November 18, 2005
Great Leap Forward II
It's official - China's director of statistics has decreed that China will grow at 8% for the next fifteen years, thereby allowing China and its population to arrive at the middle-income rank of countries globally. His department, known esoterically as the Calculation Department of National Economy of the National Bureau of Statistics, is in charge of making important pronouncements on the state of the nation. But they have been notoriously unreliable over the years, as Simon has pointed out in these pages, and given how boldly and confidently Mr. Xu Xianchun has made his prediction, one wonders how much it is a forecast and how much a statement of intent.
As some of you may know, I was a research analyst at an investment bank in a previous career, and also made predictions for a living. I learned during my time that if you were right about 60% of the time (yes, another statistic) you could be mighty pleased with yourself (uh huh, just like the meteorologists).
I also learned that it was when people made incredibly confident predictions like: "There is no end in sight for the growth of the Internet economy" (circa 2000), "There is no conceivable way Hong Kong will ever become a considerable port of trade" (circa 1844, Montgomery Martin, HK Colonial Treasurer) or "China will grow at 8% for the next 15 years" (circa 2005) that they are most likely to end up with egg on their face.
Don't get me wrong - it could happen - and I would be as happy as anyone else to see the continued growth of China's middle class (which will result in political liberalization). But no economy of China's size has ever grown this fast, at any time in history, without some speed bumps. Woe betide the Central government if they do not prepare for that eventuality.posted by HK Dave on 11.18.05 at 07:58 AM in the China economy category.
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Good post, Dave.
I think China is already a perfect example to illustrate the fact that there is no such thing as sustainable development.posted by: Gordon on 11.18.05 at 08:24 AM [permalink]
Thanks for the compliment, Gordon. I just wish that growth were not just an economic or even a normal political issue, but one that threatens the very legitimacy of the Chinese state. Because then 'soft landing' scenarios would be much more viable.posted by: HK Dave on 11.18.05 at 03:21 PM [permalink]
One problem is that current econometric methods can't really account for China's (or many other countries', for that matter) true performance. There needs to be a figure for something like "GDP growth minus bad loan growth". The big empty buildings in Shenzhen were added to GDP when built, then when they're torn down and replaced, the demolition expense and the NEW new big empty building are added again. Something's missing from the equation!
But 8% for 15 years? Nah, it's going to come to a screeching halt in 3 years, in a giant traffic jam.posted by: Sam_S on 11.20.05 at 12:28 PM [permalink]
Hi Sam, yeah, I agree, the Chinese growth is on steroids, and when all the overcapacity from the overdone fixed capital investment starts kicking in, the country will feel the side effects. No nation is free from the business cycle, certainly not late 19th-century America with its heady cocktail of easy lending, public corruption and rapid growth.posted by: HK Dave on 11.21.05 at 12:10 PM [permalink]