China: Does it have to become more like us?

 

Many in the West have a shaky grasp of China's internal power dynamics, but they are confident about one thing - that China is facing a key moment on its path to economic development, and that it will grow into a rich economy only by becoming a lot more like us.

In public, at least, China's leaders would sign up to the first part of that statement. But they don't seem to agree on the pace of reform that is required - or its ultimate direction. They think that China - the "middle kingdom" - can get rich on its own terms, not by simply mimicking everything that happened in the West.

But of course, there is a third possibility, that it doesn't get rich at all. The lesson of centuries of economic history is that China is likely to get stuck in the middle: neither a poor economy nor a rich one.

This chart, from the World Bank's China 2030 report earlier this year, makes the point. Of the 101 countries that were "middle-income" in 1960, only 13 had managed to break from the pack to become advanced economies by 2008. It's interesting to note that only three of those 13 countries has a population of more than 25 million.

World Bank chart

Less than a fifth of the 180 countries in the world have made it to being advanced economies. The rest are low-income or "emerging". You might say it's only a matter of time before others join the club. But most of the countries we now call "emerging" - especially in Latin America and the Middle East - would also have been put on that list, 40 years ago.

One big economic reason why countries get stuck in this "middle-income trap" is that they reach what is known as the "Lewis Point". Put simply, this is the point at which a developing country stops being able to achieve rapid growth relatively easily, by simply taking rural workers doing unproductive farm labour and putting them to work in factories and cities instead.

Then there is upward pressure on wages and prices, and growth starts to slip.

Many economists think that China has now reached this point, while its population is ageing fast. Some slowdown in its growth is therefore inevitable. The question is how much.

China has grown by just under 10% a year, on average, since 1980. If it can grow by at least 6% or 6.5% a year from now on, the World Bank reckons it can graduate to become a high-income country before 2030 and overtake the US as the world's largest economy. (China's income per head, of course, would still be much lower than America's.)

Six or 7% growth doesn't sound so hard, for a country that has defied the sceptics for so many years with its continued economic success. But from where it is now, growing at that pace would mean China transforming itself from a country driven by exports, manufacturing and investment to one centred around domestic services and consumption.

Investment and consumption each now account for around 50% of China's GDP. To achieve sustainable growth from now on, the World Bank thinks the consumption share needs to rise to about 66% - and investment to fall by a similar amount.

Every developed economy has made this fundamental transition. But few, if any, have done it while continuing to increase productivity - output per head - by 6-7% a year. America, Europe and Japan had the advantage of a growing labour force for most of this stage in their development. China will not. Its population is ageing much more rapidly and its labour force will be shrinking after 2016.

How will that happen, if at all? The World Bank has a long list of answers, but most of them come down to increasing the amount of competition in the economy and fostering innovation.

This is where the "becoming more like us" part comes in. It's conventional wisdom in the West that you can't foster innovation without strong property rights, for example. Many would also put a free press on that list - and what the World Bank euphemistically calls "higher public participation in public policy formulation".

The World Bank is prohibited - by its founding statutes - from saying that democracy is better than other forms of government. Instead, in its 2030 report the Bank offers China's leaders this deliciously delicate piece of wisdom:

"As economies grow in size and complexity, the task of economic management becomes more complicated, and governments usually find that they alone do not, indeed should not, have all the answers.

"Governments, therefore, tend to tap the knowledge and social capital of individuals and non-government agencies, including universities, communities and think tanks.

"One of the hallmarks of advanced economies is their public discussion of public policies. Indeed, such discussions are already beginning in China, but there is a long way to go."

You might be tempted to call all of that democracy. The World Bank couldn't possibly comment. But you can see why, to many outside experts and commentators, the job of transforming China's economy and its political system seem to run together.

They don't see how you can become the kind of country that produces the Googles and Facebooks of tomorrow and puts the consumer in the driving seat without also becoming a more open and democratic society.

China's leaders think you can have modern economic success without - in the medium term at least - a modern democracy. Many in the West disagree. That could be a reflection of Western arrogance. But it's possible that they're all wrong. China may well not look like us in 20 or 30 years' time, but it might not look like an advanced economy, either.

 
Stephanie Flanders Article written by Stephanie Flanders Stephanie Flanders Former economics editor

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  • rate this
    0

    Comment number 130.

    the real question is of course do they NEED to become a "high per capita income" country... and relative to what? The US in that graph is an interesting choice (Norway or Sweden might have been a more interesting one given the relationship between per capita income and income distribution) and the appearance of some of the names in that 'new' group is also surprising when you take distribution..

  • rate this
    0

    Comment number 129.

    My guess is that China will soon become the largest economy but will continue to have a relatively low GDP per capita at purchasing power parity.
    I suspect it will have a small middle-class in proportionate terms but because the population is so large, it will be huge in absolute terms, possibly approaching the size of the EU's.
    Alan

  • rate this
    0

    Comment number 128.

    It won't be too long when China's economy is like the economy in the UK or USA. China's manufacturing dominance is slowly falling and the amount of services will rise in China as the population gradually gets more income over time to spend.

  • rate this
    +2

    Comment number 127.

