I think that Justin Yifu Lin is missing something crucial in his very optimistic Project Syndicate op-ed on China’s growth potential:
The question for China, after 36 years of catching up, is how much longer it can continue to benefit from this process. Some scholars believe it has reached its limits. Using historical data compiled by the economic historian Angus Maddison, they show how other East Asian countries experienced a deceleration of economic growth after their per capita GDP reached about $11,000 in purchasing-power-parity terms relative to constant 1990 US dollar prices, or $17,000 in constant 2005 US dollar prices.
For example, in the five years after Japan reached that level, its economy grew at an average annual rate of 3.6%. In South Korea, growth fell to 4.8%. In Hong Kong, it slowed to 5.8%. Given that China is projected to cross the same threshold sometime this year, many believe its average annual growth over the next five years will fall well below 7%.
I disagree. What this analysis fails to take into account is the fact that advanced countries are not sitting by idly; they are growing and making technological breakthroughs. And that creates opportunities for developing countries to continue to learn.
The question is not whether it’s theoretically or mathematically possible. Obviously, it is. The question is how?
It won’t be by using the strategies used over the last decade. China is already over-extended on credit and has too many bridges to nowhere, cities without populations, and airports with no arriving or departing flights. Building more won’t help.
It won’t be by building more productive capacity. In industry after industry China already has enough productive capacity to supply the whole world’s demand let alone China’s for years to come.
For the Chinese to consume more, the authorities must allow wages to rise, something they’ve been very reluctant to do. A lot of state-owned companies must be allowed to fail. And the Chinese people must be granted more freedom to choose.
China’s still got 400 million peasants, or maybe much more, in those provinces not located on the sea coasts. There’s more than enough bodies to fill those “empty” cities, railroads, factories, etc. And in the course of doing that, its economy is going to expand. It’s just going to take some time to get there … plus coming up with jobs for all those former farm hands, reducing horrendous levels of corruption, cutting the PLA back to a purely military force and similarly shrinking the extent of CCP control. Minor things!