The weight of history and the 'Chinese Century'

Looking further ahead, Nobel economics laureate Robert Foge bullishly predicts that by 2040 Chinese economic output will be US$123 trillion (Bt4 trillion), three times the size of America’s in that year. On these projections, the “Chinese Century” looks assured.

But are these growth rates sustainable? In the past couple of years, China’s economy has slowed dramatically. If growth were to slow even further and revert to the long-term global mean of just 2-3 per cent, the accepted wisdom of the Chinese Century comes into question.

This scenario is exactly what’s suggested in recent research from two prominent Harvard economists, Lant Pritchett and former US Treasury Secretary Larry Summers.

There are several reasons typically offered as to why China’s growth may slow dramatically. They include ageing demographics, years of political investments that may offer poor returns, an economy making the difficult transition from being investment-led to consumer-driven, and a possible credit and investment bubble waiting to burst. 

And on top of this is the weight of history, which says that over time all things revert to the mean, including economic growth. This is the core argument of the Harvard economists, and if they are correct, it really doesn’t matter what trends or policies take place within China, or what impact the outside world might have on China – the Chinese economy would increase by about only a fifth of the amount projected by Foge and the other bulls.

Supporting this argument are examples of other economies whose impressive growth rates when extrapolated led many experts to wrongly conclude they would soon surpass the US – among them the Soviet Union in the 1960s and Japan in the 1980s. A belief that the US in the 1990s had somehow discovered the secret to perpetual speedy growth was also spectacularly wide of the mark.

Debate on the factors conducive to long-term growth and their relative importance is always lively.

This is not surprising given the lack of commonality among some of the prominent countries, aside from China, that have recorded sustained periods of growth over the past generation, such as India, Mexico, Poland, South Korea and Turkey. All of them have different cultures, government institutions and economic development strategies.

As for China’s outlook, it’s worth remembering that most economic forecasts turn out to be wrong – as any honest economist will tell you – and that rarely do outcomes reflect extreme projections.

That said, I believe China’s average growth over the next few decades will be closer to the bullish forecasts of Robert Foge than to the modest, history-based forecasts of the Harvard men. Forces such as increasing Chinese urbanisation, the potential for further increases in productivity, and a resilient political system mean the Chinese Century is still eminently achievable.