectancy that civilized societies have achieved? I am also very hopeful that the continuing destruction of both party establishments will open the space for voices supporting programs similar to those I have listed; let’s call such voices “the left.” Volatility creates opportunity, especially if the Democrat establishment, which puts markets first and opposes all such programs, isn’t allowed to get back into the saddle. Eyes on the prize! I love the tactical level, and secretly love even the horse race, since I’ve been blogging about it daily for fourteen years, but everything I write has this perspective at the back of it.


  1. Propertius

    In late 2001, I first used the phrase BRIC to discuss the likely rise of Brazil, Russia, India and China as growing shares of the world economy

    Well, it’s only fair to note that the rise of Brazil to become the dominant power of the 21st and 22nd Centuries was predicted in the 1940s by the SF/Fantasy author L. Sprague de Camp in his Viagens Interplanetarias tales.

    I have seen the future, and it speaks Portuguese.

    1. Jim

      Brazil is very rich in resources but the average IQ of the Brazilian population is about 89 so I don’t think it will be very competitive with China. The average IQ of the Indian population is about 84.

    2. PlutoniumKun

      Going back to the late 19th and early 20th Century it was a widespread assumption that Argentina and Brazil would catch up rapidly with the US, the question was usually ‘which one would be first?’ The growth rates at the time for those two countries was very strong and it seemed the only difference between them and the US and Canada was that the latter had something of a head start, and an advantage in a shorter voyage to European markets.

      1. Jim

        In the early part of the twentieth century Argentina was one of the most prosperous countries in the world. Today it performs far under its potential.

        The demographics of Brazil make it unlikely to become a First World country.

      2. NotTimothyGeithner

        Brazil and Argentina were wealth extraction economies heavily slanted to the 1%. Even in the early 18th century, there was speculation about how great Brazil and Argentina would be, and European interests bought everything, threw the locals off the land, and expected to be rewarded by past growth rates turning into even greater success. The early 19th century U.S. didn’t have dukes of NY and Barons of Boston ( I think I’m stealing from Bernard Cornwell), and the popular economic metrics of both Europe and slave states didn’t quite grasp the rapidly growing U.S. When Adams was President, there were more French refugees from Haiti in Philadelphia than there were people in Philadelphia in 1776. The absence of gold crowns and Beamers didn’t make the economic news of the day. There were 100,000 minutemen mobilized over Paul Revere’s alarm system during the Lexington and Concord trouble. The princelings of South America might have had gold, but they could never have pulled off what a random silversmith did because the economies were so wildly divergent comparison is almost nonsensical.

        Remember, we haven’t felt inflation unless you spend more than 10% of your income on necessities.

    3. Shane Mage

      “Brazil is the country of the future–and it always will be” At least until the Amazon is completely dammed and the rainforest completely destroyed.

      1. JTMcPhee

        C’mon — clearing the ground for McMeatfarming and easier access to strippable metals and combustibles in the subsurface can allow a lot more growth and froth. And barge traffic! look at the Mississippi!

  2. Ignacio

    O’Neills arguments about urbanization as a driver for permagrowth in China are not rare. The arguments are true in the sense that China has still large growth potential based on urbanization metrics. Nevertheless, potential does’t mean achievement. O’Neill avoids to mention that China’s growth has lately relied on an unbalanced system that resulted in lots of credit being wasted on unproductive investments. Bad credit will be a drag on economic growth until it is resolved (as usual) and that is the main argument of those saying that economic growth will slow until the adjustments are finished and imbalances corrected.This post just ignores those arguments.

    1. PlutoniumKun

      An obvious counter argument is that Latin America has urbanisation rates of 70% or higher (Brazil and Mexico have much higher rates), but it hasn’t discernibly increased prosperity or growth. Apart from the obvious cause-effect issue, its not clear whether it is urbanisation per se which creates growth, but a particular qualitative aspect of urbanisation. Some cities are clearly far better at generating high productivity growth than others. In particular, innovate within large, connected cities seems to be a key for growth, but there isn’t a lot of evidence that this applies to China.

