| China’s success should be celebrated, the country’s recent economic policies have helped raise hundreds of millions of Chinese out of extreme poverty ($1 a day, well actually $1.08 is used for the actual World Bank measurement). Considering where China’s economy was under Mao (30 million starved to death in the Great Leap Forward), it is easy to see why most Chinese are pleased with the direction their country is going. However, China’s success needs to be put in perspective and those of us who remember the hyperbole about Japan in the 1980s have reason for caution.
There continues to be a significant number of the population living in extreme poverty.
While the population is huge making China’s economy huge, the strength of China’s economy compared to its size is small; the average GDP per capita in China is roughly 50% of what it is in Thailand.
Demographics are working in China’s favour now but in the future they will work against the country. China’s one child policy has resulted in decreasing the percentage of the population taking up non-productive roles and of course (just like when the Baby Boom generation in the USA came of age) has resulted in increased economic growth, however in about 20 years the generation before the one child policy will be retiring resulting in an increasing percentage of people in non productive roles. Studies indicate that an aging population has been a key reason Japan’s economy has stagnated and has played a role in slower growth in Western Europe, and China’s problem with an aging population will be more severe than either Japan or Western Europe has faced.
China’s government has now ruled over about two decades of fast economic growth, however no economy is history has been able sustain high growth rates indefinitely. China’s economy will have some down turns; how well the government responds to these downturns will probably determine how long Communist Party rule will last in China.
China has done well recently, but the country has a LONG way to go before anyone could realistically consider the Country’s economic model one that should be exported to other nations of the world.
The concept of a developed economy controlled by a dictatorship called the Communist Party while using market-based economics is still an unproven theory.
Theoretically, and practically, there are many doubts about the how far China can develop economically without further reforms.
Anyone considering investing huge in China should be cautious. |