A reader (Alice) recently emailed me a rather interesting claim, that China is well on its way of becoming a $123 trillion economy. Alice links to a MarketWatch piece that repeats some of the same flawed myths that Michael Pettis and others continually debunk. Pettis for example argues convincingly in his latest piece (not up yet on his site) that China today is more like Japan in the late ’80s and thus will be growing at much smaller percentages in the future.
In contrast, the MW piece essentially says:
1. China grew ~8-10% annually over the past three decades
2. ???
3. China continues to grow ~8-10% for infinity plus one
The MW piece in turn quotes from a slightly older Foreign Policy piece, written by Robert Fogel, whom argues a very bullish case for China based on five criteria.
The first of which, Fogel notes that educational investment pursued by Chinese policy makers will somehow reap large dividends. Par for the course, a recent WSJ article notes that the US and UK spend the most per student and that Chinese policy makers are trying another top-down approach to overtake the US in this metric as well — by pumping out ever larger numbers of graduates. Yet ceteris paribus, quantity of graduates does not equal quality. Or in other words massive state funding does not necessarily equal to (!=) massive gains in worker productivity. Their approach is indirectly debunked at the WSJ (here) and by a piece I recently wrote.
Fogel’s piece also suggests that there will be continued, substantial contributions from the rural countryside. While there is no doubt that Chinese subsistence farmers (~45% of the population) that average roughly $1,100 in earnings each year will probably continue to be measurably productive and generate wealth, it does not follow that they will somehow generate massive GDP multiplier coefficients. If that were the decisive case then rural-heavy, developing countries like India, Indonesia and Pakistan are all up for double & triple digit trillion dollar economies soon as well. [Keep reading…]
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