  3. jim Walton

    Having recently returned from a trip to China, and having visited the first time in 1983, my thoughts
    – progress has been amazing
    – the one child policy was critical to this success
    – the current level of mal investment is off the charts
    – as long as there is liquidity the players will be able to keep dancing. The CCP has the ability to keep the liquidity flowing for longer than many predict, but not forever.
    – the corruption crackdown is needed but is also undermining the way the economy was working.
    – demographics are now working against china. Rapidly aging population.
    – the only fuel left in the growth push is from debt (property or stock margins). All the other levers have been totally used up.

    – by comparison though India and to a lesser extent Brazil are not even in the same ball park. They will always be laggards until a) population growth is curtailed and b) in India’s case the caste system is worn away.

  4. Larry

    I’m not convinced by this argument. How is China going to escape it’s property bubble and overcapacity bubble that has maintained it’s growth over the last decade? How will China deal with labor and popular unrest? A lot of issues are left unresolved here. The author doesn’t address any questions head on, but just says he might be biased against internalizing the arguments that China’s economy shows signs of trouble. I do agree that China has a great deal of growth potential if they can manage the further urbanization of their citizenry and drive internal consumption. I have not seen strong evidence that this pivot to internal consumption is occurring successfully.

    1. Oakchair

      How is China going to escape it’s property bubble and overcapacity bubble
      By increasing its urbanization rate from 50% to 70%. So unless the “property bubble” has created more then 260mn extra houses or over 40% more houses then the current stock China is fine.

      —-How will China deal with labor and popular unrest?
      Do you mean like the unrest that occurred in 1989 which was “worse” then it currently is?

      —- I have not seen strong evidence that this pivot to internal consumption is occurring successfully.
      I agree. Though I do not see a successful pivot that hard to accomplish. Policy wise its not hard for a government with has much power and control as China’s to divert all its investments into property and infrastructure into consumer credits for consumers.

      1. Fair Economist

        Excess housing is a big problem in China. By this estimate they have 50 million empty houses right now. That’s not 260, but it’s a good chunk of it, and the problem is that now China can build only 200 million more houses in the remainder of its urbanization. That will be considerably slower that their current rate, and that means a substantial economic slowdown. There’s an additional problem in that the built housing is substantially more deluxe than even a wealthier Chinese population can afford.

        Heavy industry is even worse. China has more steel and concrete capacity than the entire world needs already, but they continue with industrial expansion. In all, their bubble is substantially worse than Japan’s was, so the outcome will likely be worse than Japan’s lost 25-and-still-counting years. I do expect the result will be like that and not an 1870 or 1930-style depression because governments can prevent crashes if they choose and the Chinese Communists will definitely choose to because they don’t want to lose power.

        1. craazyboy

          ” There’s an additional problem in that the built housing is substantially more deluxe than even a wealthier Chinese population can afford.”

          I recently read they won’t lower rents or prices to fill the empty RE – because it would then be obvious all the construction loans are no good and the banking system is obviously insolvent.

          Ha. Best laid plans…

          1. MyLessThanPrimeBeef

            We also do that here.

            It’s not clear who is copy whom in this case.

            Perhaps China did not invent this neat trick in this case.

        2. craazyboy

          Overcapacity is off the scale. For instance, I read years ago that there are 300 ball bearing companies in China. More recently I’ve been looking at Chinese electric motors – the specs for the higher quality motors all say the motors use Japanese (NMB) ball bearings and Nippon lamination steel. Looks like China built a whole lotta whatever.

          1. MyLessThanPrimeBeef

            I know for sure they have too many kilns producing fake Yuan and Ming blue and white imperial vases

        3. Code Name D

          And this may also only be the start of the problem. I have read accounts where contractors are fully aware that these buildings would never be occupied when they were built. So they greatly cut back on needed water, power, sewer, and other vital infrastructure that would otherwise be needed to support such a population. Lack building codes may even mean that the buildings may not be able to long endure their environment, let alone full occupancy.

