(Drivebycuriosity) - If we believe the popular blog "Marginal Revolution" then the China pessimism is coming back. Was it ever away? Tyler Cowen, owner of the blog, who belongs to the China skeptics, refers to new pessimist articles in Western media (
2015 2018). The China skeptics complain for instance that fixed-asset investment — a core driver of Chinese growth that includes spending on new buildings, machinery and infrastructure — grew at its slowest annual pace since at least 1995 and that the stock market in Shanghai reflects the negative sentiment and lost 17% in the first half of 2018.
I think that the China pessimism is unjustified. China`s growth changed just from red-hot to strong. The economy (BNP) is still growing 6-7% annually, the mentioned fixed-asset investment is increasing 6%, retail sales are climbing more than 8% & industrial profits are soaring 16% (
calendar). So what?
The China skeptics miss the big Picture. China is still in the begin of a perpetual
catching up process, which is
fueled by extreme income & wealth differences to the US and other
Western nation. In 2017 China had about $8,827 income per capita, the US number was $59,531 (
worldbank).
China is following other countries which had caught up to the
leading economies (to the UK before 1920, since then to the US,
graph below).
The country has a huge natural resource which is fueling the perpetual
growth: A gigantic amount of human
capital: There live 1.3 billion people who are intelligent, work hard
and save money to achieve a better life and to adapt to the living standards in the US and Europe. The Chinese economy benefits from an education system which is more rigorous, competitive and success focused than the American and the British (
chinese ). Wikipedia counted in 2014
already "2,236 colleges and universities, with over 20 million students
enrolled in mainland China" (
wikipedia). Fast expanding knowledge is driving science & innovation and fostering economic growth (
washingtonpost). Chinese corporations, think tanks & administrations can employ a large number of highly dedicated & educated people - a strong driver of economic growth (
scottsumner).
China`s growth is boosted by a rapid
transformation process. For
decades the country has been changing from an agricultural economy into
an industrial economy, following the role models of the US, Japan,
South Korea and many other countries. Now China is entering another
stage of the transformation process: Changing from an industrial country
- which relies on exports - into a modern economy like the US which is
dominated by services and focuses mostly on the domestic market.
For years imports & retail sales have been growing faster than exports & industrial
production. Therefore a growing part of the national production is consumed in
China, which reduces the country´s dependence from global markets.
China´s catching up process also benefits from historical lessons & the
experience made by other countries. China does not need to reply the
mistakes of other countries and is learning from them. Beijing`s central
bank is doing a good job by avoiding inflation & recessions.
China´s transformation also gains from the technological progress: Rapid
advances in software & Internet (including cloud computing),
robotics, 3D printing, nanotechnology, genetic engineering and other
technologies are all lifting the productivity of the economy (
byronwien).
The Internet - including the "cloud" - increases the flow of information
and reduces the cost of data. New ideas can spread faster, encouraging
discoveries and inventions and boost the technological progress &
China`s transformation. A large part of the population uses already
smartphones, tablets and other devices which allow them permanent access
to the world wide web. These high tech devices help them to organize
shopping, leisure time, traveling, dating, eating out and more and are
so rising productivity & economic growth. "Although China’s internet penetration is just over 50%, its sheer scale means that there are 3x the number of smartphone users and 11x the number of mobile payment users in China than in the U.S" (
china-internet-report). Chinese companies are using cloud
services for organizing & reducing costs. China has already huge Internet companies like
Alibaba, Tencent & Baidu which are growing faster than their Western counterparts and are becoming
global power houses (
visual). The government - and companies like Baidu - are
investing massively into artificial intelligence which is boosting the
transformation process & economic growth for years to come (
economist).
China´s megacities (there are at least 15 metropolises with a population of more than 10 million people
wikipedia) are supporting productivity and the growth of the whole nation. History shows "that
clusters of talented and ambitious people increase one another’s
productivity and the productivity of the broader community, spurring
economic growth" (
citylab).
"80% of economic output originates in cities: urbanization is the
engine of economic growth" (
project-syndicate). The migration to big cities fosters a fast
rising affluent middle class, driving consumer spending & economic growth.
The China skeptics lament about the high debts. But they are wrong,
China does not have a debt. The country is big creditor and loans money
to the US which is highly indebted. China`s foreign reserve ( dollar holdings) are $3.11 Trillion! The Chinese save more than 40% of their income, the American just
around 20% (
worldbank). The high savings lay the ground for investments in infrastructure and other targets (capital accumulation) and are fueling the sustainable growth of China´s economy.
I get the impression that the permanent China skepticism is just a kind of racism.
PS For illustration I used an image from the China Fashion Week in Bejing 2017 displaying creations by designer
Tom Dong as a symbol for China`s modernization
(
xinhuanet).