    #126 wh ynot they want to e part of world trade,

    or do not lecture the UK on how we should run our economy.

    we could start by scaping al lthe CO2 laws

  • rate this
    -2

    Comment number 126.

    Since we in the west have done so well, and are indeed doing so well with our economies at the moment, did we predict China's current position 30 years ago? I think not. We can't even predict the outcome of 'the Greece problem', so let's not lecture the Chinese on how to run their country,eh?

  • rate this
    +2

    Comment number 125.

    China is already like us - the UK, despite enormous difference in scale.
    China's GDP figures are fiddled & fudged by bureacrats.
    China's GDP is still challenged by population growth & inflation even with one child only policy
    Within 5 years - China will be a stagnating giant through inequality
    Distrust of militarised China by those occupied & close enough to be a neighbour increases every day

  • rate this
    +1

    Comment number 124.

    "More like us" is playing down serious problems in China:

    - People canĀ“t vote in free, secret and equal elections, the communist party rules
    - No rule of the law: no independent justice
    - no basic human rights like free assemblies in the public, censorship of media, no free access to media, no freedom of opinion...
    - political dissidents persecuted and jailed (like artist Wei Wei)

  • rate this
    +1

    Comment number 123.

    #122 it is not they as 25 times the people, they were building a powerstation at the rate of 1 every 2 weeks and were not suing the same clean tech as we have these are facts you do not like. If you do the maths since 1900 I think we might have created less CO2 that CHINA has since 1989.

    PS in 1820 we mined 20million tons of coal

  • rate this
    0

    Comment number 122.

    #121. The gross over-simplication of the energy problem is not helpful. Pollution is a problem world-wide. But I guess we should be thankful that we did the worst of our polluting (in the West) before the science was available on green house gasses, otherwise our development would have taken decades longer. However, given this, we can now luxuriate in the present day by criticising others.

  • rate this
    +1

    Comment number 121.

    #113 but is does not change the FACT that they are poluting on a GRAND scale and if you believe in MMCC then its a disaster. The UK could STOP all activity and it would not make any difference so as a GREEN isssue its a massive problem.

  • rate this
    +1

    Comment number 120.

    118.TerryNo2
    #117 Perhaps a return to the theocratic/aristocratic/ pauper state that Tibet once was might suit some people. Not many though.
    +
    That's a matter of choice for Tibet & which it is being denied - as may just be a matter of fact through (your) 'Chinese eyes'.
    You have made my point for me - occupied Tibet is v. different economically to China & mention should be made of that

  • rate this
    +1

    Comment number 119.

    #112 it is us v them , that what trade is about , they are not below or above , we can help but not at the expense of our own, we have been hollowed out by the east when it comes to manufacturing which result in trying to earn our way by BANKING and look where that got use. Sometimes you have to put the Speted Isle first

  • rate this
    0

    Comment number 118.

    #117 I was being polite. It's a matter of fact. You won't find one source that will contradict it. Perhaps a return to the theocratic/aristocratic/ pauper state that Tibet once was might suit some people. Not many though.

  • rate this
    +1

    Comment number 117.

    115.TerryNo2

    You 'don't think' ... & you assert as fact eg GDP has increased for Tibetans or for the Chinese immigrants who have corruptly taken over many of the best positioned businesses in Tibet?
    I think that you 'think' & don't really know
    If you got the GDP figures from the Chinese or GBQ - I'd be a bit wary of them.
    Perhaps the GBQ could improve all its reporting on China (and Tibet)?

  • rate this
    0

    Comment number 116.

    # 114 Sorry - just one other thing, the idea of supporting China really isn't the point. It's being open-minded about China that is important.

  • rate this
    0

    Comment number 115.

    # 114 I don't think Chinese Government and the BBC get along in any way shape or form. The BBC's reporting of the 60th anniversary is a massive sore point, and rightly so. As for Tibet, off topic and I know that staying alive isn't everything, but GDP of Tibet and life span of the ordinary Tibetan have increased immeasurably. There is religious freedom but not for political purposes.

  • rate this
    +1

    Comment number 114.

    108.IR35_SURVIVOR
    #93 there are many here supporting CHINA, perhaps they should go live there?

    +
    Perhaps we could export the Global Broadcasting Quango to China as repeatedly fails to report on what the Chinese Commies have done & are doing to Tibet?

    I wonder why?

  • rate this
    0

    Comment number 113.

    #102 I know. A major source of energy does come from coal-fired power stations. But using cheaper forms of energy for developing countiries is normal until they can establish cleaner sources of energy. It may be hard to believe but China is a leader in clean energy development. Sometimes the truth is hard to see. Who would ever think there are fully functioning Christian churches in China?

  • rate this
    0

    Comment number 112.

    111.IR35_S

    Us v. Them? OK. Their workers presumably rank below ours but possibly above all corporationists? It can get a bit complicated...

    They are doing a lot wrong (as moog has pointed out). As for communism, it comes in different flavours. Is "democracy" always good?

  • rate this
    +1

    Comment number 111.

    #110 I prefer to support the working class of the UK. you know british jobs for britsh people as comrade Brown once said. Also attacking those that have profited from it the corporationisted , which are no the same as capatilists. SO you saying the CHINA state is doign things wrong ie being communist ??????????????

 

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