          The upshot is that even if there was to be a decree giving these homes to average Chinese, full occupation can still not be supported. They didn’t just make empty cities; they made cities that can not be completely occupied.

          This must be the ultimate libertarian dream – profits without those pesky useless eaters.

      2. MyLessThanPrimeBeef

        They have worked ‘hard, very hard’ to prevent another 1989.

        “Come and invest in this stable country. We have happy workers and help-hot-lines for unhappy workers.”

  5. Uahsenaa

    China’s “total wealth” is a mirage, dubious real estate ventures whose value is propped up entire by the rapid creation of new debt. It’s a made up number, and simply dividing it across the whole population, per capita, does nothing to explain the country’s gross income and wealth inequality, which might explain why domestic consumption has been stagnant there for quite some time. This reads like propaganda. If the PRC is doing so well governing the country and its economy, why are its elites doing everything they can to get money out as quickly as possible? It doesn’t bode well when the very people in charge are going out of their way to get out now.

    1. NotSoSure

      And the US wealth is not a mirage? 16.77 trillion in GDP backed by multiples of that in liabilities and who knows derivative exposure is not exactly a shining example of true wealth either. I think what you’ve mentioned about the elites fleeing is correct, but that’s primarily because “the grass is always greener on the other side”. Many people outside have a misunderstanding of what America is. When SHTF later here and everywhere else, such an attitude will change. I personally am more interested in what happens after the next economic collapse and I think China may surprise to the upside and the US to the downside.

  6. beene

    Having spent a short time in China, in the late 80s, when there was a lot of building without a economic use is an old argument of some failed policy. I would suggest that China’s only real problems seem to be the quality of its exports; which is normal for most new exporting countries. Then we have China making alliances around the world threw diplomacy and trade, and not interfering in other countries internal issues. China’s biggest advantage seems to be its capacity to direct the counties development in smart ways.

    1. MyLessThanPrimeBeef

      Then we have China making alliances around the world threw diplomacy and trade, and not interfering in other countries internal issues

      It was the same story in 1492.

      China sent her Treasure Boats around the world for diplomacy and trade.

      The West went around messing with locals’ religions and other internal affairs.

      But the Chinese Way has its cycles and it is not necessarily better. Just look at her neighbors – Annam, Champa, Ryukyu, Gogureo, Silla, The Land of Wa, Tibet, etc and how they fared in the last two, three thousand years.

      1. beene

        The treasure boats of 1492 had more to ending the close society of China, and exploitation by the west.

        This period of China was more about opium wars than trade an treaties with other countries.

        1. beene

          “Direct maritime trade between Europe and China began in 1557 when the Portuguese leased an outpost at Macau. Other European nations soon followed the Portuguese lead, inserting themselves into the existing Asian maritime trade network to compete with Arab, Chinese, Indian, and Japanese traders in intra-regional trade.[6] Mercantilist governments in Europe objected to the perpetual drain of silver to pay for Asian commodities, and so European traders often sought to generate profits from intra-regional Asian trade to pay for their purchases to be sent back home.[6]”


  7. PlutoniumKun

    This article does seem anxious to cherry pick data which suits the thesis. While I would agree that some of the doomsayers about China overstate their case, mostly I think because the CCP have shown exceptional skill at anticipating and avoiding road bumps, it is clear that the current model of growth in China has run out of steam. Given the enormous debt load, a gentle landing is just not possible – high growth is essential to keep the innumerable ponzi schemes within the economy going. The only hope to avoid a very serious crash and possible stagnation is a rapid transition to a consumer based economy – Michael Pettis in his excellent blog sets out the steps required in a well argued manner. Its pretty clear that the CCP understands the challenges. The question is whether the debt load is just too great to be manageable, or put another way, there are just too many investments which will never generate sufficient to pay off the costs. There is also the question about whether China’s own oligarchs have become so powerful that they can stop any meaningful radical change.

