When I read the editors’ of Bloomberg’s latest observations on “China’s Biggest Economic Challenge”:
The best way to describe China’s economic quandary is also the simplest: It can strive for maximum growth now or later — but not both.
China’s government is well aware that promoting the growth of the world’s largest economy in the long term involves structural changes that will slow the economy in the short term. And its success in striking a balance has surprised many analysts. In several areas it has pressed ahead with ambitious reforms while letting growth moderate to a gentler pace (by Chinese standards) of less than 7 percent a year.
I didn’t know whether to be amused or concerned. I don’t think Bloomberg’s editors have any real understanding of China.
I believe that for the Chinese authorities economic growth is just a means to an end and the end is their continuing hold on power and wealth in China. Given a choice between slower growth and relinquishing power, they’ll choose slower growth every single time.
Meanwhile, I think the most likely explanation is that China has followed the same path that the Soviet Union did 80 years ago. It grew by moving relatively unproductive labor resources from subsistence agriculture to manufacturing. China’s leaders did a better job at maintaining agricultural production during the process than the Soviets did but increasing agricultural productivity stalled more than a decade ago.
China’s working age population has already peaked and, unless present trends change, its total population will peak in 2026. Why should they build new cities when there are few people in some of the cities they’ve already built? How will building more factories spur Chinese economic growth China when China already has the capacity to supply the entire world for the foreseeable future?
China’s truly biggest challenge is that in order to grow the authorities must relinquish control. For people to spend more wages must rise and that threatens China’s status as the labor provider of lowest cost.
