Larry Summers and Lant Pritchett have written a paper predicting a Chinese growth slowdown. In 2013, Barry Eichengreen, Donghyun Park, and Kwanho Shin wrote a paper with much the same message, which accurately predicted the recent Chinese slowdown from about 10% annual growth to about 7.5%.
In fact, the most basic model of economic growth, the Solow Model, predicts that a country’s growth slows as it gets richer. Yes, the case for a Chinese slowdown is pretty incontrovertible at this point.According to many pundits, this means that, like the Soviet Union and Japan before it, China doesn’t threaten to supplant the US as the world’s biggest economy.
For example, here is Neil Irwin of The New York Times: “Put aside the challenges China faces this quarter, or next year, and there is one view that is overwhelming: China is a long-term economic juggernaut that will stand astride the global economy in another generation’s time...
“For years now, major magazines and editorials and books have told me about the Chinese Century, in which we are apparently now living. Leading foreign policy journals have devoted copious ink to exploring what China’s rise will mean for global economics and politics, often taking as a given that China will be the dominant power of the coming century...”
Analysts predicted that the Soviet economy would soon surpass the US economy in the 1960s, that Japan’s would do the same in the 1980s and that the US had achieved a new era of perpetual speedy growth in the late 1990s.
None of these have come to pass.
China will definitely slow down, but the analogy to the Soviet Union and Japan is a bad one, for one incredibly simple reason: Size.
China is so enormously huge that it would take a calamity far worse than what happened to Japan, or even the USSR, to stop it from becoming the world’s largest economy.
China’s population in 2013 was 1.357bn while that of the US was 316m. That’s a ratio of 4.29 to 1.
Just to help the reader understand this size disparity, imagine that the US was an average American man, weighing 191 pounds. If population were weight, then China would weigh the same as an 819-pound adult male grizzly bear.
To put it another way, imagine that the U S were the JPMorgan Chase headquarters in New York, which is 215m tall. If population were height, then China would be 96m taller than the Burj Khalifa, which at 828m is the world’s tallest building.
Of course, population and gross domestic product aren’t weight or height, so let’s put it in slightly more realistic terms.
Here is a fact: If every Chinese person of working age had a job for 40 hours a week, 50 weeks a year, those workers would only need to make $9.15 an hour for the Chinese economy to be larger than that of the US.
How about those comparisons to the USSR? If China’s per-capita GDP were the same level as that of Russia today, China’s economy would be 20% larger than that of the US.
In other words, even a Soviet-style collapse would present no obstacle to China becoming the world’s dominant economy. The one simple reason is that China is mind-bogglingly huge.
For China not to become the world’s largest economy, it would not take just a slowdown — it would take a collapse on a bigger scale than anything we’ve seen in recent world history, short of Zimbabwe or North Korea.
That isn’t impossible, but it seems unlikely.
In fact, it’s arguably true that China is already the world’s largest economy. It’s the biggest in purchasing-power parity terms, which is arguably a better measure of how much stuff China as a whole can buy. It’s the world’s largest trader and largest manufacturer.
So those who argue that China’s economic dominance isn’t inevitable are either A) quibbling about a technicality, or B) forgetting the overriding yet simple fact of China’s enormous size.Bloomberg
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