    The current leadership is clearly engaging on a dual strategy of tightening up on dissent internally and externally, while seeking to pacify the population as a whole through populist anti-corruption and anti-pollution measures – they clearly see a bumpy ride ahead. I wouldn’t underestimate their capacity to do it. However, it is a gigantic challenge – historically most countries have fallen at the final hurdle of turning rapid industrialisation/development into long term stable sustainable growth. The stakes are so high for China because of the sheer scale of the country.

    1. Nell

      I did wonder at the optimism of this article. A recent post by Steve Keen shows the private sector debt to GDP ratio for China and it was astonishingly large and has grown very quickly since GFC. Higher than the US’s private sector debt to GDP ratio prior to the Credit Crunch. Keen has argued that extremely high levels of private sector debt to GDP precede a financial crisis especially when the change in debt turns negative.

  8. NotSoSure

    People like to compare China and Japan, but the mindset is different I think. The Chinese seems to have an inexhaustible desire to make money so yeah things would collapse, but I think they’ll bounce quickly. Whereas the younger Japanese generation seems content to having less than the previous generation. There are pros and cons to both attitudes, but people thinking that China would have a hard landing and then simply slumber again would be wrong.

    1. Jim Haygood

      Japan’s group mentality is like a human beehive. There, prestige is associated with careers in government and at blue-chip corporate employers. Entrepreneurialism and risk-taking, which inherently involve some questioning of the status quo, are not highly valued.

      For better or worse, the Chinese are more individualistic. The family is the basic unit of society. Expatriated Chinese constitute a significant merchant class in countries such as Thailand and Malaysia; Japanese don’t.

      Japan’s island culture produced an insularity different from elsewhere in Asia. It seemed to be invincible from the 1950s through the 1980s. Then it was as if the lights went out. Japan’s mismanagement of the Fukushima disaster gives the impression of a culture that doesn’t cope effectively with unwelcome surprises.

      1. Huckleberry

        Beehive? I have been told that one way to understand Japan is to think of a small village in which everyone knows everybody and no one can ever move away.

        1. MyLessThanPrimeBeef

          That doesn’t explain how a new frontier town like Edo became populous after the establishment of the Tokugawa shogunate.

          Many villagers must have moved there.

          1. Huckleberry

            But maybe it explains why the crime rate in a metro area of almost 40 million is so low…

    2. craazyboy

      Already China is bumping into energy, water, food production, and severe pollution limits. There are no even reasonably doable solutions to these problems – and they are foundations of the Chinese low cost “biz model”.

      Sure China is much more entrepreneurial than the Japan Hive – but the entrepreneurs that win big want to be oligarchs next. We have yet to see if that really fits in with the PRC philosophy.

      Then we do seem to have a zero sum world with real constraints, and I have difficulty believing that in the end that the US, Japan and Germany will hand over their share of global GDP to China. The combined population of the US, Japan and Germany is about 600 million. China – 1.1 billion. China may have to hoover up a few more countries as well, if we are going to stick with the “industrial growth is everything” philosophy of the last couple hundred years.

      1. Jim Haygood

        As with oligarchy throughout history, their objective is to exercise control behind the scenes, without appearing to have any formal control at all.

        Power without accountability: when confronted by a mob, one protests ‘Who, ME? I’m a nobody.’

