Comment: “Chinas Economic Growth: A Different Storyline”

This is interesting.

With little effort, one can compile quite a list of economic difficulties facing China: macroeconomic imbalances, an underdeveloped financial sector, inequalities in wages and across rural and urban areas, the demographic bulge, corruption, environmental problems, and more. Still, with all that said, its worth remembering that Chinas economy still has enormous potential upside. China started from such a low per capita GDP back in 1978 that even now, productivity levels are only about 20% of the U.S. level. In yet another JEP paper, “Understanding China’s Growth: Past, Present, and Future,” Xiaodong Zhu points out that when Japan and Korea and Taiwan had their rapid spurts of economic growth in the [fixed typo in original] 1950s and 1960s and 1970s, they were essentially raising their productivity levels from 40-50% of the U.S. level up to 70-80% of the U.S. level. In other words, China is still far below the level that was the take-off point of rapid growth for countries like Japan, Korea and Taiwan. As Zhu points out, China is making enormous investments in education, physical capital investment, and research and development. In many ways, it is laying a framework for continued growth.

via CONVERSABLE ECONOMIST: Chinas Economic Growth: A Different Storyline.

We agree with much of it. We were, however, never thinking that the transition started in any other way than is represented in the article. Let us say that the article is still understating the negatives with China’s system. For one, their real-estate evaluation methods are very poor. They have a much larger bubble than even appears on paper, which is bad enough. Vacancies are not taken into account. That’s why they financed so many ghost towns.