Will China be able to maintain high growth over the coming decades? Few questions will have a greater impact on the future of global order.
Continued Chinese growth around 6% per year or more over the next twenty years would inevitably bring about dramatic changes in global order, increasing China’s material interests around the world and allowing it to invest heavily in its military, increase foreign aid and globalize its currency.
Lower economic growth in China (say, of 3% per year), on the other hand, would reduce China’s capacity to enhance its international projection and diminish — in the eyes of many– the urgency of the need for reform of global structures. If economic growth rates in China were similar to those of the United States, the entire emerging power-narrative could temporarily vanish from the international debate, given that no other rising power has ever achieved similarly impressive and constant growth figures as China. In fact, three of the five BRICS countries may grow slower than the United States in 2015, so the grouping’s dynamic credentials are increasingly dependent on China.
In a notable new paper entitled “Asiaphoria Meets Regression to the Mean”, Lant Pritchett and Larry Summers, two leading U.S. economists, argue that “there are substantial reasons that China and India may grow much less rapidly than is currently anticipated.” According to the authors, official forecasts usually miss discontinuities by merely extrapolating past growth figures. They write
history teaches that abnormally rapid growth is rarely persistent, even though economic forecasts invariably extrapolate recent growth. Indeed, regression to the mean is the empirically most salient feature of economic growth.
Summers and Pritchett also suggest that democratic reform could significantly reduce growth, citing examples of other countries that grew slower immediately after democratizing.
This echoes a decade-old paper by John Whalley and Xian Xin, also published by the National Bureau of Economic Research, which predicted that growth rates in China were unlikely to remain as high for a long time.
Contesting such a negative outlook, several analysts predict that current economic reforms undertaken by President Xi Jinping will actually improve China’s outlook. For example, Yukon Huang, a China specialist at the Carnegie Endowment and a former World Bank director for China, writes that
rigorous implementation of these reforms will alter market incentives so that annual gross domestic product growth in the coming years could rise to 8-plus %.
He predicts that the liberalizing third plenum package will successfully correct the policies that had driven up debt levels and strengthen drivers of productivity so that growth will be more sustainable. Crucially, they will also reduce the rural-urban divide, often seen as a potential source of political tension. In the same way, Angel Gurria, secretary-general of the OECD, expects China to continue growing above 7%, even while the Communist Party will overhaul China’s industrial model, combat corruption, and increase labor productivity.
Adequately predicting the odds of Chinese continued long-term growth is of great importance for policy makers all over the world, as it will affect the degree of change global order will undergo in the coming years. The same is true for the likelihood for political instability in China, which could profoundly affect its economy.
All this points to the necessity for countries to build up a strong diplomatic presence in China which allows them to obtain first-hand information, rather than rely on economic reports written by US-based analysts – many of whom are tied to the US government. Only then can they confidently attempt to predict to what extent China’s rise will continue to dominate global affairs – and plan their international strategy accordingly.
Read also:
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Why the anti-BRICS hype is overblown
Photo credit: China Daily