  9. Rosario

    These appraisals of emerging (really exploding) economies is strange. We are still looking at them (and ourselves) through the lens of GDP? Particularly China, an economy that is as fully production side as the mythical free market facade will allow. Technically they should always have positive GDP if they played the game correctly unless/until we go extinct in the process. Theirs is a growth for the sake of growth much as we are. I think we are all mature enough in our understanding of environmental and social problems to know that GDP is a terrible appraisal of economic health. Worse still, along the lines of environmental issues, we are now considering raising GDP by investing in geo-engineering projects to mitigate increased CO2 levels and forestall the oceans encroachment on coastal cities. WRT ecology and our meddling with it shouldn’t we be following the less is more strategy by this point? I’m imagining China boosting GDP in 25 years with a massive government directed coastal reclamation project along its major cities to prevent them being inundated. Ultimately my critique is, GDP contains absolutely no context. It can only encapsulate its catastrophes and externalities in future GDP and often, as history shows, destruction provides wonderful room for “growth”. Therefore, lessons are never learned. GDP down get it back up, again and again, no matter how. A GDP centered system of thinking is nihilistic with the sole exception of the fetish of numerical surplus. The article was on for one tiny paragraph about the “quality of growth” (really this should be the focus).

    I feel the more important questions surrounding China (or any economy) are: Where are they growing or what is growing? What are the ecological consequences? What are the consequences in terms of resource consumption? Does this growth improve the quality of life over the numerical quantity of Capital or the velocity of Capital ? It is long overdue for us to get our heads out of 19th and 20th century economic concepts of space and resources. We don’t have another Earth waiting on deck and we aren’t playing a board game.

  10. Huckleberry

    My understanding is that commercial space for all these urbanizing folks has already been built, so there’s a load off.

    This made me think of a great Stevie Wonder album called Talking Book.

    1. craazyboy

      Ha. I guess Jim O’Neill deserves some credit for realizing the BRIC potential back in 2000 when most of us were still wondering what happened to dot coms. But today, I think I’d visit the Michael Pettis blog to determine if China has reached it’s sell by date.

  11. Shane Mage

    GDP growth figures always grossly overstate real growth, because they never, ever, correct for the ecologically and environmentally destructive damage inflicted by the process of output-growth itself; while moreover counting as “Product” the activities needed to (very partially) compensate for that devastation. This is overwhelmingly true of Chinese “growth” figures. If the health effects of coal-fueled electricity, the environmental effects of the Four Gorges Dam, and the vast number of smaller-scale ecological atrocities all across China were accounted for the Chinese growth-rate would be revealed to be far less than claimed, perhaps even minuscule or negative!

    1. Jim Haygood

      Japan has covered about 60% of its extensive coastline with concrete tetrapods. These produced plenty of revenue for construction companies. But do they have any net value at all? Among other things, tetrapods destroy any aesthetic appeal for tourism. Not that Japan really wants too many gaijin nosing around, anyway.

      Here’s a photo posted by a true believer in Okinawa, who thinks the tetrapods are ‘quite important.’

      1. MyLessThanPrimeBeef

        A case can be made, for the true believers, that is, that ghost cities are built to placate ghosts, so that they don’t wander and harm living beings.

        It’s an extension of the belief to burn paper money for the dearly departed.

        Now, they, too, have a place to live and enjoy the prosperity of New China.

  12. Oregoncharles

    China’s sheer size, in both population and area, make it inevitable that it will be a very large factor in the world economy.

    The question remains, what kind of factor? I’ve long thought their pre-eminence was shaky, because of fundamental factors that I admit are pretty theoretical: essentially, because their population is so large, they have very little margin over basic necessities. To clarify, contrast with the US: in stealing most of a continent, the US put a relatively sparse population in possession of enormous resources. That ratio is what fed both our prosperity and our international power. That, and lucky timing: the US rose just as the fossil fuel bonanza was playing out. China is not so lucky on the timing, and they don’t have the huge ratio of resources to people.

    Does that actually matter? I’m not at all sure. However, it’s noteworthy that their current prosperity is driven almost entirely by low-cost manufacture for export. They’re using their huge labor force in a way that puts the least strain on their own resources. What happens when those resources nonetheless reach their limits – or the population becomes restive?

    Of course, that’s pretty much the global condition at this point. But I would assume that China’s economy is more fragile than it appears.

    1. MyLessThanPrimeBeef

      China’s bronze making was world class during the second and first millennia BC, i.e. during the Shang and the Zhou dynasties. Beautiful objects and weapons, like the cross bow, which did not appear in the West a thousand years later, were mass produced. They had bamboo pipes to pump air into deep mines.

