China Is Too Mature For Rapid Growth

China's economic growth is slowing. (AP Photo/File) ASSOCIATED PRESS

China’s economic growth has slowed in recent years. It had double-digit growth of inflation-adjusted GDP preceding the 2008 financial crisis, then three years in the 7% to 8% range, now four years between 6% and 7%, with last year its lowest growth since 1990. Why isn’t China growing at its old pace? Maturity is a possible explanation.

No fully developed country grows at a double-digit pace, at least not year after year. Poor countries can make dramatic gains in catching up to the developed countries, but then it’s hard to make further gains. The early-stage development consists of people moving from very low productivity occupations to higher productivity jobs. This occurs through entrepreneurial activity, as business leaders see the opportunity to make profits by using people more productively.

At some point, though, it’s hard to keep raising employee productivity. It will require new techniques, not just copying the procedures used in more advanced economies. So the question becomes whether China is at the point that it’s simply impossible to grow more rapidly. I think not, after looking at the growth records of the Four Tigers: South Korea, Hong Kong, Taiwan and Singapore.

These countries dramatically expanded in the 1980's and forward, but their growth rates have trended lower as their economies improved. In the 1980's, the Four Tigers averaged about eight percent growth per year. The Asian Financial Crisis took its toll, but even after its effects were over growth was just five or six percent. That’s still strong by the standards of Europe and Japan and the U.S., but a far cry from the growth boom.

Perhaps China is simply at the point were it cannot grow rapidly anymore. To test this hypothesis, I looked at where China stands in GDP per capita, and looked at where each of the Four Tigers were at a comparable point in development.

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