      They were good, perhaps too, er, efficient.

      Then, they ran out of the stuff for making bronze and you don’t see many in later dynasties, like the Tang and Song dynasties.

      But maybe this time, it’s different. This time, they have the world’s copper and iron ore supplies to back them up, thanks to international trade.

  13. kevinearick

    growing shares of a shrinking economy…

    You have to send your kids to school with the ability to read, write and add, because schools teach at the rate of the slowest legacy kids, enforced by best practice, best is the enemy of better, arbitrary equality and affirmative action. And you will see the same thing in any corporation, regardless of the dress mythology, dissonance squared. The Shark Tank is a stupid TV program, reinforcing the idiocracy that labor requires financial capital, money printed by a bank.

    You will also see the same distribution among highly paid consultants. Taking the dress off and reorganizing the process to increase productivity, to grow the sandbox, is the relatively easy part. Putting that dress back on and connecting it back to the system so everyone’s lives are not disrupted, anxiety increasing economic inertia, is the hard part, given that the empire is a closed system with positive feedback ‘control’. If you want order, begin with disorder. If you want to blow something up, begin with order.

    It’s always a spacetime problem, inside a problemsolution. Speed assumes that distance and time are separate entities, instead of a construct in your mind, just as corporations conveniently assume that revenue and cost, risk and reward, are unrelated. That’s money. The critters want Maglev and can’t produce it, because they cannot tolerate change. Make commercial loans or don’t; they make no difference in the decisions of labor, but they greatly affect capital, make-work finance.

    1. kevinearick

      Apple, Qualcomm & Google are shrinking the economy, inflating the G component, with the proliferation of disposable surveillance toys, not that they fully comprehend their actions. If you look at their HR policies, you will see that they are the policies of a herd. Samsung is just more efficient, as is Chinese Communism, as a monetary function.

  14. susan the other

    just an observation. The question for me is simple. Should countries like China and India and several other smaller countries who all have maximum populations be allowed to expand their economies to meet the needs of a population that cannot be stabilized? Is this a Nazi thing? Or is this pure reason? And take this to the world level: should all countries adjust their growth to meet a certain level of population, but no higher? And then, what does this steady-state population planet have for a sustainable economy going forward for however long?

  15. kevinearick

    Apple, Qualcomm & Google are shrinking the economy, with the proliferation of disposable surveillance toys, not that they fully comprehend their actions. If you look at their HR policies, you will see that they are the policies of a herd. Samsung is just more efficient, as is Chinese Communism, at printing and laundering paper.

  16. Sanctuary

    Sorry, not buying the China permabull junk. China has built up a corporate and private debt situation that is actually worse than the US. Imagine that for a second. WORSE than the US and it isn’t even a fully developed country. Secondly, it faces a far worse demographic situtation than the US. It’s actually precisely where Japan was in 1990. If anything, China faces a terrible repeat of what has happened in Japan since 1990 if it doesn’t take drastic action right now including the full rescinding of the one-child policy and serious political reform to tackle the power of vested interests.

  17. impermanence

    How shocking that the previous chairman of GSAM would have such opinions. Perhaps we can have an article written by a former DNC/RNC chairman explaining how representative democracy is still alive and well.

  18. Chauncey Gardiner

    Appreciated this link from reader “backwards evolution” and his related comments to NC’s related post of March 21, 2015. Rather than the view of a former Goldman exec who may not have skin in the game other than through his invention of the BRICS (and “PIGS”) acronyms, and pride-of-authorship, I’ll go with the in-country contra opinion of Anne Stevenson-Yang of J Capital from the 4:00 minute mark to 28:00 minutes mark of this clip:

    Also wonder what these folks might have to say:

  19. SteveLaudig

    Kicking the USG/UK out seems critical to prosperity and growth. Africa and the Middle East is what Latin America and/or East and Southeast Asia would look like if they hadn’t evicted them.

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